Document:

exv10w1

 

Exhibit 10.1

BROADCOM CORPORATION

1998 STOCK INCENTIVE PLAN

AMENDED AND RESTATED EFFECTIVE JULY 18, 2003

ARTICLE ONE

GENERAL PROVISIONS

     I.     PURPOSE OF THE PLAN

          This 1998 Stock Incentive Plan is intended to promote the interests of
Broadcom Corporation, a California corporation, by providing eligible persons
in the Corporation’s service with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in such service.

          Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.

          All share numbers in this July 2003 restatement reflect (i) the
two-for-one split of the Common Stock which was effected on February 17, 1999
through the payment of a dividend of one additional share of Common Stock for
every share of Common Stock outstanding on February 5, 1999 and (ii) the
two-for-one split of the Common Stock which was effected on February 11, 2000
through the payment of a dividend of one additional share of Common Stock for
every share of Common Stock outstanding on January 31, 2000.

     II.     STRUCTURE OF THE PLAN

          A. The Plan shall be divided into five separate equity incentive programs:

               - the Discretionary Option Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock,

               - the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested each year
in special option grants,

               - the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus
for services rendered the Corporation (or any Parent or Subsidiary),

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                 - the Automatic Option Grant Program under which eligible non-employee
Board members shall automatically receive option grants at designated intervals
over their period of continued Board service, and

               - the Director Fee Option Grant Program under which non-employee Board
members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special stock option grant.

          B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.

     III.    ADMINISTRATION OF THE PLAN

          A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option
Grant and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board’s discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power
to administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized and approved by a disinterested majority of the
Board.

          B. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.

          C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding
options or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties who have an
interest in the Discretionary Option Grant and Stock Issuance Programs under
its jurisdiction or any stock option or stock issuance thereunder.

          D. The Primary Committee shall have the sole and exclusive authority to
determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.

 2.

 

          E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary
Committee or the Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants or stock
issuances under the Plan.

          F. Administration of the Automatic Option Grant and Director Fee Option
Grant Programs shall be self-executing in accordance with the terms of those
programs, and no Plan Administrator shall exercise any discretionary functions
with respect to any option grants or stock issuances made under those programs.

     IV.     ELIGIBILITY

          A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:

		
	 	     (i) Employees,

		
	 	     (ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and

		
	 	     (iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).

          B. Only Employees who are Section 16 Insiders or other highly compensated
individuals shall be eligible to participate in the Salary Investment Option
Grant Program.

          C. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with respect
to the option grants under the Discretionary Option Grant Program, which
eligible persons are to receive such grants, the time or times when those
grants are to be made, the number of shares to be covered by each such grant,
the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for
such shares.

          D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.

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          E. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals who first become
non-employee Board members after the Underwriting Date, whether through
appointment by the Board or election by the Corporation’s shareholders, and
(ii) those individuals who continue to serve as non-employee Board members at
one or more Annual Shareholders Meetings held after the Underwriting Date,
including any individuals who first became non-employee Board members prior to
such Underwriting Date. A non-employee Board member who has previously been in
the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an option grant under the Automatic Option Grant Program at
the time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-employee Board member.

          F. All non-employee Board members shall be eligible to participate in the
Director Fee Option Grant Program.

     V.     STOCK SUBJECT TO THE PLAN

          A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock reserved
for issuance over the term of the Plan shall not exceed 196,413,480
shares.1
Such reserve shall consist of (i) the 63,922,252 shares which were transferred
as of the Plan Effective Date from the Predecessor Plans to this Plan,
including the shares subject to outstanding options under that Predecessor
Plans, (ii) plus an additional increase of 1,619,168 shares on January 4, 1999
pursuant to the automatic share increase provisions of Section V.B of this
Article One, plus (iii) an additional increase of 20,000,000 shares authorized
by the Board on September 24, 1999 and approved by the shareholders at the
Special Shareholders Meeting held on November 22, 1999, plus (iv) an additional
increase of 9,416,902 shares on January 3, 2000 pursuant to the automatic share
increase provisions of Section V.B of this Article One, plus (v) an additional
increase of 15,000,000 shares authorized by the Board on February 29, 2000 and
approved by the shareholders at the 2000 Annual Meeting, plus (vi) an
additional increase of 10,994,485 shares on January 2, 2001 pursuant to the
automatic share increase provisions of Section V.B of this Article One, plus
(vii) an additional increase of 25,000,000 shares authorized by the Board on
April 20, 2001 and approved by the shareholders at the 2001 Annual Meeting,
plus (viii) an additional increase of 11,959,496 shares on January 2, 2002
pursuant to the automatic share increase provisions of Section V.B of this
Article One, plus (ix) an additional increase of 13,000,000 shares authorized
by the Board on March 7, 2002 and approved by the shareholders at the 2002
Annual Meeting, plus (x) an additional increase of 12,501,177 shares on January
2, 2003 pursuant to the automatic share increase provisions of Section V.B of
this Article One, plus (xi) an additional increase of 13,000,000 shares
authorized by the Board on March 21, 2003 and approved by the shareholders at
the 2003 Annual Meeting. To the extent any unvested shares of

	 	 	1 The Common Stock issuable under the Plan shall be Class A Common Stock,
except to the extent such stock is to be issued upon the exercise of
outstanding options incorporated from the Predecessor Plans. For those
options, the issuable stock shall be Class B Common Stock.

 4.

 

Common Stock outstanding under the Predecessor Plans as of the Plan
Effective Date are subsequently repurchased by the Corporation, at the option
exercise price paid per share, in connection with the holder’s termination of
Service prior to vesting in those shares, the repurchased shares shall be added
to the reserve of Common Stock available for issuance under the Plan, but in no
event shall such addition exceed 18,000,000 shares.

          B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2000,
by an amount equal to four and one-half percent (4.5%) of the total number of
shares of Class A and Class B Common Stock outstanding on the last trading day
in December of the immediately preceding calendar year, but in no event shall
any such annual increase exceed 18,000,000 shares.

          C. No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances or
share right awards for more than 6,000,000 shares of Common Stock in the
aggregate per calendar year.

          D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plans) shall be
available for subsequent issuance under the Plan to the extent (i) those
options expire or terminate for any reason prior to exercise in full or (ii)
the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. Unvested shares issued under the Plan and
subsequently cancelled or repurchased by the Corporation at the original
exercise or issue price paid per share, pursuant to the Corporation’s
repurchase rights under the Plan shall be added back to the number of shares of
Common Stock reserved for issuance under the Plan and shall accordingly be
available for reissuance through one or more subsequent option grants or direct
stock issuances under the Plan. All shares which become available for
reissuance under the Plan, including the shares of Class B Common Stock subject
to the outstanding options incorporated into this Plan from the Predecessor
Plans which expire or terminate unexercised and any unvested shares of Class B
Common Stock repurchased by the Corporation pursuant to its repurchase rights,
shall be issuable solely as Class A Common Stock. In addition, should the
exercise price of an option under the Plan be paid with shares of Common Stock
or should shares of Common Stock otherwise issuable under the Plan be withheld
by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced only by the net number of shares of
Common Stock issued to the holder of such option or stock issuance, and not by
the gross number of shares for which the option is exercised or which vest
under the stock issuance. However, shares of Common Stock underlying one or
more stock appreciation rights exercised under Section IV of Article Two,
Section III of Article Three, Section II of Article Five or Section III of
Article Six of the Plan shall not be available for subsequent issuance under
the Plan.

          E. If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation’s receipt of consideration, appropriate adjustments shall be made
by the Plan Administrator to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number

 5.

 

          and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances or share right awards under the Plan per calendar year, (iii) the
number and/or class of securities for which grants are subsequently to be made
under the Automatic Option Grant Program to new and continuing non-employee
Board members, (iv) the number and/or class of securities and the exercise
price per share in effect under each outstanding option under the Plan, (v) the
number and/or class of securities and exercise price per share in effect under
each outstanding option incorporated into this Plan from the Predecessor Plans,
(vi) the maximum number and/or class of securities by which the share reserve
is to increase automatically each calendar year pursuant to the provisions of
Section V.B of this Article One and (vii) the maximum number and/or class of
securities which may be added to the Plan through the repurchase of unvested
shares issued under the Predecessor Plans. Such adjustments to the outstanding
options are to be effected in a manner which shall preclude the enlargement or
dilution of rights and benefits under such options. The adjustments determined
by the Plan Administrator shall be final, binding and conclusive.

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ARTICLE TWO

DISCRETIONARY OPTION GRANT PROGRAM

     I.     OPTION TERMS

          Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

          A. Exercise Price.

               1. The exercise price per share shall be fixed by the Plan Administrator
but shall not be less than eighty-five percent (85%) of the Fair Market Value
per share of Common Stock on the option grant date.

               2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Seven and
the documents evidencing the option, be payable in one or more of the forms
specified below:

		
	 	     (i) cash or check made payable to the Corporation,

		
	 	     (ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation’s earnings for
financial reporting purposes and valued at Fair Market Value on
the Exercise Date, or

		
	 	     (iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant
to which the Optionee shall concurrently provide irrevocable
instructions to (a) a brokerage firm (reasonably satisfactory to
the Corporation for purposes of administering such procedure) to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.

          Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

          B. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.

 7.

 

           C. Effect of Termination of Service.

               1. The following provisions shall govern the exercise of any options held
by the Optionee at the time of cessation of Service or death:

		
	 	     (i) Any option outstanding at the time of the Optionee’s
cessation of Service for any reason shall remain exercisable for
such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the
option, but no such option shall be exercisable after the
expiration of the option term.

