<SUBMISSION>
<ACCESSION-NUMBER>0000950134-04-005657
<TYPE>DEF 14A
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20040527
<FILING-DATE>20040421
<EFFECTIVENESS-DATE>20040421
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>HARMONIC INC
<CIK>0000851310
<ASSIGNED-SIC>3663
<IRS-NUMBER>770201147
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>DEF 14A
<ACT>34
<FILE-NUMBER>000-25826
<FILM-NUMBER>04746027
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>549 BALTIC WAY
<CITY>SUNNYVALE
<STATE>CA
<ZIP>94089
<PHONE>4085422500
</BUSINESS-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>HARMONIC LIGHTWAVES INC
<DATE-CHANGED>19950404
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>f97733dedef14a.htm
<DESCRIPTION>DEFINITIVE NOTICE AND PROXY
<TEXT>
<HTML>
<HEAD>
<TITLE>def14a</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="5"><B>SCHEDULE 14A</B>
</FONT>

<DIV align="center"><FONT size="3"><B>(Rule&nbsp;14a-101)</B>
</FONT>
</DIV>

<P align="center"><FONT size="3"><B>INFORMATION REQUIRED IN PROXY STATEMENT</B>
</FONT>

<P align="center"><FONT size="3"><B>SCHEDULE 14A INFORMATION</B>
</FONT>

<P align="center"><FONT size="2"><B>Proxy Statement Pursuant to Section&nbsp;14(a) of the<BR>
Securities Exchange Act of 1934</B>
</FONT>

<P align="left"><FONT size="2">Filed by the Registrant <FONT face="Wingdings">&#120;</FONT><BR>
Filed by a Party other than the Registrant <FONT face="Wingdings">&#111;</FONT>
</FONT>

<P align="left"><FONT size="2">Check the appropriate box:</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="94%"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Preliminary Proxy Statement</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Confidential, for Use of the Commission Only (as permitted by 14a-6(e)(2))</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><FONT face="Wingdings">&#120;</FONT></FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Definitive Proxy Statement</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Definitive Additional Materials</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Soliciting Material Under &#167; 240.14(a)-12</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="6">HARMONIC INC.
</FONT>
<HR width="26%" align="center" size="1" noshade>
<DIV align="center"><FONT size="2">(Name of Registrant as Specified In Its Charter)
</FONT>
</DIV>

<P>&nbsp;
<HR width="26%" align="center" size="1" noshade>
<DIV align="center"><FONT size="2">(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
</FONT></DIV>

<P align="left"><FONT size="2">Payment of Filing Fee (Check the appropriate box):
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="94%"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><FONT face="Wingdings">&#120;</FONT></FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
No fee required.</FONT></TD>
</TR>
<TR><TD>&nbsp;</td></tr>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(1) and 0-11.</FONT></TD>
</TR>
</TABLE>
</CENTER>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
        <TD width="55%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">(1)</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Title of each class of securities to which transaction applies:</FONT></TD>
<TD valign="bottom">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
<TD valign="bottom"><hr align="LEFT" size="1" noshade></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">(2)</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Aggregate number of securities to which transaction applies:</FONT></TD>
<TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
<TD valign="bottom"><hr align="LEFT" size="1" noshade></TD>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">(3)</FONT></TD>
    <TD align="left" valign="top" colspan="2"><FONT size="2">
Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule&nbsp;0-11 (set
forth the amount on which the filing fee is calculated and state
how it was determined):</FONT></TD>
</TR>
<TR><TD>&nbsp;</td></tr>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="bottom" colspan="2"><hr align="LEFT" size="1" noshade></TD>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">(4)</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Proposed maximum aggregate value of transaction:</FONT></TD>
<TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
<TD valign="bottom"><hr align="LEFT" size="1" noshade></TD>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">(5)</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Total fee paid: </FONT></TD>
<TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
<TD valign="bottom"><hr align="LEFT" size="1" noshade></TD>
</TABLE>
</CENTER>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Fee paid previously by written preliminary materials.</FONT></TD>
</TR>
<TR><TD>&nbsp;</td></tr>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Check box if any part of the fee is offset as provided by
Exchange Act Rule&nbsp;0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.</FONT></TD>
</TR>
</TABLE>
</CENTER>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
        <TD width="55%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">(1)</FONT></TD>
    <TD align="left" valign="top"><FONT size="2"> Amount Previously Paid:</FONT></TD>
<TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
<TD valign="bottom"><hr align="LEFT" size="1" noshade></TD>
</tr>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD valign="top"><FONT size="2">(2)</FONT></TD>
    <TD valign="top"><FONT size="2">Form, Schedule or Registration Statement No.: </FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
<TD valign="bottom"><hr align="LEFT" size="1" noshade></TD>
</tr>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD valign="top"><FONT size="2">(3)</FONT></TD>
        <TD valign="top"><FONT size="2"> Filing Party:</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
<TD valign="bottom"><hr align="LEFT" size="1" noshade></TD>
</tr>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD valign="top"><FONT size="2">(4)</FONT></TD>
        <TD valign="top"><FONT size="2"> Date Filed:</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
<TD valign="bottom"><hr align="LEFT" size="1" noshade></TD>
</tr>
</TABLE>
</CENTER>

<P align="center"><FONT size="2"></FONT>




<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center">
<FONT size="2">HARMONIC INC.
</FONT>

<DIV align="center">
<HR size="1" width="42%" align="center" noshade>
</DIV>

<DIV align="center">
<FONT size="2">NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">To Be Held on May&nbsp;27, 2004
</FONT>
</DIV>

<DIV align="center">
<HR size="1" width="42%" align="center" noshade>
</DIV>

<P align="center">
<FONT size="2">TO THE STOCKHOLDERS OF HARMONIC INC.:
</FONT>

<P align="left">
<FONT size="2">NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders of Harmonic Inc., a Delaware corporation (the
&#147;Company&#148;), will be held on Thursday, May&nbsp;27,
2004 at 8:00&nbsp;a.m., Pacific Time, at The Westin Hotel,
5101&nbsp;Great America Parkway, Santa&nbsp;Clara, California,
95054, for the following purposes:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">1.&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To elect six directors to serve for the ensuing
    year or until their successors are elected and duly qualified.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">2.&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To approve an amendment to the 2002 Employee
    Stock Purchase Plan to increase the number of shares of common
    stock reserved for issuance thereunder by 2,000,000&nbsp;shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">3.&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To approve amendments to the 1995 Stock Plan to:
    (i)&nbsp;extend the term of the Plan by 9&nbsp;years to 2014,
    (ii)&nbsp;to increase the number of shares of common stock
    reserved for issuance by 2,500,000&nbsp;shares, (iii)&nbsp;to
    transfer to the 1995 Stock Plan all shares remaining available
    for grant in the 1999 Non-Statutory Stock Plan including up to
    1,800,000&nbsp;shares subject to outstanding options if they
    expire, (iv)&nbsp;to add the ability to grant restricted stock,
    stock appreciation rights, performance shares, performance units
    and deferred stock units (subject to limits on discounted
    awards), and (v)&nbsp;to approve the material terms of the 1995
    Plan and the performance goals thereunder for purposes of
    Internal Revenue Code Section&nbsp;162(m).
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">4.&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To approve amendments to the 2002&nbsp;Director
    Plan to increase the initial grant to 30,000&nbsp;shares, to
    authorize a one-time grant of 10,000&nbsp;shares to each
    non-employee director re-elected at this annual meeting, and to
    extend the exercisability period of all new options granted
    under this plan to three years following a director&#146;s
    resignation from the board.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">5.&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To ratify the appointment of
    PricewaterhouseCoopers LLP as independent auditors of the
    Company for the fiscal year ending December&nbsp;31, 2004.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The foregoing items of business are more fully
described in the Proxy Statement accompanying this Notice.
</FONT>

<P align="left">
<FONT size="2">Only stockholders of record at the close of
business on April&nbsp;7, 2004 are entitled to notice of and to
vote at the meeting and any adjournment thereof.
</FONT>

<P align="left">
<FONT size="2">All stockholders are cordially invited to attend
the meeting in person. However, to ensure your representation at
the meeting, you are urged to mark, sign, date and return the
enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose or vote by
telephone or by using the internet as instructed in the proxy
card. Any stockholder attending the meeting may vote in person
even if such stockholder has returned a proxy.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">By Order of the Board of Directors,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="f97733def9773300.gif" alt="-s- Jeffrey D. Saper"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Jeffrey D. Saper,
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Secretary
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Sunnyvale, California
</FONT>

<DIV align="left">
<FONT size="2">April&nbsp;21, 2004
</FONT>
</DIV>

<P align="center">
<FONT size="2">YOUR VOTE IS IMPORTANT
</FONT>

<P align="left">
<FONT size="2">IN ORDER TO ASSURE YOUR REPRESENTATION AT THE
MEETING, YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE
ENCLOSED ENVELOPE, OR VOTE BY TELEPHONE OR BY USING THE INTERNET
AS INSTRUCTED IN THE PROXY CARD.
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>

<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000"><FONT size="2">INFORMATION CONCERNING SOLICITATION AND VOTING</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#001"><FONT size="2">PROPOSAL ONE ELECTION OF DIRECTORS</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#002"><FONT size="2">PROPOSAL TWO AMENDMENT OF THE 2002 EMPLOYEE STOCK PURCHASE PLAN</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#003"><FONT size="2">PROPOSAL THREE AMENDMENTS TO THE 1995 STOCK PLAN</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#004"><FONT size="2">PROPOSAL FOUR AMENDMENTS TO 2002 DIRECTOR PLAN</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#005"><FONT size="2">PROPOSAL FIVE RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#006"><FONT size="2">ADDITIONAL INFORMATION</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#007"><FONT size="2">OTHER MATTERS</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#008"><FONT size="2">EXHIBIT&nbsp;1</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#009"><FONT size="2">EXHIBIT&nbsp;2</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#010"><FONT size="2">EXHIBIT&nbsp;3</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#011"><FONT size="2">EXHIBIT&nbsp;4</FONT></A></TD></TR>
</TABLE>
</CENTER>
<!-- /TOC -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center">
HARMONIC INC.

<DIV align="center">
<FONT size="2">549 Baltic Way
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">Sunnyvale, California 94089
</FONT>
</DIV>

<DIV align="center">
<HR size="1" width="42%" align="center" noshade>
</DIV>

<DIV align="center">
PROXY STATEMENT
</DIV>

<DIV align="center">
<HR size="1" width="42%" align="center" noshade>
</DIV>
<!-- link1 "<FONT size="2">INFORMATION CONCERNING SOLICITATION AND VOTING</FONT>" -->
<DIV align="left"><A NAME="000"></A></DIV>
<P align="left">
<FONT size="2">INFORMATION CONCERNING SOLICITATION AND VOTING
</FONT>

<P align="left">
<FONT size="2">General
</FONT>

<P align="left">
<FONT size="2">The enclosed proxy is solicited on behalf of the
board of directors of Harmonic Inc., a Delaware corporation (the
&#147;Company&#148;), for use at the Annual Meeting of
Stockholders (the &#147;Annual Meeting&#148;) to be held
May&nbsp;27, 2004 at 8:00&nbsp;A.M., Pacific Time, or at any
adjournments and postponements thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at The Westin
Santa&nbsp;Clara Hotel, 5101&nbsp;Great America Parkway,
Santa&nbsp;Clara, California, 95054. The telephone number of the
Company&#146;s principal offices is (408)&nbsp;542-2500.
</FONT>

<P align="left">
<FONT size="2">These proxy materials and the Company&#146;s
Annual Report to Stockholders for the year ended
December&nbsp;31, 2003, including financial statements, were
first mailed on or about April&nbsp;21, 2004 to all stockholders
entitled to vote at the Annual Meeting.
</FONT>

<P align="left">
<FONT size="2">Record Date and Voting Securities
</FONT>

<P align="left">
<FONT size="2">Stockholders of record at the close of business
on April&nbsp;7, 2004 (the &#147;Record Date&#148;) are entitled
to notice of and to vote at the Annual Meeting. At the Record
Date, 71,812,033&nbsp;shares of the Company&#146;s common stock,
$0.001&nbsp;par value per share, were issued and outstanding.
</FONT>

<P align="left">
<FONT size="2">Revocability of Proxies
</FONT>

<P align="left">
<FONT size="2">Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before its use at
the Annual Meeting by delivering to the Secretary of the Company
at the Company&#146;s principal executive offices a written
notice of revocation or a duly executed proxy bearing a later
date, or by voting on a later date by telephone or via the
Internet (only your latest-dated telephone or Internet proxy is
counted), or by attending the Annual Meeting and voting in
person.
</FONT>

<P align="left">
<FONT size="2">Voting and Solicitation
</FONT>

<P align="left">
<FONT size="2">Each stockholder is entitled to one vote for each
share of the Company&#146;s common stock held as of the Record
Date on all matters presented at the Annual Meeting.
Stockholders do not have the right to cumulate their votes in
the election of directors.
</FONT>

<P align="left">
<FONT size="2">The Company will bear the cost of soliciting
proxies, including the preparation, assembly, printing and
mailing of this Proxy Statement, the proxy card and any other
solicitation materials furnished to stockholders by the Company
in connection with the Annual Meeting. In addition, the Company
may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. Solicitation of
proxies by mail may be supplemented by telephone, telegram,
facsimile or personal solicitation by directors, officers or
employees of the Company. No additional compensation will be
paid to such persons for such services. The Company may also
engage, at an expense of approximately $12,500, the services of
a proxy solicitation firm.
</FONT>

<P align="center"><FONT size="2">1
</FONT>

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<P align="left">
<FONT size="2">Quorum; Abstentions; Broker Non-Votes
</FONT>

<P align="left">
<FONT size="2">The required quorum for the transaction of
business at the Annual Meeting is a majority of the votes
eligible to be cast by holders of shares of the Company&#146;s
common stock issued and outstanding on the Record Date. Shares
eligible to vote at the Annual Meeting will be counted as
present at the Annual Meeting if the holder of such shares is
present and votes in person at the Annual Meeting or has
properly submitted a proxy card or voted by telephone or via the
Internet. Shares that are voted &#147;FOR,&#148;
&#147;AGAINST,&#148; &#147;WITHHELD&#148; or &#147;ABSTAIN&#148;
are treated as being present at the Annual Meeting for purposes
of establishing a quorum and are also treated as shares entitled
to vote at the Annual Meeting (the &#147;Votes Cast&#148;) with
respect to such matter.
</FONT>

