Employee Stock Purchase Plan

The Company had a qualified Employee Stock Purchase Plan (the Plan) under which 7,600,000 shares of common stock, in the aggregate, were authorized for issuance. Under the terms of the Plan, employees could contribute, through payroll deductions, up to 10 percent of their base pay and purchase up to 20,000 shares per quarter (with the limitation of purchases of $25,000 annually in fair market value of the shares). Employees could elect to withdraw from the Plan during any quarter and have their contributions for the period returned to them. Also, employees could elect to reduce the rate of contribution one time in each quarter. The price at which employees could purchase shares was 85 percent of the lower of the fair market value of the stock at the beginning or end of the quarter. The Plan was qualified under Section 423 of the Internal Revenue Code of 1986, as amended. During 1997, the Company issued 573,343 shares under this Plan. The Plan was terminated on July 1, 1997, which was 10 years after the offering date for the Plan’s first offering period.

In May 1997, the Company’s stockholders approved the 1997 Employee Stock Purchase Plan (the “1997 ESPP”). The Company has reserved 4,000,000 shares of Common Stock for issuance under the 1997 ESPP. The 1997 ESPP permits participants to purchase Common Stock through payroll deductions of up to 15 percent of an employee’s compensation, including commissions, overtime, bonuses and other incentive compensation. The price of Common Stock purchased under the 1997 ESPP is equal to 85 percent of the lower of the fair market value of the Common Stock at the beginning or at the end of each calendar quarter in which an eligible employee participates. The Plan qualifies as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. During 1999 and 1998, the Company issued approximately 1,187,000 shares and 1,613,000 shares, respectively, under the 1997 ESPP. No shares of Common Stock were issued under this plan during fiscal 1997.

Stock-Based Compensation

As permitted under Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” the Company has elected to continue to follow Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees” in accounting for stock-based awards to employees. Under APB 25, the Company generally recognizes no compensation expense with respect to such awards.

Pro forma information regarding the net income (loss) and net income (loss) per share is required by SFAS 123 for awards granted or modified after December 31, 1994 as if the Company had accounted for its stock based awards to employees under the fair value method of SFAS 123. The fair value of the Company’s stock-based awards to employees was estimated using a Black-Scholes option pricing model.

The fair value of the Company’s stock-based awards was estimated assuming no expected dividends and the following weighted-average assumptions:

For pro forma purposes, the estimated fair value of the Company’s stock based awards is amortized over the award’s vesting period (for options) and the three month purchase period (for stock purchases under the ESPP). The Company’s pro forma information follows: