10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2002.
	or
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ____________________ to ____________________
	Commission File Number 0-25699

P L X    T E C H N O L O G Y,    I N C.
(Exact name of Registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization) 94-3008334
(I.R.S. Employer Identification No.)

870 Maude Avenue, Sunnyvale, CA 94085
(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (408) 774-9060

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]      No [   ]

As of July 31, 2002, there were 23,454,213 shares of common stock, par value $0.001 per share, outstanding.

This Report on Form 10-Q includes 24 pages with the Index to Exhibits located on page 23.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM I. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
EXHIBIT 10.1

PLX TECHNOLOGY, INC.
INDEX TO
REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 2002

		Page
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets at June 30, 2002 and December 31, 2001	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
PART II.  OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders	22
Item 6.	Exhibits and Reports on Form 8-K	23

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

		June 30,			December 31,
		2002			2001(1)
		(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents	$	8,807		$	9,631
	Short-term investments		8,079			6,000
	Accounts receivable, net		3,458			4,073
	Inventories		2,906			4,586
	Deferred tax assets		1,557			1,557
	Income tax receivable		—			185
	Other current assets		1,437			503
Total current assets			26,244			26,535
	Goodwill		8,592			7,998
	Other intangible assets		1,236			2,097
	Property and equipment, net		32,836			33,579
	Long-term investments		6,155			3,089
	Deferred tax assets		1,637			1,637
	Other assets		135			294
Total assets		$	76,835		$	75,229
LIABILITIES
Current liabilities:
	Accounts payable	$	1,090		$	1,855
	Accrued compensation and benefits		854			808
	Other accrued expenses		1,095			902
	Deferred revenues		898			281
	Deferred tax liability		1,277			830
Total current liabilities			5,214			4,676
STOCKHOLDERS’ EQUITY
	Common stock, par value		24			23
	Additional paid-in capital		79,014			78,328
	Deferred compensation		(2,159	)		(3,929	)
	Notes receivable for employee stock purchases		(65	)		(63	)
	Accumulated other comprehensive income (loss)		7			(37	)
	Accumulated deficit		(5,200	)		(3,769	)
Total stockholders’ equity			71,621			70,553
Total liabilities and stockholders’ equity		$	76,835		$	75,229

(1) The balance sheet at December 31, 2001 has been derived from the audited financial statements as of that date.

See notes to condensed consolidated financial statements.

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PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2002			2001			2002			2001
Net revenues		$	7,797		$	9,463		$	17,915		$	21,892
Cost of revenues			2,381			4,392			5,742			8,456
Gross margin			5,416			5,071			12,173			13,436
Operating expenses:
	Research and development		3,518			5,237			7,177			10,502
	Selling, general and administrative		3,298			3,972			6,636			7,796
	Amortization of goodwill and purchased intangible assets		133			1,044			266			2,088
Total operating expenses			6,949			10,253			14,079			20,386
Loss from operations			(1,533	)		(5,182	)		(1,906	)		(6,950	)
Interest income and other, net			255			67			486			298
Loss before provision (benefit) for income taxes			(1,278	)		(5,115	)		(1,420	)		(6,652	)
Provision (benefit) for income taxes			(118	)		(1,734	)		11			(1,804	)
Net loss		$	(1,160	)	$	(3,381	)	$	(1,431	)	$	(4,848	)
Basic net loss per share		$	(0.05	)	$	(0.15	)	$	(0.06	)	$	(0.21	)
Shares used to compute basic per share amounts			23,529			23,180			23,440			23,163
Diluted net loss per share		$	(0.05	)	$	(0.15	)	$	(0.06	)	$	(0.21	)
Shares used to compute diluted per share amounts			23,529			23,180			23,440			23,163

See notes to condensed consolidated financial statements.

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PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

			Six Months Ended
			June 30,
			2002			2001
Cash flows from operating activities
Net loss			$	(1,431	)	$	(4,848	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Depreciation and other non-cash items			1,310			1,415
	Compensation expense recognized			—			17
	Amortization of deferred compensation			1,201			1,580
	Amortization of goodwill and other purchased intangible assets			267			2,089
	Interest on notes receivable for employee stock purchases			(2	)		(12	)
	Changes in operating assets and liabilities:
		Accounts receivable		(18	)		(170	)
		Inventories		1,680			(3,163	)
		Income tax receivable		195			(1,067	)
		Other current assets		(935	)		331
		Other assets		159			(98	)
		Accounts payable		(135	)		(613	)
		Accrued compensation and benefits		46			(497	)
		Accrued commissions		65			(22	)
		Deferred tax liability		435			(833	)
		Deferred revenues		617			(723	)
		Other accrued expenses		124			(161	)
Net cash provided by (used in) operating activities				3,578			(6,775	)
Investing Activities
Purchases of investments				(7,166	)		(12,133	)
Sales and maturities of investments				2,000			14,477
Purchases of property and equipment				(497	)		(4,374	)
Net cash used in investing activities				(5,663	)		(2,030	)
Financing Activities
Proceeds from sales of common stock				1,255			403
Repurchase of common stock				—			(83	)
Increase in restricted cash and investments				—			(864	)
Net cash provided by (used in) financing activities				1,255			(544	)
Effect of exchange rate fluctuations on cash and cash equivalents				6			—
Decrease in cash and cash equivalents				(824	)		(9,349	)
Cash and cash equivalents at beginning of year				9,631			16,621
Cash and cash equivalents at end of period			$	8,807		$	7,272

See notes to condensed consolidated financial statements.

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PLX TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of PLX Technology, Inc. and its wholly-owned subsidiary (collectively, “PLX” or the “Company”) as of June 30, 2002 and for the three-month and six-month periods ended June 30, 2002 and 2001 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the condensed consolidated financial statements include all adjustments (consisting only of normal recurring accruals) that management considers necessary for a fair presentation of our financial position, operating results and cash flows for the interim periods presented. Operating results and cash flows for interim periods are not necessarily indicative of results for the entire year.

This financial data should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements.

Comprehensive Loss

The Company has adopted Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”. The Company’s comprehensive net loss for the three and six months ended June 30, 2002 and June 30, 2001 was as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2002			2001			2002			2001
	(in thousands)
Net loss	$	(1,160	)	$	(3,381	)	$	(1,431	)	$	(4,848	)
Unrealized gains (losses) on investments		96			(10	)		46			89
Cumulative translation adjustment		—			—			(2	)		—
Comprehensive loss	$	(1,064	)	$	(3,391	)	$	(1,387	)	$	(4,759	)

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires all business combinations to be accounted for using the purchase method of accounting and is effective for all business combinations initiated after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company has adopted SFAS No. 142 as of January 1, 2002. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment tests on at least an annual basis in accordance with SFAS No. 142. In addition,

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within six months of adopting the accounting standard, a transitional impairment test must be completed, and any impairments identified must be treated as a cumulative effect of a change in accounting principle. During the quarter ended June 30, 2002, the Company completed its transitional impairment test and found no impairment. Other intangibles will continue to be amortized over their useful lives. The Company recharacterized acquired workforce, which is no longer defined as an acquired intangible asset under SFAS 141, as goodwill as of January 1, 2002.

The impact of SFAS No. 142 is summarized below:

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2002			2001			2002			2001
		(in thousands, except per share data)
Reported net loss		$	(1,160	)	$	(3,381	)	$	(1,431	)	$	(4,848	)
	Add back: Goodwill and purchased intangible assets amortization		—			911			—			1,822
	Adjusted net loss	$	(1,160	)	$	(2,470	)	$	(1,431	)	$	(3,026	)
Basic net loss per share
	Reported net loss per share	$	(0.05	)	$	(0.15	)	$	(0.06	)	$	(0.21	)
	Add back: Goodwill and purchased intangible assets amortization		—			0.04			—			0.08
	Adjusted net loss per share	$	(0.05	)	$	(0.11	)	$	(0.06	)	$	(0.13	)

In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and addresses financial accounting and reporting for the impairment and disposal of long-lived assets. The Company adopted SFAS No. 144 as of January 1, 2002. Adoption of this statement did not have a material impact on the Company’s financial position or results of operations.

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current year presentation format with no impact on net income. All financial information has been restated to conform to this presentation.

2. Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or market (net realizable value). Inventories were as follows:

		June 30,		December 31,
		2002		2001
		(in thousands)
Work in process		$	630	$	506
Finished goods			2,276		4,080
	Total	$	2,906	$	4,586

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3. Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2002			2001			2002			2001
	(in thousands, except per share data)
Net loss	$	(1,160	)	$	(3,381	)	$	(1,431	)	$	(4,848	)
Weighted average shares of common stock outstanding		23,529			23,234			23,440			23,217
Less weighted average shares of common stock subject to repurchase		—			54			—			54
Shares used in computing basic net loss per share		23,529			23,180			23,440			23,163
Net loss per share — basic and diluted	$	(0.05	)	$	(0.15	)	$	(0.06	)	$	(0.21	)

As the Company incurred a loss for the three month periods ended June 30, 2002 and 2001, the effect of dilutive securities, totaling 3.5 million and 3.4 million equivalent shares, respectively, have been excluded from the computation of diluted loss per share, as their impact would be anti-dilutive. For the six month periods ended June 30, 2002 and 2001, the effect of dilutive securities, totaling 3.5 million and 3.4 million equivalent shares, respectively, have been excluded from the computation of diluted loss per share, as their impact would be anti-dilutive.

4. Segments of an Enterprise and Related Information

The Company has one operating segment, the sale of semiconductor devices. The President has been identified as the Chief Operating Decision Maker (CODM) because he has final authority over resource allocation decisions and performance assessment. The CODM does not receive discrete financial information about individual components of the Company’s business.