<P align="left">
<FONT size="2">While there is no definitive statutory or case
law authority in Delaware as to the proper treatment of
abstentions, the Company believes that abstentions should be
counted for purposes of determining both (i)&nbsp;the presence
or absence of a quorum for the transaction of business and
(ii)&nbsp;the total number of Votes Cast with respect to a
proposal (other than the election of directors). In the absence
of controlling precedent to the contrary, the Company intends to
treat abstentions in this manner. Accordingly, abstentions will
have the same effect as a vote against the proposal, other than
the election of directors.
</FONT>

<P align="left">
<FONT size="2">The Delaware Supreme Court has held that, while
broker non-votes should be counted for purposes of determining
the presence or absence of a quorum for the transaction of
business, broker non-votes should not be counted for purposes of
determining the number of Votes Cast with respect to the
particular proposal on which the broker has expressly not voted.
The Company intends to treat broker non-votes in a similar
manner. Thus, a broker non-vote will not affect the outcome of
the voting on a proposal.
</FONT>

<P align="left">
<FONT size="2">Pursuant to regulations promulgated by the
New&nbsp;York Stock Exchange (&#147;NYSE&#148;) that came into
effect on June&nbsp;30, 2003, brokers and other nominees that
are NYSE member organizations are prohibited from voting in
favor of proposals relating to equity compensation plans unless
they receive specific instructions from the beneficial owner of
the shares to vote on such matter. Therefore, for any of your
shares held through a broker or other nominee that is a NYSE
member organization, such shares will only be voted in favor of
Proposals Two, Three and Four if you have provided specific
voting instructions to your broker or other nominee to vote your
shares in favor of each such proposal.
</FONT>

<P align="left">
<FONT size="2">Stockholder Proposal Procedures and Deadlines
</FONT>

<P align="left">
<FONT size="2">Proposals of stockholders of the Company that are
intended to be presented by such stockholders at the
Company&#146;s 2005 Annual Meeting and that stockholders desire
to have included in the Company&#146;s proxy materials relating
to such meeting must be received by Harmonic at its principal
executive offices at 549&nbsp;Baltic Way, Sunnyvale,
California&nbsp;94089 no later than December&nbsp;24, 2004,
which is 120&nbsp;calendar days prior to the anniversary of the
mailing date of this Proxy Statement, and must be in compliance
with applicable laws and regulations in order to be considered
for possible inclusion in the Proxy Statement and form of proxy
for that meeting.
</FONT>

<P align="left">
<FONT size="2">The Securities and Exchange Commission, or SEC,
rules also establish a different deadline for submission of
stockholder proposals that are not intended to be included in
the Company&#146;s Proxy Statement with respect to discretionary
voting. The discretionary vote deadline for the year 2005 Annual
Meeting is March&nbsp;7, 2005, 45 calendar days prior to the
anniversary of the mailing date of this Proxy Statement. If a
stockholder gives notice of such a proposal after the
discretionary vote deadline, the Company&#146;s proxy holders
will be allowed to use their discretionary voting authority to
vote against the stockholder proposal when and if the proposal
is raised at the Company&#146;s year 2005 Annual Meeting. The
Company has not been notified by any stockholder of his or her
intent to present a stockholder proposal from the floor at this
year&#146;s Annual Meeting.
</FONT>

<P align="left">
<FONT size="2">Furthermore, under the Company&#146;s bylaws, a
stockholder&#146;s notice of business to be brought before an
annual meeting must set forth, as to each proposed matter:
a)&nbsp;a brief description of the business and reason for
conducting such business at the meeting; b)&nbsp;the name and
address as they appear on the Company&#146;s books of the
stockholder; c)&nbsp;the class and number of shares of the
Company owned by the stockholder; d)&nbsp;any material interest
of the stockholder in such business; and e)&nbsp;any other
information that may be required under Regulation&nbsp;14A of
the SEC rules.
</FONT>

<P align="center"><FONT size="2">2
</FONT>

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<DIV>&nbsp;</DIV>

<!-- link1 "<FONT size="2">PROPOSAL ONE ELECTION OF DIRECTORS</FONT>" -->
<DIV align="left"><A NAME="001"></A></DIV>

<DIV align="center">
<FONT size="2">PROPOSAL ONE
</FONT>
</DIV>

<P align="center">
<FONT size="2">ELECTION OF DIRECTORS
</FONT>

<P align="left">
<FONT size="2">Nominees
</FONT>

<P align="left">
<FONT size="2">The Company has authorized a board of six
directors, and six directors are to be elected at the Annual
Meeting. Each of the directors elected at the Annual Meeting
will hold office until the Annual Meeting of Stockholders in
2005 or until his successor has been duly elected and qualified.
</FONT>

<P align="left">
<FONT size="2">Unless otherwise instructed, the proxy holders
identified on the enclosed proxy card will vote the proxies
received by them for the Company&#146;s six nominees named
below, all of whom are currently directors of the Company. Each
of the nominees was recommended for election by the
Company&#146;s Corporate Governance and Nominating Committee and
the board of directors. The Company did not receive any
proposals from stockholders for nominations of other candidates
for election. In the event that any nominee of the Company
becomes unable or declines to serve as a director at the time of
the Annual Meeting, the proxy holders will vote the proxies for
any substitute nominee who is designated by the Company&#146;s
current Corporate Governance and Nominating Committee to fill
the vacancy. It is not expected that any nominee listed below
will be unable or will decline to serve as a director.
</FONT>

<P align="left">
<FONT size="2">The names of the nominees for director and
certain information about each of them are set forth below.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">Name</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Principal Occupation</FONT></B></TD>
</TR>

<TR>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Anthony J. Ley
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman, President and CEO, Harmonic Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">E. Floyd Kvamme
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">General Partner, Kleiner Perkins
    Caufield&nbsp;&#38; Byers
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William F. Reddersen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Retired, former Executive Vice President,
    BellSouth
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lewis Solomon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman and CEO, Broadband Services Inc.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michel L. Vaillaud
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Retired; former Chairman and CEO, Schlumberger
    Limited
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David R. Van Valkenburg
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman, Balfour Associates,&nbsp;Inc.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">Except as indicated below, each nominee or
incumbent director has been engaged in the principal occupation
set forth above during the past five years. There are no family
relationships between any directors or executive officers of the
Company.
</FONT>

<P align="left">
<I><FONT size="2">Anthony J. Ley </FONT></I><FONT size="2">has
served as Harmonic&#146;s President and Chief Executive Officer
since November 1988. Mr.&nbsp;Ley was elected Chairman of the
board of directors in 1995. From 1963 to 1987, Mr.&nbsp;Ley was
employed at Schlumberger Limited, both in Europe and the United
States, holding various senior business management and research
and development positions, most recently as Vice President,
Research and Engineering at Fairchild Semiconductor/
Schlumberger in Palo Alto, California. Mr.&nbsp;Ley holds an
M.A. in mechanical sciences from the University of Cambridge and
an S.M.E.E. from the Massachusetts Institute of Technology. He
is also named as an inventor in 29 patents and is a Fellow of
the I.E.E. (U.K.) and a senior member of the I.E.E.E.
</FONT>

<P align="left">
<I><FONT size="2">E.&nbsp;Floyd Kvamme
</FONT></I><FONT size="2">has been a director of the Company
since 1990. Since 1984, Mr.&nbsp;Kvamme has been a general
partner and now serves as a partner emeritus of Kleiner Perkins
Caufield&nbsp;&#38; Byers, a venture capital firm.
Mr.&nbsp;Kvamme is also a director of National Semiconductor
Corporation, Photon Dynamics,&nbsp;Inc. and Power
Integrations,&nbsp;Inc., as well as several private companies.
Mr.&nbsp;Kvamme holds a B.S.E.E. from the University of
California, Berkeley and an M.S.E. from Syracuse University.
</FONT>

<P align="left">
<I><FONT size="2">William F. Reddersen
</FONT></I><FONT size="2">has been a director of the Company
since July 2002. Now retired, Mr.&nbsp;Reddersen spent
31&nbsp;years at BellSouth and AT&#38;T. From 1998 to 2000,
Mr.&nbsp;Reddersen was Executive Vice President of Corporate
Strategy at BellSouth, and from 1991 to 1998, he was responsible
for BellSouth&#146;s broadband strategy and business market
operations.
</FONT>

<P align="center"><FONT size="2">3
</FONT>
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<DIV align="left">
<FONT size="2">Mr.&nbsp;Reddersen serves as a director of
several private companies. He holds a B.S. in Mathematics from
the University of Maryland and an M.S. in Management from the
Massachusetts Institute of Technology, where he was a Sloan
fellow.
</FONT>
</DIV>

<P align="left">
<I><FONT size="2">Lewis Solomon </FONT></I><FONT size="2">has
been a director of the Company since January 2002. Presently,
Mr.&nbsp;Solomon is Co-Founder and Chief Executive Officer of
Broadband Services,&nbsp;Inc. (BSI), an outsource provider of
supply chain management, network planning, and fulfillment
services. He is also Co-Founder and Chairman of
G&#38;L&nbsp;Investments, a consulting firm specializing in
technology. From 1983 to 1988, he served as the Executive Vice
President of Alan Patricof Associates, a global venture capital
firm. Mr.&nbsp;Solomon also spent 14&nbsp;years at General
Instrument Corporation, ultimately as Senior Vice President and
Assistant to the Chief Executive Officer. Mr.&nbsp;Solomon is a
director of Anadigics Inc., Artesyn Technologies Inc, Terayon
Communications and several private companies.
</FONT>

<P align="left">
<I><FONT size="2">Michel L. Vaillaud
</FONT></I><FONT size="2">has been a director of the Company
since March 1997. Now retired, from 1973 to 1986
Mr.&nbsp;Vaillaud was with Schlumberger Limited, most recently
as Chairman and Chief Executive Officer. He is a graduate of
Ecole Polytechnique in Paris and Ecole Nationale Superieure des
Mines in Paris. He serves as a Trustee of the Institute of
Advanced Studies in Princeton, New Jersey.
</FONT>

<P align="left">
<I><FONT size="2">David R. Van Valkenburg
</FONT></I><FONT size="2">has been a director of the Company
since October 2001. Mr.&nbsp;Van Valkenburg currently serves as
Chairman of Balfour Associates,&nbsp;Inc., a firm providing
counsel to chief executive officers, boards of directors and
private equity funds. From 1995 to 2000, he was Executive Vice
President of MediaOne Group,&nbsp;Inc. While at MediaOne Group,
Mr.&nbsp;Van Valkenburg was seconded to Telewest Communications
where he served as Chief Executive Officer and Chief Operating
Officer from 1997 to 1999. He has also held the position of
President at both Multivision Cable TV Corporation and Cox Cable
Communications Inc. Mr.&nbsp;Van Valkenburg serves on the board
of Mobile Data Solutions Inc., 360 Networks Inc., and several
private companies. He holds a B.A. degree from Malone College,
an M.S. degree from the University of Kansas, and an M.B.A. from
Harvard University.
</FONT>

<P align="left">
<FONT size="2">Board Meetings and Committees
</FONT>

<P align="left">
<FONT size="2">The board of directors of the Company held a
total of 5 meetings during the fiscal year ended
December&nbsp;31, 2003. No incumbent director attended fewer
than 75% of the meetings of the board of directors or the
committees upon which such director served during 2003.
</FONT>

<P align="left">
<FONT size="2">The board of directors has an Audit Committee, a
Compensation and Equity Ownership Committee and a Corporate
Governance and Nominating Committee. The charters for each of
these committees are posted on our website at
<U>www.harmonicinc.com</U>.
</FONT>

<P align="left">
<FONT size="2">The Audit Committee currently consists of
Messrs.&nbsp;Kvamme, Reddersen and Vaillaud, each of whom is
independent under Rule&nbsp;10A-3 of the Securities Exchange Act
of 1934 and under applicable Nasdaq listing standards. The Audit
Committee of the board of directors of Harmonic serves as the
representative of the board of directors for general oversight
of the quality and integrity of Harmonic&#146;s financial
accounting and reporting process, system of internal control,
audit process, and process for monitoring the compliance with
related laws and regulations. The Audit Committee engages the
Company&#146;s independent auditors and approves the scope of
both audit and non-audit services. Harmonic&#146;s management
has primary responsibility for preparing financial statements
and the financial reporting process. The Audit Committee held
seven meetings during 2003.
</FONT>

<P align="left">
<FONT size="2">The Company&#146;s board of directors has
determined that Mr.&nbsp;Kvamme is an &#147;audit committee
financial expert&#148; as defined by the current rules of the
Securities and Exchange Commission. The board of directors
believes that Mr.&nbsp;Kvamme&#146;s experience as general
partner of a major venture capital firm since 1984 qualifies him
as a &#147;audit committee financial expert&#148; because he has
acquired relevant expertise and experience from the analysis and
evaluation of financial statements of both public and private
companies.
</FONT>

<P align="left">
<FONT size="2">The Compensation and Equity Ownership Committee
currently consists of Messrs.&nbsp;Van Valkenburg and Kvamme,
neither of whom is an employee of the Company and each of whom
is independent under applicable Nasdaq listing standards. The
Compensation and Equity Ownership Committee is responsible for
reviewing and approving the Company&#146;s
</FONT>

<P align="center"><FONT size="2">4
</FONT>

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<DIV align="left">
<FONT size="2">compensation policies and the compensation paid
to executive officers, and approves all grants of equity
compensation to employees. This committee held three meetings
during 2003.
</FONT>
</DIV>

<P align="left">
<FONT size="2">In accordance with a written charter adopted by
Harmonic&#146;s board of directors in January 2004, the board of
directors created a Corporate Governance and Nominating
Committee to replace its Nominating Committee. This committee
serves as the representative of the board of directors for
establishment and oversight of governance policy and the
operation, composition and compensation of the board of
directors. The Corporate Governance and Nominating Committee is
composed of Messrs.&nbsp;Solomon and Van Valkenburg, both of
whom are independent under applicable Nasdaq listing standards.
The predecessor Nominating Committee held one meeting in 2003.
</FONT>

<P align="left">
<FONT size="2">The Corporate Governance and Nominating Committee
has proposed, and the board of directors has approved, the
nomination of all six current board members for re-election by
stockholders at this annual meeting. No candidates have been
proposed for nomination by shareholders at this meeting or at
any previous annual meeting.
</FONT>

