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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 	 	 	
þ	 	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended December 28, 2002

Commission file number 000-49602

SYNAPTICS INCORPORATED
(Exact name of Registrant as specified in its charter)
 	 	 	
Delaware	 	77-0118518	

	 	

	
(State or other jurisdiction
of incorporation or organization)	 	(I.R.S. Employer
Identification No.)	
2381 Bering Drive
San Jose, California 95131
(Address of principal executive offices)
(Zip code)

(408) 434-0110
(Registrant’s telephone number, including area code)

Indicate by check 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  þ  No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Number of shares of Common Stock outstanding at February 5, 2003: 23,521,331

TABLE OF CONTENTS
 	 	 	 	 	 	 	 	 	
PART I — FINANCIAL INFORMATION	
 	ITEM 1. FINANCIAL STATEMENTS	
 	 	CONDENSED CONSOLIDATED BALANCE SHEETS	
 	 	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	
 	ITEM 4. CONTROLS AND PROCEDURES	
PART II — OTHER INFORMATION	
 	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	
 	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K	
SIGNATURES	
CERTIFICATIONS	
EX-10.6(a)	
EX-10.6(b)	
EX-99.1	
EX-99.2	

Table of Contents

SYNAPTICS INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2002

TABLE OF CONTENTS
 	 	 	 	 	 	 	 	
 	 	 	 	Page	 	

	 	
Part I. Financial Information	 	 	 	 	 	
 	Item 1. Financial Statements:	 	 	 	 	 	
 	 	Condensed Consolidated Balance Sheets— December 31, 2002 and June 30, 2002 (Unaudited)	 	 	3	 	 	
 	 	Condensed Consolidated Statements of Operations— Three Months and Six Months Ended December 31, 2002 and 2001 (Unaudited)	 	 	4	 	 	
 	 	Condensed Consolidated Statements of Cash Flows— Six Months Ended December 31, 2002 and 2001 (Unaudited)	 	 	5	 	 	
 	 	Notes to Condensed Consolidated Financial Statements (Unaudited)	 	 	6	 	 	
 	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	9	 	 	
 	Item 3. Quantitative and Qualitative Disclosures About Market Risk	 	 	15	 	 	
 	Item 4. Controls and Procedures	 	 	15	 	 	
Part II.Other Information	 	 	 	 	 	
 	Item 4. Submission of Matters To A Vote of Security Holders	 	 	15	 	 	
 	Item 6. Exhibits and Reports on Form 8-K	 	 	15	 	 	
Signatures	 	 	16	 	 	
Certifications	 	 	17	 	 	

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SYNAPTICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	December 31,	 	June 30,	
 	 	 	 	 	 	2002	 	2002 (1)	

	 	

	
 	 	 	 	 	 	(unaudited)	 	 	 	 	
 	 	 	 	ASSETS	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	
 	Cash and cash equivalents	 	$	38,935	 	 	$	45,491	 	
 	Short-term investments	 	 	30,743	 	 	 	19,689	 	
 	Accounts receivable, net of allowances of $210 and $200	 	 	 	 	 	 	 	 	
 	 	at December 31, 2002 and June 30, 2002, respectively	 	 	13,452	 	 	 	13,242	 	
 	Inventories	 	 	6,103	 	 	 	5,867	 	
 	Prepaid expenses and other current assets	 	 	3,401	 	 	 	2,964	 	

	 	 	 	

	 	
 	Total current assets	 	 	92,634	 	 	 	87,253	 	
Property and equipment, net	 	 	1,782	 	 	 	2,043	 	
Goodwill	 	 	765	 	 	 	765	 	
Other assets	 	 	236	 	 	 	320	 	

	 	 	 	

	 	
Total assets	 	$	95,417	 	 	$	90,381	 	

	 	 	 	

	 	
 	 	 	LIABILITIES AND STOCKHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	
 	Accounts payable	 	$	6,523	 	 	$	5,867	 	
 	Accrued compensation	 	 	1,939	 	 	 	2,161	 	
 	Accrued warranty	 	 	1,002	 	 	 	1,002	 	
 	Income taxes payable	 	 	2,462	 	 	 	2,646	 	
 	Other accrued liabilities	 	 	2,444	 	 	 	1,814	 	
 	Capital leases and equipment financing obligations	 	 	346	 	 	 	445	 	

	 	 	 	

	 	
 	Total current liabilities	 	 	14,716	 	 	 	13,935	 	
Capital leases and equipment financing obligations, net of current portion	 	 	82	 	 	 	259	 	
Note payable to a related party	 	 	1,500	 	 	 	1,500	 	
Other liabilities	 	 	722	 	 	 	684	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
Stockholders’ equity:	 	 	 	 	 	 	 	 	
 	Common stock	 	 	23	 	 	 	23	 	
 	Additional paid-in capital	 	 	76,666	 	 	 	75,013	 	
 	Deferred stock compensation	 	 	(1,594	)	 	 	(1,085	)	
 	Notes receivable from stockholders	 	 	(755	)	 	 	(876	)	
 	Retained earnings	 	 	3,910	 	 	 	865	 	
 	Accumulated other comprehensive income	 	 	147	 	 	 	63	 	

	 	 	 	

	 	
 	Total stockholders’ equity	 	 	78,397	 	 	 	74,003	 	

	 	 	 	

	 	
Total liabilities and stockholders’ equity	 	$	95,417	 	 	$	90,381	 	

	 	 	 	

	 	

(1)	 	Derived from our audited financial statements as of June 30, 2002, included in our Form 10-K filed with the Securities and Exchange Commission.	
See notes to condensed consolidated financial statements.

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SYNAPTICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	Three Months Ended	 	Six Months Ended	
 	 	 	December 31,	 	December 31,	

	 	

	
 	 	 	2002	 	2001	 	2002	 	2001	

	 	

	 	

	 	

	
Net revenue	 	$	24,199	 	 	$	26,402	 	 	$	46,376	 	 	$	49,971	 	
Cost of revenue (1)	 	 	13,917	 	 	 	15,376	 	 	 	26,360	 	 	 	29,983	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
 	Gross margin	 	 	10,282	 	 	 	11,026	 	 	 	20,016	 	 	 	19,988	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Research and development (1)	 	 	4,812	 	 	 	4,117	 	 	 	10,135	 	 	 	7,808	 	
 	Selling, general, and administrative (1)	 	 	2,638	 	 	 	2,426	 	 	 	5,242	 	 	 	5,101	 	
 	Amortization of other acquired intangible assets	 	 	10	 	 	 	62	 	 	 	40	 	 	 	75	 	
 	Amortization of deferred stock compensation	 	 	116	 	 	 	121	 	 	 	226	 	 	 	242	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
 	Total operating expenses	 	 	7,576	 	 	 	6,726	 	 	 	15,643	 	 	 	13,225	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Operating income	 	 	2,706	 	 	 	4,300	 	 	 	4,373	 	 	 	6,763	 	
Interest income	 	 	279	 	 	 	48	 	 	 	556	 	 	 	81	 	
Interest expense	 	 	(47	)	 	 	(49	)	 	 	(86	)	 	 	(113	)	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Income before income taxes	 	 	2,938	 	 	 	4,299	 	 	 	4,843	 	 	 	6,731	 	
Provision for income taxes	 	 	1,093	 	 	 	1,497	 	 	 	1,798	 	 	 	2,342	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
 	Net income	 	$	1,845	 	 	$	2,802	 	 	$	3,045	 	 	$	4,389	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.08	 	 	$	0.42	 	 	$	0.13	 	 	$	0.66	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
 	Diluted	 	$	0.07	 	 	$	0.14	 	 	$	0.12	 	 	$	0.22	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Shares used in computing net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	23,387	 	 	 	6,709	 	 	 	23,309	 	 	 	6,666	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
 	Diluted	 	 	25,083	 	 	 	20,376	 	 	 	24,957	 	 	 	20,369	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	

(1)	 	Cost of revenue excludes $7,000, $7,000, $14,000, and $14,000 of amortization of deferred stock compensation for the three months ended December 31, 2002 and 2001, and the six months ended December 31, 2002 and 2001, respectively. Research and development expense excludes $38,000, $49,000, $77,000, and $98,000 of amortization of deferred stock compensation for the three months ended December 31, 2002 and 2001, and the six months ended December 31, 2002 and 2001, respectively. Selling, general, and administrative expenses exclude $71,000, $65,000, $135,000, and $130,000 of amortization of deferred stock compensation for the three months ended December 31, 2002 and 2001, and the six months ended December 31, 2002 and 2001, respectively. These amounts have been aggregated and reflected as “Amortization of deferred stock compensation.”	
See notes to condensed consolidated financial statements.

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SYNAPTICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Six Months Ended	
 	 	 	 	December 31,	

	
 	 	 	 	2002	 	2001	

	 	

	
Operating activities	 	 	 	 	 	 	 	 	
Net income	 	$	3,045	 	 	$	4,389	 	
Adjustments to reconcile net income to net cash provided by (used in) operating activities:	 	 	 	 	 	 	 	 	
 	Depreciation and amortization of property and equipment	 	 	696	 	 	 	609	 	
 	Amortization of other acquired intangible assets	 	 	40	 	 	 	75	 	
 	Amortization of deferred stock compensation	 	 	226	 	 	 	242	 	
 	Fair value of options issued to consultants for services rendered	 	 	17	 	 	 	—	 	
 	Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 	
 	 	Accounts receivable	 	 	(210	)	 	 	214	 	
 	 	Inventories	 	 	(236	)	 	 	2,284	 	
 	 	Prepaid expenses and other current assets	 	 	(437	)	 	 	37	 	
 	 	Other assets	 	 	44	 	 	 	(776	)	
 	 	Accounts payable	 	 	656	 	 	 	(1,445	)	
 	 	Accrued compensation	 	 	(222	)	 	 	476	 	
 	 	Other accrued liabilities and income taxes payable	 	 	446	 	 	 	425	 	
 	 	Accrued warranty	 	 	—	 	 	 	250	 	
 	 	Other liabilities	 	 	38	 	 	 	44	 	

	 	 	 	

	 	
Net cash provided by operating activities	 	 	4,103	 	 	 	6,824	 	
Investing activities	 	 	 	 	 	 	 	 	
Purchases of short-term investments	 	 	(13,200	)	 	 	—	 	
Proceeds from sales and maturities of short-term investments	 	 	2,230	 	 	 	—	 	
Purchase of property and equipment	 	 	(435	)	 	 	(639	)	

	 	 	 	

	 	
Net cash used in investing activities	 	 	(11,405	)	 	 	(639	)	
Financing activities	 	 	 	 	 	 	 	 	
Payments on capital leases and equipment financing obligations	 	 	(276	)	 	 	(321	)	
Proceeds from equipment financing	 	 	—	 	 	 	308	 	
Common stock issued under ESPP and stock option plans	 	 	902	 	 	 	642	 	
Repayment of notes receivable from stockholders	 	 	120	 	 	 	30	 	

	 	 	 	

	 	
Net cash provided by financing activities	 	 	746	 	 	 	659	 	

	 	 	 	

	 	
Increase (decrease) in cash and cash equivalents	 	 	(6,556	)	 	 	6,844	 	
Cash and cash equivalents at beginning of period	 	 	45,491	 	 	 	3,766	 	

	 	 	 	

	 	
Cash and cash equivalents at end of period	 	$	38,935	 	 	$	10,610	 	

	 	 	 	

	 	
Supplemental disclosures of cash flow information	 	 	 	 	 	 	 	 	
Cash paid for interest	 	 	16	 	 	 	58	 	
Cash paid for taxes	 	 	1,972	 	 	 	1,713	 	
See notes to condensed consolidated financial statements.

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SYNAPTICS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and generally accepted accounting principles. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In our opinion, the statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future period. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended June 30, 2002.

     The consolidated financial statements include our financial statements and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

     Our fiscal year ends on the last Saturday in June. For ease of presentation, the accompanying financial statements have been shown as ending on June 30 and calendar quarter ends for all annual, interim, and quarterly financial statement captions.

2. Net Income Per Share

     Basic net income per share amounts have been computed using the weighted-average number of shares of common stock outstanding during each period, less shares subject to repurchase. Diluted net income per share amounts also include the effect of potentially dilutive securities, including stock options, warrants, and convertible preferred stock, when dilutive.

     The following table presents the computation of basic and diluted net income per share (in thousands, except per share amounts):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Three Months Ended	 	Six Months Ended	
 	 	 	 	December 31,	 	December 31,	

	 	

	
 	 	 	 	2002	 	2001	 	2002	 	2001	

	 	

	 	

	 	

	
Numerator for basic and diluted net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net income	 	$	1,845	 	 	$	2,802	 	 	$	3,045	 	 	$	4,389	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Denominator for basic net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Weighted average common shares outstanding	 	 	23,387	 	 	 	6,709	 	 	 	23,309	 	 	 	6,678	 	
 	Less: Weighted average shares subject to repurchase	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(12	)	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Denominator for basic net income per share	 	 	23,387	 	 	 	6,709	 	 	 	23,309	 	 	 	6,666	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Denominator for diluted net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Shares used above, basic	 	 	23,387	 	 	 	6,709	 	 	 	23,309	 	 	 	6,666	 	
 	Dilutive stock options	 	 	1,696	 	 	 	2,533	 	 	 	1,648	 	 	 	2,569	 	
 	Dilutive warrants	 	 	—	 	 	 	23	 	 	 	—	 	 	 	23	 	
 	Dilutive preferred stock	 	 	—	 	 	 	11,074	 	 	 	—	 	 	 	11,074	 	
 	Dilutive contingent shares	 	 	—	 	 	 	37	 	 	 	—	 	 	 	37	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Denominator for diluted net income per share	 	 	25,083	 	 	 	20,376	 	 	 	24,957	 	 	 	20,369	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Basic	 	$	0.08	 	 	$	0.42	 	 	$	0.13	 	 	$	0.66	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
 	 	Diluted	 	$	0.07	 	 	$	0.14	 	 	$	0.12	 	 	$	0.22	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
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3. Cash Equivalents and Short-term Investments

     Cash equivalents consist of highly liquid investments with original maturities of three months or less. Short-term investments consist of debt securities classified as available for sale and are carried at their market value as of the balance sheet date with approximated amortized cost. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains or losses are determined on the specific identification method and are reflected in income. Net unrealized gains or losses are recorded directly in stockholder’s equity except those unrealized losses that are deemed to be other than temporary are reflected in income.

     As of December 31, 2002, cash, cash equivalents, and short-term investments consisted of the following (in thousands):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	Gross	 	Gross	 	 	 	 	
 	 	 	Amortized	 	Unrealized	 	Unrealized	 	Fair	
 	 	 	Cost	 	Gains	 	Losses	 	Value	

	 	

	 	

	 	

	
Cash and cash equivalents:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Cash	 	$	4,341	 	 	$	—	 	 	$	—	 	 	$	4,341	 	
 	Certificate of deposit	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Money market	 	 	21,102	 	 	 	—	 	 	 	—	 	 	 	21,102	 	
 	Municipal securities	 	 	13,492	 	 	 	—	 	 	 	—	 	 	 	13,492	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
 	 	$	38,935	 	 	$	—	 	 	$	—	 	 	$	38,935	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Short-term investments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Municipal securities	 	$	30,596	 	 	$	147	 	 	$	—	 	 	$	30,743	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
4. Comprehensive Income

     Comprehensive income includes all changes in stockholders’ equity during a period except those resulting from investments by owners and distributions to owners. Other comprehensive income comprises unrealized gains and losses on available-for-sale securities. Total comprehensive income was $1,927,000, $2,802,000, $3,129,000, and $4,389,000 for the three months ended December 31, 2002 and 2001 and the six months ended December 31, 2002 and 2001, respectively. Accumulated other comprehensive income amounted to $147,000 and $63,000 as of December 31, 2002 and June 30, 2002, respectively. For the three months ended December 31, 2002 and 2001 and the six months ended December 31, 2002 and 2001, the change in unrealized gain on marketable equity securities was $82,000, $0, $84,000 and $0, respectively.