Revenues by geographic region based on customer location were as follows:

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2002		2001		2002		2001
				(in thousands)
Revenues:
	United States	$	3,153	$	5,801	$	7,574	$	13,242
	France		987		1,083		2,378		2,747
	Europe — excluding France		1,025		1,170		2,516		2,903
	Asia		2,632		1,409		5,447		3,000
Total		$	7,797	$	9,463	$	17,915	$	21,892

For the three months ended June 30, 2002 and 2001, two distributors accounted for 23% and 33% of net revenues, respectively. For the six months ended June 30, 2002 and 2001, two distributors accounted for 25% and 35% of net revenues, respectively. No other individual distributor represented greater than 10% of net revenues.

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5. Other Intangible Assets

Information regarding the Company’s other intangible assets subject to amortization is as follows:

Patents:

	June 30,		December 31,
	2002		2001
	(in thousands)
Gross carrying amount	$	2,132	$	2,132
Accumulated amortization		1,111		844
Net	$	1,021	$	1,288

Estimated amortization expenses for the fiscal years ending December 31 are as follows:

2002	$	533,003
2003	$	533,003
2004	$	222,085

The carrying amount of indefinite lived intangibles (Tradename) as of June 30, 2002 and December 31, 2001 was approximately $215,000.

6. Stock Repurchase

In January 2001, the Board of Directors of the Company approved a stock repurchase program whereby up to 2,000,000 shares of the Company’s Common Stock may be purchased in the open market or in privately negotiated transactions. As of June 30, 2002, 10,000 shares had been repurchased at a cost of approximately $83,000.

7. Income Taxes

Income tax benefit for the three months ended June 30, 2002 was $118,000 on a pretax loss of $1,278,000, compared to income tax benefit of $1,734,000 on a pretax loss of $5,115,000 for the three months ended June 30, 2001. Income tax provision for the six months ended June 30, 2002 was $11,000 on a pretax loss of $1,420,000, compared to an income tax benefit of $1,804,000 on a pretax loss of $6,652,000 for the six months ended June 30, 2001. The 2002 income tax expense differs from the expected benefit derived by applying the applicable U.S. federal statutory rate to the loss from operations primarily due to non-deductible acquisition-related items. The 2001 income tax benefit differs from the expected benefit derived by applying the applicable U.S. federal statutory rate to the loss from operations primarily due to non-deductible acquisition-related items partially offset by the benefit of tax exempt interest and research and development tax credits.

8. Subsequent Event

Under our stock repurchase program approved by our Board of Directors in January 2001, we have repurchased approximately 282,000 shares of our common stock at a cost of approximately $674,000 since June 30, 2002.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Report on Form 10-Q contains forward-looking statements, including statements regarding our expectations, hopes, intentions, beliefs or strategies regarding the future. Such forward-looking statements include, but are not limited to, the length of our sales cycle, under the sub-heading “Overview” and our anticipated expense levels for amortization of goodwill and purchased intangible assets and deferred compensation, as well as the sufficiency of our existing resources and cash generated from operations to meet our capital requirements under the sub-heading “Results of Operations.” Actual results could differ materially from those projected in any forward-looking statements for the reasons detailed below under the sub-heading “Factors That May Affect Future Operating Results” and in other sections of this Report on Form 10-Q. All forward-looking statements included in this Form 10-Q are based on information available to us on the date of this Report on Form 10-Q, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. See “Factors That May Affect Future Operating Results” below, as well as such other risks and uncertainties as are detailed in our Securities and Exchange Commission reports and filings for a discussion of the factors that could cause actual results to differ materially from the forward-looking statements.

The following discussion should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

OVERVIEW

PLX was founded in 1986, and since 1994 we have focused on development of I/O interface semiconductors and related software and development tools that are used in systems incorporating the PCI standard. In 1994 and 1995, a significant portion of our revenues was from the sale of semiconductor devices that perform similar functions as our current products, except these devices were based on a variety of industry standards. Our revenues since 1996 have been derived predominantly from the sale of semiconductor devices based on the PCI standard to a large number of customers in a variety of applications including networking and telecommunications, enterprise storage, imaging, industrial and other embedded applications as well as in related adapter cards. We generate a small portion of our revenues from sales of our software and development tools.

We utilize a “fabless” semiconductor business model whereby we purchase packaged and tested semiconductor devices from independent manufacturing foundries. This approach allows us to focus on defining, developing, and marketing our products and eliminates the need for us to invest large amounts of capital in manufacturing facilities and work-in-process inventory.

In May 2002, we entered into an agreement with Advanced Micro Devices related to HyperTransport and PCI-X technologies pursuant to which we will market semiconductor devices that are based on these standards.

We rely on a combination of direct sales personnel and distributors and manufacturers’ representatives throughout the world to sell a significant portion of our products. We pay manufacturers’ representatives a commission on sales while we sell products to distributors at a discount from the selling price. We generally recognize revenue at the time of title passage. Recognition of sales to distributors, including international distributors, is deferred until the product is resold by the distributors to end users. See “Certain Factors That May Affect Future Operating Results — A Large Portion of Our Revenues Is Derived From Sales to Third-Party Distributors Who May Terminate Their Relationships with Us at Any Time.”

Our gross margins have fluctuated in the past and are expected to fluctuate in the future due to changes in product mix, the position of our products in their respective life cycles, and specific product manufacturing costs.

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The time period between initial customer evaluation and design completion can range from six to twelve months or more. Furthermore, there is typically an additional six to twelve month or greater period after design completion before a customer commences volume production of equipment incorporating our products. Due to these lengthy sales cycles, we may experience significant fluctuations in new orders from month to month. In addition, we typically make inventory purchases prior to receiving customer orders. Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, and our results for that quarter and potentially for future quarters would be materially and adversely affected.

Our long-term success will depend on our ability to introduce new products. While new products typically generate little or no revenues during the first twelve months following their introduction, our revenues in subsequent periods depend upon these new products. Due to the lengthy sales cycle and additional time for customers to commence volume production, significant revenues from our new products typically occur only twelve to twenty-four months after product introduction. As a result, revenues from newly introduced products have, in the past, produced a small percentage of our total revenues in the year the product was introduced. See “Certain Factors That May Affect Future Operating Results — Our Lengthy Sales Cycle Can Result in Uncertainty and Delays with Regard to Our Expected Revenues.”

RESULTS OF OPERATIONS

The following table summarizes historical results of operations as a percentage of net revenues for the periods shown.

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2002			2001			2002			2001
Net revenues			100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues			30.5	%		46.4	%		32.0	%		38.6	%
Gross margin			69.5	%		53.6	%		68.0	%		61.4	%
Operating expenses:
	Research and development		45.1	%		55.3	%		40.1	%		48.0	%
	Selling, general and administrative		42.3	%		42.0	%		37.0	%		35.6	%
	Amortization of goodwill and purchased intangible assets		1.7	%		11.0	%		1.5	%		9.5	%
Total operating expenses			89.1	%		108.3	%		78.6	%		93.1	%
Loss from operations			(19.6	)%		(54.7	)%		(10.6	)%		(31.7	)%
Interest income and other, net			3.2	%		0.7	%		2.7	%		1.4	%
Loss before provision (benefit) for income taxes			(16.4	)%		(54.0	)%		(7.9	)%		(30.3	)%
Provision (benefit) for income taxes			(1.5	)%		(18.3	)%		0.1	%		(8.2	)%
Net loss			(14.9	)%		(35.7	)%		(8.0	)%		(22.1	)%

Net Revenues

Net revenues for the three months ended June 30, 2002 were $7.8 million, a decrease of 17.6% from $9.5 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, net revenues were $17.9 million, a decrease of 18.2% from $21.9 million for the six months ended June 30, 2001. The decrease was primarily due to lower unit shipments resulting from the current economic slowdown in the technology sector. For the three months ended June 30, 2002 and 2001, two distributors accounted for 23% and 33% of net revenues, respectively. For the six months ended June 30, 2002 and 2001, two distributors accounted for 25% and 35% of net revenues, respectively. No other individual distributor represented greater than 10% of net revenues.

Gross Margin

Gross margin represents net revenues less the cost of revenues. Cost of revenues includes the cost of purchasing packaged semiconductor devices from our independent foundries and our operating costs associated with the procurement, storage, and shipment of products. Gross margin for the three months ended June 30, 2002 was $5.4

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million, an increase of 6.8% from $5.1 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, gross margin was $12.2 million, a decrease of 9.4% from $13.4 million for the six months ended June 30, 2001. Gross margin as a percentage of net revenues was 69.5% for the three months ended June 30, 2002, as compared to 53.6% for the three months ended June 30, 2001. For the six months ended June 30, 2002, gross margin as a percentage of net revenues was 68.0%, as compared to 61.4% for the six months ended June 30, 2001. The increase in gross margin as a percentage of revenues was primarily due to shifts in our product mix as well as a $1.3 million charge taken in the second quarter of 2001 related to excess inventory.

Research and Development Expenses

Research and development expenses consist primarily of salaries and related costs of employees engaged in research, design, and development activities. In addition, expenses for outside engineering consultants and non-recurring engineering at our independent foundries are included in research and development expenses. Research and development expenses for the three months ended June 30, 2002 were $3.5 million, a decrease of 32.8% from $5.2 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, research and development expenses were $7.2 million, a decrease of 31.7% from $10.5 million in the six months ended June 30, 2001. Research and development expenses as a percentage of net revenues were 45.1% for the three months ended June 30, 2002, as compared to 55.3% for the three months ended June 30, 2001. For the six months ended June 30, 2002, research and development expenses were 40.1% as a percentage of net revenues compared to 48.0% for the six months ended June 30, 2001. The percentage decrease as well as the decrease in absolute dollars was primarily due to lower non-recurring engineering costs and lower headcount.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of employee related expenses, professional fees, trade show and other promotional expenses, and sales commissions to manufacturers’ representatives. Selling, general and administrative expenses for the three months ended June 30, 2002 were $3.3 million, a decrease of 17.0% from $4.0 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, selling, general and administrative expenses were $6.6 million, a decrease of 14.9% from $7.8 million for the six months ended June 30, 2001. The decrease in absolute dollars was primarily due to a decrease in sales commissions to manufacturers’ representatives as a result of lower revenues, lower headcount and a decrease in discretionary spending. Selling, general and administrative expenses as a percentage of net revenues were 42.3% for the three months ended June 30, 2002, as compared to 42.0% for the three months ended June 30, 2001. For the six months ended June 30, 2002, selling, general and administrative expenses as a percentage of net revenues increased to 37.0% compared to 35.6% for the six months ended June 30, 2001. The percentage increases for the three and six months ended June 30, 2002 were primarily due to a decline in revenues.

Amortization of Goodwill and Purchased Intangible Assets

Amortization of goodwill and purchased intangible assets was $0.1 million for the three months ended June 30, 2002, a decrease of 87.3% from $1.0 million for the three months ended June 30, 2001. Amortization of goodwill and purchased intangible assets was $0.3 million for the six months ended June 30, 2002, a decrease of 87.3% from $2.1 million for the six months ended June 30, 2001. The decrease was due to the impact of SFAS No. 142, whereby we discontinued the amortization of goodwill and indefinite lived intangibles beginning January 1, 2002. Amortization of goodwill and purchased intangible assets includes the amortization of goodwill and other purchased intangible assets relating to the May 2000 acquisition of Sebring Systems. Effective January 1, 2002, in accordance with SFAS No. 142, we ceased amortization of goodwill and indefinite lived intangibles. We will continue to amortize patents through May 2004. For a more detailed description of SFAS No. 142 and its effect on us, see Note 1 of Notes to Condensed Consolidated Financial Statements.

Deferred Compensation

In connection with the grant of restricted stock and stock options to our employees during 1997 and 1998, we recorded aggregate deferred compensation of $361,000, representing the difference between the deemed value of our common stock for accounting purposes and the restricted stock purchase price or stock option exercise price at the date of grant. The amount of deferred compensation is presented as a reduction of stockholders’ equity and amortized ratably over the vesting period of the applicable stock grants. We also recorded deferred compensation of $12.3 million related to stock options granted below fair market value to employees in connection with the acquisition of Sebring Systems in May 2000. Additionally, we recorded deferred compensation of $3.5 million in

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connection with the grant of stock options below fair market value to our employees in September 2000. Amortization of deferred compensation was approximately $549,000 and $762,000 for each of the three months ended June 30, 2002 and 2001, respectively, and has substantially all been included in research and development expenses in our results of operations. For each of the six months ended June 30, 2002 and 2001, amortization of deferred compensation was approximately $1,201,000 and $1,580,000, respectively. The amount of deferred compensation is amortized ratably over the vesting period of the applicable stock grants. We expect to record compensation expense related to deferred compensation of approximately $500,000 per quarter through September 30, 2003.

Interest Income and Other, Net

Interest income and other, net consists of interest earned on average cash, cash equivalents, short-term and long-term investment balances as well as rental income from a tenant in our facility. Interest income and other, net increased to $255,000 for the three months ended June 30, 2002 from $67,000 for the three months ended June 30, 2001. For the six months ended June 30, 2002, interest income and other, net increased to $486,000 from $298,000 in the six months ended June 30, 2001. The increase was primarily due to interest earned on higher cash and investment balances and rental income.

Provision for Income Taxes

The income tax benefit for the three months ended June 30, 2002 was $118,000 on a pretax loss of $1,278,000, compared to an income tax benefit of $1,734,000 on a pretax loss of $5,115,000 for the three months ended June 30, 2001. The income tax provision for the six months ended June 30, 2002 was $11,000 on a pretax loss of $1,420,000, compared to an income tax benefit of $1,804,000 on a pretax loss of $6,652,000 for the six months ended June 30, 2001. The 2002 income tax expense differs from the expected benefit derived by applying the applicable U.S. federal statutory rate to the loss from operations primarily due to non-deductible acquisition-related items. The 2001 income tax benefit differs from the expected benefit derived by applying the applicable U.S. federal statutory rate to the loss from operations primarily due to non-deductible acquisition-related items partially offset by the benefit of tax exempt interest and research and development tax credits.

Liquidity and Capital Resources

At June 30, 2002, we had $21.0 million in working capital and $8.8 million in cash and cash equivalents. Our operating activities generated cash of $3.6 million for the six months ended June 30, 2002, and used cash of $6.8 million for the six months ended June 30, 2001. The $3.6 million of cash generated by operations was primarily attributable to a net loss of $1.4 million adjusted for non-cash expenses of $2.8 million as well as a decrease in inventories of $1.7 million, and an increase in deferred revenues of $0.6 million. These increases to cash were partially offset by an increase in other current assets of $0.9 million.

Our investing activities used cash of $5.7 million and $2.0 million for the six months ended June 30, 2002 and the six months ended June 30, 2001, respectively. Cash used by investing activities for the six months ended June 30, 2002 was primarily attributable to the purchases of long-term investments of $7.2 million and purchases of equipment of $497,000, partially offset by sales and maturities of investments of $2.0 million. Financing activities provided cash of $1.3 million during the six months ended June 30, 2002 and used cash of $544,000 during the six months ended June 30, 2001. Cash provided by financing activities for the six months ended June 30, 2002 is primarily related to exercises of employee stock options.

In January 2002, our Board of Directors approved a stock repurchase program whereby up to 2,000,000 shares of our common stock may be purchased in the open market or in privately negotiated transactions. As of June 30, 2002, 10,000 shares had been repurchased.

As of June 30, 2002, we had no material commitments related to the purchase of capital expenditures or the leasing of facilities.

We believe that our existing resources, together with cash generated from our operations will be sufficient to meet our capital requirements for at least the next twelve months.

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FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

This quarterly report on Form 10-Q contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking statements as a result of certain factors, including those set forth below.

Our Operating Results May Fluctuate Significantly Due To Factors Which Are Not Within Our Control

Our quarterly operating results have fluctuated significantly in the past and are expected to fluctuate significantly in the future based on a number of factors, many of which are not under our control. Our operating expenses, which include product development costs and selling, general and administrative expenses, are relatively fixed in the short-term. If our revenues are lower than we expect because we sell fewer semiconductor devices or delay the release of new products or the announcement of new features, or for other reasons, we may not be able to quickly reduce our spending in response.

Other circumstances that can affect our operating results include:

• the timing of significant orders, order cancellations and reschedulings,

• general economic conditions,

• our ability to develop, introduce, and market new products and technologies on a timely basis,

• changes in our pricing policies or those of our competitors or suppliers, including decreases in unit average selling prices of our products,

• introduction of products and technologies by our competitors,

• shifts in our product mix toward lower margin products,

• the availability of production capacity at the fabrication facilities that manufacture our products,

• the availability and cost of materials to our suppliers, and

• the political climate.

These factors are difficult to forecast, and these or other factors could adversely affect our business. Any shortfall in our revenues would have a direct impact on our business. In addition, fluctuations in our quarterly results could adversely affect the market price of our common stock in a manner unrelated to our long-term operating performance.

We Are Exposed To General Economic And Market Conditions

Our business is subject to the effects of general economic conditions in the United States and globally, and, in particular, market conditions in the communications and networking industries. In recent quarters, our operating results have been adversely affected due to unfavorable economic conditions and reduced capital spending in the United States, Europe, and Asia. If the economic conditions in the United States and globally do not improve, or if we experience a worsening in the global economic slowdown, we may continue to experience material adverse impacts on our business, operating results, and financial condition, including reduced revenue.

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Our Lengthy Sales Cycle Can Result In Uncertainty And Delays With Regard To Our Expected Revenues

Our customers typically perform numerous tests and extensively evaluate our products before incorporating them into their systems. The time required for test, evaluation and design of our products into a customer’s equipment can range from six to twelve months or more. It can take an additional six to twelve months or more before a customer commences volume shipments of equipment that incorporates our products. Because of this lengthy sales cycle, we may experience a delay between the time when we increase expenses for research and development and sales and marketing efforts and the time when we generate higher revenues, if any, from these expenditures.

In addition, the delays inherent in our lengthy sales cycle raise additional risks of customer decisions to cancel or change product plans. When we achieve a design win, there can be no assurance that the customer will ultimately ship products incorporating our products. Our business could be materially adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle or chooses not to release products incorporating our products.

Rapid Technological Change Could Make Our Products Obsolete

We operate in an industry that is subject to evolving industry standards, rapid technological changes, rapid changes in customer demands and the rapid introduction of new, higher performance products with shorter product life cycles. As a result, we expect to continue to make significant investments in research and development. However, we may not have adequate funds from operations or otherwise to devote to research and development, forcing us to reduce our research and development efforts. Also, we must manage product transitions successfully, since announcements or introductions of new products by us or our competitors could adversely affect sales of our existing products because these existing products can become obsolete or unmarketable for specific purposes. There can be no assurance that we will be able to develop and introduce new products or enhancements to our existing products on a timely basis or in a manner which satisfies customer needs or achieves widespread market acceptance. Any significant delay in releasing new products could adversely affect our reputation, give a competitor a first-to-market advantage or allow a competitor to achieve greater market share. Failure to adjust to rapid technological change could harm our business, financial condition, results of operations and cash flows.

Failure Of Our Products To Gain Market Acceptance Would Adversely Affect Our Financial Condition

We believe that our growth prospects depend upon our ability to gain customer acceptance of our products and technology. Market acceptance of products depends upon numerous factors, including compatibility with existing manufacturing processes and products, perceived advantages over competing products and the level of customer service available to support such products. Moreover, manufacturers often rely on a limited number of equipment vendors to meet their manufacturing equipment needs. As a result, market acceptance of our products may be adversely affected to the extent potential customers utilize a competitor’s manufacturing equipment. There can be no assurance that growth in sales of new products will continue or that we will be successful in obtaining broad market acceptance of our products and technology.