<P align="left">
<FONT size="2">Nomination Proposals from Stockholders
</FONT>

<P align="left">
<FONT size="2">The Corporate Governance and Nominating Committee
will consider proposals from stockholders for board of directors
nominees at the 2005 Annual Meeting, provided that such
proposals are submitted in writing to the Secretary of the
Company at 549 Baltic Way, Sunnyvale, CA 94089 for inclusion in
the Company&#146;s proxy statement or consideration at the next
annual meeting of stockholders in a timely manner in accordance
with the Company&#146;s bylaws, as amended. For nominations of
persons for election to the board of directors of the Company by
a stockholder at the 2005 Annual Meeting, such stockholder must
provide written notice delivered to the Secretary of the Company
one hundred twenty days (120&nbsp;days) prior to the anniversary
of the mailing of this proxy statement (i.e., December&nbsp;24,
2004), which notice must contain (i)&nbsp;as to each person whom
the stockholder proposes to nominate for election or re-election
as a director (A) the name, age, business address and residence
address of such person, (B)&nbsp;the principal occupation or
employment of such person, (C)&nbsp;the class and number of
shares of the Company which are beneficially owned by such
person, (D)&nbsp;a description of all arrangements and
understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant
to which the nominations are to be made by the stockholder and
(E)&nbsp;any other information relating to such person that is
required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case
pursuant to Regulation&nbsp;14A under the Exchange Act
(including without limitation such person&#146;s written consent
to being named in the proxy statement, if any, as a nominee and
to serving as a director if elected) and (ii)&nbsp;as to such
stockholder proposing a nominee for election to the board of
directors of the Company, the information set forth in
&#147;Stockholder Proposal Procedures and Deadlines&#148; for a
stockholder notice of business to be brought before an annual
meeting. In evaluating candidates proposed by stockholders, the
Corporate Governance and Nominating Committee will use the same
criteria as it uses to evaluate all prospective members of the
board of directors. These criteria include demonstrated relevant
business and industry experience, particular expertise to act as
a committee chair or member, the ability to devote the necessary
time to board of directors and committee service, personal
character and integrity, and sound business judgment. The
Corporate Governance and Nominating Committee has not set either
term limits or age limits for members of the board of directors,
believing that the Company&#146;s interests are best served by
members of the board of directors with substantial experience
and knowledge of the Company&#146;s business and that age is
generally not a barrier to effective performance as a member of
the board of directors. To date, the Corporate Governance and
Nominating Committee has not used outside consultants to assist
it in identifying and screening potential board of directors
candidates.
</FONT>

<P align="left">
<FONT size="2">Meetings of Non-Employee Directors
</FONT>

<P align="left">
<FONT size="2">At each board meeting, the non-employee directors
meet in executive session without any management directors or
employees present. The Chairman of the Corporate Governance and
Nominating Committee, Lewis Solomon, has the responsibility of
presiding over periodic executive sessions of the board of
directors in which management directors and other members of
management do not participate. Last year, the non-employee
directors discussed succession planning and board policies,
processes and practices in executive session.
</FONT>

<P align="center"><FONT size="2">5
</FONT>

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<P align="left">
<FONT size="2">Compensation Committee Interlocks and Insider
Participation
</FONT>

<P align="left">
<FONT size="2">The Compensation and Equity Ownership Committee
of the board of directors currently consists of Messrs.&nbsp;Van
Valkenburg and Kvamme. No member of the Compensation and Equity
Ownership Committee or executive officer of the Company has a
relationship that would constitute an interlocking relationship
with executive officers or directors of another entity.
</FONT>

<P align="left">
<FONT size="2">Compensation of Directors
</FONT>

<P align="left">
<FONT size="2">During 2003, each non-employee director was paid
a retainer of $8,000, plus $2,000&nbsp;per board of directors
meeting attended and $1,000&nbsp;per board of directors
Committee meeting attended. The 2002&nbsp;Director Option Plan
currently provides for grants of options to be made in two ways:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">1.&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Each non-employee director is automatically
    granted an option to purchase 20,000&nbsp;shares, referred to as
    the &#147;First Option,&#148; on the date on which such person
    first becomes a non-employee director, whether through election
    by our stockholders or appointment by our board of directors to
    fill a vacancy, provided, however, that an employee director who
    ceases to be an employee director but who remains a director
    will not receive a First Option upon such occurrence;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">2.&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Each non-employee director is automatically
    granted an option to purchase 10,000&nbsp;shares, referred to as
    the &#147;Annual Option&#148; on the date of our annual
    stockholders meeting each year if on such dates he or she shall
    have served on our board of directors for at least the preceding
    six (6)&nbsp;months.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">See Proposal Four which seeks authorization to
increase equity compensation of directors.
</FONT>

<P align="left">
<FONT size="2">Effective April&nbsp;1, 2004, the board of
directors&#146; annual retainer has increased to
$20,000&nbsp;per annum, paid quarterly. Directors will continue
to receive $2,000&nbsp;per board meeting attended and
$1,000&nbsp;per board committee meeting attended. Fees of $1,000
and $500 respectively will also be paid for telephonic board of
directors and committee meetings. Previously, telephonic
meetings were not separately remunerated. In addition, the Chair
of the Audit Committee will receive a retainer of $7,500 and the
Chairs of the Compensation and Equity Ownership Committee and
the Corporate Governance and Nominating Committee will each be
paid a retainer of $4,000 (but only one retainer will be paid if
held by the same person). Maximum total board of directors fees
will be capped at $35,000&nbsp;per annum, excluding committee
remuneration.
</FONT>

<P align="left">
<FONT size="2">The board of directors believes that these
increases in remuneration are necessary to be able to attract
new qualified board of directors members and to fairly
compensate current members for additional workload and greater
responsibilities under new legislation, regulations and Nasdaq
rules.
</FONT>

<P align="left">
<FONT size="2">Communication with the Board of Directors
</FONT>

<P align="left">
<FONT size="2">The board of directors believes that management
should be the primary means of communication between the Company
and all of its constituencies, including stockholders,
customers, suppliers and employees. However, stockholders may
communicate with individual members of the board of directors,
committees of the board of directors, or the full board of
directors by addressing correspondence to a board member&#146;s
attention at 549 Baltic Way, Sunnyvale, CA, 94089.
</FONT>

<P align="left">
<FONT size="2">Attendance of the Board of Directors at Annual
Meetings
</FONT>

<P align="left">
<FONT size="2">No non-employee members of the board of directors
attended the 2003 Annual Meeting. Historically, stockholder
attendance at the annual stockholder meeting has been very low
and, as most board of directors members live outside Silicon
Valley, any benefit of their attendance was outweighed by the
time and expense required to attend the meeting. The board of
directors has adopted a policy to encourage board of directors
members to attend future annual stockholder meetings.
</FONT>

<P align="center"><FONT size="2">6
</FONT>

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<P align="left">
<FONT size="2">Vote Required and Recommendation
</FONT>

<P align="left">
<FONT size="2">The six nominees receiving the highest number of
affirmative votes of the shares entitled to vote on this matter
shall be elected as directors. Votes withheld from any director
will be counted for purposes of determining the presence or
absence of a quorum but are not counted as affirmative votes. A
broker non-vote will be counted for purposes of determining the
presence or absence of a quorum, but, under Delaware law and
assuming that a quorum is obtained, a broker non-vote will not
affect the outcome of the vote relating to election of directors.
</FONT>

<P align="left">
<FONT size="2">THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
VOTING &#147;FOR&#148; THE DIRECTOR NOMINEES SET FORTH ABOVE.
</FONT>

<DIV>&nbsp;</DIV>

<!-- link1 "<FONT size="2">PROPOSAL TWO AMENDMENT OF THE 2002 EMPLOYEE STOCK PURCHASE PLAN</FONT>" -->
<DIV align="left"><A NAME="002"></A></DIV>

<DIV align="center">
<FONT size="2">PROPOSAL TWO
</FONT>
</DIV>

<P align="center">
<FONT size="2">AMENDMENT OF THE 2002 EMPLOYEE STOCK PURCHASE PLAN
</FONT>

<P align="left">
<FONT size="2">The Company&#146;s stockholders are being asked
to approve an amendment to the Company&#146;s 2002 Employee
Stock Purchase Plan (the 2002 ESPP) which will increase the
maximum number of shares of common stock authorized for issuance
over the term of the ESPP by an additional 2,000,000&nbsp;shares
to 3,500,000&nbsp;shares.
</FONT>

<P align="left">
<FONT size="2">Our board of directors has determined that it is
in our best interests and the best interests of our stockholders
to adopt this amendment to the 2002 ESPP. As of the date of the
2004 Annual Stockholders Meeting, no rights to purchase any of
the 2,000,000&nbsp;shares which are the subject of this proposal
will have been granted, nor will any rights be granted in
respect of any of these shares for Offering Periods (as
discussed below) commencing prior to July&nbsp;1, 2004.
</FONT>

<P align="left">
<FONT size="2">Under current accounting rules, the approval of
these additional shares could result in future non-cash
compensation charges to Harmonic, if the additional shares are
made available for purchase in Offering Periods currently in
progress ending after July&nbsp;1, 2004. Consequently, in order
to avoid potential non-cash accounting charges, the Company
intends to terminate all Offering Periods in effect
June&nbsp;30, 2004 on July&nbsp;1, 2004. If the additional
shares are approved, Harmonic will start a new Offering Period
for all participants on July&nbsp;1, 2004.
</FONT>

<P align="left">
<FONT size="2">Proposed new accounting regulations will require
companies to record a charge to earnings for employee stock
option grants, including shares granted under plans similar to
our 2002 ESPP. In spite of these proposed changes in accounting,
the Company believes that it should continue to operate the 2002
ESPP at least until several issues are clarified. These factors
include the assessment of the impact of the final rules and
their timing on Harmonic&#146;s future earnings, actions by
other companies, particularly those with whom the Company
competes for employees, with respect to the design and operation
of such plans, and the attitude of financial analysts and
investors towards these potentially significant and volatile
non-cash charges. The Company believes that the 2002 ESPP
remains an essential element of a competitive compensation
package, especially in Silicon Valley, and these plans are
offered by most public companies with which Harmonic competes
for employees. Currently, over 78% of our employees participate
in the ESPP.
</FONT>

<P align="left">
<FONT size="2">Summary of the 2002 Employee Stock Purchase Plan
</FONT>

<P align="left">
<I><FONT size="2">Purpose.</FONT></I><FONT size="2"> The purpose
of the 2002 ESPP is to provide employees with an opportunity to
purchase our common stock through payroll deductions. The
Company believes that an employee stock purchase plan is an
essential element of a competitive compensation package. These
plans are offered by most public companies with which Harmonic
competes for employees.
</FONT>

<P align="left">
<I><FONT size="2">Administration.</FONT></I><FONT size="2"> Our
2002 ESPP is administered by the board of directors or a
committee appointed by the board of directors. All questions of
interpretation or application of the 2002 ESPP are determined by
our board of directors or its appointed committee, and its
decisions are final, conclusive and binding upon all
participants.
</FONT>

<P align="left">
<I><FONT size="2">Eligibility.</FONT></I><FONT size="2"> Each of
our employees and each employee of our designated subsidiaries,
whose customary employment with the Company or the designated
subsidiary is at least 20 (twenty)&nbsp;hours per week and more
than 5 (five)&nbsp;months in any
</FONT>

<P align="center"><FONT size="2">7
</FONT>

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<DIV align="left">
<FONT size="2">calendar year, is eligible to participate in the
2002 ESPP; except that no employee shall be granted an option
under the 2002 ESPP:
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(i)</FONT></TD>
    <TD align="left">
    <FONT size="2">to the extent that, immediately after the grant,
    such employee would own 5% of either the voting power or value
    of our stock or any of our subsidiaries, or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(ii)</FONT></TD>
    <TD align="left">
    <FONT size="2">to the extent that his or her rights to purchase
    stock under all of our employee stock purchase plans or those of
    our subsidiaries accrue at a rate which exceeds $25,000 worth of
    stock (determined at the fair market value of the shares at the
    time such option is granted) for each calendar year, or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(iii)</FONT></TD>
    <TD align="left">
    <FONT size="2">to the extent that shares purchased in any
    purchase period exceed 3,000 (three thousand) shares.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<I><FONT size="2">Offering Period.</FONT></I><FONT size="2"> Our
2002 ESPP has consecutive and overlapping twenty-four (24) month
offering periods that begin every six months commencing on the
first business day on or after each July&nbsp;1 and
January&nbsp;1. Each twenty-four month offering period includes
four six-month purchase periods, during which payroll deductions
are accumulated and, at the end of which, shares of our common
stock are purchased with a participant&#146;s accumulated
payroll deductions. If this amendment to the 2002 ESPP is
approved by the stockholders of the Company at the 2004 Annual
Meeting, the next offering period will commence on July&nbsp;1,
2004. Our board of directors has the power to change
commencement date and/or the duration of future offering
periods, if such change is announced at least five days prior to
the scheduled beginning of the first offering period to be
affected. To participate in the employee stock purchase plan, an
eligible employee must authorize payroll deductions pursuant to
the employee stock purchase plan. Such payroll deductions may
not exceed 10% of a participant&#146;s compensation during the
offering period. For the purposes of the 2002 ESPP, compensation
is defined as base straight time gross earnings, including
commissions and payments for overtime and shift premium, but
excluding all payments for incentive compensation, incentive
payments, bonuses and other compensation. Once an employee
becomes a participant in the 2002 ESPP, the employee
automatically will participate in each successive offering
period until the employee withdraws from the 2002 ESPP or the
employee&#146;s employment with us or our designated
subsidiaries terminates. At the beginning of each offering
period, each participant automatically is granted an option to
purchase shares of our common stock. The option expires at the
end of the offering period or upon termination of employment,
whichever is earlier, but is exercised at the end of each
purchase period to the extent of the payroll deductions
accumulated during such purchase period, unless the participant
withdraws from the 2002 ESPP or his or her employment terminates.
</FONT>

<P align="left">
<I><FONT size="2">Purchase Price.</FONT></I><FONT size="2">
Shares of our common stock are purchased under the 2002 ESPP at
a purchase price of not less than 85% of the lesser of the fair
market value of our common stock on:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(i)</FONT></TD>
    <TD align="left">
    <FONT size="2">the first day of the offering period or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(ii)</FONT></TD>
    <TD align="left">
    <FONT size="2">the last day of the purchase period.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The fair market value of our common stock on any
relevant date will be the closing price per share as reported on
the Nasdaq National Market, or the mean of the closing bid and
asked prices, if no sales were reported, as quoted on such
exchange or reported in The Wall Street Journal.
</FONT>

<P align="left">
<I><FONT size="2">Payment of Purchase Price; Payroll
Deductions.</FONT></I><FONT size="2"> Payment for the purchase
of shares is accumulated by payroll deductions throughout each
offering period. The number of shares of our common stock a
participant may purchase during a purchase period is determined
by dividing the total amount of payroll deductions withheld from
the participant&#146;s compensation during that purchase period
by the purchase price; provided, however, that a participant may
not purchase more than 3,000&nbsp;shares in any purchase period.
During the offering period, a participant may discontinue his or
her participation in the employee stock purchase plan, and may
decrease or increase the rate of payroll deductions in an
offering period within limits set by the plan and the
administrator.
</FONT>