5. Inventories

     Inventories are stated at the lower of cost (first-in, first-out method) or market (estimated net realizable value) and consisted of the following (in thousands):
 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	June 30,	
 	 	2002	 	2002	

	 	

	
Raw materials and work-in-process	 	$	5,809	 	 	$	5,690	 	
Finished goods	 	 	294	 	 	 	177	 	

	 	 	 	

	 	
 	 	$	6,103	 	 	$	5,867	 	

	 	 	 	

	 	
6. Warranty

     We generally warrant our products for a period of 12 months from the date of sale and estimate probable product warranty costs at the time revenue is recognized. Factors that affect our warranty liability include historical and anticipated rates of warranty claims, material usage, and service delivery costs. Warranty costs incurred have not been material in recent years. However, we assess the adequacy of our warranty obligations periodically and adjust the accrued warranty liability on the basis of our estimates.

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     Changes in our warranty liability during the period are as follows (in thousands):
 	 	 	 	 	
Balance, beginning of the period	 	$	1,002	 	
Warranties issued during the period	 	 	9	 	
Settlements made during the period	 	 	(9	)	
Changes in liability for pre-existing warranties during the period, including expirations	 	 	—	 	

	 	
Balance, end of the period	 	$	1,002	 	

	 	
7. Income Taxes

     The income tax provision for the three-month and six-month periods ended December 31, 2002 and 2001 reflects an effective income tax rate based on expected pre-tax income for the year and an expected research and development tax credit.

8. Segment, Customers, and Geographic Information

     We operate in one segment, the development, marketing, and sale of interactive user interface solutions for intelligent electronic devices and products, and currently generate our revenue primarily from the personal computer (“PC”) market.

     The following is a summary of operations within geographic areas based on customer’s location (in thousands):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	Three Months Ended	 	Six Months Ended	
 	 	 	December 31,	 	December 31,	

	 	

	
 	 	 	2002	 	2001	 	2002	 	2001	

	 	

	 	

	 	

	
Revenue from sales to unaffiliated customers:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Taiwan	 	$	12,051	 	 	$	21,044	 	 	$	26,934	 	 	$	39,186	 	
 	China	 	 	7,620	 	 	 	694	 	 	 	10,786	 	 	 	1,092	 	
 	Other	 	 	4,528	 	 	 	4,664	 	 	 	8,656	 	 	 	9,693	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
 	 	$	24,199	 	 	$	26,402	 	 	$	46,376	 	 	$	49,971	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Major customer data as a percentage of total revenue:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	Six Months Ended	
 	 	December 31,	 	December 31,	

	 	

	
 	 	2002	 	2001	 	2002	 	2001	

	 	

	 	

	 	

	
Customer A	 	 	*	 	 	 	19	%	 	 	*	 	 	 	18	%	
Customer B	 	 	*	 	 	 	17	%	 	 	*	 	 	 	21	%	
Customer C	 	 	*	 	 	 	*	 	 	 	11	%	 	 	*	 	
Customer D	 	 	10	%	 	 	*	 	 	 	*	 	 	 	*	 	
Major customer data as a percentage of total accounts receivable:
 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	June 30,	
 	 	2002	 	2002	

	 	

	
Customer A	 	 	*	 	 	 	14	%	
Customer B	 	 	15	%	 	 	14	%	
Customer C	 	 	12	%	 	 	*	 	
Customer D	 	 	10	%	 	 	*	 	
Customer E	 	 	*	 	 	 	11	%	

*	 	Less than 10%	
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Factors That May Affect Results

     You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and notes in Item 1 above and with our audited consolidated financial statements and notes for the year ended June 30, 2002, included in our Annual Report on Form 10-K.

     In addition to the historical information contained herein, this report contains forward-looking statements, including those related to market penetration and market share gains in the notebook, iAppliance, and other electronic device markets, revenue from the notebook, iAppliance, and other electronic device markets, growth rates of these markets, average selling prices, product mix, cost improvement programs, gross margins, customer relationships, research and development expenses, selling, general, and administrative expenses, and liquidity and anticipated cash requirements, that involve risks and uncertainties that could cause actual results to differ materially.

     We caution that these statements are qualified by various factors that may affect future results, including the following: changes in the market for our products and the success of our customers’ products, our success in moving products from the design phase into the manufacturing phase, warranty failures, the failure of key technologies to deliver commercially acceptable performance, our dependence on the notebook market, penetration into new markets, the absence of both long-term purchase and supply commitments, and our lengthy development and product acceptance cycles. This report should be read in conjunction with the Risk Factors discussed in our Annual Report on Form 10-K for the year ended June 30, 2002.

Overview

     We are a leading worldwide developer and supplier of custom-designed user interface solutions that enable people to interact more easily and intuitively with a wide variety of electronic devices. We began shipping our proprietary TouchPad in fiscal 1996 and are now the world’s leading supplier of interface solutions to the notebook computer market. Our interface solutions include our TouchPad, TouchStyk, and the combination of both a touchpad and pointing stick for dual pointing applications. We estimate that over half of all notebooks shipped during calendar year 2002 contained our products. We believe our market share results from the combination of our customer focus, the strength of our intellectual property, and our engineering know-how, which allow us to design products that meet the demanding design specifications of original equipment manufacturers, or OEMs. More than 95% of our revenue is generated through sales of our interface solutions to the notebook market.

     Our manufacturing operations are based on a variable cost model in which we outsource all of our production requirements, eliminating the need for significant capital expenditures and allowing us to minimize our investment in inventories. This approach requires us to work closely with our manufacturing subcontractors to ensure adequate production capacity to meet our volume requirements. We provide our manufacturing subcontractors with six-month rolling forecasts and issue purchase orders based on our anticipated requirements for the next 90 days. We do not have any long-term supply contracts with any of our manufacturing subcontractors. Currently, we primarily use one third-party manufacturer to provide our proprietary capacitive-based application specific integrated circuits, or ASICs, and in certain cases we also rely on a single source or a limited number of suppliers to provide other key components of our products. Our cost of sales includes all costs associated with the production of our products, including materials, manufacturing, and assembly costs paid to third-party manufacturers and related overhead costs associated with our manufacturing operations personnel. Additionally, all warranty costs and any inventory provisions or write-downs are expensed as cost of sales.

     Our gross margin generally reflects the combination of the added value we bring to our customers’ products in meeting their custom design requirements and our ongoing cost improvement programs. In the future, we plan to introduce additional new products, which may initially negatively impact our gross margin, as was the case with the introduction of our initial dual pointing solutions in fiscal year 2001.

     Our research and development expenses include expenses related to product development, engineering, materials costs, patent expenses, and the costs incurred to design interface solutions for customers prior to the customers’ commitment to incorporate those solutions into their products. These expenses have generally increased,

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reflecting our continuing commitment to the technological and design innovation required to maintain a leadership position in our existing markets and to develop new technologies for new markets.

     Selling, general, and administrative expenses include expenses related to sales, marketing, and administrative personnel; internal sales and outside sales representatives’ commissions; market research and consulting; and other marketing and sales activities. Increased sales staffing and additional management personnel in anticipation of our continued growth in our existing markets and penetration into new markets have generally caused selling, general, and administrative expenses to increase.

     In connection with the grant of stock options to our employees and consultants, we have recorded deferred stock compensation of approximately $3.0 million, representing the difference between the deemed fair value of our common stock for financial reporting purposes and the exercise price of these options at the date of grant. Deferred stock compensation is presented as a reduction of stockholders’ equity and is amortized on a straight-line basis over the vesting period. Options granted are typically subject to a four-year vesting period. Restricted stock acquired through the exercise of unvested stock options is subject to our right to repurchase the unvested stock at the price paid, which right to repurchase lapses over the vesting period. We are amortizing the deferred stock compensation over the vesting periods of the applicable options and the repurchase periods for the restricted stock. As of December 31, 2002, there was $1.6 million of deferred stock compensation remaining to be amortized in future periods.

Critical Accounting Policies and Estimates

     The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

     We recognize revenue from product sales when there is persuasive evidence that an arrangement exists, delivery has occurred and title has transferred, the price is fixed and determinable, and collectibility is reasonably assured. We accrue for estimated sales returns and other allowances at the time of recognition of revenue, which is typically upon shipment, based on historical experience. Contract revenue for research and development is recorded as earned based on the performance requirements of the contract. Non-refundable contract fees for which no further performance obligations exist, and for which there is no continuing involvement by us, are recognized on the earlier of when the payments are received or when collection is assured.

Allowance for Doubtful Accounts

     We maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to meet their financial obligations. On an ongoing basis, we evaluate the collectibility of accounts receivable based on a combination of factors. In circumstances in which we are aware of a specific customer’s inability to meet its financial obligation, we record a specific reserve of the bad debt against amounts due. In addition, we must make judgments and estimates of the collectibility of accounts receivable based on historical bad debt, customers’ creditworthiness, current economic trends, recent changes in customer payment trends, and deterioration in the customers’ operating results or financial position. If circumstances change adversely, additional allowances may be required.

Inventory

     We are required to state our inventories at the lower of cost or market. Our assessment of the ultimate realization of inventories is based on our projections of future demand and market conditions. Any sudden decline in demand or rapid product improvements and technological changes, or both, can cause us to have excess or obsolete inventories. On an ongoing basis, we review for estimated obsolete or unmarketable inventories and write down our inventories to their net realizable value based upon our forecasts of future demand and market conditions. If actual market conditions are less favorable than our forecasts, additional inventory reserves may be required. Our estimates are influenced by the following considerations: sudden decline in demand due to economic downturn or customer

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demand, rapid product improvements and technological changes, and termination by our OEM customers of any product offerings incorporating our product solutions.

Warranty

     We generally warrant our products for a period of 12 months from the date of sale and estimate probable product warranty costs at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our materials and service suppliers, our warranty costs are affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. We exercise judgment in determining the estimates underlying our accrued warranty liability. The actual results with regard to warranty expenditures could have a material adverse effect on our operating results if the actual rate of unit failure is greater than what we used in estimating the accrued warranty liability.

Results of Operations

Three months ended December 31, 2002 compared to three months ended December 31, 2001

     Net revenue was $24.2 million for the three months ended December 31, 2002 compared to $26.4 million for the three months ended December 31, 2001, a decrease of 8.3%. The decrease in revenue was primarily attributable to a reduction in overall average selling price, resulting from a change in product mix and general competitive pricing, and the absence of a one-time patent license fee that occurred in the comparable prior year period, partially offset by increased unit shipments. During the three months ended December 31, 2002, sales of higher priced dual pointing products decreased to approximately 37% of our revenue compared to 51% for the three months ended December 31, 2001. Increased unit shipments of touchpads, a well as revenue contributions from non-PC applications, partially offset the lower overall average selling price.

     Gross margin as a percentage of revenue was 42.5% for the three months ended December 31, 2002 compared to 41.8% for the three months ended December 31, 2001. The improvement in gross margin as a percentage of revenue primarily reflected lower manufacturing costs, resulting from the combination of our ongoing design and process improvement programs and lower materials and assembly costs, partially offset by a shift in mix to lower margin products, a lower average selling price resulting from general competitive pricing, and the absence of a one-time patent license fee that occurred in the comparable prior year period.

     Research and development expenses increased 16.9% to $4.8 million, or 19.9% of revenue, for the three months ended December 31, 2002 from $4.1 million, or 15.6% of revenue, for the three months ended December 31, 2001. The major contributors to the increase in spending were costs associated with our higher staffing levels, including compensation and facilities-related costs, additional new product development activities, which included outside services and materials costs, and higher patent-related costs.

     Selling, general, and administrative expenses increased 8.7% to $2.6 million, or 10.9% of revenue, for the three months ended December 31, 2002 from $2.4 million, or 9.2% of revenue, for the three months ended December 31, 2001. The increase in spending resulted mainly from higher compensation costs associated with increased staffing levels, additional expenses related to generally higher operating levels, and additional costs related to our status as a public reporting company.

     Amortization of other intangible assets related to our October 1999 acquisition of Absolute Sensors Limited, or ASL, a company located in Cambridge, United Kingdom. For the three months ended December 31, 2002, amortization of other intangible assets amounted to $10,000 compared to $62,000 for the three months ended December 31, 2001. As of December 31, 2002, these intangible assets were fully amortized.

     The three months ended December 31, 2002 included amortization expense for deferred stock compensation of $116,000 compared to $121,000 for the three months ended December 31, 2001. We expect to record amortization expense for deferred stock compensation of $282,000 in the remaining six months of fiscal 2003 and the balance of $1.3 million in future years.

     We generated operating income of $2.7 million for the three months ended December 31, 2002 compared to $4.3 million for the three months ended December 31, 2001. The major contributors to the decrease in operating

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income were the decrease in revenue, resulting primarily from a lower mix of higher margin products, lower average selling prices, and the absence of a one-time patent license fee that occurred in the comparable prior year period, and the increase in operating expenses, which primarily resulted from costs associated with our increased staffing levels, including higher compensation and facilities-related costs, higher research and development costs related to increased product development activities, and additional costs related to our status as a public reporting company. The decrease in revenue and increase in operating expenses were partially offset by an improvement in gross margin percentage, resulting primarily from lower manufacturing costs related to our ongoing design and process improvement programs and lower materials and assembly costs, and increased unit shipments.

     Net interest income was $232,000 for the three months ended December 31, 2002 compared to net interest expense of $1,000 for the three months ended December 31, 2001, reflecting the benefit of higher cash balances available for investment activities from the net proceeds of our initial public offering of 5.0 million shares at $11.00 per share, which closed on February 1, 2002.

     The provision for income taxes for the three months ended December 31, 2002 was $1.1 million compared to $1.5 million for the three months ended December 31, 2001, a decrease of $400,000, reflecting the lower pre-tax profit levels, partially offset by a higher effective tax rate of 37% for the three months ended December 31, 2002 compared to 35% for the three months ended December 31, 2001. The income tax provision represents the estimated federal and state taxes and the foreign taxes associated with our operations in the United Kingdom and Taiwan. The effective tax rates for the three-month periods ended December 31, 2002 and December 31, 2001 reflect the benefit of the federal research and development tax credit, partially offset by nondeductible deferred compensation.

Six months ended December 31, 2002 compared to six months ended December 31, 2001

     Net revenue was $46.4 million for the six months ended December 31, 2002 compared to $50.0 million for the six months ended December 31, 2001, a decrease of 7.2%. The decrease in revenue was primarily attributable to changes in product mix, general competitive pricing pressure, and lower non-recurring engineering and patent license fees, partially offset by increased unit shipments. During the six months ended December 31, 2002, sales of higher priced dual pointing products decreased to approximately 41% of our revenue compared to 50% for the six months ended December 31, 2001. Net revenue decreases caused by product mix changes and competitive pricing, resulting in a lower average selling price, were partially offset by increased unit shipments of touchpads as well as revenue contributions from non-PC applications.

     Gross margin as a percentage of revenue was 43.2% for the six months ended December 31, 2002 compared to 40.0% for the six months ended December 31, 2001. The improvement in gross margin as a percentage of revenue primarily resulted from the benefit of manufacturing efficiencies gained from our ongoing design and process improvement programs and generally lower materials and assembly costs, partially offset by a decrease in mix of higher margin products, lower selling prices resulting from general competitive pricing, and lower non-recurring engineering and patent license revenue.

     Research and development expenses increased 29.8% to $10.1 million, or 21.9% of revenue, for the six months ended December 31, 2002 from $7.8 million, or 15.6% of revenue, for the six months ended December 31, 2001. The major contributors to the increased spending were costs associated with our higher staffing levels, including compensation and facilities-related costs, higher product development activities, which included outside services and materials costs, and higher patent-related costs.

