**Exhibit 10.4**

 

**3COM CORPORATION**

 

**DIRECTOR STOCK OPTION PLAN**

(As Amended by the Board June 28, 2003)

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1.     **Purpose.**  It is the purpose of this Director Stock Option Plan (the “Plan”)to enable 3Com Corporation (the “Company”) and its subsidiaries to retain andprovide incentives to outside directors by offering them an opportunity toacquire a proprietary interest in the Company.

 

2.     **Eligibility and Administration.**  Eligible participants shall be limited tooutside directors of the Company and its subsidiaries.  The Plan shall be administered by acommittee of the Company’s Board of Directors (the “Board”) consisting of itsdirectors who are also employees of the Company.  The Board and such committee are both referred to as the Boardand the committee shall have all the powers of the Board hereunder, including,without limitation, the authority to, from time to time, establish guidelines(the “Guidelines”) that determine the number of shares to be subject to theoptions granted under the Plan, subject to the per option limits set forth inSections 4(b) and 4(c) and the restriction on amendment of the Guidelinesset forth in Section 9.  TheGuidelines must provide that on each grant date, the number of shares of CommonStock subject to each option automatically granted pursuant toSection 4(b) or 4(c), as the case may be, shall be equal for each eligibleparticipant, subject to distinctions based on the outside director’s positionas Chairman of the Board, designation as the “lead” outside director, and serviceon Board committees.  All questions ofinterpretation of the Plan or of any option shall be determined by the Board,and such determinations shall be final and binding upon all persons having aninterest in the Plan or such option.

 

3.     **Shares Subject to Plan.**

 

(a)   Subjectto adjustment as provided in Section 3(b), the maximum number of shares ofthe Company’s common stock (“Common Stock”) and rights to acquire Common Stockthat may be issued pursuant to this Plan shall be 9,062,453 shares (as adjustedfor stock splits and stock dividends, and similar events).  Options or shares that are issued toparticipants under the Plan and terminate without being exercised shall revertto the status of authorized but unissued options or shares under the Plan.

 

(b)   Inthe event of any stock dividend, stock split, reverse stock split,recapitalization, combination, reclassification or similar change in thecapital structure of the Company, appropriate adjustments shall be made in thenumber and class of shares subject to the Plan, the Guidelines and the peroption limits set forth in Section 4, and to any outstanding optionsgranted under the Plan, and in the exercise price of such outstanding options.

 

4.     **Rights Issuable Under the Plan.**

 

(a)   Duringthe term of the Plan, eligible participants shall be granted options to acquireshares of the Common Stock of the Company (“Options”) as provided in thisSection 4.  Each Option shall beexercisable immediately as to all shares of Common Stock subject to the Option,subject to the Company’s right to repurchase at the original exercise price,which right shall lapse pursuant to the applicable vesting schedule, asspecified below.  All Options shall besubject to the terms and conditions set forth in the forms of NonqualifiedStock Option Agreement attached hereto as Exhibit 1; provided, however,that the Board may at the time of grant of any Option make 

 

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suchmodifications to such terms and conditions as are otherwise in compliance withthe restrictions contained in the Plan.

 

(b)   TheBoard shall grant an Option to purchase that number of shares as may bespecified in the Guidelines then currently in effect (the “Guideline Amount”)for service on the Board, not to exceed 120,000 shares of Common Stock (or160,000 shares if the participant is the lead director or Chairman of the Boardon the date of grant), to each eligible participant at the first Board meetingfollowing the date upon which he or she first becomes eligible (the “InitialGrant”).  Subject to accelerated vestingupon a Transfer of Control (as specified in the option agreement), the InitialGrant shall vest as to 25% of the shares subject thereto on each anniversary ofthe date of grant, so as to be 100% vested on the fourth anniversary of thedate of grant, subject to the optionee remaining as a director through suchvesting dates.  Thereafter, on the dateof the Company’s regularly scheduled annual stockholder meeting, the Boardshall grant an additional Option to each eligible participant to purchase thatnumber of shares equal to the Guideline Amount for service on the Board, not toexceed 120,000 shares of Common Stock (or 160,000 shares if the participant isthe lead director or Chairman of the Board on the date of grant) (the “AnnualGrants”).  Subject to acceleratedvesting upon a Transfer of Control (as specified in the option agreement),Annual Grants shall vest as to 50% of the shares subject thereto on the dayprior to the next year’s regularly scheduled Company annual stockholder meetingand as to the balance of the shares subject thereto on the day prior to thenext year’s regularly scheduled Company annual stockholder meeting, so as to be100% vested on the day prior to the Company annual stockholder meeting heldapproximately two years following the grant date, subject to the optioneeremaining a director through such vesting dates.  Additionally, at the time an Initial Grant is made to a newdirector, he or she shall receive an option grant with the number of shares subjectthereto equal to the Guideline Amount multiplied by a fraction, the numeratorof which is the number of full months of service remaining prior to the nextannual stockholder meeting and the denominator of which is 12 (the “Pro-RataGrant”).  Subject to accelerated vestingupon a Transfer of Control (as specified in the option agreement), the Pro-RataGrant will vest as to 50% of the shares subject thereto on each anniversary ofthe date of grant, so as to be 100% vested on the second anniversary of thedate of grant, subject to the optionee remaining as a director through suchvesting dates.