		
	 	     (ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee’s estate
or by the person or persons to whom the option is transferred
pursuant to the Optionee’s will or the laws of inheritance or by
the Optionee’s designated beneficiary or beneficiaries of that
option.

		
	 	     (iii) Should the Optionee’s Service be terminated for
Misconduct or should the Optionee otherwise engage in Misconduct
while holding one or more outstanding options under this Article
Two, then all those options shall terminate immediately and cease
to be outstanding.

		
	 	     (iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the
date of the Optionee’s cessation of Service. Upon the expiration
of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option
has not been exercised. However, the option shall, immediately
upon the Optionee’s cessation of Service, terminate and cease to
be outstanding to the extent the option is not otherwise at that
time exercisable for vested shares.

               2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:

		
	 	     (i) extend the period of time for which the option is to
remain exercisable following the Optionee’s cessation of Service
from the limited exercise period otherwise in effect for that
option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of
the option term, and/or
	 
	 	     (ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number
of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee’s cessation of Service but
also with respect to one or more additional installments in which
the Optionee would have vested had the Optionee continued in
Service.

 8.

 

          D. Shareholder Rights. The holder of an option shall have no shareholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of
record of the purchased shares.

          E. Repurchase Rights. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation 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 Plan Administrator and set forth in the document
evidencing such repurchase right.

          F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee’s death. Non-Statutory Options shall be subject to the
same limitation, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee’s lifetime to one or more members of the Optionee’s
family or to a trust established exclusively for one or more such family
members or to Optionee’s former spouse, to the extent such assignment is in
connection with the Optionee’s estate plan or pursuant to a domestic relations
order. The assigned portion may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to the assignment. The
terms applicable to the assigned portion shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee’s death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee’s death.

     II.    INCENTIVE OPTIONS

          The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Seven shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under
the Plan shall not be subject to the terms of this Section II.

          A. Eligibility. Incentive Options may only be granted to Employees.

          B. Exercise Price. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock
on the option grant date.

 9.

 

          C. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

          D. 10% Shareholder. If any Employee to whom an Incentive Option is
granted is a 10% Shareholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed
five (5) years measured from the option grant date.

     III.    CHANGE IN CONTROL/HOSTILE TAKE-OVER

          A. No option outstanding at the time of a Change in Control shall become
exercisable on an accelerated basis if and to the extent: (i) that option is,
in connection with the Change in Control, assumed by the successor corporation
(or parent thereof) or otherwise continued in full force and effect pursuant to
the terms of the Change in Control transaction, (ii) such option is replaced
with a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Change in Control on the shares of Common
Stock for which the option is not otherwise at that time exercisable and
provides for subsequent payout in accordance with the same exercise/vesting
schedule applicable to those option shares or (iii) the acceleration of such
option is subject to other limitations imposed by the Plan Administrator at the
time of the option grant. However, if none of the foregoing conditions are
satisfied, then each option outstanding at the time of the Change in Control
but not otherwise exercisable for all the option shares shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Change in Control, become exercisable for all the shares of Common
Stock at the time subject to that option and may be exercised for any or all of
those shares as fully vested shares of Common Stock.

          B. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Change in Control, except to the
extent: (i) those repurchase rights are assigned to the successor corporation
(or parent thereof) or otherwise continue in full force and effect pursuant to
the terms of the Change in Control transaction or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.

          C. Immediately following the consummation of the Change in Control, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the
Change in Control transaction.

 10.

 

          D. Each option which is assumed in connection with a Change in Control or
otherwise continued in effect shall be appropriately adjusted, immediately
after such Change in Control, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change
in Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments to reflect such Change in Control shall also
be made to (i) the exercise price payable per share under each outstanding
option, provided the aggregate exercise price payable for such securities shall
remain the same, (ii) the maximum number and/or class of securities available
for issuance over the remaining term of the Plan, (iii) the maximum number
and/or class of securities by which the share reserve is to increase each
calendar year pursuant to the automatic share increase provisions of the Plan,
(iv) the maximum number and/or class of securities for which any one person may
be granted options, separately exercisable stock appreciation rights and direct
stock issuances or share right awards under the Plan per calendar year and (v)
the maximum number and class of securities which may be added to the Plan
through the repurchase of unvested shares issued under the Predecessor Plans.
To the extent the actual holders of the Corporation’s outstanding Common Stock
receive cash consideration for their Common Stock in consummation of the Change
in Control transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Discretionary Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common
Stock in such Change in Control transaction.

          E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date
of a Change in Control, vest and become exercisable for all the option shares
on an accelerated basis and may be exercised for any or all of the option
shares as fully vested shares of Common Stock, whether or not those options are
to be assumed or otherwise continued in full force and effect pursuant to the
express terms of the Change in Control transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more
of the Corporation’s repurchase rights under the Discretionary Option Grant
Program so that those rights shall immediately terminate at the time of such
Change in Control and shall not be assignable to successor corporation (or
parent thereof), and the shares subject to those terminated rights shall
accordingly vest in full at the time of such Change in Control.

          F. The Plan Administrator shall have full power and authority to structure
one or more outstanding options under the Discretionary Option Grant Program so
that those options shall vest and become exercisable for all the option shares
on an accelerated basis in the event the Optionee’s Service is subsequently
terminated by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control in which those options do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully vested shares until the
expiration or sooner termination of the option term. In addition, the Plan
Administrator may structure one or more of the Corporation’s repurchase rights
under the Discretionary Option Grant Program so that those rights shall
immediately terminate with respect to any shares held by the Optionee at the
time of his or her Involuntary Termination, and the shares subject to those
terminated repurchase rights shall accordingly vest in full at that time.

 11.

 

          G. The Plan Administrator shall have the discretionary authority to structure
one or more outstanding options under the Discretionary Option Grant Program so
that those options shall, immediately prior to the effective date of a Hostile
Take-Over, vest and become exercisable for all the option shares on an
accelerated basis and may be exercised for any or all of the option shares as
fully vested shares of Common Stock. In addition, the Plan Administrator shall
have the discretionary authority to structure one or more of the Corporation’s
repurchase rights under the Discretionary Option Grant Program so that those
rights shall terminate automatically upon the consummation of such Hostile
Take-Over, and the shares subject to those terminated rights shall thereupon
vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation’s outstanding repurchase rights under such program upon the
Involuntary Termination of the Optionee’s Service within a designated period
(not to exceed eighteen (18) months) following the effective date of such
Hostile Take-Over. Each option so accelerated shall remain exercisable for
fully vested shares until the expiration or sooner termination of the option
term.

          H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.

          I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

     IV.     CANCELLATION AND REGRANT OF OPTIONS

          The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plans) and to grant in substitution new options covering the same or a
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.

     V.     STOCK APPRECIATION RIGHTS

          A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.

          B. The following terms shall govern the grant and exercise of tandem stock
appreciation rights:

		
	 	     (i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option
for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount
equal to the excess of (a) the Fair Market Value (on the option

 12.

 

		
	 	surrender date) of the number of shares in which the Optionee
is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for
such shares.

		
	 	     (ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the
actual option surrender or at any earlier time. If the surrender
is so approved, then the distribution to which the Optionee shall
be entitled may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in
shares and partly in cash, as the Plan Administrator shall in its
sole discretion deem appropriate.

		
	 	     (iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights
the Optionee had under the surrendered option (or surrendered
portion thereof) on the option surrender date and may exercise
such rights at any time prior to the later of (a) five (5)
business days after the receipt of the rejection notice or (b) the
last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option,
but in no event may such rights be exercised more than ten (10)
years after the option grant date.

          C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:

		
	 	     (i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding
options.

		
	 	     (ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable
for a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation. In return for the
surrendered option, the Optionee shall receive a cash distribution
from the Corporation in an amount equal to the excess of (A) the
Take-Over Price of the shares of Common Stock at the time subject
to such option (whether or not the option is otherwise vested and
exercisable for those shares) over (B) the aggregate exercise
price payable for those shares. Such cash distribution shall be
paid within five (5) days following the option surrender date.

		
	 	     (iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent
exercise of that right in accordance with the terms of this
Paragraph C. Accordingly, no further approval of the Plan
Administrator or the Board shall be required at the time of the
actual option surrender and cash distribution.

		
	 	     (iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents
evidencing such option.

 13.

 

ARTICLE THREE

SALARY INVESTMENT OPTION GRANT PROGRAM

     I.     OPTION GRANTS

          The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.

     II.     OPTION TERMS

          Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.

          A. Exercise Price.

               1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.

               2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program. Except to the extent the sale
and remittance procedure specified thereunder is utilized, payment of the
exercise price for the purchased shares must be made on the Exercise Date.

          B. Number of Option Shares. The number of shares of Common Stock subject
to the option shall be determined pursuant to the following formula (rounded
down to the nearest whole number):

	 	 	 
	 	 	
X = A ÷ (B x 66-2/3%), where
	 	 	
X is the number of option shares,

 14.

 

		
	 	     A is the dollar amount of the reduction in the
Optionee’s base salary for the calendar year to be in effect
pursuant to this program, and

		
	 	     B is the Fair Market Value per share of Common Stock on
the option grant date.

          C. Exercise and Term of Options. The option shall become exercisable in a
series of twelve (12) successive equal monthly installments upon the Optionee’s
completion of each calendar month of Service in the calendar year for which the
salary reduction is in effect. Each option shall have a maximum term of ten
(10) years measured from the option grant date.