We expect to spend a significant amount of time and resources to develop new products and refine existing products. In light of the long product development cycles inherent in our industry, these expenditures will be made well in advance of the prospect of deriving revenues from the sale of any new products. Our ability to commercially introduce and successfully market any new products is subject to a wide variety of challenges during this development cycle, including start-up bugs, design defects and other matters that could delay introduction of these products to the marketplace. In addition, since our customers are not obligated by long-term contracts to purchase our products, our anticipated product orders may not materialize, or orders that do materialize may be cancelled. As a result, if we do not achieve market acceptance of new products, we may not be able to realize sufficient sales of our products in order to recoup research and development expenditures. The failure of any of our new products to achieve market acceptance would harm our business, financial condition, results of operations and cash flows.

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We Must Make Significant Research And Development Expenditures Prior To Generating Revenues From Products

To establish market acceptance of a new semiconductor device, we must dedicate significant resources to research and development, production and sales and marketing. We incur substantial costs in developing, manufacturing and selling a new product, which often significantly precede meaningful revenues from the sale of this product. Consequently, new products can require significant time and investment to achieve profitability. Investors should note that our efforts to introduce new semiconductor devices or other products or services may not be successful or profitable. In addition, products or technologies developed by others may render our products or technologies obsolete or noncompetitive.

We record as expenses the costs related to the development of new semiconductor devices and other products as these expenses are incurred. As a result, our profitability from quarter to quarter and from year to year may be adversely affected by the number and timing of our new product launches in any period and the level of acceptance gained by these products.

Our Independent Manufacturers May Not Be Able To Meet Our Manufacturing Requirements

We do not manufacture any of our semiconductor devices. Therefore, we are referred to in the semiconductor industry as a “fabless” producer of semiconductors. Consequently, we depend upon third party manufacturers to produce semiconductors that meet our specifications. We currently have third party manufacturers that can produce semiconductors which meet our needs. However, as the semiconductor industry continues to progress to smaller manufacturing and design geometries, the complexities of producing semiconductors will increase. Decreasing geometries may introduce new problems and delays that may affect product development and deliveries. Due to the nature of the semiconductor industry and our status as a “fabless” semiconductor company, we could encounter fabrication related problems that may affect the availability of our semiconductor devices, may delay our shipments or may increase our costs.

Our Reliance On Single Source Manufacturers Of Our Semiconductor Devices Could Delay Shipments And Increase Our Costs

None of our semiconductor devices is currently manufactured by more than one supplier. We place our orders on a purchase order basis and do not have a long term purchase agreement with any of our existing suppliers. In the event that the supplier of a semiconductor device is unable or unwilling to continue to manufacture a product in the required volume, we would have to identify and qualify a substitute supplier or discontinue the product. For example, we plan to discontinue production of our I/O Processors in late 2002 partly because our supplier for this product is discontinuing the process on which the I/O Processors are built. We expect that this discontinuation will have no material impact on our revenues.

Introducing new products or transferring existing products to a new third party manufacturer or process may result in unforeseen device specification and operating problems. These problems may affect product shipments and may be costly to correct. Silicon fabrication capacity may also change, or the costs per silicon wafer may increase. Manufacturing-related problems may have a material adverse effect on our business.

Intense Competition In The Markets In Which We Operate May Reduce The Demand For Or Prices Of Our Products

Competition in the semiconductor industry is intense. If our main target market, the embedded systems market, continues to grow, the number of competitors may increase significantly. In addition, new semiconductor technology may lead to new products that can perform similar functions as our products. Some of our competitors and other semiconductor companies may develop and introduce products that integrate into a single semiconductor device the functions performed by our semiconductor devices. This would eliminate the need for our products in some applications.

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In addition, competition in our markets comes from companies of various sizes, many of which are significantly larger and have greater financial and other resources than we do and thus can better withstand adverse economic or market conditions. Also, as we start to sell our processor products, we will compete with established embedded microprocessor companies and others. Many of these indirect competitors and microprocessor companies have significantly greater financial, technical, marketing and other resources than PLX. Therefore, we cannot assure you that we will be able to compete successfully in the future against existing or new competitors, and increased competition may adversely affect our business.

Failure To Have Our Products Designed Into The Products Of Electronic Equipment Manufacturers Will Result In Reduced Sales

Our future success depends on electronic equipment manufacturers that design our semiconductor devices into their systems. We must anticipate market trends and the price, performance and functionality requirements of current and potential future electronic equipment manufacturers and must successfully develop and manufacture products that meet these requirements. In addition, we must meet the timing requirements of these electronic equipment manufacturers and must make products available to them in sufficient quantities. These electronic equipment manufacturers could develop products that provide the same or similar functionality as one or more of our products and render these products obsolete in their applications.

We do not have purchase agreements with our customers that contain minimum purchase requirements. Instead, electronic equipment manufacturers purchase our products pursuant to short-term purchase orders that may be canceled without charge. We believe that in order to obtain broad penetration in the markets for our products, we must maintain and cultivate relationships, directly or through our distributors, with electronic equipment manufacturers that are leaders in the embedded systems markets. Accordingly, we will often incur significant expenditures in order to build relationships with electronic equipment manufacturers prior to volume sales of new products. If we fail to develop relationships with additional electronic equipment manufacturers, to have our products designed into new embedded systems or to develop sufficient new products to replace products that have become obsolete, our business would be materially adversely affected.

Lower Demand For Our Customers’ Products Will Result In Lower Demand For Our Products

Demand for our products depends in large part on the development and expansion of the high-performance embedded systems markets including networking and telecommunications, enterprise storage, imaging and industrial applications. The size and rate of growth of these embedded systems markets may in the future fluctuate significantly based on numerous factors. These factors include the adoption of alternative technologies, capital spending levels and general economic conditions. Demand for products that incorporate high-performance embedded systems may not grow.

Because A Substantial Portion Of Our Net Sales Is Generated By A Small Number Of Large Customers, If Any Of These Customers Delays Or Reduces Its Orders, Our Net Sales And Earnings Will Be Harmed

Historically, a relatively small number of customers have accounted for a significant portion of our net sales in any particular period. We have no long-term volume purchase commitments from any of our significant customers. We cannot be certain that our current customers will continue to place orders with us, that orders by existing customers will continue at the levels of previous periods or that we will be able to obtain orders from new customers. In addition, some of our customers supply products to end-market purchasers and any of these end-market purchasers could choose to reduce or eliminate orders for our customers’ products. This would in turn lower our customers’ orders for our products.

We anticipate that sales of our products to a relatively small number of customers will continue to account for a significant portion of our net sales. Due to these factors, the following have in the past and may in the future reduce our net sales or earnings:

• the reduction, delay, or cancellation of orders from one or more of our significant customers,

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• the selection of competing products or in-house design by one or more of our current customers,

• the loss of one or more of our current customers, or

• a failure of one or more of our current customers to pay our invoices.

Defects In Our Products Could Increase Our Costs And Delay Our Product Shipments

Our products are complex. While we test our products, these products may still have errors, defects or bugs that we find only after commercial production has begun. We have experienced errors, defects and bugs in the past in connection with new products.

Our customers may not purchase our products if the products have reliability, quality or compatibility problems. This delay in acceptance could make it more difficult to retain our existing customers and to attract new customers. Moreover, product errors, defects or bugs could result in additional development costs, diversion of technical and other resources from our other development efforts, claims by our customers or others against us, or loss of credibility with our current and prospective customers. In the past, the additional time required to correct defects has caused delays in product shipments and resulted in lower revenues. We may have to spend significant amounts of capital and resources to address and fix problems in new products.

We must continuously develop our products using new process technology with smaller geometries to remain competitive on a cost and performance basis. Migrating to new technologies is a challenging task requiring new design skills, methods and tools and is difficult to achieve.

We Could Lose Key Personnel Due To Competitive Market Conditions And Attrition

Our success depends to a significant extent upon our senior management and key technical and sales personnel. The loss of one or more of these employees could have a material adverse effect on our business. We do not have employment contracts with any of our executive officers.

Our success also depends on our ability to attract and retain qualified technical, sales and marketing, customer support, financial and accounting, and managerial personnel. Competition for such personnel in the semiconductor industry is intense, and we may not be able to retain our key personnel or to attract, assimilate, or retain other highly qualified personnel in the future. In addition, we may lose key personnel due to attrition for health, family and other reasons. We have experienced, and may continue to experience, difficulty in hiring and retaining candidates with appropriate qualifications. If we do not succeed in hiring and retaining candidates with appropriate qualifications, our business could be materially adversely affected.

A Large Portion Of Our Revenues Is Derived From Sales to Third-Party Distributors Who May Terminate Their Relationships With Us At Any Time

We depend on distributors to sell a significant portion of our products. In the six months ended June 30, 2002 and 2001, net revenues through distributors accounted for approximately 53% and 62%, respectively, of our net revenues. Some of our distributors also market and sell competing products. Distributors may terminate their relationships with us at any time. Our future performance will depend in part on our ability to attract additional distributors that will be able to market and support our products effectively, especially in markets in which we have not previously distributed our products. We may lose one or more of our current distributors or may not be able to recruit additional or replacement distributors. For example, in March 2001, we decided to terminate our relationship with Unique Technologies, our U.S. distributor that accounted for 11% of our fiscal year 2001 revenues, and service all of our U.S. customers directly or through manufacturers’ representatives. The loss of one or more of our major distributors could have a material adverse effect on our business, as we may not be successful in servicing our customers directly or through manufacturers’ representatives.

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The Demand For Our Products Depends Upon Our Ability To Support Evolving Industry Standards

Substantially all of our revenues are derived from sales of products, which rely on the PCI standard. If the embedded systems markets move away from this standard and begin using new standards, we may not be able to successfully design and manufacture new products that use these new standards. There is also the risk that new products we develop in response to new standards may not be accepted in the market. In addition, the PCI standard is continuously evolving, and we may not be able to modify our products to address new PCI specifications. Any of these events would have a material adverse effect on our business.