     Selling, general, and administrative expenses increased slightly to $5.2 million, or 11.3% of revenue, for the six months ended December 31, 2002 from $5.1 million, or 10.2% of revenue, for the six months ended December 31, 2001. The increase in spending resulted mainly from higher compensation costs associated with increased staffing levels, higher expenses related to generally higher operating levels, and additional costs related to our status as a public reporting company, partially offset by significantly lower sales commissions, primarily resulting from the replacement of outside sales representatives with inside sales personnel for certain customer accounts that we implemented in October 2001, and to a lesser extent, the decrease in revenue.

     Amortization of other intangible assets related to our October 1999 acquisition of ASL. For the six months ended December 31, 2002, the amount amortized was $40,000 compared to $75,000 for the six months ended December 31, 2001. As of December 31, 2002, these intangible assets were fully amortized.

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     The six months ended December 31, 2002 included amortization expense for deferred stock compensation of $226,000 compared to $242,000 for the six months ended December 31, 2001. We expect to record amortization expense of $282,000 in the remaining six months of fiscal 2003 and the balance of $1.3 million in future years.

     We generated operating income of $4.4 million for the six months ended December 31, 2002 compared to $6.8 million for the six months ended December 31, 2001. The major contributors to the lower operating income were the decrease in revenue, primarily reflecting the impact of a lower mix of higher margin products, lower average selling prices, lower non-recurring engineering and patent license fees, and the increase in operating expenses, which primarily resulted from higher costs associated with our increased staffing levels, including higher compensation and facilities-related costs, higher research and development costs related to increased product development activities, and additional costs related to our status as a public reporting company. The decrease in revenue and the increase in operating expenses were partially offset by an improvement in gross margin percentage, resulting from lower manufacturing costs related to improved manufacturing efficiencies from our ongoing design and process improvement programs and lower materials and assembly costs, increased unit shipments, and lower sales commissions.

     Net interest income was $470,000 for the six months ended December 31, 2002 compared to net interest expense of $32,000 for the six months ended December 31, 2001, reflecting the benefit of higher cash balances available for investment activities from the net proceeds of our initial public offering of 5.0 million shares at $11.00 per share, which closed on February 1, 2002.

     The provision for income taxes for the six months ended December 31, 2002 was $1.8 million compared to $2.3 million for the six months ended December 31, 2001, reflecting the lower pre-tax profit levels, partially offset by a higher effective tax rate of 37% for the six months ended December 31, 2002 compared to 35% for the six months ended December 31, 2001. The income tax provision represents the estimated federal and state taxes and the foreign taxes associated with our operations in the United Kingdom and Taiwan. The effective tax rates for the six month periods ended December 31, 2002 and December 31, 2001, reflect the benefit of the federal research and development tax credit, partially offset by nondeductible deferred compensation.

Liquidity and Capital Resources

     Our cash, cash equivalents, and short-term investments were $69.7 million as of December 31, 2002 compared to $65.2 million as of June 30, 2002, an increase of $4.5 million. During the six months ended December 31, 2002, cash and cash equivalents decreased by $6.6 million, while short-term investments increased by $11.1 million. The primary factors contributing to the changes in cash, cash equivalents, and short-term investments are described below.

     During the six months ended December 31, 2002, operating activities generated cash of $4.1 million compared to $6.8 million during the six months ended December 31, 2001. For the six months ended December 31, 2002, increase in cash was mainly attributable to net income of $3.0 million plus non-cash adjustments for depreciation and amortization of acquired intangible assets and deferred stock compensation. For the six months ended December 31, 2001, net income, adjusted for depreciation and amortization, contributed $5.3 million, while a decrease in working capital contributed an additional $1.5 million.

     Our investing activities typically relate to purchases of government-backed securities and investment-grade fixed income instruments and capital assets. Investing activities during the six months ended December 31, 2002 used cash of $11.4 million compared to $639,000 used during the six months ended December 31, 2001. Cash used during the six months ended December 31, 2002 consisted of purchases of $13.2 million of short-term investments and $435,000 of capital equipment, partially offset by cash provided by the proceeds from sales and maturities of short-term investments of $2.2 million. Cash used for investments during the six months ended December 31, 2001 consisted of capital equipment expenditures.

     Financing activities for the six months ended December 31, 2002 were primarily related to proceeds from common stock issued under the Employee Stock Purchase Plan and stock option plans, and repayment of notes receivable from stockholders, less payments made on capital lease obligations. Net cash provided by financing activities during the six months ended December 31, 2002 was $746,000 compared to $659,000 during the six months ended December 31, 2001.

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     Our principal sources of liquidity as of December 31, 2002 consisted of $69.7 million in cash, cash equivalents, and short-term investments and a $4.2 million working capital line of credit with Silicon Valley Bank, which renewed on November 25, 2002. The Silicon Valley Bank revolving line of credit expires on November 25, 2003 and has an interest rate equal to Silicon Valley Bank’s prime lending rate, and provides for a security interest in substantially all of our assets. We had not borrowed any amounts under the line of credit as of December 31, 2002. The long-term note payable to National Semiconductor represents limited-recourse debt that is secured solely by a portion of our stockholdings in Foveon, Inc., in which National Semiconductor is also an investor. We do not anticipate making any payments under the limited-recourse loan with National Semiconductor, either prior to or at maturity, unless Foveon is participating in a liquidity event, such as an initial public offering of its equity securities or a merger, through which we would be able to receive amounts in excess of our $1.5 million long-term note payable plus accrued interest expense.

     We believe our existing cash, cash equivalents, and short-term investments will be sufficient to meet our cash requirements at least through the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, our operating performance, our ability to maintain our gross margin as a percent of revenue, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the costs to ensure access to adequate manufacturing capacity, the continuing market acceptance of our product solutions, and the amount and timing of our investment in, or acquisition of, other technologies or companies. We cannot assure you that additional equity or debt financing, if needed, will be available to us on acceptable terms or at all.

     The following table provides a summary of the effect on cash flows from our contractual obligations as of December 31, 2002:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Payments Due by Fiscal Year (in thousands)	
Contractual	 	

	
Cash Obligations	 	2003	 	2004 to 2005	 	2006 to 2007	 	2008 and thereafter	 	Total	

	 	

	 	

	 	

	 	

	 	

	
Note payable and interest	 	$	—	 	 	$	—	 	 	$	2,686	 	 	$	—	 	 	$	2,686	 	
Building leases	 	 	576	 	 	 	1,941	 	 	 	515	 	 	 	—	 	 	 	3,032	 	
Capital leases	 	 	179	 	 	 	266	 	 	 	—	 	 	 	—	 	 	 	445	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Total	 	$	755	 	 	$	2,207	 	 	$	3,201	 	 	$	—	 	 	$	6,163	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	 	 	

	 	
Recent Accounting Pronouncements

     In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (the Interpretation, FIN 45). The Interpretation elaborates on the existing disclosure requirements for most guarantees. The Interpretation requires that at the time a company issues certain guarantees, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and initial measurement provisions of the Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Interpretation’s disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002 and are applicable to all guarantees issued by the guarantor subject to the Interpretation’s scope, including guarantees issued prior to the issuance of the Interpretation. The adoption of FIN 45 did not have any material impact on our financial position or results of operations.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk for our company has not changed significantly from the interest rate and foreign currency risks disclosed in Item 7A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2002.

ITEM 4. CONTROLS AND PROCEDURES

     As of a date within 90 days prior to the date of the filing of this report, our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures, which included inquires made to certain other of our employees. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have each concluded that our disclosure controls and procedures are effective and sufficient to ensure that we record, process, summarize, and report information required to be disclosed by us in our periodic reports filed under the Securities Exchange Act within the time periods specified by the Securities and Exchange Commission’s rules and forms. Subsequent to the date of their evaluation, there have not been any significant changes in our internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II — OTHER INFORMATION

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

     Our Annual Meeting of Stockholders was held on October 22, 2002. All of the nominees were elected to our Board of Directors as set forth in the Proxy Statement as follows:
 	 	 	 	 	 	 	 	 	
Nominees	 	Votes in Favor	 	Votes Against	

	 	

	 	

	
Federico Faggin	 	 	19,573,454	 	 	 	130,140	 	
Francis F. Lee	 	 	18,596,035	 	 	 	1,107,559	 	
Keith B. Geeslin	 	 	19,599,498	 	 	 	104,096	 	
Richard L. Sanquini	 	 	19,597,494	 	 	 	106,100	 	
W. Ronald Van Dell	 	 	19,632,898	 	 	 	70,696	 	
     An amendment to our Certificate of Incorporation to classify our board of directors into three classes with staggered terms of office was also voted upon and approved by our stockholders as follows:
 	 	 	 	 	 	 	 	 	
Votes in Favor	 	Votes Against	 	Abstain	

	 	

	 	

	
13,740,645	 	 	2,869,729	 	 	 	27,163	 	

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)	 	Exhibits:	 	
 	 	 	 	
 	 	10.6(a)	Amended and Restated 2001 Incentive Compensation Plan	
 	 	 	 	
 	 	10.6(b)	Form of Grant Agreement for Amended and Restated 2001 Incentive Compensation Plan	
 	 	 	 	
 	 	99.1	Certification of the Chief Executive Officer of the Registrant, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 	 	 	 	
 	 	99.2	Certification of the Chief Financial Officer of the Registrant, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 	 	 	 	
(b)	 	Reports on Form 8-K:	
 	 	 	 	
 	 	None.	
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SIGNATURES

     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.
 	 	 	
 	 	SYNAPTICS INCORPORATED	
 	 	 	
Date: February 6, 2003	 	/s/ Francis F. Lee

Francis F. Lee
President and Chief Executive Officer

 	 	/s/ Russell J. Knittel

Russell J. Knittel
Senior Vice President and Chief
Financial Officer	
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CERTIFICATIONS

     I, Francis F. Lee, certify that:

     1.     I have reviewed this quarterly report on Form 10-Q of Synaptics Incorporated;

     2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

     3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

     4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
 	 	
 	     a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;	
 	 	
 	     b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and	
 	 	
 	     c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;	
     5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
 	 	
 	     a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and	

 	     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and	
     6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 6, 2003
 	 	 	
 	 	/s/ Francis F. Lee

Francis F. Lee
President and Chief Executive Officer	
17

Table of Contents
 	 	
 	     I, Russell J. Knittel, certify that:	
     1.     I have reviewed this quarterly report on Form 10-Q of Synaptics Incorporated;

     2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

     3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

     4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
 	 	
 	     a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;	

 	     b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and	

 	     c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;	
     5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
 	 	
 	     a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and	

 	     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and	
     6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 6, 2003
 	
/s/ Russell J. Knittel

Russell J. Knittel
Senior Vice President, Chief Financial
Officer, Chief Administrative Officer,
Secretary, and Treasurer	
18

Table of Contents

INDEX TO EXHIBITS
 	 	 	 	 	
 	 	Exhibits:	 	 	
 	 	 	 	 	
 	 	10.6(a)	 	Amended and Restated 2001 Incentive Compensation Plan	
 	 	 	 	 	
 	 	10.6(b)	 	Form of Grant Agreement for Amended and Restated 2001 Incentive Compensation Plan	
 	 	 	 	 	
 	 	99.1	 	Certification of the Chief Executive Officer of the Registrant, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 	 	 	 	 	
 	 	99.2	 	Certification of the Chief Financial Officer of the Registrant, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
19

EXHIBIT 10.6(a)

SYNAPTICS INCORPORATED

-----------------------------------

AMENDED AND RESTATED
2001 INCENTIVE COMPENSATION PLAN
(AS AMENDED THROUGH DECEMBER 10, 2002)

SYNAPTICS, INCORPORATED

-----------------------------

AMENDED AND RESTATED
2001 INCENTIVE COMPENSATION PLAN
(AS AMENDED THROUGH DECEMBER 10, 2002)

1.       Purpose....................................................................................     1
2.       Definitions................................................................................     1
3.       Administration.............................................................................     5
(a)      Authority of the Committee........................................................     5
(b)      Manner of Exercise of Committee Authority.........................................     6
(c)      Limitation of Liability...........................................................     6
4.       Stock Subject to Plan......................................................................     6
(a)      Limitation on Overall Number of Shares Subject to Awards..........................     6
(b)      Limitation on Number of Incentive Stock Option Shares.............................     7
(c)      Application of Limitations........................................................     7
5.       Eligibility; Per-Person Award Limitations..................................................     7
6.       Specific Terms of Awards...................................................................     7
(a)      General...........................................................................     7
(b)      Options...........................................................................     8
(c)      Stock Appreciation Rights.........................................................    10
(d)      Restricted Stock..................................................................    11
(e)      Deferred Stock....................................................................    12
(f)      Bonus Stock and Awards in Lieu of Obligations.....................................    13
(g)      Dividend Equivalents..............................................................    13
(h)      Other Stock-Based Awards..........................................................    13
7.       Performance and Annual Incentive Awards....................................................    14
(a)      Performance Conditions............................................................    14
(b)      Performance Awards Granted to Designated Covered Employees........................    14
(c)      Annual Incentive Awards Granted to Designated Covered Employees...................    15
(d)      Written Determinations............................................................    16
(e)      Status of Section 7(b) and Section 7(c) Awards Under Code
Section 162(m)....................................................................    17
8.       Certain Provisions Applicable

to Awards or Sales...........................................    17
(a)      Stand-Alone, Additional, Tandem, and Substitute Awards............................    17
(b)      Term of Awards....................................................................    17
(c)      Purchase Prices...................................................................    17
(d)      Form and Timing of Payment Under Awards; Deferrals................................    18
(e)      Exemptions from Section 16(b) Liability...........................................    18
9.       Change in Control..........................................................................    19
(a)      Effect of "Change in Control."....................................................    19
(b)      Definition of "Change in Control..................................................    19
(c)      Definition of "Change in Control Price."..........................................    19

10.      General Provisions.........................................................................    19
(a)      Compliance With Legal and Other Requirements......................................    19
(b)      Limits on Transferability; Beneficiaries..........................................    19
(c)      Adjustments.......................................................................    20
(d)      Taxes.............................................................................    22
(e)      Changes to the Plan and Awards....................................................    22
(f)      Reporting of Financial Information................................................    22
(g)      Limitation on Rights Conferred Under Plan.........................................    22
(h)      Unfunded Status of Awards; Creation of Trusts.....................................    23
(i)      Nonexclusivity of the Plan........................................................    23
(j)      Payments in the Event of Forfeitures; Fractional Shares...........................    23
(k)      Governing Law.....................................................................    23
(l)      Plan Effective Date and Stockholder Approval; Termination of Plan.................    23

SYNAPTICS, INCORPORATED

AMENDED AND RESTATED
2001 INCENTIVE COMPENSATION PLAN
(AS AMENDED THROUGH DECEMBER 10, 2002)

1. Purpose. The purpose of this AMENDED AND RESTATED 2001 INCENTIVE
COMPENSATION PLAN (the "Plan") is to assist SYNAPTICS INCORPORATED, a California
corporation (the "Company") and its Related Entities in attracting, motivating,
retaining and rewarding high-quality executives and other Employees, officers,
Directors and independent Contractors by enabling such persons to acquire or
increase a proprietary interest in the Company in order to strengthen the
mutuality of interests between such persons and the Company's shareholders, and
providing such persons with annual and long term performance incentives to
expend their maximum efforts in the creation of shareholder value. In the event
that the Company is or becomes a Publicly Held Corporation (as hereinafter
defined), the Plan is intended to qualify certain compensation awarded under the
Plan for tax deductibility under Section 162(m) of the Code (as hereafter
defined) to the extent deemed appropriate by the Committee (or any successor
committee) of the Board of Directors of the Company.

2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof.

(a) "Annual Incentive Award" means a conditional right granted
to a Participant under Section 8(c) hereof to receive a cash payment, Stock or
other Award, unless otherwise determined by the Committee, after the end of a
specified fiscal year.

(b) "Award" means any Option, Stock Appreciation Right
(including Limited Stock Appreciation Right), Restricted Stock, Deferred Stock,
Stock granted as a bonus or in lieu of another award, Dividend Equivalent, Other
Stock-Based Award, Performance Award or Annual Incentive Award, together with
any other right or interest, granted to a Participant under the Plan.