          D. Effect of Termination of Service. Should the Optionee cease Service
for any reason while holding one or more options under this Article Three, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Service, until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such
cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee’s cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee’s
estate or by the person or persons to whom the option is transferred pursuant
to the Optionee’s will or the laws of inheritance or by the designated
beneficiary or beneficiaries of the option. Such right of exercise shall
lapse, and the option shall terminate, upon the earlier of (i) the expiration
of the ten (10)-year option term or (ii) the three (3)-year period measured
from the date of the Optionee’s cessation of Service. However, the option
shall, immediately upon the Optionee’s cessation of Service for any reason,
terminate and cease to remain outstanding with respect to any and all shares of
Common Stock for which the option is not otherwise at that time exercisable.

     III.    CHANGE IN CONTROL/ HOSTILE TAKE-OVER

          A. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of such Change in
Control, vest and become exercisable for all the shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Change in Control, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the express terms of the Change in Control
transaction. Any option so assumed or continued in effect shall remain
exercisable for the fully-vested shares until the earliest to occur of (i) the
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee’s cessation of Service,
(iii) the termination of the option in connection with a subsequent Change in
Control or (iv) the surrender of the option in connection with a Hostile
Take-Over.

 15.

 

          B. In the event of a Hostile Take-Over while the Optionee remains in Service,
each outstanding option held by such Optionee under this Salary Investment
Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of such Hostile Take-Over, vest
and become exercisable for all the shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. The option shall remain so exercisable
until the earliest to occur of (i) the expiration of the ten (10)-year option
term, (ii) the expiration of the three (3)-year period measured from the date
of the Optionee’s cessation of Service, (iii) the termination of the option in
connection with a Change in Control or (iv) the surrender of the option in
connection with that Hostile Take-Over.

          C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. The Primary Committee shall, at the time the
option with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no
further approval of the Primary Committee or the Board shall be required at the
time of the actual option surrender and cash distribution.

          D. Each option which is assumed in connection with a Change in Control or
otherwise continued in full force and effect shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments shall also be made to the exercise
price payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same. To the
extent the actual holders of the Corporation’s outstanding Common Stock receive
cash consideration for their Common Stock in consummation of the Change in
Control transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Salary Investment Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common
Stock in such Change in Control transaction.

          E. The grant of options under the Salary Investment Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

16.

 

     IV.     REMAINING TERMS

          The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

17.

 

ARTICLE FOUR

STOCK ISSUANCE PROGRAM

     I.     STOCK ISSUANCE TERMS

          Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of
designated performance goals.

          A. Purchase Price.

               1. The purchase price per share shall be fixed by the Plan Administrator,
but shall not be less than one hundred percent (100%) of the Fair Market Value
per share of Common Stock on the issuance date.

               2. Subject to the provisions of Section I of Article Seven, shares of
Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

		
	 	          (i) cash or check made payable to the Corporation;
	 
	 	          (ii) past services rendered to the Corporation (or any Parent
or Subsidiary); or
	 
	 	          (iii) any other valid form of consideration permissible under
the California General Corporation Law at the time such shares are
issued.

          B. Vesting Provisions.

               1. Shares of Common Stock issued under the Stock Issuance Program may, in
the discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant’s period
of Service or upon attainment of specified performance objectives. The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Stock Issuance Program shall be determined by the Plan
Administrator and incorporated into the Stock Issuance Agreement. Shares of
Common Stock may also be issued under the Stock Issuance Program pursuant to
share right awards which entitle the recipients to receive those shares upon
the attainment of designated performance goals. Upon the attainment of such
performance goals, fully vested shares of Common Stock shall be issued in
satisfaction of those share right awards.

18.

 

               2. Any new, substituted or additional securities or other property (including
money paid other than as a regular cash dividend) which the Participant may
have the right to receive with respect to the Participant’s unvested shares of
Common Stock by reason of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of
consideration shall be issued subject to (i) the same vesting requirements
applicable to the Participant’s unvested shares of Common Stock and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.

               3. The Participant shall have full shareholder rights with respect to any
shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant’s interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.

               4. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock issued under the Stock Issuance Program or
should the performance objectives not be attained with respect to one or more
such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further shareholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant’s purchase-money
indebtedness), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.

               5. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant’s Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant’s interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant’s cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.

               6. Outstanding share right awards under the Stock Issuance Program shall
automatically terminate, and no shares of Common Stock shall actually be issued
in satisfaction of those awards, if the performance goals established for such
awards are not attained. The Plan Administrator, however, shall have the
discretionary authority to issue shares of Common Stock under one or more
outstanding share right awards as to which the designated performance goals
have not been attained.

     II.     CHANGE IN CONTROL/HOSTILE TAKE-OVER

          A. All of the Corporation’s outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Change in Control,

19.

 

except to the extent (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) or otherwise continued in full force
and effect pursuant to the express terms of the Change in Control transaction
or (ii) such accelerated vesting is precluded by other limitations imposed in
the Stock Issuance Agreement.

          B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation’s repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part upon the occurrence of a Change in Control and shall not be assignable
to the successor corporation (or parent thereof), and the shares of Common
Stock subject to those terminated rights shall immediately vest at the time of
such Change in Control.

          C. The Plan Administrator shall also have the discretionary authority to
structure one or more of the Corporation’s repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights
shall immediately vest, upon the Involuntary Termination of the Participant’s
Service within a designated period (not to exceed eighteen (18) months)
following the effective date of any Change in Control in which those repurchase
rights do not otherwise terminate.

          D. The Plan Administrator shall also have the discretionary authority to
structure one or more of the Corporation’s repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part upon the occurrence of a Hostile Take-Over, and the shares of Common
Stock subject to those terminated rights shall accordingly vest at the time of
such Hostile Take-Over.

     III.    SHARE ESCROW/LEGENDS

     Unvested shares may, in the Plan Administrator’s discretion, be held in
escrow by the Corporation until the Participant’s interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.

20.

 

ARTICLE FIVE

AUTOMATIC OPTION GRANT PROGRAM

          The provisions of this Article Five reflect the amendments to the
Automatic Option Grant Program which were authorized by the Board on April 21,
2000 and March 7, 2002 and approved by the shareholders at the 2002 Annual
Meeting.

     I.     OPTION TERMS

          A. Grant Dates. Option grants shall be made on the dates specified below:

               1. Each individual who is first elected or appointed as a non-employee
Board member at any time on or after March 7, 2002 shall automatically be
granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 100,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or
Subsidiary.2 Such individual shall receive an additional 100,000-share
option grant once every four (4) years thereafter during his or her period of
continued service as an Eligible Director. Each such additional 100,000-share
grant shall be made immediately upon his or her completion of each subsequent
four (4)-year period of continued service as an Eligible Director.

               2. On the date of the 2002 Annual Shareholders Meeting, each individual
with at least four (4) years of continuous service as a non-employee Board
member shall automatically be granted a Non-Statutory Option to purchase
100,000 shares of Common Stock. Each such individual shall receive an
additional 100,000-share option grant once every four (4) years thereafter
during his or her period of continued service as an Eligible Director. Each
such additional 100,000-share grant shall be made immediately upon his or her
completion of each subsequent four (4)-year period of continued service as an
Eligible Director, with such service to be measured from the starting point of
the April 25, 2002 Annual Shareholders Meeting.

               3. If a continuing non-employee Board member has not, as of the date of
the 2002 Annual Shareholders Meeting, completed at least four (4) years of
continuous service as an Eligible Director, then that individual shall receive
his or her 100,000-share grant immediately upon his or her completion of four
(4) years of service in such capacity. Such individual shall receive an
additional 100,000-share option grant once every four (4) years thereafter
during his or her period of continued service as an Eligible Director. Each
such additional 100,000-share grant shall be made immediately upon his or her
completion of each subsequent four (4)-year period of continued service as an
Eligible Director.

	 	 	2 Prior to April 21, 2000, the initial grant to a newly elected or appointed
non-employee Board member was for 160,000 shares, as adjusted for the two
2-for-1 splits of the Common Stock.

21.

 

               4. On the date of each Annual Shareholders Meeting, each individual who is
to continue to serve as an Eligible Director, whether or not that individual is
standing for re-election to the Board at that particular Annual Meeting, shall
automatically be granted a Non-Statutory Option to purchase 15,000 shares of
Common Stock, whether or not that individual has served as a non-employee Board
member for at least six (6) months. There shall be no limit on the number of
such 15,000-share option grants any one Eligible Director may receive over his
or her period of Board service, and non-employee Board members who have
previously been in the employ of the Corporation (or any Parent or Subsidiary)
shall be eligible to receive one or more such annual option grants over their
period of continued Board service. Such grant shall be in addition to any
100,000-share option grant to which such individual may be entitled to receive
in the same year as that Annual Shareholders Meeting pursuant to the provisions
of paragraphs A.1 through A.3 above.

          B. Exercise Price.

               1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.

               2. The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

          C. Option Term. Each option shall have a term of ten (10) years measured
from the option grant date.

          D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation,
at the exercise price paid per share, upon the Optionee’s cessation of Board
service prior to vesting in those shares. The shares subject to each
100,000-share grant shall vest, and the Corporation’s repurchase right shall
lapse, in a series of four (4) successive equal annual installments upon the
Optionee’s completion of each year of service as a Board member over the four
(4)-year period measured from the option grant date. The shares subject to
each annual 15,000-share option grant shall vest, and the Corporation’s
repurchase right shall lapse, upon the Optionee’s completion of one (1) year of
Board service measured from the option grant date.

22.