<P align="left">
<FONT size="2">All payroll deductions made for a participant are
credited to the participant&#146;s account under the 2002 ESPP,
are withheld in whole percentages only and are included with our
general funds. Funds received by us pursuant to exercises under
the
</FONT>

<P align="center"><FONT size="2">8
</FONT>

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<DIV align="left">
<FONT size="2">2002 ESPP are also used for general corporate
purposes. A participant may not make any additional payments
into his or her account.
</FONT>
</DIV>

<P align="left">
<I><FONT size="2">Withdrawal.</FONT></I><FONT size="2">
Generally, a participant may withdraw from an offering period at
any time by written notice without affecting his or her
eligibility to participate in future offering periods. However,
once a participant withdraws from a particular offering period,
that participant may not participate again in the same offering
period. To participate in a subsequent offering period, the
participant must deliver to us a new subscription agreement.
</FONT>

<P align="left">
<I><FONT size="2">Termination of
Employment.</FONT></I><FONT size="2"> Upon termination of a
participant&#146;s employment for any reason, he or she will be
deemed to have elected to withdraw from the 2002 ESPP and the
payroll deductions credited to the participant&#146;s account
during the offering period but not yet used to exercise the
option will be returned to the participant.
</FONT>

<P align="left">
<I><FONT size="2">Adjustments upon Changes in Capitalization,
Dissolution, Liquidation, Merger or Change-of-Control.</FONT></I>

<P align="left">
<I><FONT size="2">Changes in
Capitalization.</FONT></I><FONT size="2"> Subject to any
required action by our stockholders, the number of shares
reserved under the 2002 ESPP, the maximum number of shares that
may be purchased during any purchase period, as well as the
price per share of common stock covered by each option under the
2002 ESPP which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the
number of issued shares of common stock resulting from a stock
split, reverse stock split, stock dividend, combination or
reclassification of the common stock, or any other increase or
decrease in the number of shares of common stock effected
without receipt of consideration by us; provided, however, that
conversion of any of our convertible securities shall not be
deemed to have been &#147;effected without receipt of
consideration.&#148; Such adjustment shall be made by our board
of directors, whose determination in that respect shall be
final, binding and conclusive. Except as expressly provided in
the 2002 ESPP, no issuance by us of shares of stock of any
class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of common
stock subject to an option.
</FONT>

<P align="left">
<I><FONT size="2">Dissolution or
Liquidation.</FONT></I><FONT size="2"> In the event of our
proposed dissolution or liquidation, unless the board of
directors determines otherwise the offering periods then in
progress shall be shortened by setting a new exercise date and
the offering period shall end on the new exercise date. The new
exercise date shall be immediately prior to the dissolution or
liquidation. If the board of directors shortens the offering
periods then in progress, the board of directors shall notify
each participant in writing, at least ten (10)&nbsp;business
days prior to the new exercise date, that the exercise date has
been changed to the new exercise date and that the option will
be exercised automatically on the new exercise date, unless the
participant has already withdrawn from the offering period.
</FONT>

<P align="left">
<I><FONT size="2">Merger or Change of
Control.</FONT></I><FONT size="2"> In the event of any merger or
our &#147;change of control,&#148; as defined in the 2002 ESPP,
each option under the 2002 ESPP shall be assumed or an
equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor
corporation. In the event the successor corporation refuses to
assume or substitute for the options, the board of directors
shall shorten any purchase periods and offering periods then in
progress by setting a new exercise date and any offering periods
shall end on the new exercise date. The new exercise date shall
be prior to the merger or change of control. If the board of
directors shortens any purchase periods and offering periods
then in progress, the board of directors shall notify each
participant in writing, at least ten (10)&nbsp;business days
prior to the new exercise date, that the exercise date has been
changed to the new exercise date and that the option will be
exercised automatically on the new exercise date, unless the
participant has already withdrawn from the offering period.
</FONT>

<P align="left">
<I><FONT size="2">Amendment and Termination of the
Plan.</FONT></I><FONT size="2"> Our board of directors may at
any time and for any reason terminate or amend the 2002 ESPP. An
offering period may be terminated by the board of directors at
the end of any purchase period if the board of directors
determines that termination of the 2002 ESPP is in our best
interests and the best interests of our stockholders. Generally,
no such termination can affect options previously granted. No
amendment shall be effective unless it is approved by the
holders of a majority of the votes cast at a duly held
stockholders&#146; meeting, if such amendment would require
stockholder approval in order to comply with Section&nbsp;423 of
the Code.
</FONT>

<P align="left">
<FONT size="2">Without stockholder consent and without regard to
whether any participant rights may be considered to have been
adversely affected, the board of directors shall be entitled to
change the offering periods, limit the frequency and/or
</FONT>

<P align="center"><FONT size="2">9
</FONT>

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<DIV align="left">
<FONT size="2">number of changes in the amount withheld during
an offering period, and establish such other limitations or
procedures as the board of directors determines in its sole
discretion advisable which are consistent with the 2002 ESPP.
Further, in the event that the board of directors determines
that the ongoing operation of the 2002 ESPP may result in
unfavorable financial accounting consequences, the board of
directors may, in its discretion and, to the extent necessary or
desirable, modify or amend the 2002 ESPP to reduce or eliminate
such accounting consequence without stockholder approval or the
consent of any 2002 ESPP participants.
</FONT>
</DIV>

<P align="left">
<I><FONT size="2">Certain Federal Income Tax
Information.</FONT></I><FONT size="2"> The following brief
summary of the effect of federal income taxation upon the
participant and us with respect to the shares purchased under
the 2002 ESPP does not purport to be complete, and does not
discuss the tax consequences of a participant&#146;s death or
the income tax laws of any state or foreign country in which the
participant may reside.
</FONT>

<P align="left">
<FONT size="2">The 2002 ESPP, and the right of participants to
make purchases thereunder, is intended to qualify under the
provisions of Sections&nbsp;421 and 423 of the Code. Under these
provisions, no income will be taxable to a participant until the
shares purchased under the 2002 ESPP are sold or otherwise
disposed of. The IRS has announced that until further notice it
will not assess FICA or FUTA taxes on exercises of incentive
stock options (ISOs) or on exercises of options granted under
employee stock purchase plans (ESPPs). Also, the IRS will not
assess FICA and FUTA taxes on dispositions of shares acquired
through exercises of ISOs and ESPPs. IRS Notice 2002-47 provides
that future guidance will not impose these payroll taxes on ISO
and ESPP exercises any earlier than January&nbsp;1 of the year
following the second anniversary of the publication of the
guidance. Upon sale or other disposition of the shares, the
participant will generally be subject to tax in an amount that
depends upon the holding period. If the shares are sold or
otherwise disposed of more than two years from the first day of
the applicable offering period and one year from the applicable
date of purchase, the participant will recognize ordinary income
measured as the lesser of (i)&nbsp;the excess of the fair market
value of the shares at the time of such sale or disposition over
the purchase price, or (ii)&nbsp;an amount equal to 15% of the
fair market value of the shares as of the first day of the
applicable offering period. Any additional gain will be treated
as long-term capital gain. If the shares are sold or otherwise
disposed of before the expiration of these holding periods, the
participant will recognize ordinary income generally measured as
the excess of the fair market value of the shares on the date
the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or
short-term capital gain or loss, depending on how long the
shares have been held from the date of purchase. We generally
are not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant except to the extent of
ordinary income recognized by participants upon a sale or
disposition of shares prior to the expiration of the holding
periods described above.
</FONT>

<P align="left">
<I><FONT size="2">Accounting
Treatment.</FONT></I><FONT size="2"> Under current accounting
rules, the issuance of common stock under the 2002 ESPP
generally should not result in a direct compensation expense
chargeable against the Company&#146;s reported earnings.
However, the Company must disclose, in footnotes to the
Company&#146;s financial statements, the impact the purchase
rights granted under the 2002 ESPP would have upon the
Company&#146;s reported earnings were the value of those
purchase rights treated as compensation expense. Proposed new
accounting regulations, however, require companies to record a
charge to earnings for employee stock option grants, including
shares granted under plans similar to our 2002 ESPP. Although
the final rules are not yet known, Harmonic expects that the
discount to the fair market value of our common stock would be
accounted for as an expense.
</FONT>

<P align="left">
<I><FONT size="2">Stock Issuances.</FONT></I><FONT size="2"> The
Company is unable to predict the amount of benefits that will be
received by or allocated to any particular participant under the
2002 ESPP. The table that follows shows, as to each of the
Company&#146;s executive officers named in the Summary
Compensation Table of the Executive Compensation and Additional
Information section of this
</FONT>

<P align="center"><FONT size="2">10
</FONT>

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<DIV align="left">
<FONT size="2">Proxy Statement and the various indicated groups,
the number of shares of common stock purchased under the 2002
ESPP during 2003 together with the weighted average purchase
price paid per share.
</FONT>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="53%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Employee Stock Purchase Plan Transactions&nbsp;&#151; 2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Purchased</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted Average</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">Name</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Purchase Price</FONT></B></TD>
</TR>

<TR>
    <TD colspan="9"></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Anthony J. Ley
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robin N. Dickson
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,603</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Israel Levi
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patrick Harshman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Yaron Simler
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All executive officers as a group (5 persons)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,947</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All employees, including current officers who are
    not executive officers, as a group (557 persons)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">718,139</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<I><FONT size="2">New Plan Benefits.</FONT></I><FONT size="2">
No purchase rights have been granted, and no shares of common
stock have been issued, in respect of the additional shares
which are subject to this Proposal Two.
</FONT>

<P align="left">
<FONT size="2">For the full text of the 2002 ESPP, please see
Exhibit&nbsp;1.
</FONT>

<P align="left">
<FONT size="2">Vote Required and Recommendation
</FONT>

<P align="left">
<FONT size="2">The approval of the amendment to the 2002 ESPP
requires the affirmative vote of a majority of the votes cast on
the proposal at the 2004 Annual Meeting.
</FONT>

<P align="left">
<FONT size="2">The Company&#146;s Named Executive Officers have
an interest in this proposal as they may purchase shares under
the 2002 ESPP.
</FONT>

<P align="left">
<FONT size="2">OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
VOTING &#147;FOR&#148; THE AMENDMENT TO THE 2002 EMPLOYEE STOCK
PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE THEREUNDER BY 2,000,000 SHARES.
</FONT>

<!-- link1 "<FONT size="2">PROPOSAL THREE AMENDMENTS TO THE 1995 STOCK PLAN</FONT>" -->
<DIV align="left"><A NAME="003"></A></DIV>

<P align="center">
<FONT size="2">PROPOSAL THREE
</FONT>

<P align="center">
<FONT size="2">AMENDMENTS TO THE 1995 STOCK PLAN
</FONT>

<P align="left">
<FONT size="2">The Company&#146;s stockholders are being asked
to approve amendments to the Company&#146;s 1995 Stock Plan (the
1995 Plan) which will:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;</FONT></TD>
    <TD align="left">
    <FONT size="2">Extend the term of the 1995 Plan by 9&nbsp;years
    (to April 2014),
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;</FONT></TD>
    <TD align="left">
    <FONT size="2">Increase the number of shares of common stock
    issuable under the 1995 Plan by 2,500,000&nbsp;shares,
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;</FONT></TD>
    <TD align="left">
    <FONT size="2">Transfer the shares remaining available for
    issuance under the 1999 Non-Statutory Stock Option Plan
    (1,185,129&nbsp;shares as of April&nbsp;7, 2004) to the 1995
    Plan as well as up to 1,800,000&nbsp;shares subject to
    outstanding options under the 1999 Non-Statutory Stock Option
    Plan on May&nbsp;27, 2004, if they expire,&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;</FONT></TD>
    <TD align="left">
    <FONT size="2">add the ability to grant restricted stock, stock
    appreciation rights, performance shares, performance units and
    deferred stock units. However, no more than 30% of the shares
    remaining available for issuance under the 1995 Plan as of
    May&nbsp;27, 2004 and shares subsequently added to the 1995 Plan
    by virtue of options expiring under the
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">11
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">1999 Non-Statutory Stock Option Plan may be
    granted pursuant to awards with an exercise price or purchase
    price that is less than 100% of fair market value on the date of
    grant.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The Company&#146;s stockholders are also being
asked to approve the material terms of the 1995 Plan and the
performance goals thereunder for the purpose of helping
compensation qualify as &#147;performance-based&#148;
compensation under Internal Revenue Code Section&nbsp;162(m).
</FONT>

<P align="left">
<FONT size="2">As of April&nbsp;7, 2004, options to purchase an
aggregate of 3,646,532&nbsp;shares of the Company&#146;s common
stock were outstanding under the 1995 Plan, with a weighted
average exercise price of $12.36&nbsp;per share, and
1,413,798&nbsp;shares have been issued upon exercise of stock
options granted under the 1995 Plan. As of April&nbsp;7, 2004,
only 739,670&nbsp;shares were available for future grant under
the 1995 Plan (excluding the 2,500,000&nbsp;shares subject to
approval at the 2004 Annual Meeting). In addition, options to
purchase a total of 5,139,963&nbsp;shares were outstanding under
our stock option plans as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">C-Cube Microsystems 1993 Stock Option Plan (the
    &#147;1993 Plan&#148;)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">C-Cube Microsystems 1994 Stock Option Plan (the
    &#147;1994 Plan&#148;)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">493,668</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">C-Cube Microsystems SSOP Stock Option Plan (the
    &#147;SSOP Plan&#148;)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">1997 Non-Statutory Option Plan (the &#147;1997
    NSO Plan&#148;)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,920</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">1999 Non-Statutory Stock Option Plan (the
    &#147;1999 NSO Plan&#148;)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,555,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">The 1997 NSO Plan was established in connection
with the Company&#146;s acquisition of New Media Communication
Ltd. in January 1998. The 1993 Plan, 1994 Plan and the SSOP Plan
were assumed in connection with the Company&#146;s acquisition
of the DiviCom business of C-Cube Microsystems Inc. in May 2000.
No further shares are available for grant under any of the above
plans, except for 1,185,129&nbsp;shares available for future
grant under the 1999 NSO Plan.
</FONT>

<P align="left">
<FONT size="2">Proposed new accounting regulations are expected
to require companies to record a charge to earnings for employee
stock option grants, including shares granted under plans
similar to our 1995 Plan. In spite of these proposed changes in
accounting, the Company believes that it should continue to
operate the 1995 Plan at least until several issues are
clarified. These factors include the assessment of the impact of
the final rules and their timing on Harmonic&#146;s future
earnings, actions by other companies, particularly those with
whom the Company competes for employees, with respect to the
design and operation of such plans, and the attitude of
financial analysts and investors towards these potentially
significant and volatile non-cash charges. The Company believes
that the 1995 Plan remains an essential element of a competitive
compensation package, especially in Silicon Valley, and these
plans are offered by most public and private companies with
which Harmonic competes for employees. Over 95% of our employees
currently hold stock options. The proposed amendment to the 1995
Plan increasing the types of awards issuable under the 1995 Plan
will provide us with greater flexibility in dealing with the
changing accounting landscape.
</FONT>