The Successful Marketing And Sales Of Our Products Depend Upon Our Third Party Relationships, Most Of Which Are Not Supported By Written Agreements

When marketing and selling our semiconductor devices, we believe we enjoy a competitive advantage based on the availability of development tools offered by third parties. These development tools are used principally for the design of other parts of the embedded system but also work with our products. We will lose this advantage if these third party tool vendors cease to provide these tools for existing products or do not offer them for our future products. This event could have a material adverse effect on our business. We have no written agreements with most of these third parties, and these parties could choose to stop providing these tools at any time.

Our Limited Ability To Protect Our Intellectual Property And Proprietary Rights Could Adversely Affect Our Competitive Position

Our future success and competitive position depend upon our ability to obtain and maintain proprietary technology used in our principal products. Currently, we have limited protection of our intellectual property in the form of patents and rely instead on trade secret protection. Our existing or future patents may be invalidated, circumvented, challenged or licensed to others. The rights granted thereunder may not provide competitive advantages to us. In addition, our future patent applications may not be issued with the scope of the claims sought by us, if at all. Furthermore, others may develop technologies that are similar or superior to our technology, duplicate our technology or design around the patents owned or licensed by us. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in foreign countries where we may need protection. We cannot be sure that steps taken by us to protect our technology will prevent misappropriation of the technology.

We may from time to time receive notifications of claims that we may be infringing patents or other intellectual property rights owned by third parties. While there is currently no intellectual property litigation pending against us, litigation could result in significant expense to us and adversely affect sales of the challenged product or technology. Intellectual property litigation could also divert the efforts of our technical and management personnel, whether or not the litigation is determined in our favor. In addition, we may not be able to develop or acquire non-infringing technology or procure licenses to the infringing technology under reasonable terms. This could require expenditures by us of substantial time and other resources. Any of these developments would have a material adverse effect on our business.

The Cyclical Nature Of The Semiconductor Industry May Lead To Significant Variances In The Demand For Our Products

In the last two years, the semiconductor industry has been characterized by significant downturns and wide fluctuations in supply and demand. Also, during this time, the industry has experienced significant fluctuations in anticipation of changes in general economic conditions, including economic conditions in Asia. This cyclicality has led to significant variances in product demand and production capacity. It has also accelerated erosion of average selling prices per unit. We may experience periodic fluctuations in our future financial results because of industry-wide conditions.

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Because We Sell Our Products To Customers Outside Of North America And Because Our Products Are Incorporated With Products Of Others That Are Sold Outside Of North America We Face Foreign Business, Political And Economic Risks

Sales outside of North America accounted for 58% of our revenues for the six months ended June 30, 2002. In 2001, 2000 and 1999, sales outside of North America accounted for 44%, 39% and 35% of our revenues, respectively. Sales outside of North America may fluctuate in future periods and may continue to account for a large portion of our revenues. In addition, equipment manufacturers who incorporate our products into their products sell their products outside of North America, thereby exposing us indirectly to foreign risks. Further, most of our semiconductor products are manufactured outside of North America. Accordingly, we are subject to international risks, including:

• difficulties in managing distributors,

• difficulties in staffing and managing foreign subsidiary and branch operations,

• political and economic instability,

• foreign currency exchange fluctuations,

• difficulties in accounts receivable collections,

• potentially adverse tax consequences,

• timing and availability of export licenses,

• changes in regulatory requirements, tariffs and other barriers,

• difficulties in obtaining governmental approvals for telecommunications and other products, and

• the burden of complying with complex foreign laws and treaties.

Because sales of our products have been denominated to date exclusively in United States dollars, increases in the value of the United States dollar will increase the price of our products so that they become relatively more expensive to customers in the local currency of a particular country, which could lead to a reduction in sales and profitability in that country.

Our Potential Future Acquisitions May Not Be Successful Because Of Our Limited Experience With Acquisitions In The Past

There have been a significant number of mergers and acquisitions in the semiconductor industry in the past. As part of our business strategy, we expect to review acquisition prospects that would complement our existing product offerings, improve market coverage, or enhance our technological capabilities. In May 2000, we acquired Sebring Systems. We have no current agreements or negotiations underway with respect to any acquisitions, and we may not be able to locate suitable acquisition opportunities. Future acquisitions could result in any or all of the following:

• potentially dilutive issuances of equity securities,

• large one-time write-offs,

• the incurrence of debt and contingent liabilities or amortization expenses related to goodwill and other intangible assets,

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• difficulties in the assimilation of operations, personnel, technologies, products, and information systems of the acquired companies,

• diversion of management’s attention from other business concerns,

• risks of entering geographic and business markets in which we have no or limited prior experience, and

• potential loss of key employees of acquired organizations.

We have had limited experience with acquisitions in the past and may not be able to successfully integrate any businesses, products, technologies, or personnel that may be acquired in the future. Our failure to do so could have a material adverse effect on our business.

Our Principal Stockholders Have Significant Voting Power And May Take Actions That May Not Be In The Best Interests Of Our Other Stockholders

Our executive officers, directors, and other principal stockholders, in the aggregate, beneficially own a substantial amount of our outstanding common stock. Although these stockholders do not have majority control, they currently have, and likely will continue to have, substantial influence with respect to the election of our directors and approval or disapproval of our significant corporate actions. This influence over our affairs might be adverse to the interests of other stockholders. In addition, the voting power of these stockholders could have the effect of delaying or preventing a change in control of PLX.

The Anti-Takeover Provisions In Our Certificate of Incorporation Could Adversely Affect The Rights Of The Holders Of Our Common Stock

Anti-takeover provisions of Delaware law and our Certificate of Incorporation may make a change in control of PLX more difficult, even if a change in control would be beneficial to the stockholders. These provisions may allow the Board of Directors to prevent changes in the management and control of PLX.

As part of our anti-takeover devices, our Board of Directors has the ability to determine the terms of preferred stock and issue preferred stock without the approval of the holders of the common stock. Our Certificate of Incorporation allows the issuance of up to 5,000,000 shares of preferred stock. There are no shares of preferred stock outstanding. However, because the rights and preferences of any series of preferred stock may be set by the Board of Directors in its sole discretion without approval of the holders of the common stock, the rights and preferences of the preferred stock may be superior to those of the common stock. Accordingly, the rights of the holders of common stock may be adversely affected. Consistent with Delaware law, our Board of Directors may adopt additional anti-takeover measures in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have an investment portfolio of fixed income securities, including those classified as cash equivalents of approximately $16.0 million at June 30, 2002. These securities are subject to interest rate fluctuations and will decrease in market value if interest rates increase.

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. We invest primarily in high quality, short-term and long-term debt instruments. A hypothetical 100 basis point increase in interest rates would result in less than a $0.2 million decrease (less than 1%) in the fair value of our available-for-sale securities.

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PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Company’s Annual Meeting of Stockholders held on May 22, 2002, the following individuals were elected to the Board of Directors:

Name	Votes For		Votes Against		Votes Withheld
Michael Salameh		21,766,137		190,621		1,614,117
D. James Guzy		21,717,582		239,176		1,614,117
Eugene Flath		21,768,568		188,190		1,614,117
Timothy Draper		21,715,215		241,543		1,614,117
Young K. Sohn		21,717,405		239,353		1,614,117
John H. Hart		21,765,905		190,853		1,614,117

The following proposals were approved at the Company’s Annual Meeting:

		Affirmative Votes		Negative Votes
1.	Amendments to the Company’s 1999 Stock Incentive Plan		17,682,160		4,261,920
2.	Ratification of the appointment of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2002		21,590,390		357,412

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

Exhibit
Number		Description
	2.1(2)	Agreement and Plan of Merger dated April 19, 2000 by and among PLX Technology, Inc., OKW Technology Acquisition Corporation and Sebring Systems, Inc.
	3.1(1)	Amended and Restated Certificate of Incorporation of the Registrant.
	3.2(1)	Registrant’s Amended and Restated Bylaws.
	4.1	Reference is made to Exhibit 3.1.
	10.1	1999 Stock Incentive Plan, as Amended.

(1)	Incorporated by reference to the same numbered exhibit previously filed with the Company’s Registration Statement on Form S-1 (Registration No. 333-71795).
(2)	Incorporated by reference to Exhibit 2.1 to Form 8-K as filed on June 2, 2000.

     (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarter ended June 30, 2002.

23

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PLX TECHNOLOGY, INC. (Registrant)
Date: August 6, 2002	By	/s/  Rafael Torres
		Rafael Torres Vice President, Finance and Chief Financial Officer (Authorized Officer and Principal Financial Officer)

24

EXHIBIT INDEX

Exhibit
Number		Description
	2.1(2)	Agreement and Plan of Merger dated April 19, 2000 by and among PLX Technology, Inc., OKW Technology Acquisition Corporation and Sebring Systems, Inc.
	3.1(1)	Amended and Restated Certificate of Incorporation of the Registrant.
	3.2(1)	Registrant’s Amended and Restated Bylaws.
	4.1	Reference is made to Exhibit 3.1.
	10.1	1999 Stock Incentive Plan, as Amended.

(1)	Incorporated by reference to the same numbered exhibit previously filed with the Company’s Registration Statement on Form S-1 (Registration No. 333-71795).
(2)	Incorporated by reference to Exhibit 2.1 to Form 8-K as filed on June 2, 2000.