 

          E. Limited Transferability of Options. Each option under this Article Five
may be assigned in whole or in part during the Optionee’s lifetime to one or
more members of the Optionee’s family or to a trust established exclusively for
one or more such family members or to Optionee’s former spouse, to the extent
such assignment is in connection with the Optionee’s estate plan or pursuant to
a domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate. The Optionee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee’s death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee’s death.

          F. Termination of Board Service. The following provisions shall govern
the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:

		
	 	          (i) The Optionee (or, in the event of Optionee’s death, the
personal representative of the Optionee’s estate or the person or
persons to whom the option is transferred pursuant to the
Optionee’s will or the laws of inheritance or the designated
beneficiary or beneficiaries of such option) shall have a twelve
(12)-month period following the date of such cessation of Board
service in which to exercise each such option.
	 
	 	          (ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable
at the time of the Optionee’s cessation of Board service.
	 
	 	          (iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the
time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any
portion of those shares as fully-vested shares of Common Stock.
	 
	 	          (iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the
twelve (12)-month exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option
has not been exercised. However, the option shall, immediately
upon the Optionee’s cessation of Board service for any reason
other than death or Permanent Disability, terminate and cease to
be outstanding to the extent the option is not otherwise at that
time exercisable for vested shares.

23.

 

     II.     CHANGE IN CONTROL/ HOSTILE TAKE-OVER

          A. In the event of any Change in Control while the Optionee remains a
Board member, the shares of Common Stock at the time subject to each
outstanding option held by such Optionee under the Automatic Option Grant
Program but not otherwise vested shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Change in
Control, become exercisable for all the option shares as fully-vested shares of
Common Stock and may be exercised for any or all of those vested shares.
Immediately following the consummation of the Change in Control, each automatic
option grant shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the express terms of the Change in Control
transaction.

          B. In the event of a Hostile Take-Over while the Optionee remains a Board
member, the shares of Common Stock at the time subject to each option
outstanding under the Automatic Option Grant Program but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Hostile Take-Over, become exercisable for
all the option shares as fully-vested shares of Common Stock and may be
exercised for any or all of those vested shares. Each such option shall remain
exercisable for such fully-vested option shares until the expiration or sooner
termination of the option term or the surrender of the option in connection
with that Hostile Take-Over.

          C. All outstanding repurchase rights under the Automatic Option Grant
Program shall automatically terminate, and the shares of Common Stock subject
to those terminated rights shall immediately vest in full, in the event of any
Change in Control or Hostile Take-Over.

          D. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.

          E. Each option which is assumed in connection with a Change in Control or
otherwise continued in full force and effect shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments shall also be made to the exercise
price payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same. To the
extent the

24.

 

actual holders of the Corporation’s outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control
transaction, the successor corporation may, in connection with the assumption
of the outstanding options under the Automatic Option Grant Program,
substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such
Change in Control transaction.

          F. The grant of options under the Automatic Option Grant Program shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

     III.    REMAINING TERMS

          The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.

25.

 

ARTICLE SIX

DIRECTOR FEE OPTION GRANT PROGRAM

     I.     OPTION GRANTS

          The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or
any portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program. Such election must be filed with
the Corporation’s Chief Financial Officer prior to the first day of the
calendar year for which the annual retainer fee which is the subject of that
election is otherwise payable. Each non-employee Board member who files such a
timely election shall automatically be granted an option under this Director
Fee Option Grant Program on the first trading day in January in the calendar
year for which the annual retainer fee which is the subject of that election
would otherwise be payable in cash.

     II.     OPTION TERMS

          Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.

          A. Exercise Price.

               1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.

               2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program. Except to the extent the sale
and remittance procedure specified thereunder is utilized, payment of the
exercise price for the purchased shares must be made on the Exercise Date.

          B. Number of Option Shares. The number of shares of Common Stock subject
to the option shall be determined pursuant to the following formula (rounded
down to the nearest whole number):

               X = A ÷ (B x 66-2/3%), where

               X is the number of option shares,

               A is the portion of the annual retainer fee subject to
the non-employee Board member’s election, and

 26.

 

               B is the Fair Market Value per share of Common Stock on
the option grant date.

          C. Exercise and Term of Options. The option shall become exercisable in a
series of twelve (12) equal monthly installments upon the Optionee’s completion
of each calendar month of Board service during the calendar year for which the
retainer fee election is in effect. Each option shall have a maximum term of
ten (10) years measured from the option grant date.

          D. Limited Transferability of Options. Each option under this Article Six
may be assigned in whole or in part during the Optionee’s lifetime to one or
more members of the Optionee’s family or to a trust established exclusively for
one or more such family members or to Optionee’s former spouse, to the extent
such assignment is in connection with Optionee’s estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate. The Optionee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Six, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee’s death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee’s death.

          E. Termination of Board Service. Should the Optionee cease Board service
for any reason (other than death or Permanent Disability) while holding one or
more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such
cessation of Board service. However, each option held by the Optionee under
this Director Fee Option Grant Program at the time of his or her cessation of
Board service shall immediately terminate and cease to remain outstanding with
respect to any and all shares of Common Stock for which the option is not
otherwise at that time exercisable.

          F. Death or Permanent Disability. Should the Optionee’s service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the
ten (10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. In the event of the
Optionee’s death while holding such option, the option may be exercised by the
personal representative of the Optionee’s estate or by the person or persons to
whom the option is transferred pursuant to the Optionee’s will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.

 27.

 

               Should the Optionee die after cessation of Board service but while holding
one or more options under this Director Fee Option Grant Program, then each
such option may
be exercised, for any or all of the shares for which the option is exercisable
at the time of the Optionee’s cessation of Board service (less any shares
subsequently purchased by Optionee prior to death), by the personal
representative of the Optionee’s estate or by the person or persons to whom the
option is transferred pursuant to the Optionee’s will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
three (3)-year period measured from the date of the Optionee’s cessation of
Board service.

     III.     CHANGE IN CONTROL/HOSTILE TAKE-OVER

          A. In the event of any Change in Control while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
vest and become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Change in Control, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the express terms of the Change in Control
transaction. Any option so assumed or continued in effect shall remain
exercisable for the fully-vested shares until the earliest to occur of (i) the
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee’s cessation of Board
service, (iii) the termination of the option in connection with a subsequent
Change in Control transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.

          B. In the event of a Hostile Take-Over while the Optionee remains a Board
member, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Hostile Take-Over, vest
and become exercisable for all the shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. The option shall remain so exercisable
until the earliest to occur of (i) the expiration of the ten (10)-year option
term, (ii) the expiration of the three (3)-year period measured from the date
of the Optionee’s cessation of Board service, (iii) the termination of the
option in connection with a Change in Control transaction or (iv) the
surrender of the option in connection with that Hostile Take-Over.

          C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the

 28.

 

aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator
shall be required at the time of the actual option surrender and cash
distribution.

          D. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted, immediately after such Change in Control, to
apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Change in Control had the option been
exercised immediately prior to such Change in Control. Appropriate adjustments
shall also be made to the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same. To the extent the actual holders of the
Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under this Plan, substitute one or more shares of its own common stock
with a fair market value equivalent to the cash consideration paid per share of
Common Stock in such Change in Control transaction.

          E. The grant of options under the Director Fee Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

     IV.     REMAINING TERMS

          The remaining terms of each option granted under this Director Fee Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.

 29.

 

ARTICLE SEVEN

MISCELLANEOUS

     I.     FINANCING

          The Plan Administrator may permit any Optionee or Participant who is not
otherwise at the time a Section 16 Insider to pay the option exercise price
under the Discretionary Option Grant Program or the purchase price of shares
issued under the Stock Issuance Program by delivering a full-recourse
promissory note payable in one or more installments and bearing interest at a
market rate and secured by the purchased shares. In no event, however, may the
maximum credit available to the Optionee or Participant exceed the sum of (i)
the aggregate option exercise price or purchase price payable for the purchased
shares plus (ii) any applicable income and employment tax liability incurred by
the Optionee or the Participant in connection with the option exercise or share
purchase.

     II.     TAX WITHHOLDING

          A. The Corporation’s obligation to deliver shares of Common Stock upon the
exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.

          B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to
which such holders may become subject in connection with the exercise of their
options or the vesting of their shares. Such right may be provided to any such
holder in either or both of the following formats:

               Stock Withholding: The election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.

               Stock Delivery: The election to deliver to the Corporation, at the time
the Non-Statutory Option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such holder (other than in connection with
the option exercise or share vesting triggering the Withholding Taxes) with an
aggregate Fair Market Value equal to the percentage of the Withholding Taxes
(not to exceed one hundred percent (100%)) designated by the holder.

 30.

 

     III.     EFFECTIVE DATE AND TERM OF THE PLAN

          A. The Plan became effective immediately on the Plan Effective Date.
However, the Salary Investment Option Grant Program and the Director Fee Option
Grant Program shall not be implemented until such time as the Primary Committee
may deem appropriate. Options may be granted under the Discretionary Option
Grant at any time on or after the Plan Effective Date, and the initial option
grants under the Automatic Option Grant Program shall also be made on the Plan
Effective Date to any non-employee Board members eligible for such grants at
that time. However, no options granted under the Plan may be exercised, and no
shares shall be issued under the Plan, until the Plan is approved by the
Corporation’s shareholders. If such shareholder approval is not obtained
within twelve (12) months after the Plan Effective Date, then all options
previously granted under this Plan shall terminate and cease to be outstanding,
and no further options shall be granted and no shares shall be issued under the
Plan.