<P align="left">
<FONT size="2">The 1995 Plan currently authorizes the board of
directors to grant stock options to eligible employees and
consultants of the Company. The 1995 Plan is structured to allow
the board of directors to create equity incentives in order to
assist the Company in attracting, retaining and motivating the
best available personnel for the successful conduct and growth
of the Company&#146;s business. The Company believes that the
1995 Plan is an essential tool to link the long-term interests
of stockholders and employees and serves to motivate executives
to make decisions that will, in the long run, give the best
returns to stockholders. The Company has, therefore,
consistently included equity incentives as a significant
component of compensation for a broad range of the
Company&#146;s employees. In addition, the Company believes this
practice is critical to the Company&#146;s ability to attract
and retain employees in a highly competitive market for
managerial and technical talent. The Company&#146;s geographic
location in Silicon Valley exposes it to particularly intense
competition in the labor market from both private and public
companies. Equity incentives are offered by most companies with
which the Company competes for employees, and the Company
believes it is essential to provide stock options to both new
and existing employees.
</FONT>

<P align="center"><FONT size="2">12
</FONT>

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<P align="left">
<FONT size="2">In April, 2004, the board of directors approved
an amendment to the 1995 Plan to increase the number of shares
reserved for issuance thereunder by 2,500,000&nbsp;shares to a
total of 8,300,000&nbsp;shares, subject to stockholder approval.
The stockholders are being asked to approve this amendment at
the 2004 Annual Meeting. In 2001 the board of directors approved
an amendment to the 1995 Plan to prohibit any option from being
repriced, replaced or regranted through cancellation or
modification (without prior stockholder approval) if the effect
would be to reduce the exercise price of such option and the
reduction in exercise price would result in variable award
accounting under Financial Accounting Standards Board
Interpretation No.&nbsp;44 (FIN&nbsp;44). The proposed amendment
to the 1995 Plan prohibits option or stock appreciation right
repricings, including by way of an exchange for another award,
regardless of the accounting consequences, unless stockholder
approval is obtained.
</FONT>

<P align="left">
<FONT size="2">The Company&#146;s 1999 NSO Plan is a
non-shareholder approved plan which has been used to provide
stock options to rank and file employees. No executive officer
grants have been made from the 1999 plan except as inducement
grants to a new hire. The Company believes that all of its
equity plans should be approved by shareholders and is proposing
for shareholder approval the transfer of all shares remaining
available for grant in the 1999 NSO Plan 1,185,129 as of
April&nbsp;7, 2004) to the 1995 Plan. No further shares would be
issued from the 1999 NSO Plan if this proposal is approved.
</FONT>

<P align="left">
<FONT size="2">The board of directors believe that the remaining
shares available for grant under the 1995 Plan are insufficient
to accomplish the purposes of the 1995 Plan described above.
</FONT>

<P align="left">
<FONT size="2">We are also proposing to amend the 1995 Plan to
provide for the grant of stock appreciation rights, performance
shares, performance units and deferred stock units in addition
to options to purchase shares of our common stock.
</FONT>

<P align="left">
<FONT size="2">The board of directors believes that this
proposed amendment is necessary to allow us to continue to
attract and retain the best available people to serve as our
employees and consultants.
</FONT>

<P align="left">
<FONT size="2">As revised, the 1995 Plan provides for the grant
of options to purchase shares of our common stock, stock
appreciation rights (&#147;SARs&#148;), performance shares
(&#147;Performance Shares&#148;), performance units
(&#147;Performance Units&#148;) and deferred stock units
(&#147;Deferred Stock Units&#148;) to employees and consultants
of Harmonic. As of April&nbsp;7, 2004, there were approximately
562 employees (including officers) eligible to participate in
the 1995 Plan. Options granted under the 1995 Plan may either be
&#147;incentive stock options&#148; as defined in
Section&nbsp;422 of the Internal Revenue Code of 1986, as
amended (the &#147;Code&#148;), or nonstatutory stock options.
</FONT>

<P align="center"><FONT size="2">13
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">Comparison of Material Differences Between the
Provisions of the 1995 Plan
</FONT>

<P align="left">
<FONT size="2">A comparison of the material differences between
the 1995 Plan as currently in effect and as proposed to be
amended by this Proposal Three, are set forth in the table below.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="23%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">Feature</FONT></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Current</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Proposed</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">Types of available awards
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Stock options and stock purchase rights.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Stock options, restricted stock, stock
    appreciation rights, performance units, performance shares and
    deferred stock units.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">Limit on the issuance of awards with exercise and
    purchase prices below 100% of fair market value of the
    Company&#146;s common stock on grant date
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Up to 586,498&nbsp;shares may be issued as
    discount stock purchase rights. Nonstatutory options may have a
    discount of up to 15%
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">No more than 30% of the shares issuable under the
    1995 Plan as of the date of the 2004 Annual Meeting or later
    added to the 1995 Plan by virtue of options expiring under the
    1999 Non-Statutory Stock Option Plan may be issued with an
    exercise or purchase price that is less than 100% of the fair
    market value on the date of grant. Individual fiscal year limits
    also apply to each different type of award.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">Code Section&nbsp;162(m) Performance Goals
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Not in 1995 Plan
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Included in 1995 Plan
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">Repricing Prohibited Without Stockholder Approval
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Only if repricing results in variable accounting
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">All repricings prohibited.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">Summary of the Revised 1995 Plan
</FONT>

<P align="left">
<I><FONT size="2">General.</FONT></I><FONT size="2"> The 1995
Plan authorizes the board of directors or one or more committees
which the board of directors may appoint from among its members,
the committee, to grant awards.
</FONT>

<P align="left">
<I><FONT size="2">Administration.</FONT></I><FONT size="2"> The
1995 Plan may be administered by the board of directors or the
committee. Subject to the other provisions of the 1995 Plan, the
board of directors has the authority to: (i)&nbsp;interpret the
plan and apply its provisions; (ii)&nbsp;prescribe, amend or
rescind rules and regulations relating to the 1995 Plan;
(iii)&nbsp;select the persons to whom awards are to be granted;
(iv)&nbsp;subject to individual fiscal year limits applicable to
each type of award, determine the number of shares to be made
subject to each award; (v)&nbsp;determine whether and to what
extent awards are to be granted; (vi)&nbsp;prescribe the terms
and conditions of each award (including the provisions of the
award agreement to be entered into between the Company and the
grantee); (vii)&nbsp;amend any outstanding award subject to
applicable legal restrictions; except for the reduction of the
exercise price of an option or SAR (unless stockholder approval
is obtained); (viii)&nbsp;authorize any person to execute, on
behalf of the Company, any instrument required to effect the
grant of an award; and (ix)&nbsp;subject to certain limitations,
take any other actions deemed necessary or advisable for the
administration of the 1995 Plan. All decisions, interpretations
and other actions of the committee shall be final and binding on
all holders of options or rights and on all persons deriving
their rights therefrom.
</FONT>

<P align="left">
<I><FONT size="2">Eligibility.</FONT></I><FONT size="2"> The
1995 Plan provides that awards may be granted to the
Company&#146;s employees and independent consultants. Incentive
stock options may be granted only to employees. Any optionee who
owns more than 10% of the combined voting power of all classes
of outstanding stock of the Company (a &#147;10%
Stockholder&#148;) is not eligible for the grant of an incentive
stock option unless the exercise price of the option is at least
110% of the fair market value of the common stock on the date of
grant.
</FONT>

<P align="center"><FONT size="2">14
</FONT>
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<P align="left">
<I><FONT size="2">Limitations.</FONT></I><FONT size="2">
Section&nbsp;162(m) of the Code places limits on the
deductibility for federal income tax purposes of compensation
paid to certain executive officers of the Company. In order to
preserve the Company&#146;s ability to deduct the compensation
income associated with options and SARs granted to such persons,
the 1995 Plan provides that no employee may be granted, in any
fiscal year of the Company, options and SARs that relate to more
than 600,000&nbsp;shares of common stock.
</FONT>

<P align="left">
<FONT size="2">We have designed the 1995 Plan so that it permits
us to also issue other awards that qualify as performance-based
under Section&nbsp;162(m) of the Code. Thus, the committee may
make performance goals applicable to a participant with respect
to an award. At the committee&#146;s discretion, one or more of
the following performance goals may apply: annual revenue, cash
position, earnings per share, net income, operating cash flow,
operating income, return on assets, return on equity, return on
sales and total shareholder return. Except for cash position and
total shareholder return, these performance goals may apply to
either Harmonic or to one of our business units.
</FONT>

<P align="left">
<I><FONT size="2">Terms and Conditions of
Options.</FONT></I><FONT size="2"> Each option granted under the
1995 Plan is evidenced by a written stock option agreement
between the optionee and the Company and is subject to the
following terms and conditions:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(a)</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Exercise Price; No
    Repricing.</FONT></I><FONT size="2"> The board of directors or
    the committee determines the exercise price of options at the
    time the options are granted. However, excluding options issued
    to 10% Stockholders, the exercise price of an incentive stock
    option must not be less than 100% of the fair market value of
    the common stock on the date the option is granted, and the
    exercise price under a nonstatutory option shall be determined
    by the administrator of the 1995 Plan, but may not be less than
    85% of the fair market value of the common stock on the date the
    option is granted. As the Company&#146;s common stock is listed
    on the Nasdaq National Market, the fair market value is the
    closing sale price for the common stock (or the closing bid if
    no sales were reported) on the date the option is granted. In
    addition, no option granted under the 1995 Plan may be repriced,
    without stockholder approval, including by means of an exchange
    for another award.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(b)</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Form of
    Consideration.</FONT></I><FONT size="2"> The means of payment
    for shares issued upon exercise of an option is specified in
    each option agreement and generally may be made by cash, check,
    a full-recourse promissory note, other shares of common stock of
    the Company owned by the optionee, delivery of an exercise
    notice together with irrevocable instructions to a broker to
    deliver the exercise price to the Company from sale or loan
    proceeds, or by a combination thereof.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(c)</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Exercise of the
    Option.</FONT></I><FONT size="2"> Each stock option agreement
    will specify the term of the option and the date when the option
    is to become exercisable. However, in no event shall an option
    granted under the 1995 Plan be exercised more than 10&nbsp;years
    after the date of grant. Moreover, in the case of an incentive
    stock option granted to a 10% Stockholder, the term of the
    option shall be for no more than five years from the date of
    grant. To date, all options granted under the 1995 Plan have
    vested 25% on the first anniversary from the date of grant and
    1/48&nbsp;per month thereafter.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(d)</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Termination of
    Employment.</FONT></I><FONT size="2"> If an optionee&#146;s
    employment terminates for any reason (other than death or
    permanent disability), then all options held by such optionee
    under the 1995 Plan expire upon the earlier of (i)&nbsp;such
    period of time as is set forth in his or her option agreement or
    (ii)&nbsp;the expiration date of the option. The optionee may
    exercise all or part of his or her option at any time before
    such expiration to the extent that such option was exercisable
    at the time of termination of employment.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(e)</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Permanent
    Disability.</FONT></I><FONT size="2"> If an employee is unable
    to continue employment with the Company as a result of permanent
    and total disability (as defined in the Code), then all options
    held by such optionee under the 1995 Plan shall expire upon the
    earlier of (i)&nbsp;12&nbsp;months after the date of termination
    of the optionee&#146;s employment or (ii)&nbsp;the expiration
    date of the option. The optionee may exercise all or part of his
    or her option at any time before such expiration to the extent
    that such option was exercisable at the time of termination of
    employment.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">15
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(f)</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Death.</FONT></I><FONT size="2"> If an
    optionee dies while employed by the Company, his or her option
    shall expire upon the earlier of (i)&nbsp;12&nbsp;months after
    the optionee&#146;s death or (ii)&nbsp;the expiration date of
    the option. The executors or other legal representative or the
    optionee may exercise all or part of the optionee&#146;s option
    at any time before such expiration to the extent that such
    option was exercisable at the time of death.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(g)</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Termination of
    Options.</FONT></I><FONT size="2"> Each stock option agreement
    will specify the term of the option and the date when all or any
    installment of the option is to become exercisable.
    Notwithstanding the foregoing, however, the term of any stock
    option shall not exceed 10&nbsp;years from the date of grant. No
    options may be exercised by any person after the expiration of
    its term.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(h)</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Limitations.</FONT></I><FONT size="2"> If the
    aggregate fair market value of all shares of common stock
    subject to an optionee&#146;s incentive stock option which are
    exercisable for the first time during any calendar year exceeds
    $100,000, the excess options shall be treated as nonstatutory
    options.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(i)</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Other Provisions.</FONT></I><FONT size="2">
    The stock option agreement may contain such terms, provisions
    and conditions that are inconsistent with the 1995 Plan as may
    be determined by the board of directors or the committee.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<I><FONT size="2">Stock Purchase Rights.</FONT></I>

<P align="left">
<I><FONT size="2">Exercise Price and Other Terms of Stock
Appreciation Rights; No Repricing.</FONT></I><FONT size="2"> The
committee, subject to the provisions of the 1995 Plan, shall
have complete discretion to determine the terms and conditions
of SARs granted under the 1995 Plan. However, no SAR may be
repriced, including by means of an exchange for another award,
without stockholder approval.
</FONT>

<P align="left">
<I><FONT size="2">Payment of Stock Appreciation Right
Amount.</FONT></I><FONT size="2"> Upon exercise of a SAR, the
holder of the SAR shall be entitled to receive payment from us
in an amount determined by multiplying (X)&nbsp;the difference
between the fair market value of a share on the date of exercise
over the exercise price; times (Y)&nbsp;the number of shares
with respect to which the SAR is exercised.
</FONT>

<P align="left">
<I><FONT size="2">Payment upon Exercise of Stock Appreciation
Right.</FONT></I><FONT size="2"> At the discretion of the
committee, payment to the holder of a SAR may be in cash, shares
of our common stock or a combination thereof. In the event that
payment to the holder of a SAR is settled in cash, the shares
available for issuance under the 1995 Plan shall not be
diminished as a result of the settlement.
</FONT>

<P align="left">
<I><FONT size="2">Stock Appreciation Right
Agreement.</FONT></I><FONT size="2"> Each SAR grant shall be
evidenced by an agreement that shall specify the exercise price,
the term of the SAR, the conditions of exercise, and such other
terms and conditions as the committee, in its sole discretion,
shall determine.
</FONT>