(c) "Beneficiary" means the person, persons, trust or trusts
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted under Section 10(b)
hereof. If, upon a Participant's death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.

(d) "Beneficial Owner", "Beneficially Owning" and "Beneficial
Ownership" shall have the meanings ascribed to such terms in Rule 13d3 under the
Exchange Act and any successor to such Rule.

(e) "Board" means the Company's Board of Directors.

(f) "Cause" shall, with respect to any Participant, have the
equivalent meaning (or the same meaning as "cause" or "for cause") set forth in
any employment agreement between the Participant and the Company or a Related
Entity or, in the absence of any such agreement, such term shall mean (i) the
failure by the Participant to perform his or her duties as assigned by the
Company (or a Related Entity) in a reasonable manner, (ii) any violation or
breach by the Participant of his or her employment agreement with the Company
(or a Related Entity), if any, (iii) any violation or breach by the Participant
of his or her non-competition and/or non-disclosure agreement with the Company
(or a Related Entity), if any, (iv) any act by the Participant of dishonesty or
bad faith with respect to the Company (or a Related Entity), (v) chronic
addiction to alcohol, drugs or other similar substances affecting the
Participant's work performance, or (vi) the commission by the Participant of any
act, misdemeanor, or crime reflecting unfavorably upon the Participant or the
Company. The good faith determination by the Committee of whether the
Participant's Continuous Service was terminated by the Company for "Cause" shall
be final and binding for all purposes hereunder.

(g) "Change in Control" means a Change in Control as defined
with related terms in Section 9 of the Plan.

(h) "Change in Control Price" means the amount calculated in
accordance with Section 9(c) of the Plan.

(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor provisions and
regulations thereto.

(j) "Committee" means a committee designated by the Board to
administer the Plan; provided, however, that the Committee shall consist of at
least two directors, and, in the event the Company is or becomes a Publicly Held
Corporation (as hereinafter defined), each member of which shall be (i) a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange Act,
unless administration of the Plan by "non-employee directors" is not then
required in order for exemptions under Rule 16b-3 to apply to transactions under
the Plan, and (ii) an "outside director" within the meaning of Section 162(m) of
the Code, unless administration of the Plan by "outside directors" is not then
required in order to qualify for tax deductibility under Section 162(m) of the
Code.

(k) "Consultant" means any person (other than an Employee or a
Director, 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.

(l) "Continuous Service" means uninterrupted provision of
services to the Company in any capacity of Employee, Director, or Consultant.
Continuous Service shall not be considered to be interrupted in the case of (i)
any approved leave of absence, (ii) transfers among the Company, any Related
Entities, or any successor entities, 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 Option Agreement).
An approved leave of absence shall include sick leave, military leave, or any
other authorized personal leave.

2

(m) [Reserved]

(n) "Covered Employee" means an Eligible Person who is a
Covered Employee as specified in Section 7(e) of the Plan.

(o) "Deferred Stock" means a right, granted to a Participant
under Section 6(e) hereof, to receive Stock, cash or a combination thereof at
the end of a specified deferral period.

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

(q) "Disability" means a permanent and total disability
(within the meaning of Section 22(e) of the Code), as determined by a medical
doctor satisfactory to the Committee.

(r) "Dividend Equivalent" means a right, granted to a
Participant under Section 6(g) hereof, to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock, or other periodic payments.

(s) "Effective Date" means the effective date of the Plan,
which shall be March 7, 2001.

(t) "Eligible Person" means each Executive Officer of the
Company (as defined under the Exchange Act) and other officers, Directors and
Employees of the Company or of any Related Entity, and independent contractors
with the Company or any Related Entity. The foregoing notwithstanding, only
employees of the Company, the Parent, or any Subsidiary shall be Eligible
Persons for purposes of receiving any Incentive Stock Options. An Employee on
leave of absence may be considered as still in the employ of the Company or a
Related Entity for purposes of eligibility for participation in the Plan.

(u) "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.

(v) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, including rules thereunder and successor
provisions and rules thereto.

(w) "Executive Officer" means an executive officer of the
Company as defined under the Exchange Act.

(x) "Fair Market Value" means the fair market value of Stock,
Awards or other property as determined by the Committee or the Board, or under
procedures established by the Committee or the Board. Unless otherwise
determined by the Committee or the Board, the Fair Market Value of Stock as of
any given date after which the Company is a Publicly Held Corporation shall be
the closing sale price per share reported on a consolidated basis for stock
listed on the principal stock exchange or market on which Stock is traded on the
date as of which such value is being determined or, if there is no sale on that
date, then on the last previous day on which a sale was reported.

3

(y) "Good Reason" shall, with respect to any Participant, have
the equivalent meaning (or the same meaning as "good reason" or "for good
reason") set forth in any employment agreement between the Participant and the
Company or a Related Entity or, in the absence of any such agreement, such term
shall mean (i) the assignment to the Participant of any duties inconsistent in
any respect with the Participant's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as assigned
by the Company (or a Related Entity), or any other action by the Company (or a
Related Entity) which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company (or a Related Entity) promptly after receipt of notice
thereof given by the Participant; (ii) any failure by the Company (or a Related
Entity) to comply with its obligations to the Participant as agreed upon, other
than an isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company (or a Related Entity) promptly after
receipt of notice thereof given by the Participant; (iii) the Company's (or
Related Entity's) requiring the Participant to be based at any office or
location outside of fifty miles from the location of employment as of the date
of Award, except for travel reasonably required in the performance of the
Participant's responsibilities; (iv) any purported termination by the Company
(or a Related Entity) of the Participant's Continuous Service otherwise than for
Cause as defined in Section 2(f), or by reason of the Participant's Disability
as defined in Section 2(o), prior to the Expiration Date. For purposes of this
Section 2(v), any good faith determination of "Good Reason" made by the Company
shall be conclusive.

(z) "Incentive Stock Option" means any Option intended to be
designated as an incentive stock option within the meaning of Section 422 of the
Code or any successor provision thereto.

(aa) [Reserved]

(bb) "Limited Stock Appreciation Right" means a right granted
to a Participant under Section 6(c) hereof.

(cc) "Option" means a right granted to a Participant under
Section 6(b) hereof, to purchase Stock or other Awards at a specified price
during specified time periods.

(dd) "Optionee" means a person to whom an Option or Incentive
Stock Option is granted under this Plan or any person who succeeds to the rights
of such person under this Plan.

(ee) "Other Stock-Based Awards" means Awards granted to a
Participant under Section 6(h) hereof.

(ff) "Parent" means any corporation (other than the Company),
whether now or hereafter existing, in an unbroken chain of corporations ending
with the Company, if each of the corporations in the chain (other than the
Company) owns stock possessing 50 percent or more of the combined voting power
of all classes of stock in one of the other corporations in the chain.

4

(gg) "Participant" means a person who has been granted an
Award under the Plan which remains outstanding, including a person who is no
longer an Eligible Person.

(hh) "Performance Award" means a right, granted to an Eligible
Person under Section 8 hereof, to receive Awards based upon performance criteria
specified by the Committee or the Board.

(ii) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, and shall include a "group" as defined in Section 13(d) thereof.

(jj) "Publicly Held Corporation" shall mean a publicly held
corporation as that term is used under Section 162(m)(2) of the Code.

(kk) "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.

(ll) "Restricted Stock" means Stock granted to a Participant
under Section 6(d) hereof, that is subject to certain restrictions and to a risk
of forfeiture.

(mm) "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and
Rule 16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.

(nn) "Stock" means the Company's Common Stock, and such other
securities as may be substituted (or resubstituted) for Stock pursuant to
Section 10(c) hereof. 

(oo) "Stock Appreciation Right" means a right granted to a
Participant under Section 6(c) hereof.

(pp) "Subsidiary" means any corporation (other than the
Company), whether now or hereafter existing, in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50 percent or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

3.       Administration.

(a) Authority of the Committee. The Plan shall be administered
by the Committee; provided, however, that except as otherwise expressly provided
in this Plan or, during the period that the Company is a Publicly Held
Corporation, in order to comply with Code Section 162(m) or Rule 16b-3 under the
Exchange Act, the Board may exercise any power or authority granted to the
Committee under this Plan. The Committee or the Board shall have full and final
authority, in each case subject to and consistent with the provisions of the
Plan, to select Eligible Persons to become Participants, grant Awards, determine
the type, number and other terms and conditions of, and all other matters
relating to, Awards, prescribe Award agreements (which need not be identical for
each Participant) and rules and regulations for the 

5

administration of the Plan, construe and interpret the Plan and Award agreements
and correct defects, supply omissions or reconcile inconsistencies therein, and
to make all other decisions and determinations as the Committee or the Board may
deem necessary or advisable for the administration of the Plan. In exercising
any discretion granted to the Committee or the Board under the Plan or pursuant
to any Award, the Committee or the Board shall not be required to follow past
practices, act in a manner consistent with past practices, or treat any Eligible
Person in a manner consistent with the treatment of other Eligible Persons.

(b) Manner of Exercise of Committee Authority. In the event
that the Company is or becomes a Publicly Held Corporation, the Committee, and
not the Board, shall exercise sole and exclusive discretion on any matter
relating to a Participant then subject to Section 16 of the Exchange Act with
respect to the Company to the extent necessary in order that transactions by
such Participant shall be exempt under Rule 16b-3 under the Exchange Act. Any
action of the Committee or the Board shall be final, conclusive and binding on
all persons, including the Company, its Related Entities, Participants,
Beneficiaries, transferees under Section 10(b) hereof or other persons claiming
rights from or through a Participant, and shareholders. The express grant of any
specific power to the Committee or the Board, and the taking of any action by
the Committee or the Board, shall not be construed as limiting any power or
authority of the Committee or the Board. The Committee or the Board may delegate
to officers or managers of the Company or any Related Entity, or committees
thereof, the authority, subject to such terms as the Committee or the Board
shall determine, (i) to perform administrative functions, (ii) with respect to
Participants not subject to Section 16 of the Exchange Act, to perform such
other functions as the Committee or the Board may determine, and (iii) with
respect to Participants subject to Section 16, to perform such other functions
of the Committee or the Board as the Committee or the Board may determine to the
extent performance of such functions will not result in the loss of an exemption
under Rule 16b-3 otherwise available for transactions by such persons, in each
case to the extent permitted under applicable law and subject to the
requirements set forth in Section 7(d). The Committee or the Board may appoint
agents to assist it in administering the Plan.

(c) Limitation of Liability. The Committee and the Board, and
each member thereof, shall be entitled to, in good faith, rely or act upon any
report or other information furnished to him or her by any Executive Officer,
other officer or Employee, the Company's independent auditors, Consultants or
any other agents assisting in the administration of the Plan. Members of the
Committee and the Board, and any officer or Employee acting at the direction or
on behalf of the Committee or the Board, shall not be personally liable for any
action or determination taken or made in good faith with respect to the Plan,
and shall, to the extent permitted by law, be fully indemnified and protected by
the Company with respect to any such action or determination.

4.       Stock Subject to Plan.

(a) Limitation on Overall Number of Shares Subject to Awards.
Subject to adjustment as provided in Section 10(c) hereof, the total number of
shares of Stock reserved and available for delivery in connection with Awards
under the Plan shall be the sum of (i) 1,000,000, plus (ii) the number of shares
with respect to Awards previously granted under the Plan that terminate without
being exercised, expire, are forfeited or canceled, and the number of 

6

shares of Stock that are surrendered in payment of any Awards or any tax
withholding with regard thereto. In the event an Initial Public Offering ("IPO")
of the shares of the Company's Stock occurs, the overall number of shares of the
Company's Stock subject to Awards shall be further increased by 6% of the total
number of shares of the Company's Stock outstanding immediately following the
IPO, plus, on the first day of each subsequent calendar quarter, an additional
1.5% of the total number of shares of the Company's Stock outstanding on that
day, provided, however, that at no time shall the number of shares of the
Company's Stock subject to Awards exceed 30% of the then outstanding shares of
the Company's Stock (counting convertible preferred and convertible senior
common shares as if converted), unless a greater percentage is approved by a
vote of at least two-thirds of the securities entitled to vote, or a
determination is made by counsel for the Company that such restriction is not
required by applicable federal or state securities laws under the circumstances.
Any shares of Stock delivered under the Plan may consist, in whole or in part,
of authorized and unissued shares or treasury shares.

(b) Limitation on Number of Incentive Stock Option Shares.
Subject to adjustment as provided in Section 10(c) hereof, the number of shares
of Stock which may be issued pursuant to Incentive Stock Options shall be the
lesser of (i) the number of Shares that may be subject to Awards under Section
4(a), or (ii) 15,000,000.

(c) Application of Limitations. The limitation contained in
this Section 4 shall apply not only to Awards that are settleable by the
delivery of shares of Stock but also to Awards relating to shares of Stock but
settleable only in cash (such as cash-only Stock Appreciation Rights). The
Committee or the Board may adopt reasonable counting procedures to ensure
appropriate counting, avoid double counting (as, for example, in the case of
tandem or substitute awards) and make adjustments if the number of shares of
Stock actually delivered differs from the number of shares previously counted in
connection with an Award.

5. Eligibility; Per-Person Award Limitations. Awards may be granted
under the Plan only to Eligible Persons. In each fiscal year during any part of
which the Plan is in effect, an Eligible Person may not be granted Awards
relating to more than 1,000,000 shares of Stock, subject to adjustment as
provided in Section 10(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f),
6(g), 6(h), 7(b) and 7(c). In addition, the maximum amount that may be earned as
an Annual Incentive Award or other cash Award in any fiscal year by any one
Participant shall be $2,000,000, and the maximum amount that may be earned as a
Performance Award or other cash Award in respect of a performance period by any
one Participant shall be $5,000,000.

6.       Specific Terms of Awards.

(a) General. Awards may be granted on the terms and conditions
set forth in this Section 6. In addition, the Committee or the Board may impose
on any Award or the exercise thereof, at the date of grant or thereafter
(subject to Section 10(e)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee or the Board
shall determine, including terms requiring forfeiture of Awards in the event of
termination of Continuous Service by the Participant and terms permitting a
Participant to make elections relating to his or her Award. The Committee or the
Board shall retain full power and discretion to accelerate, waive or modify, at
any time, any term or condition of an Award that is not 

7

mandatory under the Plan. Except in cases in which the Committee or the Board is
authorized to require other forms of consideration under the Plan, or to the
extent other forms of consideration must be paid to satisfy the requirements of
California law, no consideration other than services may be required for the
grant (but not the exercise) of any Award.

(b) Options. The Committee and the Board each is authorized to
grant Options to Participants on the following terms and conditions:

(i) Stock Option Agreement. Each grant of an Option
under the Plan shall be evidenced by a Stock Option Agreement.
Such Stock Option Agreement shall be subject to all applicable
terms and conditions of the Plan and may be subject to any
other terms and conditions which are not inconsistent with the
Plan and which the Committee or the Board deems appropriate
for inclusion in a Stock Option Agreement. The provisions of
the various Stock Option Agreements entered into under the
Plan need not be identical.

(ii) Number of Shares. Each Stock Option Agreement
shall specify the number of shares of Stock that are subject
to the Option and shall provide for the adjustment of such
number in accordance with Section 10(c) hereof. The Stock
Option Agreement shall also specify whether the Stock Option
is an Incentive Stock Option or a Non-Qualified Stock Option.

(iii) Exercise Price.

(A) In General. Each Stock Option Agreement
shall state the price at which shares of Stock subject to the
Option may be purchased (the "Exercise Price"), which shall
be, with respect to Incentive Stock Options, not less than
100% of the Fair Market Value of the Stock on the date of
grant. In the case of Non-Qualified Stock Options, the
Exercise Price shall be determined in the sole discretion of
the Committee or the Board; provided, however, that the
Exercise Price shall be no less than 85% of the Fair Market
Value of the shares of Stock on the date of grant of the
Non-Qualified Stock Option.