          B. The Plan shall serve as the successor to the Predecessor Plans, and no
further option grants or direct stock issuances shall be made under the
Predecessor Plans after the Section 12 Registration Date. All options
outstanding under the Predecessor Plans on the Section 12 Registration Date
shall be incorporated into the Plan at that time and shall be treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.

          C. One or more provisions of the Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Changes in
Control and Hostile Take-Overs, may, in the Plan Administrator’s discretion, be
extended to one or more options incorporated from the Predecessor Plans which
do not otherwise contain such provisions.

          D. The Plan was amended by the Board in September 1999 (the “September
1999 Restatement”) to effect the following changes:

		
	 	            (i) increase the number of shares of Common Stock reserved
for issuance under the Plan by an additional 10,000,000 shares;
and
	 
	 	            (ii) revise the automatic share increase provisions of the
Plan so that the number of shares of Common Stock by which the
share reserve is to increase automatically on the first trading
day of January each year shall be increased from 3% of the total
number of shares of Class A Common Stock outstanding on the last
trading day in December of the immediately preceding calendar year
to 4.5% of the total number of shares of Class A and Class B
Common Stock outstanding on the last trading day of December each
year, beginning with the January 3, 2000 annual increase, but in
no event shall any such annual increase exceed 18,000,000 shares
of Class A Common Stock.

 31.

 

               The amendment was approved by the shareholders at the Special Shareholders
Meeting held on November 22, 1999.

          E. The Plan was amended by the Board on February 29, 2000 (the “February
2000 Restatement”) to increase the number of shares of Common Stock reserved
for issuance under the Plan by an additional 15,000,000 shares, and such
increase was approved by the shareholders at the 2000 Annual Shareholders
Meeting.

          F. The Plan was amended by the Board on April 21, 2000 (the “April 2000
Restatement”) to revise the provisions of the Automatic Option Grant Program to
reduce the number of shares of Common Stock subject to the automatic option
grant made to each newly elected or appointed non-employee Board member from
160,000 shares of Common Stock to 80,000 shares of Common Stock.

          G. The Plan was amended by the Board on April 20, 2001 (the “April 2001
Restatement”) to increase the number of shares of Common Stock reserved for
issuance under the Plan by an additional 25,000,000 shares and such increase
was approved by the shareholders at the 2001 Annual Shareholders Meeting.

          H. The Plan was amended by the Board on March 7, 2002 in order to (i)
increase the number of shares of Common Stock for which each individual who is
to continue to serve as an Eligible Director shall receive an annual automatic
option grant under such program from 12,000 shares of Common Stock to 15,000
shares of Common Stock and eliminate the requirement that the non-employee
Board member must complete at least 6 months of service in such capacity before
he or she would be eligible to receive the first such annual option grant, (ii)
increase the number of shares of Common Stock for which a newly elected or
appointed Eligible Director is to receive as his or her initial annual
automatic option grant under such program from 80,000 shares of Common Stock to
100,000 shares of Common Stock and (iii) provide for additional 100,000-share
option grants to be made to each Eligible Director periodically upon his or her
completion of each four (4)-year period of continued service as an Eligible
Director. The amendment was approved by the shareholders at the 2002 Annual
Meeting.

          I. The Plan was amended by the Board on March 21, 2003 (the “March 2003
Restatement”) to (a) expand the types of acceptable consideration for which
shares may be issued under the Stock Issuance Program to include all items of
valid consideration permissible under the California General Corporate Law and
(b) increase the number of shares of Common Stock reserved for issuance under
the Plan by an additional 13,000,000 shares. The amendments were approved by
the shareholders at the 2003 Annual Meeting.

          J. The Plan was amended by the Board on July 18, 2003 to (a) revise the
cashless exercise provisions to permit the use of any broker reasonably
satisfactory to the Corporation for purposes of administering such procedure
and (b) revise the promissory note provisions to require that any such loans
approved by the Plan Administrator must be made pursuant to a full-recourse
promissory note bearing interest at a market rate and secured by the shares
purchased and that no such loans be made to Section 16 Insiders.

 32.

 

          K. The Plan shall terminate upon the earliest to occur of (i) January 31,
2008, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Should the Plan
terminate on January 31, 2008, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.

     IV.     AMENDMENT OF THE PLAN

          A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require shareholder approval
pursuant to applicable laws or regulations.

          B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained shareholder approval of an
amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such shareholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.

     V.     USE OF PROCEEDS

          Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.

     VI.     REGULATORY APPROVALS

          A. The implementation of the Plan, the granting of any stock option under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise
of any granted option or (ii) under the Stock Issuance Program shall be subject
to the Corporation’s procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.

          B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable

 33.

 

listing requirements of any stock exchange (or the Nasdaq National Market,
if applicable) on which Common Stock is then listed for trading.

     VII.     NO EMPLOYMENT/SERVICE RIGHTS

          Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person’s Service at any time for any reason, with or without
cause.

 34.

 

APPENDIX

          The following definitions shall be in effect under the Plan:

          A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under Article Five of the Plan.

          B. Board shall mean the Corporation’s Board of Directors.

          C. Change in Control shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:

		
	 	            (i) a shareholder-approved merger or consolidation in which
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation’s outstanding securities
are transferred to a person or persons different from the persons
holding those securities immediately prior to such transaction, or
	 
	 	            (ii) a shareholder-approved sale, transfer or other
disposition of all or substantially all of the Corporation’s
assets in complete liquidation or dissolution of the Corporation,
or
	 
	 	            (iii) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or
is under common control with, the Corporation), of beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation’s outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation’s shareholders.

          D. Code shall mean the Internal Revenue Code of 1986, as amended.

          E. Common Stock shall mean the Corporation’s Class A Common Stock.

          F. Corporation shall mean Broadcom Corporation, a California corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of Broadcom Corporation, which shall by appropriate action adopt the
Plan.

          G. Director Fee Option Grant Program shall mean the special stock option
grant program in effect for non-employee Board members under Article Six of the
Plan.

          H. Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under Article Two of the Plan.

A-1.

 

          I. Eligible Director shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program or the Director Fee Option
Grant Program in accordance with the eligibility provisions of Articles One,
Five and Six.

          J. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

          K. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.

          L. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

		
	 	            (i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question,
as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is no
closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
	 
	 	            (ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
	 
	 	            (iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be
equal to the price per share at which the Common Stock is to be
sold in the initial public offering pursuant to the Underwriting
Agreement.

          M. Hostile Take-Over shall mean either of the following events effecting a
change in control or ownership of the Corporation:

		
	 	            (i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) of beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation’s outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation’s shareholders which the Board does not recommend such
shareholders to accept, or

A-2.

 

		
	 	            (ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the
beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a
majority of the Board members described in clause (A) who were
still in office at the time the Board approved such election or
nomination.

          N. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.

          O. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:

		
	 	            (i) such individual’s involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
	 
	 	            (ii) such individual’s voluntary resignation following (A) a
change in his or her position with the Corporation which
materially reduces his or her duties and responsibilities or the
level of management to which he or she reports, (B) a reduction in
his or her level of compensation (including base salary, fringe
benefits and target bonus under any corporate-performance based
bonus or incentive programs) by more than fifteen percent (15%) or
(C) a relocation of such individual’s place of employment by more
than fifty (50) miles, provided and only if such change, reduction
or relocation is effected by the Corporation without the
individual’s consent.

          P. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or
disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).

          Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

          R. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

          S. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.

A-3.

 

          T. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

          U. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.

          V. Permanent Disability or Permanently Disabled shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more. However, solely for purposes of the Automatic Option Grant and
Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.

          W. Plan shall mean the Corporation’s 1998 Stock Incentive Plan, as set
forth in this document.

          X. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under those programs with respect
to the persons under its jurisdiction.

          Y. Plan Effective Date shall mean February 3, 1998.

          Z. Predecessor Plans shall collectively mean the Corporation’s 1994
Amended and Restated Stock Option Plan and the Special Stock Option Plan, as in
effect immediately prior to the Plan Effective Date hereunder.

          AA. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate
in such program.

          BB. Salary Investment Option Grant Program shall mean the salary
investment option grant program in effect under Article Three of the Plan.

          CC. Secondary Committee shall mean a committee of one or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.

A-4.

 

          DD. Section 12 Registration Date shall mean the date on which the Common Stock
is first registered under Section 12 of the 1934 Act.

          EE. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.

          FF. Service shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.

          GG. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.

          HH. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

          II. Stock Issuance Program shall mean the stock issuance program in effect
under Article Four of the Plan.

          JJ. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

          KK. Take-Over Price shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or, if applicable, (ii) the
highest reported price per share of Common Stock paid by the tender offeror in
effecting the Hostile Take-Over through the acquisition of such Common Stock.
However, if the surrendered option is an Incentive Option, the Take-Over Price
shall not exceed the clause (i) price per share.

          LL. 10% Shareholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

          MM. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

          NN. Underwriting Date shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.

A-5.

 

          OO. Withholding Taxes shall mean the Federal, state and local income and
employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.

A-6.

 

BROADCOM CORPORATION

ADDENDUM TO THE 1998 STOCK INCENTIVE PLAN
 FOR EMPLOYEES IN ISRAEL

1.      GENERAL

	1.1	 	 This addendum (the “Addendum”) shall apply only to Optionees who are
residents of the state of Israel or those who are deemed to be residents
of the state of Israel for the payment of tax (the “Israeli Optionees”).
The provisions specified hereunder shall form an integral part of the
Amended and Restated 1998 Stock Incentive Plan of Broadcom Corporation
(hereinafter: the “Plan"), which applies to the issuance of options to
purchase shares of Common Stock of Broadcom Corporation (hereinafter: the
“Corporation").
	 