EX-10.1 3 f83255exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 PLX TECHNOLOGY, INC. 1999 STOCK INCENTIVE PLAN AMENDED ON MAY 24, 2000 AMENDED ON MAY 22, 2001 AMENDED ON MAY 22, 2002 1 PLX TECHNOLOGY, INC. 1999 STOCK INCENTIVE PLAN 1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to attract and retain the best available personnel, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of the Committees appointed to administer the Plan. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. (c) "Applicable Laws" means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein. (d) "Award" means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or other right or benefit under the Plan. (e) "Award Agreement" means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto. (f) "Board" means the Board of Directors of the Company. (g) "Cause" means, with respect to the termination by the Company or a Related Entity of the Grantee's Continuous Service, that such termination is for "Cause" as such term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee's: (i) refusal or failure to act in accordance with any specific, lawful direction or order of the Company or a Related Entity; (ii) unfitness or unavailability for service or unsatisfactory performance (other than as a result of Disability); (iii) performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity; (iv) dishonesty, intentional misconduct or material breach of any agreement with the Company or a Related Entity; or (v) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person. At least 30 days prior to the termination of the Grantee's Continuous Service pursuant to (i) or (ii) above, the Administrator shall provide the Grantee with notice of the Company's or such Related Entity's intent to terminate, the reason therefor, and an opportunity for the Grantee to cure such defects in his or her service to the Company's or such Related Entity's satisfaction. During this 30 day (or longer) period, no Award issued to the Grantee under the Plan may be exercised or purchased. (h) "Change in Control" means a change in ownership or control of the Company effected through either of the following transactions: (i) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such stockholders accept, or (ii) a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors. (i) "Code" means the Internal Revenue Code of 1986, as amended. (j) "Committee" means any committee appointed by the Board to administer the Plan. (k) "Common Stock" means the common stock of the Company. (l) "Company" means PLX Technology, Inc., a Delaware corporation. (m) "Consultant" means any person (other than an Employee or, solely with respect to rendering services in such person's capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity. (n) "Continuing Directors" means members of the Board who either (i) have been Board members continuously for a period of at least thirty-six (36) months or (ii) have been Board members for less than thirty-six (36) months and were elected or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board. (o) "Continuous Service" means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant, is not interrupted or terminated. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers between locations of the Company or among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. 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. (p) "Corporate Transaction" means any of the following transactions: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations) in connection with the complete liquidation or dissolution of the Company; (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; or (iv) an acquisition by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities (whether or not in a transaction also constituting a Change in Control), but excluding any such transaction that the Administrator determines shall not be a Corporate Transaction. (q) "Director" means a member of the Board or the board of directors of any Related Entity. (r) "Disability" means that a Grantee would qualify for benefit payments under the long-term disability policy of the Company or the Related Entity to which the Grantee provides services regardless of whether the Grantee is covered by such policy. (s) "Dividend Equivalent Right" means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock. (t) "Employee" means any person, including an Officer or Director, who is an employee of the Company or any Related Entity. The payment of a director's fee by the Company or a Related Entity shall not be sufficient to constitute "employment" by the Company. (u) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (v) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) Where there exists a public market for the Common Stock, the Fair Market Value shall be (A) the closing price for a Share for the last market trading day prior to the time of the determination (or, if no closing price was reported on that date, on the last trading date on which a closing price was reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such prices were reported on that date, on the last date on which such prices were reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (ii) In the absence of an established market for the Common Stock of the type described in (i), above, the Fair Market Value thereof shall be determined by the Administrator in good faith. (w) "Grantee" means an Employee, Director or Consultant who receives an Award pursuant to an Award Agreement under the Plan. (x) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (y) "Non-Qualified Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (z) "Officer" means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (aa) "Option" means an option to purchase Shares pursuant to an Award Agreement granted under the Plan. (bb) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (cc) "Performance Shares" means Shares or an Award denominated in Shares which may be earned in whole or in part upon attainment of performance criteria established by the Administrator. (dd) "Performance Units" means an Award which may be earned in whole or in part upon attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator. (ee) "Plan" means this 1999 Stock Incentive Plan. (ff) "Registration Date" means the first to occur of (i) the closing of the first sale to the general public of (A) the Common Stock or (B) the same class of securities of a successor corporation (or its Parent) issued pursuant to a Corporate Transaction in exchange for or in substitution of the Common Stock, pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended; and (ii) in the event of a Corporate Transaction, the date of the consummation of the Corporate Transaction if the same class of securities of the successor corporation (or its Parent) issuable in such Corporate Transaction shall have been sold to the general public pursuant to a registration statement filed with and declared effective by, on or prior to the date of consummation of such Corporate Transaction, the Securities and Exchange Commission under the Securities Act of 1933, as amended. (gg) "Related Entity" means any Parent, Subsidiary and any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds a substantial ownership interest, directly or indirectly. (hh) "Restricted Stock" means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator. (ii) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor thereto. (jj) "SAR" means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock. (kk) "Share" means a share of the Common Stock. (ll) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. (mm) "Related Entity Disposition" means the sale, distribution or other disposition by the Company of all or substantially all of the Company's interests in any Related Entity effected by a sale, merger or consolidation or other transaction involving that Related Entity or the sale of all or substantially all of the assets of that Related Entity. 3. Stock Subject to the Plan. (a) Subject to the provisions of Section 10, below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) is 4,300,000 Shares. The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock. (b) Any Shares covered by an Award (or portion of an Award) which is forfeited or canceled, expires or is settled in cash, shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan. If any unissued Shares are retained by the Company upon exercise of an Award in order to satisfy the exercise price for such Award or any withholding taxes due with respect to such Award, such retained Shares subject to such Award shall become available for future issuance under the Plan (unless the Plan has terminated). Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Plan Administrator. (i) Administration with Respect to Directors and Officers. With respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. (ii) Administration With Respect to Consultants and Other Employees. With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time. (iii) Administration Errors. In the event an Award is granted in a manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws. (b) Powers of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion: (i) to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder; (ii) to determine whether and to what extent Awards are granted hereunder; (iii) to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder; (iv) to approve forms of Award Agreements for use under the Plan; (v) to determine the terms and conditions of any Award granted hereunder; (vi) to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee's rights under an outstanding Award shall not be made without the Grantee's written consent; (vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan, including without limitation, any notice of Award or Award Agreement, granted pursuant to the Plan; (viii) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; and (ix) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be conclusive and binding on all persons. 5. Eligibility. Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. Incentive Stock Options may be granted only to Employees of the Company, a Parent or a Subsidiary. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in foreign jurisdictions as the Administrator may determine from time to time. 6. Terms and Conditions of Awards. (a) Type of Awards. The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or (iii) any other security with the value derived from the value of the Shares. Such awards include, without limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend Equivalent Rights, Performance Units or Performance Shares, and an Award may consist of one such security or benefit, or two (2) or more of them in any combination or alternative. (b) Designation of Award. Each Award shall be designated in the Award Agreement. In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted. (c) Conditions of Award. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, increase in share price, earnings per share, total stockholder return, return on equity, return on assets, return on investment, net operating income, cash flow, revenue, economic value added, personal management objectives, or other measure of performance selected by the Administrator. Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement. (d) Acquisitions and Other Transactions. The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form of transaction. (e) Deferral of Award Payment. The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award. The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program. (f) Award Exchange Programs. The Administrator may establish one or more programs under the Plan to permit selected Grantees to exchange an Award under the Plan for one or more other types of Awards under the Plan on such terms and conditions as determined by the Administrator from time to time. (g) Separate Programs. The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time. (h) Early Exercise. The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate. (i) Term of Award. The term of each Award shall be the term stated in the Award Agreement, provided, however, that the term of an Incentive Stock Option shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to a Grantee 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 Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement. (j) Transferability of Awards. Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee; provided, however, that the Grantee may designate a beneficiary of the Grantee's Incentive Stock Option in the event of the Grantee's death on a beneficiary designation form provided by the Administrator. Other Awards shall be transferable to the extent provided in the Award Agreement. (k) Time of Granting Awards. The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other date as is determined by the Administrator. Notice of the grant determination shall be given to each Employee, Director or Consultant to whom an Award is so granted within a reasonable time after the date of such grant. 7. Award Exercise or Purchase Price, Consideration, Taxes and Reload Options. (a) Exercise or Purchase Price. The exercise or purchase price, if any, for an Award shall be as follows: (i) In the case of an Incentive Stock Option: (A) granted to an Employee who, at the time of the grant of such Incentive Stock 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 per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant; or (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (ii) In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant unless otherwise determined by the Administrator. (iii) In the case of other Awards, such price as is determined by the Administrator. (iv) Notwithstanding the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6(d), above, the exercise or purchase price for the Award shall be determined in accordance with the principles of Section 424(a) of the Code. (b) Consideration. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award 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). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following, provided that the portion of the consideration equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law: (i) cash; (ii) check; (iii) delivery of Grantee's promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines as appropriate; (iv) surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Award) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised (but only to the extent that such exercise of the Award would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator); (v) with respect to Options, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction; or (vi) any combination of the foregoing methods of payment. (c) Taxes. No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any foreign, federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Award, the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations. (d) Reload Options. In the event the exercise price or tax withholding of an Option is satisfied by the Company or the Grantee's employer withholding Shares otherwise deliverable to the Grantee, the Administrator may issue the Grantee an additional Option, with terms identical to the Award Agreement under which the Option was exercised, but at an exercise price as determined by the Administrator in accordance with the Plan. 8. Exercise of Award. (a) Procedure for Exercise; Rights as a Stockholder. (i) Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement. (ii) An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as provided in Section 7(b)(v). Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to an Award, notwithstanding the exercise of an Option or other Award. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in the Award Agreement or Section 10, below. (b) Exercise of Award Following Termination of Continuous Service. (i) An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee's Continuous Service only to the extent provided in the Award Agreement. (ii) Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee's Continuous Service for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first. (iii) Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee's Continuous Service shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement. (c) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Award previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Grantee at the time that such offer is made. 9. Conditions Upon Issuance of Shares. (a) Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) As a condition to the exercise of an Award, the Company may require the person exercising such Award 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 by any Applicable Laws. 10. Adjustments Upon Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction with respect to Common Stock to which Section 424(a) of the Code applies; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator and its determination shall be final, binding and conclusive. Except as the Administrator determines, 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 hereof shall be made with respect to, the number or price of Shares subject to an Award. 11. Corporate Transactions/Changes in Control/Related Entity Dispositions. Except as may be provided in an Award Agreement: (a) Effective upon the consummation of a Corporate Transaction, all outstanding Awards under the Plan shall terminate. However, all such Awards shall not terminate if they are, in connection with the Corporate Transaction, assumed by the successor corporation or Parent thereof. (b) Effective upon the consummation of a Related Entity Disposition, for purposes of the Plan and all Awards, the Continuous Service of each Grantee who is at the time engaged primarily in service to the Related Entity involved in such Related Entity Disposition shall terminate and each Award of such Grantee which is at the time outstanding under the Plan shall be exercisable in accordance with the terms of the Award Agreement evidencing such Award. However, such Continuous Service shall be not to deemed to terminate if such Award is, in connection with the Related Entity Disposition, assumed by the successor entity or its parent. 12. Effective Date and Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated. Subject to Section 16, below, and Applicable Laws, Awards may be granted under the Plan upon its becoming effective. 13. Amendment, Suspension or Termination of the Plan. (a) The Board may at any time amend, suspend or terminate the Plan. To the extent necessary to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) No Award may be granted during any suspension of the Plan or after termination of the Plan. (c) Any amendment, suspension or termination of the Plan (including termination of the Plan under Section 12, above) shall not affect Awards already granted, and such Awards shall remain in full force and effect as if the Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company. 14. Reservation of Shares. (a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. (b) 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. 15. No Effect on Terms of Employment/Consulting Relationship. The Plan shall not confer upon any Grantee any right with respect to the Grantee's Continuous Service, nor shall it interfere in any way with his or her right or the Company's right to terminate the Grantee's Continuous Service at any time, with or without cause. 16. No Effect on Retirement and Other Benefit Plans. Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a "Retirement-Plan" or "Welfare Plan" under the Employee Retirement Income Security Act of 1974, as amended. 17. Stockholder Approval. The grant of Incentive Stock Options under the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted excluding Incentive Stock Options issued in substitution for outstanding Incentive Stock Options pursuant to Section 424(a) of the Code. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws. The Administrator may grant Incentive Stock Options under the Plan prior to approval by the stockholders, but until such approval is obtained, no such Incentive Stock Option shall be exercisable. In the event that stockholder approval is not obtained within the twelve (12) month period provided above, all Incentive Stock Options previously granted under the Plan shall be exercisable as Non-Qualified Stock Options. -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1