(B) Ten Percent Shareholder. If an
individual owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of
stock of the Company or any Related Entity, any Option granted
to such individual must comply with the following: (1) the
Exercise Price of a Non-Qualified Stock Option must be at
least 110% of the Fair Market Value of a share of Stock on the
date of grant, or (2) in the case of an Incentive Stock
Option, the Exercise Price must be at least 110% of the Fair
Market Value of a share of Stock on the date of grant and such
Incentive Stock Option by its terms is not exercisable after
the expiration of five years from the date of grant.

(C) Non-Applicability. The Exercise Price
restriction applicable to Non-Qualified Stock Options required
by Sections 6(b)(iii)(A) and 6(b)(iii)(B) shall be inoperative
if (1) the offer and sale of the shares of Stock to 

8

be issued upon payment of the Exercise Price have been
registered under a then currently effective registration
statement under applicable federal or state securities laws,
or (2) a determination is made by counsel for the Company that
such Exercise Price restrictions are not required in the
circumstances under applicable federal or state securities
laws.

(iv) Time and Method of Exercise. The Committee or
the Board shall determine the time or times at which or the
circumstances under which an Option may be exercised in whole
or in part (including based on achievement of performance
goals and/or future service requirements), provided that in
the case of an Optionee who is not an officer, Director, or
Consultant of the Company or a Related Entity, his or her
Options shall become exercisable at least as rapidly as 20%
per year, over a 5 year period commencing on the date of the
grant, unless a determination is made by counsel for the
Company that such vesting requirements are not required in the
circumstances under applicable federal or state securities
laws. The Board or the Committee may also determine the time
or times at which Options shall cease to be or become
exercisable following termination of Continuous Service or
upon other conditions; provided, however, if the Optionee's
Continuous Service is terminated for any reason other than
Cause, that portion of the Option that is exercisable as of
the date of termination shall remain exercisable for at least
6 months from the date of termination if by reason of death or
Disability, and for at least 30 days from the date of
termination if by reason other than the Optionee's death or
Disability. The Board or the Committee may determine the
methods by which such exercise price may be paid or deemed to
be paid (including in the discretion of the Committee or the
Board a cashless exercise procedure), the form of such
payment, including, without limitation, cash, Stock, other
Awards or awards granted under other plans of the Company or a
Related Entity, or other property (including notes or other
contractual obligations of Participants to make payment on a
deferred basis), and the methods by or forms in which Stock
will be delivered or deemed to be delivered to Participants.

(v) Incentive Stock Options. The terms of any
Incentive Stock Option granted under the Plan shall comply in
all respects with the provisions of Section 422 of the Code.
Anything in the Plan to the contrary notwithstanding, no term
of the Plan relating to Incentive Stock Options (including any
Stock Appreciation Rights in tandem therewith) shall be
interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be exercised, so as to
disqualify either the Plan or any Incentive Stock Option under
Section 422 of the Code, unless the Participant has first
requested the change that will result in such
disqualification. Thus, if and to the extent required to
comply with Section 422 of the Code, Options granted as
Incentive Stock Options shall be subject to the following
special terms and conditions:

(A) the Option shall not be exercisable more
than ten years after the date such Incentive Stock Option is
granted; provided, however, that if a Participant owns or is
deemed to own (by reason of the attribution rules of Section

9

424(d) of the Code) more than 10% of the combined voting power
of all classes of stock of the Company or any Parent
Corporation and the Incentive Stock Option is granted to such
Participant, the term of the Incentive Stock Option shall be
(to the extent required by the Code at the time of the grant)
for no more than five years from the date of grant; and

(B) The aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is
granted) of the shares of stock with respect to which
Incentive Stock Options granted under the Plan and all other
option plans of the Company or its Parent Corporation during
any calendar year exercisable for the first time by the
Participant during any calendar year shall not (to the extent
required by the Code at the time of the grant) exceed
$100,000.

(vi) Repurchase Rights. The Committee and the Board
shall have the discretion to grant Options which are
exercisable for unvested shares of Common Stock. Should the
Optionee's Continuous Service cease while holding such
unvested shares, the Company shall have the right to
repurchase, at the exercise price paid per share, any or all
of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Committee or the
Board and set forth in the document evidencing such repurchase
right.

(c) Stock Appreciation Rights. The Committee and the Board
each is authorized to grant Stock Appreciation Rights to Participants on the
following terms and conditions:

(i) Right to Payment. A Stock Appreciation Right
shall confer on the Participant to whom it is granted a right
to receive, upon exercise thereof, the excess of (A) the Fair
Market Value of one share of stock on the date of exercise
(or, in the case of a "Limited Stock Appreciation Right" that
may be exercised only in the event of a Change in Control, the
Fair Market Value determined by reference to the Change in
Control Price, as defined under Section 9(c) hereof), over (B)
the grant price of the Stock Appreciation Right as determined
by the Committee or the Board. The grant price of a Stock
Appreciation Right shall not be less than the Fair Market
Value of a share of Stock on the date of grant except as
provided under Section 8(a) hereof.

(ii) Other Terms. The Committee or the Board shall
determine at the date of grant or thereafter, the time or
times at which and the circumstances under which a Stock
Appreciation Right may be exercised in whole or in part
(including based on achievement of performance goals and/or
future service requirements), the time or times at which Stock
Appreciation Rights shall cease to be or become exercisable
following termination of Continuous Service or upon other
conditions, the method of exercise, method of settlement, form
of consideration payable in settlement, method by or forms in
which Stock will be delivered or deemed to be delivered to
Participants, whether or not a Stock Appreciation Right shall
be in 

10

tandem or in combination with any other Award, and any other
terms and conditions of any Stock Appreciation Right. Limited
Stock Appreciation Rights that may only be exercised in
connection with a Change in Control or other event as
specified by the Committee or the Board, may be granted on
such terms, not inconsistent with this Section 6(c), as the
Committee or the Board may determine. Stock Appreciation
Rights and Limited Stock Appreciation Rights may be either
freestanding or in tandem with other Awards.

(d) Restricted Stock. The Committee and the Board each is
authorized to grant Restricted Stock to Participants on the following terms and
conditions:

(i) Grant and Restrictions. Restricted Stock shall be
subject to such restrictions on transferability, risk of
forfeiture and other restrictions, if any, as the Committee or
the Board may impose, or as otherwise provided in this Plan.
The restrictions may lapse separately or in combination at
such times, under such circumstances (including based on
achievement of performance goals and/or future service
requirements), in such installments or otherwise, as the
Committee or the Board may determine at the date of grant or
thereafter. Except to the extent restricted under the terms of
the Plan and any Award agreement relating to the Restricted
Stock, a Participant granted Restricted Stock shall have all
of the rights of a shareholder, including the right to vote
the Restricted Stock and the right to receive dividends
thereon (subject to any mandatory reinvestment or other
requirement imposed by the Committee or the Board). During the
restricted period applicable to the Restricted Stock, subject
to Section 10(b) below, the Restricted Stock may not be sold,
transferred, pledged, hypothecated, margined or otherwise
encumbered by the Participant.

(ii) Forfeiture. Except as otherwise determined by
the Committee or the Board at the time of the Award, upon
termination of a Participant's Continuous Service during the
applicable restriction period, the Participant's Restricted
Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided that the
Committee or the Board may provide, by rule or regulation or
in any Award agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to
Restricted Stock shall be waived in whole or in part in the
event of terminations resulting from specified causes, and the
Committee or the Board may in other cases waive in whole or in
part the forfeiture of Restricted Stock.

(iii) Certificates for Stock. Restricted Stock
granted under the Plan may be evidenced in such manner as the
Committee or the Board shall determine. If certificates
representing Restricted Stock are registered in the name of
the Participant, the Committee or the Board may require that
such certificates bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such
Restricted Stock, that the Company retain physical possession
of the certificates, and that the Participant deliver a stock
power to the Company, endorsed in blank, relating to the
Restricted Stock.

11

(iv) Dividends and Splits. As a condition to the
grant of an Award of Restricted Stock, the Committee or the
Board may require that any cash dividends paid on a share of
Restricted Stock be automatically reinvested in additional
shares of Restricted Stock or applied to the purchase of
additional Awards under the Plan. Unless otherwise determined
by the Committee or the Board, Stock distributed in connection
with a Stock split or Stock dividend, and other property
distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted
Stock with respect to which such Stock or other property has
been distributed.

(e) Deferred Stock. The Committee and the Board each is
authorized to grant Deferred Stock to Participants, which are rights to receive
Stock, cash, or a combination thereof at the end of a specified deferral period,
subject to the following terms and conditions:

(i) Award and Restrictions. Satisfaction of an Award
of Deferred Stock shall occur upon expiration of the deferral
period specified for such Deferred Stock by the Committee or
the Board (or, if permitted by the Committee or the Board, as
elected by the Participant). In addition, Deferred Stock shall
be subject to such restrictions (which may include a risk of
forfeiture) as the Committee or the Board may impose, if any,
which restrictions may lapse at the expiration of the deferral
period or at earlier specified times (including based on
achievement of performance goals and/or future service
requirements), separately or in combination, in installments
or otherwise, as the Committee or the Board may determine.
Deferred Stock may be satisfied by delivery of Stock, cash
equal to the Fair Market Value of the specified number of
shares of Stock covered by the Deferred Stock, or a
combination thereof, as determined by the Committee or the
Board at the date of grant or thereafter. Prior to
satisfaction of an Award of Deferred Stock, an Award of
Deferred Stock carries no voting or dividend or other rights
associated with share ownership.

(ii) Forfeiture. Except as otherwise determined by
the Committee or the Board, upon termination of a
Participant's Continuous Service during the applicable
deferral period thereof to which forfeiture conditions apply
(as provided in the Award agreement evidencing the Deferred
Stock), the Participant's Deferred Stock that is at that time
subject to deferral (other than a deferral at the election of
the Participant) shall be forfeited; provided that the
Committee or the Board may provide, by rule or regulation or
in any Award agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to
Deferred Stock shall be waived in whole or in part in the
event of terminations resulting from specified causes, and the
Committee or the Board may in other cases waive in whole or in
part the forfeiture of Deferred Stock.

(iii) Dividend Equivalents. Unless otherwise
determined by the Committee or the Board at date of grant, any
Dividend Equivalents that are granted with respect to any
Award of Deferred Stock shall be either (A) paid with respect
to such Deferred Stock at the dividend payment date in cash or
in shares 

12

of unrestricted Stock having a Fair Market Value equal to the
amount of such dividends, or (B) deferred with respect to such
Deferred Stock and the amount or value thereof automatically
deemed reinvested in additional Deferred Stock, other Awards
or other investment vehicles, as the Committee or the Board
shall determine or permit the Participant to elect.

(f) Bonus Stock and Awards in Lieu of Obligations. The
Committee and the Board each is authorized to grant Stock as a bonus, or to
grant Stock or other Awards in lieu of Company obligations to pay cash or
deliver other property under the Plan or under other plans or compensatory
arrangements, provided that, in the case of Participants subject to Section 16
of the Exchange Act, the amount of such grants remains within the discretion of
the Committee to the extent necessary to ensure that acquisitions of Stock or
other Awards are exempt from liability under Section 16(b) of the Exchange Act.
Stock or Awards granted hereunder shall be subject to such other terms as shall
be determined by the Committee or the Board.

(g) Dividend Equivalents. The Committee and the Board each is
authorized to grant Dividend Equivalents to a Participant entitling the
Participant to receive cash, Stock, other Awards, or other property equal in
value to dividends paid with respect to a specified number of shares of Stock,
or other periodic payments. Dividend Equivalents may be awarded on a
free-standing basis or in connection with another Award. The Committee or the
Board may provide that Dividend Equivalents shall be paid or distributed when
accrued or shall be deemed to have been reinvested in additional Stock, Awards,
or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee or the Board may
specify.

(h) Other Stock-Based Awards. The Committee and the Board each
is authorized, subject to limitations under applicable law, to grant to
Participants such other Awards that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, Stock,
as deemed by the Committee or the Board to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee or the Board, and
Awards valued by reference to the book value of Stock or the value of securities
of or the performance of specified Related Entities or business units. The
Committee or the Board shall determine the terms and conditions of such Awards.
Stock delivered pursuant to an Award in the nature of a purchase right granted
under this Section 6(h) shall be purchased for such consideration (including
without limitation loans from the Company or a Related Entity), paid for at such
times, by such methods, and in such forms, including, without limitation, cash,
Stock, other Awards or other property, as the Committee or the Board shall
determine. The Committee and the Board shall have the discretion to grant such
other Awards which are exercisable for unvested shares of Common Stock. Should
the Optionee's Continuous Service cease while holding such unvested shares, the
Company shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Committee or the Board and set forth in the document evidencing such
repurchase right. Cash awards, as an element of or supplement to any other Award
under the Plan, may also be granted pursuant to this Section 6(h).

13

7.       Performance and Annual Incentive Awards.

(a) Performance Conditions. The right of a Participant to
exercise or receive a grant or settlement of any Award, and the timing thereof,
may be subject to such performance conditions as may be specified by the
Committee or the Board. The Committee or the Board may use such business
criteria and other measures of performance as it may deem appropriate in
establishing any performance conditions, and may exercise its discretion to
reduce the amounts payable under any Award subject to performance conditions,
except as limited under Sections 7(b) and 7(c) hereof in the case of a
Performance Award or Annual Incentive Award intended to qualify under Code
Section 162(m). At such times as the Company is a Publicly Held Corporation, if
and to the extent required under Code Section 162(m), any power or authority
relating to a Performance Award or Annual Incentive Award intended to qualify
under Code Section 162(m), shall be exercised by the Committee and not the
Board.

(b) Performance Awards Granted to Designated Covered
Employees. If and to the extent that the Committee determines that a Performance
Award to be granted to an Eligible Person who is designated by the Committee as
likely to be a Covered Employee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the grant, exercise and/or
settlement of such Performance Award shall be contingent upon achievement of
pre-established performance goals and other terms set forth in this Section
7(b).

(i) Performance Goals Generally. The performance
goals for such Performance Awards shall consist of one or more
business criteria and a targeted level or levels of
performance with respect to each of such criteria, as
specified by the Committee consistent with this Section 7(b).
Performance goals shall be objective and shall otherwise meet
the requirements of Code Section 162(m) and regulations
thereunder including the requirement that the level or levels
of performance targeted by the Committee result in the
achievement of performance goals being "substantially
uncertain." The Committee may determine that such Performance
Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of
the performance goals must be achieved as a condition to
grant, exercise and/or settlement of such Performance Awards.
Performance goals may differ for Performance Awards granted to
any one Participant or to different Participants.

(ii) Business Criteria. One or more of the following
business criteria for the Company, on a consolidated basis,
and/or specified Related Entities or business units of the
Company (except with respect to the total shareholder return
and earnings per share criteria), shall be used exclusively by
the Committee in establishing performance goals for such
Performance Awards: (1) total shareholder return; (2) such
total shareholder return as compared to total return (on a
comparable basis) of a publicly available index such as, but
not limited to, the Standard & Poor's 500 Stock Index or the
S&P Specialty Retailer Index; (3) net income; (4) pretax
earnings; (5) earnings before interest expense, taxes,
depreciation and amortization; (6) pretax operating earnings
after interest expense and before bonuses, service fees, and
extraordinary or special items; (7) operating margin; (8)
earnings per share; (9) return on equity; (10) return on
capital; (11) 

14

return on investment; (12) operating earnings; (13) working
capital or inventory; and (14) ratio of debt to shareholders'
equity. One or more of the foregoing business criteria shall
also be exclusively used in establishing performance goals for
Annual Incentive Awards granted to a Covered Employee under
Section 7(c) hereof that are intended to qualify as
"performanced-based compensation under Code Section 162(m).

(iii) Performance Period; Timing For Establishing
Performance Goals. Achievement of performance goals in respect
of such Performance Awards shall be measured over a
performance period of up to ten years, as specified by the
Committee. Performance goals shall be established not later
than 90 days after the beginning of any performance period
applicable to such Performance Awards, or at such other date
as may be required or permitted for "performance-based
compensation" under Code Section 162(m).