	1.2	 	 This Addendum is effective with respect to Options granted on or after
January 1, 2003 and shall comply with Amendment no. 132 of the Israeli
Tax Ordinance.
	 
	1.3	 	 This Addendum is to be read as a continuation of the Plan and only
modifies the terms of Options granted to Israeli Optionees so that they
comply with the requirements set by the Israeli law in general, and in
particular with the provisions of Section 102 (as specified herein), as
may be amended or replaced from time to time. For the avoidance of doubt,
this Addendum does not add to or modify the Plan in respect of any other
category of Optionees.
	 
	1.4	 	 The Plan and this Addendum are complimentary to each other and shall be
deemed as one. In any case of contradiction with respect to options
granted to Israeli Optionees, whether explicit or implied, between the
provisions of this Addendum and the Plan, the provisions set out in the
Addendum shall prevail.
	 
	1.5	 	 Any capitalized term not specifically defined in this Addendum shall be
construed according to the interpretation given to it in the Plan.

 

 

2.      DEFINITIONS

	2.1	 	 “Approved 102 Option” means an Option granted pursuant to Section 102(b)
of the Ordinance and held in trust by a Trustee for the benefit of the
Optionee.
	 
	2.2	 	 “Capital Gain Option (CGO)” means an Approved 102 Option elected and
designated by the Corporation to qualify under the capital gain tax
treatment in accordance with the provisions of Section 102(b)(2) of the
Ordinance.
	 
	2.3	 	 “Controlling Shareholder” shall have the meaning ascribed to it in
Section 32(9) of the Ordinance.
	 
	2.4	 	 “Israeli Employee” means a person who is employed by the Corporation or
its Parent or Subsidiary, (including an individual who is serving as a
director or an office holder, but excluding any Controlling Shareholder)
and who is (or is deemed to be) a resident of the state of Israel for the
payment of taxes.
	 
	2.5	 	 “Israeli Non-Employee” means a consultant, adviser, Controlling
Shareholder or any other person who is (or is deemed to be) a resident of
the state of Israel for the payment of taxes and provides services to the
Corporation or its Parent or Subsidiary but who is not an Israeli
Employee.
	 
	2.6	 	 “ITA” means the Israeli Tax Authorities.
	 
	2.7	 	 “102 Option” means any Option granted to Israeli Employees pursuant to
Section 102 of the Ordinance.
	 
	2.8	 	 “Option” means an option to purchase one or more shares of Common Stock
of the Corporation pursuant to the Plan.
	 
	2.9	 	 “Option Agreement” means the stock option agreement and other documents
evidencing the terms and conditions of an Option.
	 
	2.10	 	 “Ordinance” means the Israeli Income Tax Ordinance [New Version] 1961 as
now in effect or as hereafter amended.
	 
	2.11	 	 “Ordinary Income Option (OIO)” means an Approved 102 Option elected and
designated by the Corporation to qualify under the ordinary income tax
treatment in accordance with the provisions of Section 102(b)(1) of the
Ordinance.

-2-

 

	2.12	 	 “Section 102” means section 102 of the Ordinance and any regulations,
rules, orders or procedures promulgated thereunder as now in effect or as
hereafter amended.
	 
	2.13	 	 “3(i) Option” means an Option granted pursuant to Section 3(i) of the
Ordinance to any person who is an Israeli Non- Employee.
	 
	2.14	 	 “Trustee” means any individual or entity appointed by the Corporation to
serve as a trustee and approved by the ITA, all in accordance with the
provisions of Section 102(a) of the Ordinance.
	 
	2.15	 	 “Unapproved 102 Option” means an Option granted pursuant to Section
102(c) of the Ordinance and not held in trust by a Trustee.

3.      ISSUANCE OF OPTIONS/SHARES OF COMMON STOCK

	3.1	 	 The persons eligible to receive option grants under this Addendum shall
include any Israeli Employees and/or Israeli Non-Employees of the
Corporation or of any Parent or Subsidiary; provided, however, that (i)
Israeli Employees may only be granted 102 Options; and (ii) Israeli
Non-Employees may only be granted 3(i) Options.
	 
	3.2	 	 The Corporation may designate Options granted to Israeli Employees
pursuant to Section 102 as Unapproved 102 Options or Approved 102
Options.
	 
	3.3	 	 The grant of Approved 102 Options shall be made under this Addendum, and
shall be conditioned upon the approval of this Addendum by the ITA.
	 
	3.4	 	 Approved 102 Options may either be classified as Capital Gain Options
(“CGOs”) or Ordinary Income Options (“OIOs”).

-3-

 

	3.5	 	 No Approved 102 Options may be granted under this Addendum to any
eligible Israeli Employee, unless and until, the Corporation’s election
of the type of Approved 102 Options as CGO or OIO granted to Israeli
Employees (the “Election”), is appropriately filed with the ITA. Such
Election shall become effective beginning with the date of grant of the
first Approved 102 Option granted under this Addendum and shall remain in
effect until the end of the year following the year during which the
Corporation first granted Approved 102 Options under this Addendum. The
Election shall obligate the Corporation to grant only the type of
Approved 102 Option it has elected (CGO or OIO) during the period
indicated in the preceding sentence, and shall apply to all Approved 102
Options granted during the period the Election is in effect, all in
accordance with the provisions of Section 102(g) of the Ordinance. For
the avoidance of doubt, such Election shall not prevent the Corporation
from granting Unapproved 102 Options to Israeli Employees or 3(i) Options
to Israeli Non-Employees simultaneously.
	 
	3.6	 	 All Approved 102 Options must be held in trust by a Trustee, as
described in Section 4 below.
	 
	3.7	 	 For the avoidance of doubt, the designation of Unapproved 102 Options
and Approved 102 Options shall be subject to the terms and conditions set
forth in Section 102.

4.      TRUSTEE

	4.1	 	 Approved 102 Options which shall be granted under this Addendum shall be
held by the Trustee and any shares of Common Stock issued upon exercise
of such Approved 102 Options and/or other property received with respect
to such shares, shall be issued to the Trustee and held for the benefit
of the Optionees for such period of time as required by Section 102 or
any regulations, rules or orders or procedures promulgated thereunder
(the “Holding Period”). In the case the requirements for Approved 102
Options are not met, then the Approved 102 Options shall be regarded as
Unapproved 102 Options, all in accordance with the provisions of Section
102.
	 
	4.2	 	 Notwithstanding anything to the contrary, the Trustee shall not release
any share of Common Stock issued upon exercise of Approved 102 Options
(or any other property received with respect to such shares) prior to the
full payment of the Optionee’s tax liabilities (including, without
limitation, social security taxes if applicable) arising from the grant
or exercise of Approved 102 Options granted to such Optionee.
	 
	4.3	 	 With respect to any Approved 102 Option, subject to the provisions of
Section 102 and any rules or regulation or orders or procedures
promulgated thereunder, to obtain favorable Approved 102 Option tax
treatment, an Optionee shall not be entitled to sell or release from trust
any Option and/or shares of Common Stock received upon the exercise of an
Approved

-4-

 

	 	 	102 Option or any other property received with respect to such shares,
until the lapse of the Holding Period required under Section 102 of the
Ordinance. Notwithstanding the above, if any such sale or release occurs
during the Holding Period, the sanctions under Section 102 of the
Ordinance and under any rules or regulation or orders or procedures
promulgated thereunder shall apply to and shall be borne by such Optionee.
	 
	4.4	 	 Upon grant of an Approved 102 Option, the Optionee will sign an
undertaking to release the Trustee from any liability in respect of any
action or decision duly taken and bona fide executed in relation with this
Addendum, or any Approved 102 Option or shares of Common Stock granted to
him thereunder.

5.      THE OPTIONS

The terms and conditions upon which the Options shall be issued and exercised,
shall be as specified in the Option Agreement to be executed pursuant to the
Plan and to this Addendum. Each Option Agreement shall state, inter alia, the
number of shares of Common Stock to which the Option relates, the type of
Option granted thereunder (whether a CGO, OIO, Unapproved 102 Option or a 3(i)
Option), the vesting provisions and the exercise price.

	6.	 	FAIR MARKET VALUE FOR TAX PURPOSE

Without derogating from Section (L) of the Appendix and solely for the purpose
of determining the tax liability pursuant to Section 102(b)(3) of the
Ordinance, if at the date of grant the Corporation’s shares of Common Stock are
listed on any established stock exchange or a national market system, the fair
market value per share of the Common Stock at the date of grant shall be
determined in accordance with the average value of the closing selling price of
the Corporation’s shares of Common Stock during the thirty (30) trading days
preceding the date of grant.

	7	 	ASSIGNABILITY AND SALE OF OPTIONS
	 
	7.1	 	 Notwithstanding any other provision of the Plan, including without
limitation Article Two Section I(F) of the Plan, no Option or any right
with respect thereto, shall be assignable, transferable or given as
collateral or any right with respect to them given to any third party
whatsoever, and during the lifetime of the Optionee each and all of such
Optionee’s rights to purchase shares of Common Stock hereunder shall be
exercisable only by the Optionee.
	 
	 	 	Any such action made directly or indirectly, for an immediate
validation or for a future one, shall be void.

-5-

 

	7.2	 	 As long as Options or shares of Common Stock purchased pursuant thereto
are held by the Trustee on behalf of the Optionee, all rights of the
Optionee over the shares are personal, can not be transferred, assigned,
pledged or mortgaged, other than by will or laws of descent and
distribution.