<P align="left">
<I><FONT size="2">Expiration of SARs.</FONT></I><FONT size="2">
SARs granted under the 1995 Plan expire as determined by the
committee, but in no event later than ten (10)&nbsp;years from
date of grant. No SAR may be exercised by any person after its
expiration.
</FONT>

<P align="left">
<I><FONT size="2">Grant of Restricted
Stock.</FONT></I><FONT size="2"> Subject to the terms and
conditions of the 1995 Plan, Restricted Stock may be granted to
our employees and consultants, at any time and from time to time
as shall be determined by the committee, in its sole discretion.
The committee shall have complete discretion to determine
(i)&nbsp;the number of shares subject to a Restricted Stock
award granted to any participant, and (ii)&nbsp;the conditions
that must be satisfied, which typically will be based
principally or solely on continued provision of services but may
include a performance-based component, upon which is conditioned
the grant or vesting of Restricted Stock. However, no
participant shall be granted a Restricted Stock award covering
more than 200,000&nbsp;shares in any of Harmonic&#146;s fiscal
years. Until the shares are issued, no right to vote or receive
dividends or any other rights as a stockholder shall exist with
respect to the underlying shares.
</FONT>

<P align="left">
<I><FONT size="2">Restricted Stock Award
Agreement.</FONT></I><FONT size="2"> Each Restricted Stock grant
shall be evidenced by an agreement that shall specify the
purchase price (if any) and such other terms and conditions as
the committee, in its sole discretion, shall determine;
provided; however, that if the Restricted Stock grant has a
purchase price, such purchase price must be paid no more than
ten (10)&nbsp;years following the date of grant.
</FONT>

<P align="center"><FONT size="2">16
</FONT>

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<P align="left">
<I><FONT size="2">Grant of Performance
Shares.</FONT></I><FONT size="2"> Subject to the terms and
conditions of the 1995 Plan, Performance Shares may be granted
to Service Providers at any time and from time to time as shall
be determined by the committee, in its sole discretion. The
committee shall have complete discretion to determine
(i)&nbsp;the number of shares of our common stock subject to a
Performance Share award granted to any Service Provider, and
(ii)&nbsp;the conditions that must be satisfied, which typically
will be based principally or solely on achievement of
performance milestones but may include a service-based
component, upon which is conditioned the grant or vesting of
Performance Shares. However, no participant shall be granted a
Performance Share award covering more than 200,000&nbsp;shares
in any of Harmonic&#146;s fiscal years.
</FONT>

<P align="left">
<I><FONT size="2">Performance Share Award
Agreement.</FONT></I><FONT size="2"> Each Performance Share
grant shall be evidenced by an agreement that shall specify such
other terms and conditions as the committee, in its sole
discretion, shall determine.
</FONT>

<P align="left">
<I><FONT size="2">Grant of Performance
Units.</FONT></I><FONT size="2"> Performance Units are similar
to Performance Shares, except that they shall be settled in a
cash equivalent to the fair market value of the underlying
shares of our common stock, determined as of the vesting date.
The shares available for issuance under the 1995 Plan shall not
be diminished as a result of the settlement of a Performance
Unit.
</FONT>

<P align="left">
<I><FONT size="2">Performance Unit Award
Agreement.</FONT></I><FONT size="2"> Each Performance Unit grant
shall be evidenced by an agreement that shall specify such terms
and conditions as the committee, in its sole discretion, shall
determine. However, no participant shall be granted a
Performance Unit award covering more than one million dollars in
any of Harmonic&#146;s fiscal years, except that a newly hired
participant may receive a Performance Unit award covering up to
two million dollars.
</FONT>

<P align="left">
<I><FONT size="2">Deferred Stock
Units.</FONT></I><FONT size="2"> Deferred Stock Units shall
consist of a Restricted Stock, Performance Share or Performance
Unit Award that the committee, in its sole discretion permits to
be paid out in installments or on a deferred basis, in
accordance with rules and procedures established by the
committee. Deferred Stock Units are subject to the individual
annual limits that apply to each type of award.
</FONT>

<P align="left">
<I><FONT size="2">Non-Transferability of
Awards.</FONT></I><FONT size="2"> Unless determined otherwise by
the committee, an award granted under the 1995 Plan may not be
sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the
recipient, only by the recipient. If the committee makes an
award granted under the 1995 Plan transferable, such award shall
contain such additional terms and conditions as the committee
deems appropriate.
</FONT>

<P align="left">
<FONT size="2">In the event that the Company acquired in any
merger, consolidation, acquisition of assets or like occurrence,
each outstanding award granted under the 1995 Plan shall be
assumed or an equivalent right substituted by a successor
corporation. If such awards granted under the 1995 Plan are not
assumed, they become fully vested prior to the closing of such
merger or consolidation.
</FONT>

<P align="left">
<I><FONT size="2">Adjustment Upon Changes in Capitalization,
Corporate Transactions.</FONT></I><FONT size="2"> In the event
that the stock of the Company is changed by reason of any stock
split, reverse stock split, stock dividend, recapitalization or
other change in the capital structure of the Company,
appropriate proportional adjustments shall be made in the number
and class of shares of stock subject to the 1995 Plan, the
individual fiscal year limits applicable to restricted stock,
performance share awards, SARS and options, the number and class
of shares of stock subject to any award outstanding under the
1995 Plan, and the exercise price of any such outstanding option
or SAR or other award. Any such adjustment shall be made upon
approval of the Compensation and Equity Ownership Committee of
the board of directors whose determination shall be conclusive.
In the event that we are acquired in any merger, consolidation,
acquisition of assets or like occurrence, each outstanding award
granted under the 1995 Plan shall be assumed or an equivalent
right substituted by a successor corporation. If such awards
granted under the 1995 Plan are not assumed, they become fully
vested prior to the closing of such merger or consolidation.
</FONT>

<P align="left">
<I><FONT size="2">Amendment, Suspensions and Termination of the
1995 Plan.</FONT></I><FONT size="2"> The board of directors may
amend, suspend or terminate the 1995 Plan at any time; provided,
however, that stockholder approval is required for any amendment
to the extent necessary to comply with Rule&nbsp;16b-3
promulgated under the Securities Exchange Act of 1934
(&#147;Rule&nbsp;16b-3&#148;) or
</FONT>

<P align="center"><FONT size="2">17
</FONT>

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<DIV align="left">
<FONT size="2">Section&nbsp;422 of the Code, or any similar rule
or statute. If Proposal Three is approved then the 1995 Plan
will extend to April 2014.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Federal Tax Information.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">
<I><FONT size="2">Options.</FONT></I><FONT size="2"> Options
granted under the 1995 Plan may be either &#147;incentive stock
options,&#148; as defined in Section&nbsp;422 of the Code, or
nonstatutory options.
</FONT>

<P align="left">
<FONT size="2">An optionee who is granted an incentive stock
option will not recognize taxable income either at the time the
option is granted or upon its exercise, although the exercise
may subject the optionee to alternative minimum tax. Upon the
sale or exchange of the shares more than two years after grant
of the option and one year after exercising the option, any gain
or loss will be treated as long-term capital gain or loss. If
these holding periods are not satisfied, the optionee will
recognize ordinary income at the time of sale or exchange equal
to the difference between the exercise price and the lower of
(i)&nbsp;the fair market value of the shares at the date of the
option exercise or (ii)&nbsp;the sale price of the shares. A
different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an
officer, director, or 10% Stockholder of the Company. Any gain
or loss recognized on such a premature disposition of the shares
in excess of the amount treated as ordinary income will be
characterized as long-term or short-term capital gain or loss,
depending on the holding period.
</FONT>

<P align="left">
<FONT size="2">All other options which do not qualify as
incentive stock options are referred to as nonstatutory options.
An optionee will not recognize any taxable income at the time
the optionee is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally
measured as the excess of the then fair market value of the
shares purchased over the purchase price. Any taxable income
recognized in connection with an option exercise by an optionee
who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the
optionee, any difference between the sale price and the
optionee&#146;s purchase price, to the extent not recognized as
taxable income as described above, will be treated as long-term
or short-term capital gain or loss, depending on the holding
period.
</FONT>

<P align="left">
<FONT size="2">The foregoing is only a summary of the effect of
federal income taxation upon the participant and the Company,
does not purport to be complete, and does not discuss the tax
consequences of the participant&#146;s death or the income tax
laws of any municipality, state or foreign country in which a
participant may reside.
</FONT>

<P align="left">
<I><FONT size="2">Stock Appreciation
Rights.</FONT></I><FONT size="2"> No taxable income is
reportable when a stock appreciation right is granted to a
participant. Upon exercise, the participant will recognize
ordinary income in an amount equal to the amount of cash
received and the fair market value of any shares of our common
stock received. Any additional gain or loss recognized upon any
later disposition of the shares of our common stock would be
capital gain or loss.
</FONT>

<P align="left">
<I><FONT size="2">Restricted Stock, Performance Units and
Performance Shares.</FONT></I><FONT size="2"> A participant will
not have taxable income upon grant (unless, with respect to
Restricted Stock, he or she elects to be taxed at that time).
Instead, he or she will recognize ordinary income at the time of
vesting equal to the fair market value (on the vesting date) of
the vested shares or cash received minus any amount paid for the
shares of our vested common stock.
</FONT>

<P align="left">
<I><FONT size="2">Tax Effect for Us.</FONT></I><FONT size="2">
We generally will be entitled to a tax deduction in connection
with an award under the 1995 Plan in an amount equal to the
ordinary income realized by a participant and at the time the
participant recognizes such income (for example, the exercise of
a nonqualified stock option). Special rules limit the
deductibility of compensation paid to our Chief Executive
Officer and to each of our four most highly compensated
executive officers. Under Section&nbsp;162(m) of the Code, the
annual compensation paid to any of these specified executives
will be deductible only to the extent that it does not exceed
$1,000,000. However, we can preserve the deductibility of
certain compensation in excess of $1,000,000 if the conditions
of Section&nbsp;162(m) are met with respect to awards. These
conditions include stockholder approval of the 1995 Plan and
performance goals under the 1995 Plan, setting individual annual
limits on each type of award, and certain other requirements.
The 1995 Plan has been designed to permit the committee to grant
awards that qualify as performance-based for purposes of
satisfying the conditions of Section&nbsp;162(m), thereby
permitting us to continue to receive a federal income tax
deduction in connection with such awards.
</FONT>

<P align="center"><FONT size="2">18
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<I><FONT size="2">Stock Issuances.</FONT></I><FONT size="2"> The
Company is unable to predict the amount of benefits that will be
received by or allocated to any particular participant under the
1995 Plan. The table that follows shows as to each of the
Company&#146;s executive officers named in the Summary
Compensation Table of the Executive Compensation and Additional
Information section of this Proxy Statement and the various
indicated groups, the options granted to purchase common stock
under the 1995 Plan and other employee option plans during 2003
together with the weighted average purchase price paid per share.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Option Plan Benefits</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted Average</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price Per Share</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">Name</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Awards Granted Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($/sh)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="9"></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Anthony J. Ley
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robin N. Dickson
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Israel Levi
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patrick Harshman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Yaron Simler
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All executive officers as a group (5 persons)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">285,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All employees, including current officers who are
    not executive officers, as a group (557 persons)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,445,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">For the full text of the 1995 Plan, please see
Exhibit&nbsp;2.
</FONT>

<P align="left">
<FONT size="2">Vote Required and Recommendation
</FONT>

<P align="left">
<FONT size="2">The affirmative vote of a majority of the Votes
Cast will be required to approve the amendments to the 1995 Plan.
</FONT>

<P align="left">
<FONT size="2">The Company&#146;s Named Executive Officers have
an interest in this proposal as they may receive awards under
the 1995 Plan.
</FONT>

<P align="left">
<FONT size="2">THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
VOTING &#147;FOR&#148; THE AMENDMENTS TO THE COMPANY&#146;S 1995
PLAN TO: (i)&nbsp;EXTEND THE TERM OF THE 1995 PLAN BY 9 YEARS TO
APRIL 2014, (ii)&nbsp;TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE BY 2,500,000 SHARES, (iii)&nbsp;TO
TRANSFER TO THE 1995 STOCK PLAN ALL SHARES REMAINING AVAILABLE
FOR GRANT IN THE 1999 NON-STATUTORY STOCK PLAN,&nbsp;INCLUDING
UP TO 1,800,000 SHARES SUBJECT TO OUTSTANDING OPTIONS IF THEY
EXPIRE, (iv)&nbsp;TO ADD THE ABILITY TO GRANT RESTRICTED STOCK,
STOCK APPRECIATION RIGHTS, PERFORMANCE SHARES, PERFORMANCE UNITS
AND DEFERRED STOCK UNITS (SUBJECT TO LIMITS ON DISCOUNTED
AWARDS), AND (v)&nbsp;TO APPROVE THE MATERIAL TERMS OF THE 1995
PLAN AND THE PERFORMANCE GOALS THEREUNDER FOR PURPOSES OF
INTERNAL REVENUE CODE SECTION&nbsp;162(M).
</FONT>

<DIV>&nbsp;</DIV>

<!-- link1 "<FONT size="2">PROPOSAL FOUR AMENDMENTS TO 2002 DIRECTOR PLAN</FONT>" -->
<DIV align="left"><A NAME="004"></A></DIV>

<DIV align="center">
<FONT size="2">PROPOSAL FOUR
</FONT>
</DIV>

<P align="center">
<FONT size="2">AMENDMENTS TO 2002 DIRECTOR PLAN
</FONT>

<P align="left">
<FONT size="2">The Corporate Governance and Nominating Committee
has recommended, and the board of directors has approved,
subject to stockholder approval, an increase in the
&#147;Initial Grant&#148; of stock to a new non-employee board
of directors member from 20,000&nbsp;shares to
30,000&nbsp;shares, as well as a one-time &#147;catch-up&#148;
grant, to be made to each non-employee director re-elected at
this annual meeting, of 10,000&nbsp;shares. The board of
directors believes, after studying board of directors
compensation at companies similar in size and complexity to
Harmonic, that current compensation is below average for
companies similarly situated to the Company. In order to attract
new members of the board of directors and to fairly compensate
current members for the increased workload and responsibility
from recent legislation, the board of directors believes that an
increase in equity compensation is appropriate. No increase in
authorized shares under the
</FONT>

<P align="center"><FONT size="2">19
</FONT>

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<DIV align="left">
<FONT size="2">2002 Director Plan is necessary at this time to
satisfy these increased requirements, if approved. The board of
directors is also asking stockholders to approve an extension to
three years the time allowed to exercise any new option grants
after termination from the board of directors. The board of
directors believes that such a provision will increase
independence by enabling directors to resign from the board of
directors without being immediately required to exercise
options. We are also amending the 2002 Director Plan to provide
that no option may be repriced, including by way of exchange for
another award, without stockholder approval.
</FONT>
</DIV>