(iv) Performance Award Pool. The Committee may
establish a Performance Award pool, which shall be an unfunded
pool, for purposes of measuring Company performance in
connection with Performance Awards. The amount of such
Performance Award pool shall be based upon the achievement of
a performance goal or goals based on one or more of the
business criteria set forth in Section 7(b)(ii) hereof during
the given performance period, as specified by the Committee in
accordance with Section 7(b)(iii) hereof. The Committee may
specify the amount of the Performance Award pool as a
percentage of any of such business criteria, a percentage
thereof in excess of a threshold amount, or as another amount
which need not bear a strictly mathematical relationship to
such business criteria.

(v) Settlement of Performance Awards; Other Terms.
Settlement of such Performance Awards shall be in cash, Stock,
other Awards or other property, in the discretion of the
Committee. The Committee may, in its discretion, reduce the
amount of a settlement otherwise to be made in connection with
such Performance Awards. The Committee shall specify the
circumstances in which such Performance Awards shall be paid
or forfeited in the event of termination of Continuous Service
by the Participant prior to the end of a performance period or
settlement of Performance Awards.

(c) Annual Incentive Awards Granted to Designated Covered
Employees. The Committee may, within its discretion, grant one or more Annual
Incentive Awards to any Eligible Person, subject to the terms and conditions set
forth in this Section 7(c).

(i) Annual Incentive Award Pool. The Committee may
establish an Annual Incentive Award pool, which shall be an
unfunded pool, for purposes of measuring Company performance
in connection with Annual Incentive Awards. In the case of
Annual Incentive Awards intended to qualify as
"performance-based compensation" for purposes of Code Section
162(m), the amount of such Annual Incentive Award pool shall
be based upon the achievement of a performance goal or goals
based on one or more of the business criteria set forth 

15

in Section 7(b)(ii) hereof during the given performance
period, as specified by the Committee in accordance with
Section 7(b)(iii) hereof. The Committee may specify the amount
of the Annual Incentive Award pool as a percentage of any such
business criteria, a percentage thereof in excess of a
threshold amount, or as another amount which need not bear a
strictly mathematical relationship to such business criteria.

(ii) Potential Annual Incentive Awards. Not later
than the end of the 90th day of each fiscal year, or at such
other date as may be required or permitted in the case of
Awards intended to be "performance-based compensation" under
Code Section 162(m), the Committee shall determine the
Eligible Persons who will potentially receive Annual Incentive
Awards, and the amounts potentially payable thereunder, for
that fiscal year, either out of an Annual Incentive Award pool
established by such date under Section 7(c)(i) hereof or as
individual Annual Incentive Awards. In the case of individual
Annual Incentive Awards intended to qualify under Code Section
162(m), the amount potentially payable shall be based upon the
achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 7(b)(ii)
hereof in the given performance year, as specified by the
Committee; in other cases, such amount shall be based on such
criteria as shall be established by the Committee. In all
cases, the maximum Annual Incentive Award of any Participant
shall be subject to the limitation set forth in Section 5
hereof.

(iii) Payout of Annual Incentive Awards. After the
end of each fiscal year, the Committee shall determine the
amount, if any, of (A) the Annual Incentive Award pool, and
the maximum amount of potential Annual Incentive Award payable
to each Participant in the Annual Incentive Award pool, or (B)
the amount of potential Annual Incentive Award otherwise
payable to each Participant. The Committee may, in its
discretion, determine that the amount payable to any
Participant as an Annual Incentive Award shall be reduced from
the amount of his or her potential Annual Incentive Award,
including a determination to make no Award whatsoever. The
Committee shall specify the circumstances in which an Annual
Incentive Award shall be paid or forfeited in the event of
termination of Continuous Service by the Participant prior to
the end of a fiscal year or settlement of such Annual
Incentive Award.

(d) Written Determinations. All determinations by the
Committee as to the establishment of performance goals, the amount of any
Performance Award pool or potential individual Performance Awards and as to the
achievement of performance goals relating to Performance Awards under Section
7(b), and the amount of any Annual Incentive Award pool or potential individual
Annual Incentive Awards and the amount of final Annual Incentive Awards under
Section 7(c), shall be made in writing in the case of any Award intended to
qualify under Code Section 162(m). The Committee may not delegate any
responsibility relating to such Performance Awards or Annual Incentive Awards if
and to the extent required to comply with Code Section 162(m).

16

(e) Status of Section 7(b) and Section 7(c) Awards Under Code
Section 162(m). It is the intent of the Company that Performance Awards and
Annual Incentive Awards under Section 7(b) and 7(c) hereof granted to persons
who are designated by the Committee as likely to be Covered Employees within the
meaning of Code Section 162(m) and regulations thereunder shall, if so
designated by the Committee, constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Sections 7(b), (c), (d) and (e), including
the definitions of Covered Employee and other terms used therein, shall be
interpreted in a manner consistent with Code Section 162(m) and regulations
thereunder. The foregoing notwithstanding, because the Committee cannot
determine with certainty whether a given Participant will be a Covered Employee
with respect to a fiscal year that has not yet been completed, the term Covered
Employee as used herein shall mean only a person designated by the Committee, at
the time of grant of Performance Awards or an Annual Incentive Award, as likely
to be a Covered Employee with respect to that fiscal year. If any provision of
the Plan or any agreement relating to such Performance Awards or Annual
Incentive Awards does not comply or is inconsistent with the requirements of
Code Section 162(m) or regulations thereunder, such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements.

8.       Certain Provisions Applicable to Awards or Sales.

(a) Stand-Alone, Additional, Tandem, and Substitute Awards.
Awards granted under the Plan may, in the discretion of the Committee or the
Board, be granted either alone or in addition to, in tandem with, or in
substitution or exchange for, any other Award or any award granted under another
plan of the Company, any Related Entity, or any business entity to be acquired
by the Company or a Related Entity, or any other right of a Participant to
receive payment from the Company or any Related Entity. Such additional, tandem,
and substitute or exchange Awards may be granted at any time. If an Award is
granted in substitution or exchange for another Award or award, the Committee or
the Board shall require the surrender of such other Award or award in
consideration for the grant of the new Award. In addition, Awards may be granted
in lieu of cash compensation, including in lieu of cash amounts payable under
other plans of the Company or any Related Entity, in which the value of Stock
subject to the Award is equivalent in value to the cash compensation (for
example, Deferred Stock or Restricted Stock), or in which the exercise price,
grant price or purchase price of the Award in the nature of a right that may be
exercised is equal to the Fair Market Value of the underlying Stock minus the
value of the cash compensation surrendered (for example, Options granted with an
exercise price "discounted" by the amount of the cash compensation surrendered).

(b) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee or the Board; provided that in no
event shall the term of any Option or Stock Appreciation Right exceed a period
of ten years (or such shorter term as may be required in respect of an Incentive
Stock Option under Section 422 of the Code).

(c) Purchase Prices.

(i) In General. In the case of an Award under this
Plan, other than an Option, which grants an Employee,
Director, or Consultant of the Company the right to purchase
Stock, the Board or the Committee shall have discretion to set

17

the purchase price, provided that in no event shall the
purchase price per share of Stock be less than 85% of the Fair
Market Value of such share on the date of the Award or the
date of the purchase, and in the case of an Award made to an
Employee who owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of
Stock of the Company, the Parent Corporation or a Subsidiary,
the purchase price of such Stock shall be no less than 100% of
the Fair Market Value of the Stock on the date of such award
or the date of the purchase.

(ii) Non-Applicability of Restrictions. The Purchase
Price restrictions contained in Section 8(c)(i) applicable to
Awards under this Plan, other than Options, which grant an
Employee, Director, or Consultant of the Company the right to
purchase Stock, shall be inoperative if (A) the offer and sale
of the shares of Stock to be issued upon payment of the
Exercise Price have been registered under a then currently
effective registration statement under applicable federal or
state securities laws, or (B) a determination is made by
counsel for the Company that such Exercise Price restrictions
are not required in the circumstances under applicable federal
or state securities laws.

(d) Form and Timing of Payment Under Awards; Deferrals.
Subject to the terms of the Plan and any applicable Award agreement, payments to
be made by the Company or a Related Entity upon the exercise of an Option or
other Award or settlement of an Award may be made in such forms as the Committee
or the Board shall determine, including, without limitation, cash, other Awards
or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such settlement,
in the discretion of the Committee or the Board or upon occurrence of one or
more specified events (in addition to a Change in Control). Installment or
deferred payments may be required by the Committee or the Board (subject to
Section 10(e) of the Plan) or permitted at the election of the Participant on
terms and conditions established by the Committee or the Board. Payments may
include, without limitation, provisions for the payment or crediting of a
reasonable interest rate on installment or deferred payments or the grant or
crediting of Dividend Equivalents or other amounts in respect of installment or
deferred payments denominated in Stock.

(e) Exemptions from Section 16(b) Liability. If and to the
extent that the Company is or becomes a Publicly Held Corporation, it is the
intent of the Company that this Plan comply in all respects with applicable
provisions of Rule 16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure
that neither the grant of any Awards to nor other transaction by a Participant
who is subject to Section 16 of the Exchange Act is subject to liability under
Section 16(b) thereof (except for transactions acknowledged in writing to be
non-exempt by such Participant). Accordingly, if any provision of this Plan or
any Award agreement does not comply with the requirements of Rule 16b-3 or Rule
16a-1(c)(3) as then applicable to any such transaction, such provision will be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall
avoid liability under Section 16(b). In addition, the purchase price of any
Award conferring a right to purchase Stock shall be not less than any specified
percentage of the 

18

Fair Market Value of Stock at the date of grant of the Award then required in
order to comply with Rule 16b-3.

9.       Change in Control.

(a) Effect of "Change in Control." The effect of a "Change in
Control," as defined in Section 9(b) below, shall be as provided, if at all, (1)
in an employment, compensation, or severance agreement, if any, between the
Company or any Related Entity and the Participant, relating to the Participant's
employment, compensation, or severance with or from the Company or such Related
Entity, or (2) in the agreement evidencing the Award.

(b) Definition of "Change in Control." A "Change in Control"
shall be defined as it is defined, if at all, (1) in an employment,
compensation, or severance agreement, if any, between the Company or any Related
Entity and the Participant, relating to the Participant's employment,
compensation, or severance with or from the Company or such Related Entity, or
(2) in the agreement evidencing the Award to such Participant.

(c) Definition of "Change in Control Price." The "Change in
Control Price" shall be defined as it is defined, if at all, (1) in an
employment, compensation, or severance agreement, if any, between the Company or
any Related Entity and the Participant, relating to the Participant's
employment, compensation, or severance with or from the Company or such Related
Entity, or (2) in the agreement evidencing the Award to such Participant."

10.      General Provisions.

(a) Compliance With Legal and Other Requirements. The Company
may, to the extent deemed necessary or advisable by the Committee or the Board,
postpone the issuance or delivery of Stock or payment of other benefits under
any Award until completion of such registration or qualification of such Stock
or other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or automated
quotation system upon which the Stock or other Company securities are listed or
quoted, or compliance with any other obligation of the Company, as the Committee
or the Board, may consider appropriate, and may require any Participant to make
such representations, furnish such information and comply with or be subject to
such other conditions as it may consider appropriate in connection with the
issuance or delivery of Stock or payment of other benefits in compliance with
applicable laws, rules, and regulations, listing requirements, or other
obligations. The foregoing notwithstanding, in connection with a Change in
Control, the Company shall take or cause to be taken no action, and shall
undertake or permit to arise no legal or contractual obligation, that results or
would result in any postponement of the issuance or delivery of Stock or payment
of benefits under any Award or the imposition of any other conditions on such
issuance, delivery or payment, to the extent that such postponement or other
condition would represent a greater burden on a Participant than existed on the
90th day preceding the Change in Control.

(b)      Limits on Transferability; Beneficiaries.

(i) General. Except as provided herein, a Participant
may not assign, sell, transfer, or otherwise encumber or
subject to any lien any Award or other 

19

right or interest granted under this Plan, in whole or in
part, including any Award or right which constitutes a
derivative security as generally defined in Rule 16a1(c) under
the Exchange Act, other than by will or by operation of the
laws of descent and distribution, and such Awards or rights
that may be exercisable shall be exercised during the lifetime
of the Participant only by the Participant or his or her
guardian or legal representative.

(ii) Permitted Transfer of Option. The Committee or
Board, in its sole discretion, may permit the transfer of an
Option (but not an Incentive Stock Option, or any other right
to purchase Stock other than an Option) as follows: (A) by
gift to a member of the Participant's Immediate Family or (B)
by transfer by instrument to a trust providing that the Option
is to be passed to beneficiaries upon death of the Optionee.
For purposes of this Section 10(b)(ii), "Immediate Family"
shall mean the Optionee's spouse (including a former spouse
subject to terms of a domestic relations order); child,
stepchild, grandchild, child-in-law; parent, stepparent,
grandparent, parent-in-law; sibling and sibling-in-law, and
shall include adoptive relationships. If a determination is
made by counsel for the Company that the restrictions
contained in this Section 10(b)(ii) are not required by
applicable federal or state securities laws under the
circumstances, then the Committee or Board, in its sole
discretion, may permit the transfer of Awards (other than
Incentive Stock Options and Stock Appreciation Rights in
tandem therewith) to one or more Beneficiaries or other
transferees during the lifetime of the Participant, which may
be exercised by such transferees in accordance with the terms
of such Award, but only if and to the extent permitted by the
Committee or the Board pursuant to the express terms of an
Award agreement (subject to any terms and conditions which the
Committee or the Board may impose thereon, and further subject
to any prohibitions and restrictions on such transfers
pursuant to Rule 16b-3). A Beneficiary, transferee, or other
person claiming any rights under the Plan from or through any
Participant shall be subject to all terms and conditions of
the Plan and any Award agreement applicable to such
Participant, except as otherwise determined by the Committee
or the Board, and to any additional terms and conditions
deemed necessary or appropriate by the Committee or the Board.

(c)      Adjustments.

(i) Adjustments to Awards. In the event that any
dividend or other distribution (whether in the form of cash,
Stock, or other property), recapitalization, forward or
reverse split, reorganization, merger, consolidation,
spin-off, combination, repurchase, share exchange,
liquidation, dissolution or other similar corporate
transaction or event affects the Stock and/or such other
securities of the Company or any other issuer such that a
substitution, exchange, or adjustment is determined by the
Committee or the Board to be appropriate, then the Committee
or the Board shall, in such manner as it may deem equitable,
substitute, exchange, or adjust any or all of (A) the number
and kind of shares of Stock which may be delivered in
connection with Awards granted thereafter, (B) the number and
kind of shares of Stock by which annual per-person Award

20

limitations are measured under Section 5 hereof, (C) the
number and kind of shares of Stock subject to or deliverable
in respect of outstanding Awards, (E) the exercise price,
grant price or purchase price relating to any Award and/or
make provision for payment of cash or other property in
respect of any outstanding Award, and (F) any other aspect of
any Award that the Committee or the Board determines to be
appropriate.

(ii) Adjustments in Case of Certain Corporate
Transactions. In the event of a proposed sale of all or
substantially all of the Company's assets or any
reorganization, merger, consolidation, or other form of
corporate transaction in which the Company does not survive,
or in which the shares of Stock are exchanged for or converted
into securities issued by another entity, then the successor
or acquiring entity or an affiliate thereof may, with the
consent of the Committee or the Board, assume each outstanding
Option or substitute an equivalent option or right. If the
successor or acquiring entity or an affiliate thereof, does
not cause such an assumption or substitution, then each Option
shall terminate upon the consummation of sale, merger,
consolidation, or other corporate transaction. The Committee
or the Board shall give written notice of any proposed
transaction referred to in this Section 10(c)(ii) a reasonable
period of time prior to the closing date for such transaction
(which notice may be given either before or after the approval
of such transaction), in order that Optionees may have a
reasonable period of time prior to the closing date of such
transaction within which to exercise any Options that are then
exercisable (including any Options that may become exercisable
upon the closing date of such transaction). An Optionee may
condition his exercise of any Option upon the consummation of
the transaction.