8.      INTEGRATION OF SECTION 102 AND TAX ASSESSING OFFICER’S PERMIT

	8.1	 	 With regards to Approved 102 Options, the provisions of the Plan and/or
the Addendum and/or the Option Agreement shall be subject to the
provisions of Section 102 and the Tax Assessing Officer’s permit, and the
said provisions and permit shall be deemed an integral part of the Plan,
the Addendum and the Option Agreement.
	 
	8.2	 	 Any provision of Section 102 and/or the said permit which is necessary
to receive and/or to keep any tax benefit pursuant to Section 102, which
is not expressly specified in the Plan or the Addendum or the Option
Agreement, shall be considered binding upon the Corporation and the
Optionees.

9.      DIVIDEND

Any dividends payable with respect to shares of Common Stock acquired upon
exercise of an Option shall be subject to any applicable taxation on
distribution of dividends, and when applicable subject to the provisions of
Section 102 and the rules, regulations or orders promulgated thereunder.

10.      TAX CONSEQUENCES

	10.1	 	 Any tax consequences arising from the grant or exercise of any Option,
from the payment for shares of Common Stock covered thereby or from any
other event or act (of the Corporation, and/or its Parent or Subsidiary,
or the Trustee or the Optionee), hereunder, shall be borne solely by the
Optionee (including, without limitation, Optionee’s social security taxes
if applicable). The Corporation and/or its Parent or Subsidiary, and/or
the Trustee shall withhold taxes according to the requirements under the
applicable laws, rules, and regulations, including withholding taxes at
source. Furthermore, the Optionee shall agree to indemnify the
Corporation and/or its Parent or Subsidiary and/or the Trustee and hold
them harmless against and from any and all liability for any such tax or
other payment or interest or penalty thereon, including without
limitation, liabilities relating to the necessity to withhold, or to have
withheld, any such tax from any payment made to the Optionee.

-6-

 

	10.2	 	 The Corporation and/or, when applicable, the Trustee shall not be
required to release any share certificate to an Optionee until all
required payments have been fully made to the Corporation and all of
Optionee’s tax liabilities arising from the grant or exercise of an
Option have been satisfied.
	 
	10.3	 	 With respect to Unapproved 102 Option, if the Optionee ceases to be
employed by the Company or any Parent or Subsidiary, the Optionee shall
extend to the Company and/or its Affiliate a security or guarantee for
the payment of tax due at the time of sale of shares of Common Stock, all
in accordance with the provisions of Section 102 and the rules,
regulation or orders promulgated thereunder.

* * *

-7-exv10w1w1

 

Exhibit 10.1.1

BROADCOM CORPORATION

STOCK OPTION AGREEMENT

RECITALS

          A.     The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent or
Subsidiary).

          B.     Optionee is to render valuable services to the Corporation (or a Parent
or Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation’s grant
of an option to Optionee.

          C.     All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.

               NOW, THEREFORE, it is hereby agreed as follows:

               1. Grant of Option. The Corporation hereby grants to Optionee, as of the
Grant Date, an option to purchase up to the number of Option Shares specified
in the Grant Notice. The Option Shares shall be purchasable from time to time
during the option term specified in Paragraph 2 at the Exercise Price.

               2. Option Term. This option shall have a maximum term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.

               3. Limited Transferability. This option shall be neither transferable nor
assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee’s death and may be exercised, during Optionee’s
lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may, in connection
with the Optionee’s estate plan, be assigned in whole or in part during
Optionee’s lifetime to one or more members of the Optionee’s immediate family
or to a trust established for the exclusive benefit of one or more such family
members. The assigned portion shall be exercisable only by the person or
persons who acquire a proprietary interest in the option pursuant to such
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for this option immediately prior to such assignment.

               4. Dates of Exercise. This option shall become exercisable for the Option
Shares in one or more installments as specified in the Grant Notice. As the
option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.

 

 

               5. Cessation of Service. The option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:

		
	 	          (a) Should Optionee cease to remain in Service for any reason
(other than death, Permanent Disability or Misconduct) while
holding this option, then Optionee shall have a period of three
(3) months (commencing with the date of such cessation of Service)
during which to exercise this option, but in no event shall this
option be exercisable at any time after the Expiration Date.
	 
	 	          (b) Should Optionee die while holding this option, then the
personal representative of Optionee’s estate or the person or
persons to whom the option is transferred pursuant to Optionee’s
will or in accordance with the laws of inheritance shall have the
right to exercise this option. Such right shall lapse, and this
option shall cease to be outstanding, upon the earlier of (i) the
expiration of the twelve (12)-month period measured from the date
of Optionee’s death or (ii) the Expiration Date.
	 
	 	          (c) Should Optionee cease Service by reason of Permanent
Disability while holding this option, then Optionee shall have a
period of twelve (12) months (commencing with the date of such
cessation of Service) during which to exercise this option. In no
event shall this option be exercisable at any time after the
Expiration Date.
	 
	 	          (d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than
the number of vested Option Shares for which the option is
exercisable at the time of Optionee’s cessation of Service. Upon
the expiration of such limited exercise period or (if earlier)
upon the Expiration Date, this option shall terminate and cease to
be outstanding for any vested Option Shares for which the option
has not been exercised. However, this option shall, immediately
upon Optionee’s cessation of Service for any reason, terminate and
cease to be outstanding with respect to any Option Shares in which
Optionee is not otherwise at that time vested or for which this
option is not otherwise at that time exercisable.
	 
	 	          (e) Should Optionee’s Service be terminated for Misconduct,
then this option shall terminate immediately and cease to remain
outstanding.

               6. Special Acceleration of Option.

               (a) This option to the extent outstanding at the time of a Change in
Control but not otherwise fully exercisable, shall not become exercisable on an
accelerated basis if and to the extent: (i) this option is, in connection with
the Change in Control, to be assumed by the successor corporation (or parent
thereof) or otherwise continued in full force and effect pursuant to the terms
of the Change in Control transaction or (ii) this option is to be replaced with
a cash incentive program of the successor corporation which preserves the
spread existing at

2

 

the time of the Change in Control on the Option Shares for which this
option is not otherwise at that time exercisable (the excess of the Fair Market
Value of those Option Shares over the aggregate Exercise Price payable for such
shares) and provides for subsequent payout of that spread in accordance with
the same option exercise/vesting schedule set forth in the Grant Notice.
However, if none of the foregoing conditions apply to this option at the time
of Change in Control, then this option shall automatically accelerate so that
such option shall, immediately prior to the effective date of that Change in
Control, become exercisable for all the shares of Common Stock at the time
subject to this option and may be exercised for any or all of those shares as
fully vested shares of Common Stock.

               (b) Immediately following the Change in Control, this option shall
terminate and cease to be outstanding, except to the extent this option is
assumed by the successor corporation (or parent thereof) in connection with the
Change in Control or is otherwise to continue in full force and effect pursuant
to the terms of the Change in Control transaction.

               (c) If this option is assumed in connection with a Change in Control or is
otherwise to continue in full force and effect, then this option shall be
appropriately adjusted, immediately after such Change in Control, to apply to
the number and class of securities which would have been issuable to Optionee
in consummation of such Change in Control had the option been exercised
immediately prior to such Change in Control, and appropriate adjustments shall
also be made to the Exercise Price, provided the aggregate Exercise Price shall
remain the same. To the extent the actual holders of the Corporation’s
outstanding Common Stock receive cash consideration for their Common Stock in
consummation of the Change in Control transaction, the successor corporation
may, in connection with the assumption or continuation of this option,
substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such
Change in Control transaction.

               (d) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

          7. Adjustment in Option Shares. Should any change be made to the Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price
in order to reflect such change and thereby preclude a dilution or enlargement
of benefits hereunder.

          8. Shareholder Rights. The holder of this option shall not have any
shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of
record of the purchased shares.

3

 

          9. Manner of Exercising Option.

               (a) In order to exercise this option with respect to all or any part of
the Option Shares for which this option is at the time exercisable, Optionee
(or any other person or persons exercising the option) must take the following
actions:

		
	 	          (i) Execute and deliver to the Corporation a Notice of
Exercise for the Option Shares for which the option is exercised
or comply with such other procedures as the Corporation may
establish for notifying the Corporation of the exercise of this
option for one or more Option Shares.

		
	 	          (ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:

		
	 	          (A) cash or check made payable to the Corporation;
	 
	 	          (B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in
accordance with Paragraph 13;
	 
	 	          (C) shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the
requisite period necessary to avoid a charge to the
Corporation’s earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or
	 
	 	          (D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide
irrevocable instructions (I) to a brokerage firm (reasonably
satisfactory to the Corporation for purposes of
administering such procedure) to effect the immediate sale
of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Exercise Price
payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such
exercise and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
	 
	 	     Except to the extent the sale and remittance procedure
is utilized in connection with the option exercise, payment
of the Exercise Price must accompany the Notice of Exercise
delivered to the Corporation in connection with the option
exercise.

		
	 	          (iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than
Optionee) have the right to exercise this option.

4

 

		
	 	          (iv) Make appropriate arrangements with the Corporation (or Parent
or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment
tax withholding requirements applicable to the option exercise.

               (b) As soon as practical after the Exercise Date, the Corporation shall
issue to or on behalf of Optionee (or any other person or persons exercising
this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.

               (c) In no event may this option be exercised for any fractional shares.

          10. Compliance with Laws and Regulations.

               (a) The exercise of this option and the issuance of the Option Shares upon
such exercise shall be subject to compliance by the Corporation and Optionee
with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.