<P align="left">
<FONT size="2">Summary of the 2002&nbsp;Director Option Plan
</FONT>

<P align="left">
<I><FONT size="2">Purpose.</FONT></I><FONT size="2"> The purpose
of the 2002&nbsp;Director Option Plan is to provide the most
significant element of director compensation in the form of
equity in order to recruit and retain highly qualified
non-employee directors and to closely align the interests of
directors with those of stockholders.
</FONT>

<P align="left">
<I><FONT size="2">Shares Subject to the 2002&nbsp;Director
Option Plan.</FONT></I><FONT size="2"> Our board has reserved a
maximum of 400,000&nbsp;shares of our common stock for issuance
under the 2002&nbsp;Director Option Plan. The shares may be
authorized, but unissued, or reacquired common stock.
</FONT>

<P align="left">
<I><FONT size="2">Administration.</FONT></I><FONT size="2"> As
amended, the 2002&nbsp;Director Option Plan provides for grants
of options to be made in two ways:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(a)</FONT></TD>
    <TD align="left">
    <FONT size="2">Each non-employee director is automatically
    granted an option to purchase 30,000&nbsp;shares, referred to as
    the &#147;First Option,&#148; on the date on which such person
    first becomes a non-employee director, whether through election
    by our stockholders or appointment by our board of directors to
    fill a vacancy, provided, however, that an employee director who
    ceases to be an employee director but who remains a director
    will not receive a First Option;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(b)</FONT></TD>
    <TD align="left">
    <FONT size="2">Each non-employee director is automatically
    granted an option to purchase 10,000&nbsp;shares, referred to as
    the &#147;Annual Option&#148; on the date of our annual
    stockholders meeting each year if on such dates he or she shall
    have served on our board of directors for at least the preceding
    six (6)&nbsp;months.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Additionally, each non-employee director approved
at the 2004 Annual Stockholders&#146; meeting shall be granted a
one-time &#147;catch-up&#148; grant of an option to purchase
10,000&nbsp;shares (the &#147;Catch-Up Option&#148;).
</FONT>

<P align="left">
<FONT size="2">Our board of directors has the authority, in its
discretion, to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(i)</FONT></TD>
    <TD align="left">
    <FONT size="2">determine the fair market value of our common
    stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(iii)</FONT></TD>
    <TD align="left">
    <FONT size="2">interpret the 2002 Director Option Plan;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(iv)</FONT></TD>
    <TD align="left">
    <FONT size="2">authorize any person to execute, on our behalf,
    any instrument required to effectuate the options granted under
    the 2002 Director Option Plan;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(v)</FONT></TD>
    <TD align="left">
    <FONT size="2">make all other determinations deemed necessary or
    advisable for the administration of the 2002&nbsp;Director
    Option Plan.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2"> All decisions, determinations and
interpretations of our board of directors shall be final.
</FONT>

<P align="left">
<I><FONT size="2">Eligibility.</FONT></I><FONT size="2"> Only
non-employee directors are eligible to receive nonstatutory
stock options under the 2002 Director Option Plan. Currently,
our board of directors consists of six (6)&nbsp;directors of
whom five (5)&nbsp;are non-employee directors.
</FONT>

<P align="center"><FONT size="2">20
</FONT>

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<P align="left">
<I><FONT size="2">Terms and Conditions of
Options.</FONT></I><FONT size="2"> Each option is evidenced by a
director option agreement between us and the relevant
non-employee director, and is subject to the following
additional terms and conditions:
</FONT>

<P align="left">
<I><FONT size="2">Exercise Price.</FONT></I><FONT size="2"> The
exercise price of options granted under the 2002&nbsp;Director
Option Plan is 100% of the fair market value per share of our
common stock on the date of grant.
</FONT>

<P align="left">
<I><FONT size="2">Exercise of Option.</FONT></I><FONT size="2">
A First Option will vest monthly over 3&nbsp;years from the date
of grant. An Annual Option and the Catch-Up Option will vest
monthly over 1&nbsp;year from the date of grant. An option will
be exercisable in whole or in part by giving us written notice,
stating the number of shares with respect to which the option is
being exercised, accompanied by payment in full for such shares.
</FONT>

<P align="left">
<I><FONT size="2">Forms of
Consideration.</FONT></I><FONT size="2"> We receive no
consideration for granting options under the 2002 Director
Option Plan. The means of payment for shares issued upon
exercise of an option is specified in each option agreement. The
2002 Director Option Plan permits payment to be made by cash,
check, other shares of common stock of the Company (with some
restrictions), cashless exercises or any combination of these
alternatives.
</FONT>

<P align="left">
<I><FONT size="2">Term of Option.</FONT></I><FONT size="2"> The
term of any option shall be ten (10)&nbsp;years from the date of
grant. No option may be exercised after the expiration of its
term.
</FONT>

<P align="left">
<I><FONT size="2">Termination of
Directorship.</FONT></I><FONT size="2"> If a non-employee
director&#146;s status as a director terminates for any reason,
then all options held by him or her under the 2002 Director
Option Plan granted on or after May&nbsp;27, 2004 expire
3&nbsp;years following the termination.
</FONT>

<P align="left">
<I><FONT size="2">Nontransferability of
Options:</FONT></I><FONT size="2"> Options granted under the
2002&nbsp;Director Option Plan are not transferable other than
by will or the laws of descent and distribution, and may be
exercised during the non-employee director&#146;s lifetime only
by the non-employee director.
</FONT>

<P align="left">
<I><FONT size="2">Other Provisions:</FONT></I><FONT size="2">
The director option agreement may contain other terms,
provisions and conditions consistent with the 2002&nbsp;Director
Option Plan as may be determined by the board.
</FONT>

<P align="left">
<I><FONT size="2">Adjustments Upon Changes in Capitalization,
Dissolution, Merger or
Change-In-Control.</FONT></I><FONT size="2"> In the event that
our stock changes by reason of any stock split, reverse stock
split, stock dividend, combination, reclassification or other
similar change in our capital structure effected without the
receipt of consideration, appropriate adjustments will be made
in the number and class of shares of stock subject to the 2002
Director Option Plan, the number and class of shares of stock
subject to any outstanding option, the exercise price of any
such outstanding option and the number of shares that may be
subsequently issued pursuant to First and Annual Options.
</FONT>

<P align="left">
<FONT size="2">In the event of our proposed liquidation or
dissolution, any unexercised options will terminate prior to
such action.
</FONT>

<P align="left">
<FONT size="2">In the event we are acquired pursuant to a merger
or the sale of substantially all of our assets, each option may
be assumed or an equivalent option substituted for by the
successor corporation. If an option is assumed or substituted
for by the successor corporation, it shall continue to be
exercisable as provided in the 2002 Director Option Plan. In
addition, whether or not the successor corporation assumes an
outstanding option or substitutes for it an equivalent option,
immediately upon a change-in-control transaction as defined in
the 2002 Director Option Plan, the option shall become fully
vested and exercisable and shall remain exercisable in
accordance with the provisions of the 2002&nbsp;Director Option
Plan and the applicable option agreement.
</FONT>

<P align="left">
<I><FONT size="2">Amendment and Termination of the
2002&nbsp;Director Option Plan; No
Repricing.</FONT></I><FONT size="2"> Our board of directors may
amend, alter, suspend or terminate the 2002 Director Option
Plan, or any part thereof, at any time and for any reason.
However, we will obtain stockholder approval for any amendment
to the 2002 Director Option Plan to the extent necessary to
comply with applicable laws or regulations. No such action by
our board of directors or stockholders may alter or impair any
option previously granted under the 2002 Director Option Plan
without the consent of the non-employee director. Unless
terminated earlier, the 2002 Director Option Plan will terminate
ten (10)&nbsp;years from the later of its approval by our board
</FONT>

<P align="center"><FONT size="2">21
</FONT>

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<DIV align="left">
<FONT size="2">of directors or our stockholders. No 2002
Director Option Plan option may be repriced, including by way of
exchange for another award, without stockholder approval.
</FONT>
</DIV>

<P align="left">
<I><FONT size="2">Federal Income Tax
Consequences.</FONT></I><FONT size="2"> The following discussion
summarizes certain U.S.&nbsp;federal income tax considerations
for non-employee directors receiving options under the 2002
Director Option Plan and certain tax effects for us, based upon
the provisions of the Internal Revenue Code of 1986, as amended,
as in effect on the date of this Proxy Statement, current
regulations and existing administrative rulings of the Internal
Revenue Service. However, the summary is not intended to be a
complete discussion of all the federal income tax consequences
of these plans:
</FONT>

<P align="left">
<I><FONT size="2">Nonstatutory Stock
Options.</FONT></I><FONT size="2"> Options granted under the
2002&nbsp;Director Option Plan do not qualify as incentive stock
options under Section&nbsp;422 of the Code. A non-employee
director does not recognize any taxable income at the time he or
she is granted a nonstatutory stock option. Upon exercise, the
non-employee director recognizes taxable income generally
measured by the excess of the fair market value on the date of
exercise for the shares exercised over the exercise price.
</FONT>

<P align="left">
<FONT size="2">We are entitled to a deduction in the same amount
as the ordinary income recognized by the non-employee director.
Upon a disposition of such shares by the non-employee director,
any difference between the sale price and the relevant
option&#146;s exercise price, to the extent not recognized as
taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on how long after
exercise the shares are sold. Net capital gains on shares held
more than 12 (twelve)&nbsp;months may be taxed at a maximum
federal rate of 15%. Capital losses are allowed in full against
capital gains and up to $3,000 against other income.
</FONT>

<P align="left">
<FONT size="2">For the full text of the 2002&nbsp;Director
Option Plan, see Exhibit&nbsp;3.
</FONT>

<P align="left">
<FONT size="2">Vote Required and Recommendation
</FONT>

<P align="left">
<FONT size="2">The affirmative vote of a majority of the Votes
Cast will be required to approve the amendments to the
2002&nbsp;Director Option Plan.
</FONT>

<P align="left">
<FONT size="2">The Company&#146;s Named non-employee directors
have an interest in this proposal as they may receive options
under the 2002&nbsp;Director Option Plan.
</FONT>

<P align="left">
<FONT size="2">THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
VOTING &#147;FOR&#148; THE AMENDMENTS TO THE 2002 DIRECTOR PLAN
TO INCREASE THE INITIAL GRANT TO 30,000 SHARES, TO AUTHORIZE A
ONE-TIME GRANT OF 10,000 SHARES TO EACH NON-EMPLOYEE DIRECTOR
RE-ELECTED AT THIS ANNUAL MEETING, AND TO EXTEND THE
EXERCISABILITY PERIOD OF ALL NEW OPTIONS GRANTED UNDER THIS PLAN
TO THREE YEARS FOLLOWING A DIRECTOR&#146;S RESIGNATION FROM THE
BOARD.
</FONT>

<DIV>&nbsp;</DIV>

<!-- link1 "<FONT size="2">PROPOSAL FIVE RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS</FONT>" -->
<DIV align="left"><A NAME="005"></A></DIV>

<DIV align="center">
<FONT size="2">PROPOSAL FIVE
</FONT>
</DIV>

<P align="center">
<FONT size="2">RATIFICATION OF APPOINTMENT OF INDEPENDENT
ACCOUNTANTS
</FONT>

<P align="left">
<FONT size="2">The Audit Committee of the board of directors has
appointed PricewaterhouseCoopers LLP, independent accountants,
to audit the financial statements of the Company for the year
ending December&nbsp;31, 2004. PricewaterhouseCoopers LLP has
served as the Company&#146;s independent accountants since 1989
and has provided certain tax and other audit-related services.
Information regarding fees billed to the Company by
PricewaterhouseCoopers LLP can be found directly following the
Report of the Audit Committee of the board of directors below.
PricewaterhouseCoopers LLP has rotated Harmonic&#146;s audit
partners in compliance with current SEC regulations.
</FONT>

<P align="left">
<FONT size="2">Stockholder approval is not required for the
appointment of PricewaterhouseCoopers LLP, since the Audit
Committee of the board of directors has the responsibility for
selecting independent accountants. However, the board of
directors is submitting the selection of PricewaterhouseCoopers
LLP to the stockholders for ratification as a matter of good
corporate practice. In the event of a negative vote on the
ratification of PricewaterhouseCoopers LLP, the Audit Committee
of the board of directors may reconsider its selection.
Representatives of PricewaterhouseCoopers LLP are expected to be
</FONT>

<P align="center"><FONT size="2">22
</FONT>

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<DIV align="left">
<FONT size="2">present at the Annual Meeting and will have the
opportunity to make a statement if they so desire. The
representatives also are expected to be available to respond to
appropriate questions from stockholders.
</FONT>
</DIV>

<P align="left">
<FONT size="2">THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
VOTING &#147;FOR&#148; THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY&#146;S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER&nbsp;31, 2004.
</FONT>

<P align="center"><FONT size="2">23
</FONT>

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<DIV>&nbsp;</DIV>

<!-- link1 "<FONT size="2">ADDITIONAL INFORMATION</FONT>" -->
<DIV align="left"><A NAME="006"></A></DIV>

<DIV align="center">
<FONT size="2">ADDITIONAL INFORMATION
</FONT>
</DIV>

<P align="left">
<FONT size="2">Executive Compensation
</FONT>

<P align="left">
<FONT size="2">The following Summary Compensation Table sets
forth certain information regarding the compensation of the
Chief Executive Officer of the Company and the other four most
highly compensated executive officers of the Company whose
salary plus bonus exceeded $100,000 in the last fiscal year
(collectively, the &#147;Named Executive Officers&#148;) for
services rendered in all capacities to the Company during the
fiscal years ended December&nbsp;31, 2001, December&nbsp;31,
2002 and December&nbsp;31, 2003.
</FONT>

<P align="center">
<FONT size="2">Summary Compensation Table
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Annual Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Long Term Compensation</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Awards Securities</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">Name and Principal Position</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Salary</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Bonus</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying Options</FONT></B></TD>
</TR>

<TR>
    <TD colspan="17"></TD>
</TR>

<TR>
    <TD colspan="17" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">Anthony J. Ley<BR>
    Chairman of the board of directors,<BR>
    President&nbsp;&#38; Chief Executive Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">450,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">450,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">448,269</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="17"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">Robin N. Dickson<BR>
    Chief Financial Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">298,269</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="17"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">Israel Levi<BR>
    Senior Vice President, Operations&nbsp;&#38; Quality
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">260,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,876</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">260,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">259,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="17"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">Patrick Harshman<BR>
    President, Broadband Access Networks
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">125,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="17"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">Yaron Simler<BR>
    President, Convergent Systems
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">247,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">222,115</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">24
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">Other than compensation described above, the
Company did not pay any Named Executive Officer any
compensation, including incidental personal benefits, in excess
of 10% of such executive officers&#146; salary.
</FONT>