(iii) Other Adjustments. In addition, the Committee
(and the Board if and only to the extent such authority is not
required to be exercised by the Committee to comply with Code
Section 162(m)) is authorized to make adjustments in the terms
and conditions of, and the criteria included in, Awards
(including Performance Awards and performance goals, and
Annual Incentive Awards and any Annual Incentive Award pool or
performance goals relating thereto) in recognition of unusual
or nonrecurring events (including, without limitation,
acquisitions and dispositions of businesses and assets)
affecting the Company, any Related Entity or any business
unit, or the financial statements of the Company or any
Related Entity, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations
or business conditions or in view of the Committee's
assessment of the business strategy of the Company, any
Related Entity or business unit thereof, performance of
comparable organizations, economic and business conditions,
personal performance of a Participant, and any other
circumstances deemed relevant; provided that no such
adjustment shall be authorized or made if and to the extent
that such authority or the making of such adjustment would
cause Options, Stock Appreciation Rights, Performance Awards
granted under Section 8(b) hereof or Annual Incentive Awards
granted under Section 8(c) hereof to Participants designated
by the Committee as Covered Employees and intended to qualify
as "performance-based 

21

compensation" under Code Section 162(m) and the regulations
thereunder to otherwise fail to qualify as "performance-based
compensation" under Code Section 162(m) and regulations
thereunder.

(d) Taxes. The Company and any Related Entity are authorized
to withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee or the Board may deem advisable to enable the Company
and Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations,
either on a mandatory or elective basis in the discretion of the Committee.

(e) Changes to the Plan and Awards. The Board may amend,
alter, suspend, discontinue or terminate the Plan, or the Committee's authority
to grant Awards under the Plan, without the consent of shareholders or
Participants, except that any amendment or alteration to the Plan shall be
subject to the approval of the Company's shareholders not later than the annual
meeting next following such Board action if such shareholder approval is
required by any federal or state law or regulation (including, without
limitation, Rule 16b-3 or Code Section 162(m)) or the rules of any stock
exchange or automated quotation system on which the Stock may then be listed or
quoted, and the Board may otherwise, in its discretion, determine to submit
other such changes to the Plan to shareholders for approval; provided that,
without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any
previously granted and outstanding Award. The Committee or the Board may waive
any conditions or rights under, or amend, alter, suspend, discontinue or
terminate any Award theretofore granted and any Award agreement relating
thereto, except as otherwise provided in the Plan; provided that, without the
consent of an affected Participant, no such Committee or the Board action may
materially and adversely affect the rights of such Participant under such Award.
Notwithstanding anything in the Plan to the contrary, if any right under this
Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee or the Board may modify or adjust the right
so that pooling of interest accounting shall be available, including the
substitution of Stock having a Fair Market Value equal to the cash otherwise
payable hereunder for the right which caused the transaction to be ineligible
for pooling of interest accounting.

(f) Reporting of Financial Information. The Company shall
provide to the recipient of any Award under this Plan, no less frequently than
annually, the financial statements of the Company, until such time as a
determination is made by counsel for the Company that such reports are not
required by applicable federal or state securities laws under the circumstances.

(g) Limitation on Rights Conferred Under Plan. Neither the
Plan nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible Person or
Participant or in the employ of the Company or a 

22

Related Entity; (ii) interfering in any way with the right of the Company or a
Related Entity to terminate any Eligible Person's or Participant's Continuous
Service at any time, (iii) giving an Eligible Person or Participant any claim to
be granted any Award under the Plan or to be treated uniformly with other
Participants and Employees, or (iv) conferring on a Participant any of the
rights of a shareholder of the Company unless and until the Participant is duly
issued or transferred shares of Stock in accordance with the terms of an Award.

(h) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Stock pursuant to an Award, nothing contained in the Plan
or any Award shall give any such Participant any rights that are greater than
those of a general creditor of the Company; provided that the Committee may
authorize the creation of trusts and deposit therein cash, Stock, other Awards
or other property, or make other arrangements to meet the Company's obligations
under the Plan. Such trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant. The trustee of such trusts may be
authorized to dispose of trust assets and reinvest the proceeds in alternative
investments, subject to such terms and conditions as the Committee or the Board
may specify and in accordance with applicable law.

(i) Nonexclusivity of the Plan. Neither the adoption of the
Plan by the Board nor its submission to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board or a committee thereof to adopt such other incentive arrangements as it
may deem desirable including incentive arrangements and awards which do not
qualify under Code Section 162(m).

(j) Payments in the Event of Forfeitures; Fractional Shares.
Unless otherwise determined by the Committee or the Board, in the event of a
forfeiture of an Award with respect to which a Participant paid cash or other
consideration, the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee or the Board shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

(k) Governing Law. The validity, construction and effect of
the Plan, any rules and regulations under the Plan, and any Award agreement
shall be determined in accordance with the laws of the State of California
without giving effect to principles of conflicts of laws, and applicable federal
law.

(l) Plan Effective Date and Shareholder Approval; Termination
of Plan. The Plan shall become effective on the Effective Date, subject to
subsequent approval within 12 months of its adoption by the Board by
shareholders of the Company eligible to vote in the election of directors, by a
vote sufficient to meet the requirements of Code Sections 162(m) (if applicable)
and 422, Rule 16b-3 under the Exchange Act (if applicable), applicable NASDAQ
requirements, and other laws, regulations, and obligations of the Company
applicable to the Plan. Awards may be granted subject to shareholder approval,
but may not be exercised or otherwise 

23

settled in the event shareholder approval is not obtained. The Plan shall
terminate no later than 10 years from the date the Plan is adopted by the Board
or 10 years from the date the Plan is approved by the Shareholders, whichever is
earlier.

24

EXHIBIT 10.6(B)

2001 INCENTIVE COMPENSATION PLAN
SYNAPTICS INCORPORATED
INCENTIVE STOCK OPTION AGREEMENT

1. Grant of Option. SYNAPTICS INCORPORATED (the "Company") hereby
grants, as of the date of grant (the "Date of Grant") set forth in the attached
Notice of Grant of Stock Options attached hereto and made a part hereof, to the
person whose name is set forth in the Notice of Grant of Stock Options (the
"Optionee") an option (the "Option") to purchase the total number of shares of
the Company's Common Stock (the "Shares") set forth in the Notice of Grant of
Stock Options, at the exercise price per share set forth in the Notice of Grant
of Stock Options. The Option shall be subject to the terms and conditions set
forth herein. The Option was issued pursuant to the Company's 2001 Incentive
Compensation Plan (the "Plan"), which is incorporated herein for all purposes.
The Option is an Incentive Stock Option, and not a nonqualified stock option.
The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be
bound by all of the terms and conditions hereof and thereof and all applicable
laws and regulations.

2. Definitions. Unless otherwise provided herein, terms used herein
that are defined in the Plan and not defined herein shall have the meanings
attributed thereto in the Plan.

3. Exercise Schedule. Except as otherwise provided in Sections 6 or 10
of this Option Agreement, or in the Plan, the Option is exercisable in
installments as provided in the Notice of Grant of Stock Options, which shall be
cumulative. To the extent that the Option has become exercisable with respect to
a percentage of Shares as provided in the Notice of Grant of Stock Options, the
Option may thereafter be exercised by the Optionee, in whole or in part, at any
time or from time to time prior to the expiration of the Option as provided
herein. The Notice of Grant of Stock Options table indicates each date (the
"Vesting Date") upon which the Optionee shall be entitled to exercise the Option
with respect to the number of Shares granted as indicated beside the date,
provided that the Continuous Service of the Optionee continues through and on
the applicable Vesting Date. Except as otherwise specifically provided herein,
there shall be no proportionate or partial vesting in the periods prior to each
Vesting Date, and all vesting shall occur only on the appropriate Vesting Date.
Upon the termination of an Optionee's Continuous Service, any unvested portion
of the Option shall terminate and be null and void.

4. Method of Exercise. The vested portion of this Option shall be
exercisable in whole or in part in accordance with the exercise schedule set
forth in the Notice of Grant of Stock Options by written notice, which shall
state the election to exercise the Option, the number of Shares in respect of
which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such Shares as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company. The written notice shall
be accompanied by payment of the exercise price. This Option shall be deemed to
be exercised after both (a) receipt by the Company of such written notice
accompanied by the exercise price and (b) arrangements that are satisfactory to
the Committee or 

the Board in its sole discretion have been made for Optionee's payment to the
Company of the amount, if any, that is necessary to be withheld in accordance
with applicable Federal or state withholding requirements. No Shares will be
issued pursuant to the Option unless and until such issuance and such exercise
shall comply with all relevant provisions of applicable law, including the
requirements of any stock exchange upon which the Shares then may be traded.

5. Method of Payment. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee: (a)
cash; (b) check; or (c) such other consideration or in such other manner as may
be determined by the Board or the Committee in its absolute discretion.

6. Termination of Option.

(a) Any unexercised portion of the Option shall automatically
and without notice terminate and become null and void at the time of the
earliest to occur of the following:

(i) three months after the date on which the
Optionee's Continuous Service is terminated other than by reason of (A) Cause,
(B) a mental or physical disability (within the meaning of Internal Revenue Code
Section 22(e)) of the Optionee as determined by a medical doctor satisfactory to
the Committee or the Board, or (C) the death of the Optionee;

(ii) immediately upon the termination of the
Optionee's Continuous Service for Cause;

(iii) twelve months after the date on which the
Optionee's Continuous Service is terminated by reason of a mental or physical
disability (within the meaning of Section 22(e) of the Code) as determined by a
medical doctor satisfactory to the Committee or the Board;

(iv) (A) twelve months after the date of termination
of the Optionee's Continuous Service by reason of the death of the Optionee, or,
if later, (B) three months after the date on which the Optionee shall die if
such death shall occur during the one year period specified in Subsection
6(a)(iii) hereof; or

(v) the tenth anniversary of the date as of which the
Option is granted.

(b) To the extent not previously exercised, (i) the Option
shall terminate immediately in the event of (1) the liquidation or dissolution
of the Company, or (2) any reorganization, merger, consolidation or other form
of corporate transaction in which the Company does not survive or the shares of
Stock are converted into or exchanged for securities issued by another entity,
unless the successor or acquiring entity, or an affiliate of such successor or
acquiring entity, assumes the Option or substitutes an equivalent option or
right pursuant to Section 10(c) of the Plan, and (ii) the Committee or the Board
in its sole discretion may by written notice ("cancellation notice") cancel,
effective upon the consummation of any corporate transaction in which the
Company does survive whereby the stockholders of the Company prior to the
transaction do not, immediately after, own more than 50% of the combined voting
power, the Option (or portion thereof) that remains unexercised on such date.
The Committee or the 

2

Board shall give written notice of any proposed transaction referred to in this
Section 6(b) a reasonable period of time prior to the closing date for such
transaction (which notice may be given either before or after approval of such
transaction), in order that the Optionee may have a reasonable period of time
prior to the closing date of such transaction within which to exercise the
Option if and to the extent that it then is exercisable (including any portion
of the Option that may become exercisable upon the closing date of such
transaction). The Optionee may condition his exercise of the Option upon the
consummation of a transaction referred to in this Section 6(b).

7. Transferability. The Option is not transferable otherwise than by
will or the laws of descent and distribution, and during the lifetime of the
Optionee the Option shall be exercisable only by the Optionee. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.

8. No Rights of Stockholders. Neither the Optionee nor any personal
representative (or beneficiary) shall be, or shall have any of the rights and
privileges of, a stockholder of the Company with respect to any shares of Stock
purchasable or issuable upon the exercise of the Option, in whole or in part,
prior to the date of exercise of the Option.

9. Market Stand-Off Agreement. At the request of the Company or the
underwriters managing any underwritten offering of the Company's securities, the
Optionee agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any shares of Stock (other than those
included in the registration) acquired pursuant to the exercise of the Option,
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed 180 days) from the effective
date of such registration as may be requested by the Company or such managing
underwriters.

[Optional]        10.      Acceleration of Exercisability of Option.

(a) This Option shall become exercisable to the extent set
forth in an employment, compensation, or severance agreement with or from the
Company in the event that, prior to the termination of the Option pursuant to
Section 6 hereof, (i) there is a "Change in Control", as defined in such
agreements, that occurs while the Optionee is employed by the Company or any of
its subsidiaries, (ii) the Committee or the Board exercises its discretion to
provide a cancellation notice with respect to the Option pursuant to Section
6(b)(ii) hereof, or (iii) the Option is terminated pursuant to Section 6(b)(i)
hereof.

[ALTERNATE] (a) This Option shall become exercisable to the extent set forth in
(b) below in the event that, prior to the termination of the Option pursuant to
Section 6 hereof, (i) there is a "Change in Control", as defined in (b) below,
that occurs while the Optionee is employed by the Company or any of its
subsidiaries, (ii) the Committee or the Board exercises its discretion to
provide a cancellation notice with respect to the Option pursuant to Section
6(b)(ii) hereof, or (iii) the Option is terminated pursuant to Section 6(b)(i)
hereof.

(b) [Individual Change of Control Provisions]]

3

11. No Right to Continued Employment. Optionee acknowledges and agrees
that the vesting of shares pursuant to the Option granted is earned only by
continuing employment or consultancy at the will of the Company (not through the
act of being hired, being granted this Option or acquiring shares hereunder).
Optionee further acknowledges and agrees that nothing in this Option Agreement,
nor in the Plan, shall confer upon Optionee any right with respect to
continuation of employment or consultancy by the Company, nor shall it interfere
in any way with Optionee's right or the Company's right to terminate Optionee's
employment or consultancy at any time, with or without Cause.

12. Law Governing. This Option Agreement shall be governed in
accordance with and governed by the internal laws of the State of California.

13. Incentive Stock Option Treatment. The terms of this Option shall be
interpreted in a manner consistent with the intent of the Company and the
Optionee that the Option qualify as an Incentive Stock Option under Section 422
of the Code. If any provision of the Plan or this Option Agreement shall be
impermissible in order for the Option to qualify as an Incentive Stock Option,
then the Option shall be construed and enforced as if such provision had never
been included in the Plan or the Option. If and to the extent that the number of
Options granted pursuant to this Option Agreement exceeds the limitations
contained in Section 4(b) of the Plan or the value of Shares with respect to
which this Option may qualify as an Incentive Stock Option, this Option shall be
a Non-Qualified Stock Option.

14. Interpretation / Provisions of Plan Control. This Option Agreement
is subject to all the terms, conditions and provisions of the Plan, including,
without limitation, the amendment provisions thereof, and to such rules,
regulations and interpretations relating to the Plan adopted by the Committee or
the Board as may be in effect from time to time. If and to the extent that this
Option Agreement conflicts or is inconsistent with the terms, conditions and
provisions of the Plan, the Plan shall control, and this Option Agreement shall
be deemed to be modified accordingly. The Optionee accepts the Option subject to
all the terms and provisions of the Plan and this Option Agreement. The
undersigned Optionee hereby accepts as binding, conclusive and final all
decisions or interpretations of the Committee or the Board upon any questions
arising under the Plan and this Option Agreement.

15. Notices. Any notice under this Option Agreement shall be in writing
and shall be deemed to have been duly given when delivered personally or when
deposited in the United States mail, registered, postage prepaid, and addressed,
in the case of the Company, to the Company's Secretary at:

Synaptics Incorporated
2381 Bering Drive
San Jose, California  95131

or if the Company should move its principal office, to such principal office,
and, in the case of the Optionee, to the Optionee's last permanent address as
shown on the Company's records, 

4

subject to the right of either party to designate some other address at any time
hereafter in a notice satisfying the requirements of this Section.

16. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT
A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

(a) Exercise of Option. There will be no regular federal
income tax liability upon the exercise of the Option, although the excess, if
any, of the fair market value of the Shares on the date of exercise over the
exercise price will be treated as an adjustment to the alternative minimum tax
for federal tax purposes and may subject the Optionee to the alternative minimum
tax in the year of exercise.