               (b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.

          11. Successors and Assigns. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee’s assigns and the legal representatives, heirs and legatees
of Optionee’s estate.

          12. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee’s signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.

          13. Financing. The Plan Administrator may, in its absolute discretion and
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a full-recourse promissory note
payable in one or more installments bearing interest at a market rate and
secured by the purchased shares. The remaining terms of any such promissory
note (including the terms of repayment) shall be established by the Plan
Administrator in its sole discretion.

5

 

          14. Construction. This Agreement and the option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the terms of the Plan. The Plan Administrator shall have the discretionary
authority to interpret and construe any term or provision of the Plan or this
Agreement, and such interpretation shall be binding on all persons having an
interest in this option.

          15. Governing Law. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State’s conflict-of-laws rules.

          16. Mandatory Arbitration. ANY AND ALL DISPUTES OR CONTROVERSIES BETWEEN
OPTIONEE AND THE CORPORATION ARISING OUT OF, RELATING TO OR OTHERWISE CONNECTED
WITH THIS AGREEMENT OR THE OPTION EVIDENCED HEREBY OR THE VALIDITY,
CONSTRUCTION, PERFORMANCE OR TERMINATION OF THIS AGREEMENT SHALL BE SETTLED
EXCLUSIVELY BY BINDING ARBITRATION TO BE HELD IN THE COUNTY IN WHICH THE
OPTIONEE IS (OR HAS MOST RECENTLY BEEN) EMPLOYED BY THE CORPORATION (OR ANY
PARENT OR SUBSIDIARY) AT THE TIME OF SUCH ARBITRATION. THE ARBITRATION
PROCEEDINGS SHALL BE GOVERNED BY (i) THE NATIONAL RULES FOR THE RESOLUTION OF
EMPLOYMENT DISPUTES THEN IN EFFECT OF THE AMERICAN ARBITRATION ASSOCIATION AND
(ii) THE FEDERAL ARBITRATION ACT. THE ARBITRATOR SHALL HAVE THE SAME, BUT NO
GREATER, REMEDIAL AUTHORITY AS WOULD A COURT HEARING THE SAME DISPUTE. THE
DECISION OF THE ARBITRATOR SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE
PARTIES TO THE ARBITRATION AND SHALL BE IN LIEU OF THE RIGHTS THOSE PARTIES MAY
OTHERWISE HAVE TO A JURY TRIAL; PROVIDED, HOWEVER, THAT SUCH DECISION SHALL BE
SUBJECT TO CORRECTION, CONFIRMATION OR VACATION IN ACCORDANCE WITH THE
PROVISIONS AND STANDARDS OF APPLICABLE LAW GOVERNING THE JUDICIAL REVIEW OF
ARBITRATION AWARDS. THE PREVAILING PARTY IN SUCH ARBITRATION, AS DETERMINED BY
THE ARBITRATOR, AND IN ANY ENFORCEMENT OR OTHER COURT PROCEEDINGS, SHALL BE
ENTITLED, TO THE EXTENT PERMITTED BY LAW, TO REIMBURSEMENT FROM THE OTHER PARTY
FOR ALL OF THE PREVAILING PARTY’S COSTS (INCLUDING BUT NOT LIMITED TO THE
ARBITRATOR’S COMPENSATION), EXPENSES AND ATTORNEY’S FEES. JUDGMENT SHALL BE
ENTERED ON THE ARBITRATOR’S DECISION IN ANY COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER OF SUCH DISPUTE OR CONTROVERSY. NOTWITHSTANDING THE FOREGOING,
EITHER PARTY MAY IN AN APPROPRIATE MATTER APPLY TO A COURT PURSUANT TO
CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1281.8, OR ANY COMPARABLE STATUTORY
PROVISION OR COMMON LAW PRINCIPLE, FOR PROVISIONAL RELIEF, INCLUDING A
TEMPORARY RESTRAINING ORDER OR A PRELIMINARY INJUNCTION. TO THE EXTENT
PERMITTED BY LAW, THE PROCEEDINGS AND RESULTS, INCLUDING THE ARBITRATOR’S
DECISION, SHALL BE KEPT CONFIDENTIAL.

6

 

          17. Excess Shares. If the Option Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
shareholder approval be issued under the Plan, then this option shall be void
with respect to those excess shares, unless shareholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.

          18. Additional Terms Applicable to an Incentive Option. In the event this
option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:

		
	 	     (a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this
option is exercised for one or more Option Shares: (A) more than
three (3) months after the date Optionee ceases to be an Employee
for any reason other than death or Permanent Disability or (B)
more than twelve (12) months after the date Optionee ceases to be
an Employee by reason of Permanent Disability.

		
	 	     (b) No installment under this option shall qualify for
favorable tax treatment as an Incentive Option if (and to the
extent) the aggregate Fair Market Value (determined at the Grant
Date) of the Common Stock for which such installment first becomes
exercisable hereunder would, when added to the aggregate value
(determined as of the respective date or dates of grant) of the
Common Stock or other securities for which this option or any
other Incentive Options granted to Optionee prior to the Grant
Date (whether under the Plan or any other option plan of the
Corporation or any Parent or Subsidiary) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate. Should such One Hundred Thousand
Dollar ($100,000) limitation be exceeded in any calendar year,
this option shall nevertheless become exercisable for the excess
shares in such calendar year as a Non-Statutory Option.

		
	 	     (c) Should the exercisability of this option be accelerated
upon a Change in Control, then this option shall qualify for
favorable tax treatment as an Incentive Option only to the extent
the aggregate Fair Market Value (determined at the Grant Date) of
the Common Stock for which this option first becomes exercisable
in the calendar year in which the Change in Control occurs does
not, when added to the aggregate value (determined as of the
respective date or dates of grant) of the Common Stock or other
securities for which this option or one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under
the Plan or any other option plan of the Corporation or any Parent
or Subsidiary) first become exercisable during the same calendar
year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. Should the applicable One Hundred Thousand Dollar
($100,000) limitation be exceeded in the calendar year of such
Change in Control, the option may nevertheless be exercised for
the excess shares in such calendar year as a Non-Statutory Option.

7

 

		
	 	     (d) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become
exercisable for the first time in the same calendar year as this
option, then the foregoing limitations on the exercisability of
such options as Incentive Options shall be applied on the basis of
the order in which such options are granted.

8

 

EXHIBIT I

NOTICE OF EXERCISE

          I hereby notify Broadcom Corporation (the “Corporation”) that I elect to
purchase ___________________ shares of the Corporation’s Common Stock (the
“Purchased Shares”) at the option exercise price of $_____________________________ per share
(the “Exercise Price”) pursuant to that certain option (the “Option”) granted
to me under the Corporation’s 1998 Stock Incentive Plan on
______________________________, 20_____________.

          Concurrently with the delivery of this Exercise Notice to the Corporation,
I shall hereby pay to the Corporation the Exercise Price for the Purchased
Shares in accordance with the provisions of my agreement with the Corporation
(or other documents) evidencing the Option and shall deliver whatever
additional documents may be required by such agreement as a condition for
exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the
Exercise Price.

	 	 	 
	Date __________________________,   20______	 	 	 	 	 
	 
		 	 
	 
	 	 	

Optionee
	 
	 	 	
Address:
	 	 	

	 
	 	 	

	 
	Print name in exact manner

it is to appear on the

stock certificate:	 	

	 	 	 
	 
	Address to which certificate is to be sent, if different from

address above:	 	

	 
	 
	 	 	

	 
	Social Security Number:	 	 
	 
	 	 	

	 
	Employee Number:	 	 
	 
	 	 	

 

 

APPENDIX

          The following definitions shall be in effect under the Agreement:

          A.      Agreement shall mean this Stock Option Agreement.

          B.      Board shall mean the Corporation’s Board of Directors.

          C.      Common Stock shall mean shares of the Corporation’s Class A common stock.

          D.      Code shall mean the Internal Revenue Code of 1986, as amended.

          E.      Change in Control shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:

		
	 	     (i)      a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power
of the Corporation’s outstanding securities are transferred to a
person or persons different from the persons holding those
securities immediately prior to such transaction,

		
	 	     (ii)      the sale, transfer or other disposition of all or
substantially all of the Corporation’s assets in complete
liquidation or dissolution of the Corporation, or

		
	 	     (iii)      the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or
is under common control with, the Corporation), of beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation’s outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation’s shareholders.

          F.      Corporation shall mean Broadcom Corporation, a California corporation.

          G.      Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

          H.      Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.

          I.      Exercise Price shall mean the exercise price per Option Share as
specified in the Grant Notice.

          J.      Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.

A-1

 

          K.      Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

		
	 	     (i)      If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal
to the closing selling price per share of Common Stock on the date
in question, as the price is reported by the National Association
of Securities Dealers on the Nasdaq National Market. If there is
no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.

		
	 	     (ii)      If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

          L.      Grant Date shall mean the date of grant of the option as specified in
the Grant Notice.

          M.      Grant Notice shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.

          N.      Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.

          O.      Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).

          P.      Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

          Q.      Notice of Exercise shall mean the notice of exercise in the form
attached hereto as Exhibit I.

          R.      Option Shares shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.

A-2

 

          S.      Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.

          T.      Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

          U.      Permanent Disability shall mean the inability of Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has
lasted or can be expected to last for a continuous period of twelve (12) months
or more.

          V.      Plan shall mean the Corporation’s 1998 Stock Incentive Plan.

          W.      Plan Administrator shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.

          X.      Service shall mean the Optionee’s performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.

          Y.      Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.

          Z.      Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

A-3

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