                              PLX TECHNOLOGY, INC.


                            1999 STOCK INCENTIVE PLAN

                             AMENDED ON MAY 24, 2000
                             AMENDED ON MAY 22, 2001
                             AMENDED ON MAY 22, 2002




                                       1


                              PLX TECHNOLOGY, INC.

                            1999 STOCK INCENTIVE PLAN

        1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel, to provide additional
incentive to Employees, Directors and Consultants and to promote the success of
the Company's business.

        2. Definitions. As used herein, the following definitions shall apply:

               (a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.

               (b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.

               (c) "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.

               (d) "Award" means the grant of an Option, SAR, Dividend
Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or
other right or benefit under the Plan.

               (e) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.

               (f) "Board" means the Board of Directors of the Company.

               (g) "Cause" means, with respect to the termination by the Company
or a Related Entity of the Grantee's Continuous Service, that such termination
is for "Cause" as such term is expressly defined in a then-effective written
agreement between the Grantee and the Company or such Related Entity, or in the
absence of such then-effective written agreement and definition, is based on, in
the determination of the Administrator, the Grantee's: (i) refusal or failure to
act in accordance with any specific, lawful direction or order of the Company or
a Related Entity; (ii) unfitness or unavailability for service or unsatisfactory
performance (other than as a result of Disability); (iii) performance of any act
or failure to perform any act in bad faith and to the detriment of the Company
or a Related Entity; (iv) dishonesty, intentional misconduct or material breach
of any agreement with the Company or a Related Entity; or (v) commission of a
crime involving dishonesty, breach of trust, or physical or emotional harm to
any person. At least 30 days prior to the termination of the Grantee's
Continuous Service pursuant to (i) or (ii) above, the Administrator shall
provide the Grantee with notice of the Company's or such Related Entity's intent
to terminate, the reason therefor, and an opportunity for the Grantee to cure
such defects in his or her service to the Company's or such Related Entity's
satisfaction. During this 30 day (or longer) period, no Award issued to the
Grantee under the Plan may be exercised or purchased.



               (h) "Change in Control" means a change in ownership or control of
the Company effected through either of the following transactions:

                      (i) the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or

                      (ii) a change in the composition of the Board over a
period of thirty-six (36) months or less such that a majority of the Board
members (rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals who are
Continuing Directors.

               (i) "Code" means the Internal Revenue Code of 1986, as amended.

               (j) "Committee" means any committee appointed by the Board to
administer the Plan.

               (k) "Common Stock" means the common stock of the Company.

               (l) "Company" means PLX Technology, Inc., a Delaware corporation.

               (m) "Consultant" means any person (other than an Employee or,
solely with respect to rendering services in such person's capacity as a
Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.

               (n) "Continuing Directors" means members of the Board who either
(i) have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six (36) months
and were elected or nominated for election as Board members by at least a
majority of the Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.

               (o) "Continuous Service" means that the provision of services to
the Company or a Related Entity in any capacity of Employee, Director or
Consultant, is not interrupted or terminated. Continuous Service shall not be
considered interrupted in the case of (i) any approved leave of absence, (ii)
transfers between locations of the Company or among the Company, any Related
Entity, or any successor, in any capacity of Employee, Director or Consultant,
or (iii) any change in status as long as the individual remains in the service
of the Company or a Related Entity in any capacity of Employee, Director or
Consultant (except as otherwise provided in the Award Agreement). An approved
leave of absence shall include sick leave, military leave, or any other
authorized personal leave. 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.

               (p) "Corporate Transaction" means any of the following
transactions:

                      (i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose of which is
to change the state in which the Company is incorporated;

                      (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company;

                      (iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger; or

                      (iv) an acquisition by any person or related group of
persons (other than the Company or by a Company-sponsored employee benefit plan)
of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act)
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities (whether or not in a
transaction also constituting a Change in Control), but excluding any such
transaction that the Administrator determines shall not be a Corporate
Transaction.

               (q) "Director" means a member of the Board or the board of
directors of any Related Entity.

               (r) "Disability" means that a Grantee would qualify for benefit
payments under the long-term disability policy of the Company or the Related
Entity to which the Grantee provides services regardless of whether the Grantee
is covered by such policy.

               (s) "Dividend Equivalent Right" means a right entitling the
Grantee to compensation measured by dividends paid with respect to Common Stock.

               (t) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company or a Related Entity shall not be sufficient
to constitute "employment" by the Company.

               (u) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

               (v) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:

                      (i) Where there exists a public market for the Common
Stock, the Fair Market Value shall be (A) the closing price for a Share for the
last market trading day prior to the time of the determination (or, if no
closing price was reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined by the



Administrator to be the primary market for the Common Stock or the Nasdaq
National Market, whichever is applicable or (B) if the Common Stock is not
traded on any such exchange or national market system, the average of the
closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the
day prior to the time of the determination (or, if no such prices were reported
on that date, on the last date on which such prices were reported), in each
case, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or

                      (ii) In the absence of an established market for the
Common Stock of the type described in (i), above, the Fair Market Value thereof
shall be determined by the Administrator in good faith.

               (w) "Grantee" means an Employee, Director or Consultant who
receives an Award pursuant to an Award Agreement under the Plan.

               (x) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.

               (y) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

               (z) "Officer" means a person who is an officer of the Company or
a Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.

               (aa) "Option" means an option to purchase Shares pursuant to an
Award Agreement granted under the Plan.

               (bb) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

               (cc) "Performance Shares" means Shares or an Award denominated in
Shares which may be earned in whole or in part upon attainment of performance
criteria established by the Administrator.

               (dd) "Performance Units" means an Award which may be earned in
whole or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other securities or a
combination of cash, Shares or other securities as established by the
Administrator.

               (ee) "Plan" means this 1999 Stock Incentive Plan.

               (ff) "Registration Date" means the first to occur of (i) the
closing of the first sale to the general public of (A) the Common Stock or (B)
the same class of securities of a successor corporation (or its Parent) issued
pursuant to a Corporate Transaction in exchange for or in substitution of the
Common Stock, pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended; and (ii) in the event of a Corporate Transaction, the date of
the consummation of the Corporate Transaction if the same class of securities of
the successor corporation (or its Parent)



issuable in such Corporate Transaction shall have been sold to the general
public pursuant to a registration statement filed with and declared effective
by, on or prior to the date of consummation of such Corporate Transaction, the
Securities and Exchange Commission under the Securities Act of 1933, as amended.

               (gg) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.

               (hh) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.

               (ii) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor thereto.

               (jj) "SAR" means a stock appreciation right entitling the Grantee
to Shares or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.

               (kk) "Share" means a share of the Common Stock.

               (ll) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.

               (mm) "Related Entity Disposition" means the sale, distribution or
other disposition by the Company of all or substantially all of the Company's
interests in any Related Entity effected by a sale, merger or consolidation or
other transaction involving that Related Entity or the sale of all or
substantially all of the assets of that Related Entity.

        3. Stock Subject to the Plan.

               (a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is 4,300,000 Shares. The Shares to be issued pursuant
to Awards may be authorized, but unissued, or reacquired Common Stock.