(b) Disposition of Shares. If Shares transferred pursuant to
the Option are held for at least one year after exercise and are disposed of at
least two years after the date of grant, any gain realized on disposition of the
Shares will also be treated as long-term capital gain for federal income tax
purposes. If Shares purchased under an Option are disposed of within such
one-year period or within two years after the Date of Grant, any gain realized
on such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the difference between the exercise price and the
lesser of (1) the fair market value of the Shares on the date of exercise, or
(2) the sale price of the Shares.

(c) Notice of Disqualifying Disposition of Option Shares. If
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
the Option on or before the later of (1) the date two years after the date of
grant, (2) the date one year after the date of exercise, the Optionee shall
immediately notify the Company in writing of such disposition. Optionee agrees
that Optionee may be subject to the income tax withholding by the Company on the
compensation income recognized by the Optionee from the early disposition by
payment in cash or out of the current earnings paid to the Optionee.

If and to the extent that the number of Options granted hereunder
exceeds the limitations contained in Section 4(b) of the Plan or the value of
Shares with respect to which this Option may qualify as an Incentive Stock
Option, this Option shall be a Non-Qualified Stock Option. The holder of a
Non-Qualified Stock Option will be treated as having received compensation
income (taxable at ordinary income tax rates) at the time the Option is
exercised equal to the excess, if any, of the fair market value of the shares of
Stock on the date of exercise over the exercise price. If the shares of Stock
transferred pursuant to the Non-Qualified Stock Option are held for at least one
year after the Option is exercised, any gain realized on disposition of the
shares of Stock will be treated as long-term capital gain for federal income tax
purposes.

The foregoing discussion assumes that, and only is applicable if, the
fair market value of the Shares as of the date on which the Option is granted is
not less than the exercise price. The Company believes that it has made a good
faith effort to determine the fair market value of the Shares and does not
believe that the exercise price is less than the fair market value of the Shares

5

on the Date of Grant. No assurances can be given, however, that the Internal
Revenue Service would not take a contrary position, or that the Internal Revenue
Service would not treat the Option as an Incentive Stock Option for some other
reason. If the exercise price is determined to be less than the fair market
value of a Share on the Date of Grant, then the Option may be taxable as a
Non-Qualified Stock Option. It is also possible that if the fair market value is
determined to be significantly greater than the exercise price, the Internal
Revenue Service may take the position that the Option is not in effect a stock
option but should be treated as a restricted stock for tax purposes. The
Optionee should consult with his or her own tax advisors as to whether any
action should be taken to minimize these risks.

17. Execution. This Option Agreement is executed by the parties hereto
on the Notice of Grant of Stock Options, which is attached hereto and made a
part hereof.

6

EXHIBIT 10.6(B)

2001 INCENTIVE COMPENSATION PLAN
SYNAPTICS INCORPORATED
NON-QUALIFIED STOCK OPTION AGREEMENT

1. Grant of Option. SYNAPTICS INCORPORATED (the "Company") hereby
grants, as of the date of grant ("Date of Grant") set forth in the attached
Notice of Grant of Stock Options attached hereto and made a part hereof, to the
person whose name is set forth in the Notice of Grant of Stock Optons (the
"Optionee") an option (the "Option") to purchase the total number of shares of
the Company's Common Stock (the "Shares") set forth in the Notice of Grant of
Stock Options, at the exercise price per share set forth in the Notice of Grant
of Stock Options. The Option shall be subject to the terms and conditions set
forth herein. The Option was issued pursuant to the Company's 2001 Incentive
Compensation Plan (the "Plan"), which is incorporated herein for all purposes.
The Option is a nonqualified stock option, and not an Incentive Stock Option.
The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be
bound by all of the terms and conditions hereof and thereof and all applicable
laws and regulations.

2. Definitions. Unless otherwise provided herein, terms used herein
that are defined in the Plan and not defined herein shall have the meanings
attributed thereto in the Plan.

3. Exercise Schedule. Except as otherwise provided in Sections 6 or 8
of this Option Agreement, or in the Plan, the Option is exercisable in
installments as provided in the Notice of Grant of Stock Options, which shall be
cumulative. To the extent that the Option has become exercisable with respect to
a percentage of Shares as provided in the Notice of Grant of Stock Options, the
Option may thereafter be exercised by the Optionee, in whole or in part, at any
time or from time to time prior to the expiration of the Option as provided
herein. The Notice of Grant of Stock Options table indicates each date (the
"Vesting Date") upon which the Optionee shall be entitled to exercise the Option
with respect to the number of Shares granted as indicated beside the date,
provided that the Continuous Service of the Optionee continues through and on
the applicable Vesting Date. Except as otherwise specifically provided herein,
there shall be no proportionate or partial vesting in the periods prior to each
Vesting Date, and all vesting shall occur only on the appropriate Vesting Date.
Upon the termination of an Optionee's Continuous Service, any unvested portion
of the Option shall terminate and be null and void.

4. Method of Exercise. The vested portion of this Option shall be
exercisable in whole or in part in accordance with the exercise schedule set
forth in the Notice of Grant of Stock Options by written notice, which shall
state the election to exercise the Option, the number of Shares in respect of
which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such Shares as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company. The written notice shall
be accompanied by payment of the exercise price. This Option shall be deemed to
be exercised after both (a) receipt by the Company of such written notice
accompanied by the exercise price and (b) arrangements that are satisfactory to
the Committee or the Board in its sole discretion have been made for Optionee's
payment to the Company of the 

amount that is necessary to be withheld in accordance with applicable Federal or
state withholding requirements. No Shares will be issued pursuant to the Option
unless and until such issuance and such exercise shall comply with all relevant
provisions of applicable law, including the requirements of any stock exchange
upon which the Shares then may be traded.

5. Method of Payment. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee: (a)
cash; (b) check; or (c) such other consideration or in such other manner as may
be determined by the Board or the Committee in its absolute discretion.

6. Termination of Option.

(a) Any unexercised portion of the Option shall automatically
and without notice terminate and become null and void at the time of the
earliest to occur of:

(i) three months after the date on which the
Optionee's Continuous Service is terminated other than by reason of (A) Cause,
(B) a mental or physical disability (within the meaning of Internal Revenue Code
Section 22(e)) of the Optionee as determined by a medical doctor satisfactory to
the Committee or the Board, or (C) the death of the Optionee;

(ii) immediately upon the termination of the
Optionee's Continuous Service for Cause;

(iii) twelve months after the date on which the
Optionee's Continuous Service is terminated by reason of a mental or physical
disability (within the meaning of Section 22(e) of the Code) as determined by a
medical doctor satisfactory to the Committee or the Board;

(iv) (A) twelve months after the date of termination
of the Optionee's Continuous Service by reason of the death of the Optionee, or
, if later, (B) three months after the date on which the Optionee shall die if
such death shall occur during the one year period specified in Subsection
6(a)(iii) hereof; or

(v) the tenth anniversary of the date as of which the
Option is granted.

(b) To the extent not previously exercised, (i) the Option
shall terminate immediately in the event of (1) the liquidation or dissolution
of the Company, or (2) any reorganization, merger, consolidation or other form
of corporate transaction in which the Company does not survive or the shares of
Stock are converted into or exchanged for securities issued by another entity,
unless the successor or acquiring entity, or an affiliate of such successor or
acquiring entity, assumes the Option or substitutes an equivalent option or
right pursuant to Section 10(c) of the Plan, and (ii) the Committee or the Board
in its sole discretion may by written notice ("cancellation notice") cancel,
effective upon the consummation of any corporate transaction in which the
Company does survive whereby the stockholders of the Company prior to the
transaction do not, immediately after, own more than 50% of the combined voting
power, the Option (or portion thereof) that remains unexercised on such date.
The Committee or the Board shall give written notice of any proposed transaction
referred to in this Section 6(b) a reasonable period of time prior to the
closing date for such transaction (which notice may be 

2

given either before or after approval of such transaction), in order that the
Optionee may have a reasonable period of time prior to the closing date of such
transaction within which to exercise the Option if and to the extent that it
then is exercisable (including any portion of the Option that may become
exercisable upon the closing date of such transaction). The Optionee may
condition his exercise of the Option upon the consummation of a transaction
referred to in this Section 6(b).

7.       Transferability

(a) General. Except as provided herein, a Participant may not
assign, sell, transfer, or otherwise encumber or subject to any lien any Award
or other right or interest granted under this Plan, in whole or in part,
including any Award or right which constitutes a derivative security as
generally defined in Rule 16a-1(c) under the Exchange Act, other than by will or
by operation of the laws of descent and distribution, and such Awards or rights
that may be exercisable shall be exercised during the lifetime of the
Participant only by the Participant or his or her guardian or legal
representative.

(b) Permitted Transfer of Option. The Committee or Board, in
its sole discretion, may permit the transfer of an Option granted under this
Option Agreement as follows: (A) by gift to a member of the Participant's
Immediate Family or (B) by transfer by instrument to a trust providing that the
Option is to be passed to beneficiaries upon death of the Optionee. For purposes
of this Section 7(b), "Immediate Family" shall mean the Optionee's spouse
(including a former spouse subject to terms of a domestic relations order);
child, stepchild, grandchild, child-in-law; parent, stepparent, grandparent,
parent-in-law; sibling and sibling-in-law, and shall include adoptive
relationships. If a determination is made by counsel for the Company that the
restrictions contained in this Section 7(b) are not required by applicable
federal or state securities laws under the circumstances, then the Committee or
Board, in its sole discretion, may permit the transfer of Options granted under
this Option Agreement to one or more Beneficiaries or other transferees during
the lifetime of the Participant, which may be exercised by such transferees in
accordance with the terms of this Option Agreement, but only if and to the
extent permitted by the Committee or the Board pursuant to the express terms of
this Option Agreement (subject to any terms and conditions which the Committee
or the Board may impose thereon, and further subject to any prohibitions and
restrictions on such transfers pursuant to Rule 16b-3). A Beneficiary,
transferee, or other person claiming any rights under the Plan from or through
any Participant shall be subject to all terms and conditions of the Plan and any
Award agreement applicable to such Participant, except as otherwise determined
by the Committee or the Board, and to any additional terms and conditions deemed
necessary or appropriate by the Committee or the Board.

[Optional]        8.       Acceleration of Exercisability of Option.

(a) This Option shall become exercisable to the extent set
forth in an employment, compensation, or severance agreement with or from the
Company in the event that, prior to the termination of the Option pursuant to
Section 6 hereof, (i) there is a "Change in Control", as defined in such
agreements, that occurs while the Optionee is employed by the Company or any of
its subsidiaries, (ii) the Committee or the Board exercises its discretion to

3

provide a cancellation notice with respect to the Option pursuant to Section
6(b)(ii) hereof, or (iii) the Option is terminated pursuant to Section 6(b)(i)
hereof.

[ALTERNATE] (a) This Option shall become exercisable to the extent set forth in
(b) below in the event that, prior to the termination of the Option pursuant to
Section 6 hereof, (i) there is a "Change in Control", as defined in (b) below,
that occurs while the Optionee is employed by the Company or any of its
subsidiaries, (ii) the Committee or the Board exercises its discretion to
provide a cancellation notice with respect to the Option pursuant to Section
6(b)(ii) hereof, or (iii) the Option is terminated pursuant to Section 6(b)(i)
hereof.

(b)      [Individual Change of Control Provisions]]

9. No Rights of Stockholders. Neither the Optionee nor any personal
representative (or beneficiary) shall be, or shall have any of the rights and
privileges of, a stockholder of the Company with respect to any shares of Stock
purchasable or issuable upon the exercise of the Option, in whole or in part,
prior to the date of exercise of the Option.

10. Market Stand-Off Agreement. At the request of the Company or the
underwriters managing any underwritten offering of the Company's securities, the
Optionee agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any shares of Stock (other than those
included in the registration) acquired pursuant to the exercise of the Option,
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed 180 days) from the effective
date of such registration as may be requested by the Company or such managing
underwriters.

11. No Right to Continued Employment. Neither the Option nor this
Option Agreement shall confer upon the Optionee any right to continued
employment or service with the Company.

12. Law Governing. Optionee acknowledges and agrees that the vesting of
shares pursuant to the Option granted is earned only by continuing employment or
consultancy at the will of the Company (not through the act of being hired,
being granted this Option or acquiring shares hereunder). Optionee further
acknowledges and agrees that nothing in this Option Agreement, nor in the Plan,
shall confer upon Optionee any right with respect to continuation of employment
or consultancy by the Company, nor shall it interfere in any way with Optionee's
right or the Company's right to terminate Optionee's employment or consultancy
at any time, with or without Cause.

13. Interpretation / Provisions of Plan Control. This Option Agreement
is subject to all the terms, conditions and provisions of the Plan, including,
without limitation, the amendment provisions thereof, and to such rules,
regulations and interpretations relating to the Plan adopted by the Committee or
the Board as may be in effect from time to time. If and to the extent that this
Option Agreement conflicts or is inconsistent with the terms, conditions and
provisions of the Plan, the Plan shall control, and this Option Agreement shall
be deemed to be modified accordingly. The Optionee accepts the Option subject to
all the terms and provisions of the Plan and this Option Agreement. The
undersigned Optionee hereby accepts as binding, conclusive and 

4

final all decisions or interpretations of the Committee or the Board upon any
questions arising under the Plan and this Option Agreement.

14. Notices. Any notice under this Option Agreement shall be in writing
and shall be deemed to have been duly given when delivered personally or when
deposited in the United States mail, registered, postage prepaid, and addressed,
in the case of the Company, to the Company's Secretary at:

Synaptics Incorporated
2381 Bering Drive
San Jose, California  95131

or if the Company should move its principal office, to such principal office,
and, in the case of the Optionee, to the Optionee's last permanent address as
shown on the Company's records, subject to the right of either party to
designate some other address at any time hereafter in a notice satisfying the
requirements of this Section.

15. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT
A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

(a) Exercise of Option. There may be a regular federal income
tax liability upon the exercise of the Option. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market value of the Shares on the date of
exercise over the exercise price. If Optionee is an employee, the Company will
be required to withhold from Optionee's compensation or collect from Optionee
and pay to the applicable taxing authorities an amount equal to a percentage of
this compensation income at the time of exercise.

(b) Disposition of Shares. If Shares are held for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.

The foregoing discussion assumes that, and only is applicable if, the
fair market value of the Shares as of the date on which the Option is granted is
not significantly less than the exercise price. The Company believes that it has
made a good faith effort to determine the fair market value of the Shares and
does not believe that the exercise price is significantly less than the fair
market value of the Shares on the Date of Grant. No assurances can be given,
however, that the Internal Revenue Service would not take a contrary position.
It is possible that if the fair market value is determined to be significantly
greater than the exercise price, the Internal Revenue Service may take the
position that the Option is not in effect a stock option but should be treated
as a restricted stock for tax purposes. The Optionee should consult with his or
her own tax advisors as to whether any action should be taken to minimize these
risks.

5

16. Execution. This Option Agreement is executed by the parties hereto
on the Notice of Grant of Stock Options, which is attached hereto and made a
part hereof.

6

 

Exhibit 99.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report on Form 10-Q of Synaptics Incorporated (the “Company”) for the quarterly period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Francis F. Lee, President, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)	 	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and	
 	 	 	
(2)	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
/s/ Francis F. Lee

Francis F. Lee
President, Chief Executive Officer, and Director
February 6, 2003

 

Exhibit 99.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report on Form 10-Q of Synaptics Incorporated (the “Company”) for the quarterly period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Russell J. Knittel, President, Senior Vice President, Chief Financial Officer, Chief Administrative Officer, Secretary and Treasurer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)	 	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and	
 	 	 	
(2)	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
/s/ Russell J. Knittel

Russell J. Knittel
Senior Vice President, Chief Financial Officer,
Chief Administrative Officer, Secretary and Treasurer
February 6, 2003