 

(c)   Inaddition to the Options granted by the Board pursuant to Section 4(b), theBoard shall grant an Option (at the same time and upon the same terms and whichmay be combined with the Section 4(b) grants) to purchase that number of sharesequal to the Guideline Amount for service on a Standing Committee, not toexceed 48,000 shares of Common Stock, to each eligible participant serving on aStanding Committee of the Board at the first meeting of the Board occurring onor after the date on which he or she begins to serve on a StandingCommittee.  A Standing Committee shallmean the Audit Committee, Compensation Committee or the Technology Committee ofthe Board.

 

5.     **Consideration.**  The exercise price for Options shall bepayable by (i) delivery of cash or check, (ii) tender of shares ofCommon Stock having a fair market value equivalent to the purchase or exerciseprice, or (iii) delivery of a promissory note payable to the Company;provided, however, that the Board may impose at the time of any grant of rightshereunder such restrictions on the exchange of Common Stock or delivery of apromissory note as the Board may deem appropriate or necessary and that anypromissory note shall be secured by such collateral as is required by theattached form of Nonqualified Stock Option Agreement, or as the Board shallotherwise determine at the time of grant.

 

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6.     **Exercise Price.**  The exercise price payable upon exercise ofany Option shall be at least equal to the fair market value of a share ofCommon Stock as determined by the Board on the date of grant.

 

7.     **Limitation on Exercisability.**  No right granted hereunder shall beexercisable for a period of more than ten years after the date of grant.

 

8.     **Restriction on Transfer of Options.**  No Option may be transferred in any mannerwhatsoever, other than by the laws of descent and distribution.  Options may be exercised during the lifetimeof the optionee only by the optionee.

 

9.     **Termination or Amendment.**  The Board, including any duly appointedcommittee of the Board, may terminate or amend the Plan at any time; provided,however, that without the approval of the shareholders of the Company, thereshall be (a) no increase in the total number of shares of stock covered bythe Plan (except by operation of the provision of Section 3, above), and(b) no expansion in the class of persons eligible to receive Options.  In any event, no amendment may adverselyaffect any then outstanding Option, or any unexercised portion thereof, withoutthe consent of the optionee.

 

10.     **Separation From Board Service.**

 

(a)   **Early Separation.**  Upon a participant’s termination of Boardservice occurring within six months of such participant becoming an outsidedirector (other than a termination of service due to the participant’s death orpermanent and total disability), then participant’s options shall cease to veston the termination date and shall remain exercisable, to the extent vested on thetermination date, for one year following the date of termination (but in noevent longer than the original term of the option).

 

(b)     **Normal Separation; Death or Disability Separation.**  Upon a participant’s termination of Boardservice that is not a Qualifying Board Retirement (i) occurring at least six(6) months following the commencement of such service, or (ii) that is pursuantto the participant’s death or permanent and total disability (as defined inInternal Revenue Code Section 22(e)(3)), all of his or her Plan Options shallvest as to one additional year’s vesting or, with respect to an Annual Grant,as to the number of shares that would have vested on the day prior to the nextregularly scheduled meeting of the stockholders, and shall remain exercisablefor one year following such separation from service (but in no event longerthan the original term of the option).

 

(c)   **Qualifying Board Retirement.**  Upon a participant’s Qualifying BoardRetirement, all of his or her Plan Options shall vest 100% and shall remainexercisable for three years following the date of such retirement (but in noevent longer than the original term of the option).  For purposes of this Plan, a Qualifying Board Retirement means anoutside director’s termination from Board membership, including pursuant to theoutside director’s death or permanent and total disability (as defined inInternal Revenue Code Section 22(e)(3)), if such termination follows ten fullyears of Board service or five full years of Board service and attainment ofage 62 or greater.

 

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