               (b) Any Shares covered by an Award (or portion of an Award) which
is forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. If any unissued Shares are retained
by the Company upon exercise of an Award in order to satisfy the exercise price
for such Award or any withholding taxes due with respect to such Award, such
retained Shares subject to such Award shall become available for future issuance
under the Plan (unless the Plan has terminated). Shares that actually have been
issued under the Plan pursuant to an Award shall not be returned to the Plan and
shall not become available for future issuance under the Plan, except that if
unvested Shares are forfeited, or



repurchased by the Company at their original purchase price, such Shares shall
become available for future grant under the Plan.

        4. Administration of the Plan.

               (a) Plan Administrator.

                      (i) Administration with Respect to Directors and Officers.
With respect to grants of Awards to Directors or Employees who are also Officers
or Directors of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board.

                      (ii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Awards to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Awards and may limit such authority as the Board
determines from time to time.

                      (iii) Administration Errors. In the event an Award is
granted in a manner inconsistent with the provisions of this subsection (a),
such Award shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.

               (b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:

                      (i) to select the Employees, Directors and Consultants to
whom Awards may be granted from time to time hereunder;

                      (ii) to determine whether and to what extent Awards are
granted hereunder;

                      (iii) to determine the number of Shares or the amount of
other consideration to be covered by each Award granted hereunder;

                      (iv) to approve forms of Award Agreements for use under
the Plan;

                      (v) to determine the terms and conditions of any Award
granted hereunder;



                      (vi) to amend the terms of any outstanding Award granted
under the Plan, provided that any amendment that would adversely affect the
Grantee's rights under an outstanding Award shall not be made without the
Grantee's written consent;

                      (vii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan, including without limitation, any notice of
Award or Award Agreement, granted pursuant to the Plan;

                      (viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan; and

                      (ix) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.

               (c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.

        5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.

        6. Terms and Conditions of Awards.

               (a) Type of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or
similar right with a fixed or variable price related to the Fair Market Value of
the Shares and with an exercise or conversion privilege related to the passage
of time, the occurrence of one or more events, or the satisfaction of
performance criteria or other conditions, or (iii) any other security with the
value derived from the value of the Shares. Such awards include, without
limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend
Equivalent Rights, Performance Units or Performance Shares, and an Award may
consist of one such security or benefit, or two (2) or more of them in any
combination or alternative.

               (b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall



be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the date the
Option with respect to such Shares is granted.

               (c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.

               (d) Acquisitions and Other Transactions. The Administrator may
issue Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.

               (e) Deferral of Award Payment. The Administrator may establish
one or more programs under the Plan to permit selected Grantees the opportunity
to elect to defer receipt of consideration upon exercise of an Award,
satisfaction of performance criteria, or other event that absent the election
would entitle the Grantee to payment or receipt of Shares or other consideration
under an Award. The Administrator may establish the election procedures, the
timing of such elections, the mechanisms for payments of, and accrual of
interest or other earnings, if any, on amounts, Shares or other consideration so
deferred, and such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such deferral
program.

               (f) Award Exchange Programs. The Administrator may establish one
or more programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.

               (g) Separate Programs. The Administrator may establish one or
more separate programs under the Plan for the purpose of issuing particular
forms of Awards to one or more classes of Grantees on such terms and conditions
as determined by the Administrator from time to time.

               (h) Early Exercise. The Award Agreement may, but need not,
include a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior to full
vesting of the Award. Any unvested Shares received pursuant to such exercise may
be subject to a repurchase right in favor of the Company or a Related Entity or
to any other restriction the Administrator determines to be appropriate.



               (i) Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term of an Incentive
Stock Option shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to a Grantee
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 Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Award Agreement.

               (j) Transferability of Awards. Incentive Stock Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Administrator. Other Awards shall be transferable to the
extent provided in the Award Agreement.

               (k) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.

        7. Award Exercise or Purchase Price, Consideration, Taxes and Reload
Options.

               (a) Exercise or Purchase Price. The exercise or purchase price,
if any, for an Award shall be as follows:

                      (i) In the case of an Incentive Stock Option:

                             (A) granted to an Employee who, at the time of the
grant of such Incentive Stock 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 per Share exercise price shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant; or

                             (B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.

                      (ii) In the case of a Non-Qualified Stock Option, the per
Share exercise price shall be not less than one hundred percent (100%) of the
Fair Market Value per Share on the date of grant unless otherwise determined by
the Administrator.

                      (iii) In the case of other Awards, such price as is
determined by the Administrator.



                      (iv) Notwithstanding the foregoing provisions of this
Section 7(a), in the case of an Award issued pursuant to Section 6(d), above,
the exercise or purchase price for the Award shall be determined in accordance
with the principles of Section 424(a) of the Code.

               (b) Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise or purchase of an Award
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). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following, provided that the portion of the
consideration equal to the par value of the Shares must be paid in cash or other
legal consideration permitted by the Delaware General Corporation Law:

                      (i) cash;

                      (ii) check;

                      (iii) delivery of Grantee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate;

                      (iv) surrender of Shares or delivery of a properly
executed form of attestation of ownership of Shares as the Administrator may
require (including withholding of Shares otherwise deliverable upon exercise of
the Award) which have a Fair Market Value on the date of surrender or
attestation equal to the aggregate exercise price of the Shares as to which said
Award shall be exercised (but only to the extent that such exercise of the Award
would not result in an accounting compensation charge with respect to the Shares
used to pay the exercise price unless otherwise determined by the
Administrator);

                      (v) with respect to Options, payment through a
broker-dealer sale and remittance procedure pursuant to which the Grantee (A)
shall provide written instructions to a Company designated brokerage firm to
effect the immediate sale of some or all of the purchased Shares and remit to
the Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
Shares and (B) shall provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order
to complete the sale transaction; or

                      (vi) any combination of the foregoing methods of payment.

               (c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award, the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.

               (d) Reload Options. In the event the exercise price or tax
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise



deliverable to the Grantee, the Administrator may issue the Grantee an
additional Option, with terms identical to the Award Agreement under which the
Option was exercised, but at an exercise price as determined by the
Administrator in accordance with the Plan.

        8. Exercise of Award.

               (a) Procedure for Exercise; Rights as a Stockholder.

                      (i) Any Award granted hereunder shall be exercisable at
such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement.

                      (ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full payment
for the Shares with respect to which the Award is exercised, including, to the
extent selected, use of the broker-dealer sale and remittance procedure to pay
the purchase price as provided in Section 7(b)(v). Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Award. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Award Agreement or Section 10, below.

               (b) Exercise of Award Following Termination of Continuous
Service.

                      (i) An Award may not be exercised after the termination
date of such Award set forth in the Award Agreement and may be exercised
following the termination of a Grantee's Continuous Service only to the extent
provided in the Award Agreement.

                      (ii) Where the Award Agreement permits a Grantee to
exercise an Award following the termination of the Grantee's Continuous Service
for a specified period, the Award shall terminate to the extent not exercised on
the last day of the specified period or the last day of the original term of the
Award, whichever occurs first.

                      (iii) Any Award designated as an Incentive Stock Option to
the extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.

               (c) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Award previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Grantee at the time that such offer is made.



        9. Conditions Upon Issuance of Shares.

               (a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

               (b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award 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 by any
Applicable Laws.

        10. Adjustments Upon Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, as well as any other terms that the Administrator determines
require adjustment shall be proportionately adjusted for (i) any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Shares, (ii)
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company, or (iii) as the Administrator may
determine in its discretion, any other transaction with respect to Common Stock
to which Section 424(a) of the Code applies; provided, however that conversion
of any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Administrator and its determination shall be final, binding and conclusive.
Except as the Administrator determines, 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 hereof shall be made with respect to,
the number or price of Shares subject to an Award.

        11. Corporate Transactions/Changes in Control/Related Entity
Dispositions. Except as may be provided in an Award Agreement:

               (a) Effective upon the consummation of a Corporate Transaction,
all outstanding Awards under the Plan shall terminate. However, all such Awards
shall not terminate if they are, in connection with the Corporate Transaction,
assumed by the successor corporation or Parent thereof.

               (b) Effective upon the consummation of a Related Entity
Disposition, for purposes of the Plan and all Awards, the Continuous Service of
each Grantee who is at the time engaged primarily in service to the Related
Entity involved in such Related Entity Disposition shall terminate and each
Award of such Grantee which is at the time outstanding under the Plan shall be
exercisable in accordance with the terms of the Award Agreement evidencing such
Award. However, such Continuous Service shall be not to deemed to terminate if
such Award is, in connection with the Related Entity Disposition, assumed by the
successor entity or its parent.



        12. Effective Date and Term of Plan. The Plan shall become effective
upon the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 16, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.

        13. Amendment, Suspension or Termination of the Plan.

               (a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.

               (b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.

               (c) Any amendment, suspension or termination of the Plan
(including termination of the Plan under Section 12, above) shall not affect
Awards already granted, and such Awards shall remain in full force and effect as
if the Plan had not been amended, suspended or terminated, unless mutually
agreed otherwise between the Grantee and the Administrator, which agreement must
be in writing and signed by the Grantee and the Company.

        14. Reservation of Shares.

               (a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.

               (b) 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.

        15. No Effect on Terms of Employment/Consulting Relationship. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without cause.

        16. No Effect on Retirement and Other Benefit Plans. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement-Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.

        17. Stockholder Approval. The grant of Incentive Stock Options under the
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or



after the date the Plan is adopted excluding Incentive Stock Options issued in
substitution for outstanding Incentive Stock Options pursuant to Section 424(a)
of the Code. Such stockholder approval shall be obtained in the degree and
manner required under Applicable Laws. The Administrator may grant Incentive
Stock Options under the Plan prior to approval by the stockholders, but until
such approval is obtained, no such Incentive Stock Option shall be exercisable.
In the event that stockholder approval is not obtained within the twelve (12)
month period provided above, all Incentive Stock Options previously granted
under the Plan shall be exercisable as Non-Qualified Stock Options.