<P align="center">
<FONT size="2">Option Grants in Last Fiscal Year
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="24%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Individual Grants</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Potential Realizable</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value at Assumed</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Annual Rates of Stock</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Price Appreciation for</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Option Granted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Option Term(2)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to Employees in</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">Name</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiscal Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($/share)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expiration Date</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">5%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">10%</FONT></B></TD>
</TR>

<TR>
    <TD colspan="25"></TD>
</TR>

<TR>
    <TD colspan="25" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Anthony J. Ley
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1/28/13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">174,078</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">441,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="25"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robin N. Dickson
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1/28/13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">108,799</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275,717</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="25"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Israel Levi
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1/28/13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">303,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="25"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patrick Harshman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1/28/13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">108,799</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275,717</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="25"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Yaron Simler
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1/28/13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">108,799</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275,717</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The options were granted pursuant to the
    Company&#146;s 1995 Stock Plan, and become exercisable in
    accordance with the following vesting schedule: 1/4 of the
    shares subject to the option vest one year after the date of
    grant and an additional 1/48 of the shares subject to the option
    vest at the end of each month thereafter, contingent on the
    Named Executive Officer&#146;s continued service as an employee.
    The term of each option is ten years.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Potential gains are net of the exercise price but
    before taxes associated with the exercise. The 5% and 10%
    assumed annual rates of compounded stock appreciation are
    mandated by the rules of the SEC and do not represent the
    Company&#146;s estimate or projection of the future common stock
    price. Actual gains, if any, on stock option exercises will
    depend on the future financial performance of the Company,
    overall market conditions and the option holders&#146; continued
    employment through the vesting period.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The following table provides information with
respect to the exercise of stock options during 2003 and the
value of stock options held as of December&nbsp;31, 2003 by each
of the Named Executive Officers.
</FONT>

<P align="center">
<FONT size="2">Aggregate Option Exercises in Last Fiscal Year
and Year-End Values
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Number of Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value of Unexercised</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Underlying Unexercised</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">In-the-Money Options at</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options at 12/31/03</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">12/31/03(2)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares Acquired</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">Name</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">on Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Realized(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercisable</FONT></B></TD>
</TR>

<TR>
    <TD colspan="25"></TD>
</TR>

<TR>
    <TD colspan="25" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Anthony J. Ley
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">271,322</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">460,415</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">332,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robin N. Dickson
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">205,460</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">232,644</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">208,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Israel Levi
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">158,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">228,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patrick Harshman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,727</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">208,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Yaron Simler
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,101</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,136</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">208,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)</FONT></TD>
    <TD align="left">
    <FONT size="2">Value realized represents the difference between
    the exercise price of the options and the fair market value of
    the underlying securities on the date of exercise.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)</FONT></TD>
    <TD align="left">
    <FONT size="2">Calculated by determining the difference between
    the fair market value of the Company&#146;s common stock as of
    December&nbsp;31, 2003 and the exercise price of the underlying
    options.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">25
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">Employment Agreements
</FONT>

<P align="left">
<FONT size="2">The Company has entered into change-of-control
severance agreements with each of Mr.&nbsp;Ley,
Mr.&nbsp;Dickson, Mr.&nbsp;Levi, Dr.&nbsp;Harshman and
Dr.&nbsp;Simler. Under the terms of the respective Named
Executive Officer&#146;s agreement, in the event of termination
within eighteen months of a change-in-control of the Company,
Mr.&nbsp;Ley will receive a lump-sum payment of twice his annual
salary, bonus and benefits, and Mr.&nbsp;Dickson, Mr.&nbsp;Levi,
Dr.&nbsp;Harshman and Dr.&nbsp;Simler will each receive a
lump-sum payment of one year&#146;s salary, bonus and benefits.
These agreements also provide for the acceleration of unvested
stock options held by a Named Executive Officer in the event of
such Named Executive Officer&#146;s termination, subject to
certain limitations.
</FONT>

<P align="center">
<FONT size="2">Equity Plan Information
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="24%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(a)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(b)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(c)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of securities remaining</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of securities to be</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted-average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">available for future issuance</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">issued upon exercise of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">exercise price of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">under equity compensation</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">outstanding options, warrants</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">outstanding options,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">plans (excluding securities</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><FONT size="1">Plan Category</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and rights(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">warrants and rights(2)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">reflected in column(a))</FONT></B></TD>
</TR>

<TR>
    <TD colspan="14"></TD>
</TR>

<TR>
    <TD colspan="14" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity plans approved by security holders(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,472,810</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,220,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity plans not approved by security holders(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,875,704</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,958,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,348,514</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,178,972</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)</FONT></TD>
    <TD align="left">
    <FONT size="2">This column does not reflect options assumed in
    acquisitions where the plans governing the options will not be
    used for future awards.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)</FONT></TD>
    <TD align="left">
    <FONT size="2">This column does not reflect the price of shares
    underlying the assumed options referred to in footnote
    (1)&nbsp;of this table.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)</FONT></TD>
    <TD align="left">
    <FONT size="2">This row includes the 1988 and 1995 Stock Plans,
    the 1995 and 2002&nbsp;Director Option Plans and the 2002
    Employee Stock Purchase Plan. Only the 1995 Stock Plan, the
    2002&nbsp;Director Option Plan and the 2002 Employee Stock
    Purchase Plan have shares remaining available for issuance.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)</FONT></TD>
    <TD align="left">
    <FONT size="2">This row includes the Company&#146;s 1999
    Non-Statutory Stock Option Plan. Options are granted under this
    plan to the Company&#146;s non-executive employees except for
    inducement grants to newly-hired officers. Options granted under
    this plan have similar terms to stockholder-approved plans for
    employees, including a ten-year option life, vesting over four
    years with a one-year &#147;cliff,&#148; and are granted at fair
    market value on the date of the grant. If Proposal Three is
    approved, no further grants will be made under the 1999 Plan.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Report of the Compensation and Equity Ownership
Committee of the Board of Directors on Executive Compensation
</FONT>

<P align="left">
<FONT size="2">The Compensation and Equity Ownership Committee
(&#147;Compensation Committee&#148;) is responsible for the
approval of the Company&#146;s executive compensation policies.
The Compensation Committee reviews and approves the base salary
and incentive compensation paid to executive officers and
administers the Company&#146;s stock plans. The Compensation
Committee approves all stock option grants, subject to
ratification by the board of directors.
</FONT>

<P align="center"><FONT size="2">26
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<I><FONT size="2">Compensation Philosophy</FONT></I>

<P align="left">
<FONT size="2">The Company&#146;s executive compensation
programs are designed to attract, motivate and retain executives
who will contribute significantly to the long-term success of
the Company and the enhancement of stockholder value. In
addition to base salary, certain elements of total compensation
are payable in the form of variable incentive plans tied to the
performance of the Company, and in equity-based plans designed
to closely align executive and stockholder interests.
</FONT>

<P align="left">
<FONT size="2">The three key components of executive
compensation in 2003 were:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Base Salary
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Incentive Bonus Plan
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Stock Option Plans
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<I><FONT size="2">Base Salary</FONT></I>

<P align="left">
<FONT size="2">Base salary for executives, including that of the
chief executive officer, is set according to the
responsibilities of the position, the specific skills and
experience of the individual and the competitive market for
executive talent. In order to evaluate the competitive position
of the Company&#146;s salary structure, the Compensation
Committee makes reference to compensation surveys of comparable
companies in the high-technology sector, the Company&#146;s
industry and the Company&#146;s geographic location. Executive
salary levels are set to approximate average rates, with the
intent that superior performance under incentive bonus plans
will enable the executive to elevate his total cash compensation
to levels that are above the average of comparable companies.
The Compensation Committee reviews salaries annually and adjusts
them as appropriate to reflect changes in market conditions and
individual performance and responsibilities. No increases in
salary have been awarded to executive officers since
January&nbsp;1, 2001 in accordance with the Company&#146;s
efforts to control costs, except to Dr.&nbsp;Simler on his
promotion to President of Convergent Systems.
</FONT>

<P align="left">
<I><FONT size="2">Incentive Bonus Plan</FONT></I>

<P align="left">
<FONT size="2">The Company&#146;s annual incentive bonus plan
reflects the Compensation Committee&#146;s belief that a
meaningful component of executive compensation should be
contingent on the performance of the Company. In 2003, the
Company&#146;s incentive bonus plan was based in part upon the
attainment of common revenue and loss reduction goals and in
part upon divisional or corporate financial objectives for each
individual officers, with a target bonus established for each
participant. In 2003, the Company&#146;s financial results
generated bonus payments for partial attainment of various
revenue targets, but not loss reduction. The bonus amounts paid
in 2003 are shown in the Summary Compensation table.
</FONT>

<P align="left">
<I><FONT size="2">Stock Option Plans</FONT></I>

<P align="left">
<FONT size="2">The Compensation Committee believes that the
Company&#146;s stock option plans are an essential tool to link
the long-term interests of stockholders and employees,
especially the Chief Executive Officer and executive management,
and serves to motivate executives to make decisions that will,
in the long run, give the best returns to stockholders. Stock
options are generally granted when an executive joins the
Company, and on an annual basis thereafter. These options
typically vest over a four year period and are granted at an
exercise price equal to the fair market value of the
Company&#146;s common stock at the date of grant. The size of
initial option grants is based upon the position,
responsibilities and expected contribution of the individual,
with subsequent grants also taking into account the
individual&#146;s performance, his potential contributions, and,
to a lesser extent, the vesting status of previously granted
options. This approach is designed to maximize stockholder value
over a long term, as no benefit is realized from the option
grant unless the price of the Company&#146;s common stock has
increased over a number of years.
</FONT>

<P align="center"><FONT size="2">27
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">In addition to the Company&#146;s stock option
plans, executive officers are eligible to participate in the
Company&#146;s 2002 Employee Stock Purchase Plan. This plan
allows eligible employees to purchase the Company&#146;s common
stock at a price equal to 85% of the lower of the fair market
value at the beginning of the offering period or the fair market
value at the end of the purchase period, with the purchase
amount limited to 10% of base salary or 3,000&nbsp;shares per
purchase period or applicable IRS regulations.
</FONT>

<P align="left">
<FONT size="2">Other elements of executive compensation include
life and long-term disability insurance and medical benefits.
Other than a 401(k) deferred compensation plan the Company
provides no pension benefits and has no deferred compensation
plans for any of its employees, including executive officers.
The Company makes matching contributions to the 401(k) plan up
to $750&nbsp;per annum per participant. These benefits are
available to all regular, full-time U.S.&nbsp;employees of the
Company.
</FONT>

<P align="left">
<FONT size="2">In January, 2003, the Compensation Committee
approved the 2003 compensation for all executive officers. The
Company&#146;s Chief Executive Officer was not present during
the portion of the meeting during which his compensation was
discussed and approved.
</FONT>

<P align="left">
<FONT size="2">The compensation of the Company&#146;s Chief
Executive Officer in 2003 was determined according to the
principles described above, and in a manner substantially
consistent with that of other executive officers.
</FONT>

<P align="left">
<I><FONT size="2">Section&nbsp;162(m)</FONT></I>

<P align="left">
<FONT size="2">We have considered the potential future effects
of Section&nbsp;162(m) of the Internal Revenue Code of 1986, as
amended, on the compensation paid to our executive officers.
Section&nbsp;162(m) disallows a tax deduction for any publicly
held corporation for individual compensation exceeding
$1.0&nbsp;million in any taxable year for the Chief Executive
Officer or any of our next four most highly compensated
executive officers, unless such compensation is performance
based. We have adopted a policy that, where reasonably
practicable, we will seek to qualify the variable compensation
paid to our executive officers for an exemption from the
deductibility limitations of Section&nbsp;162(m). Proposal
Three, if approved by our stockholders, will allow us to
structure awards under our 1995 Stock Plan to qualify as
performance based compensation under Section&nbsp;162(m).
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">The Compensation Committee
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">David R. Van Valkenburg
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">E. Floyd Kvamme
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">28
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">Performance Graph
</FONT>

<P align="left">
<FONT size="2">Set forth below is a line graph comparing the
annual percentage change in the cumulative return to the
stockholders of the Company&#146;s common stock with the
cumulative return of the Nasdaq Telecom Index and of the
Standard&nbsp;&#38; Poor&#146;s (S&#38;P) 500 Index for the
period commencing December&nbsp;31, 1998 and ending on
December&nbsp;31, 2003. The graph assumes that $100 was invested
in each of the Company&#146;s common stock, the S&#38;P 500 and
the Nasdaq Telecom Index on December&nbsp;31, 1998, and assumes
the reinvestment of dividends, if any. The comparisons shown in
the graph below are based upon historical data. Harmonic
cautions that the stock price performance shown in the graph
below is not indicative of, nor intended to forecast, the
potential future performance of the Company&#146;s common stock.
</FONT>

<P align="center">
<IMG src="f97733def9773301.gif" alt="(PERFORMANCE GRAPH)">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/98</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/99</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/00</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/01</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/02</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/03</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="25"></TD>
</TR>

<TR>
    <TD colspan="25" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Harmonic Inc.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="25"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NASDAQ Telecom Index
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="25"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">S&#38;P 500 Index
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">29
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">Report of the Audit Committee of the Board of
Directors
</FONT>

<P align="left">
<FONT size="2">In accordance with a written charter adopted by
Harmonic&#146;s board of directors of directors as amended in
March 2004, attached as Exhibit&nbsp;4 and posted on the
Company&#146;s website at www.harmonicinc.com, the Audit
Committee of the board of directors of Harmonic serves as the
representative of the board of directors for general oversight
of the quality and integrity of Harmonic&#146;s financial
accounting and reporting process, system of internal control,
audit process, and process for monitoring compliance with
related laws and regulations. The Audit Committee engages the
Company&#146;s independent auditors and approves the scope of
both audit and non-audit services. Harmonic&#146;s management
has primary responsibility for preparing financial statements
and the financial reporting process.
</FONT>

<P align="left">
<FONT size="2">Harmonic&#146;s independent auditors,
PricewaterhouseCoopers LLP, are responsible for expressing an
opinion on the conformity of Harmonic&#146;s audited financial
statements to generally accepted accounting principles.
</FONT>

<P align="left">
<FONT size="2">The Audit Committee of the board of directors has:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">1.&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reviewed and discussed the audited consolidated
    financial statements and certifications thereof with Company
    management and the independent auditors, and management has
    represented to the Audit Committee that Harmonic&#146;s
    consolidated financial statements were prepared in accordance
    with accounting principles generally accepted in the United
    States;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">2.&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Discussed with PricewaterhouseCoopers LLP the
    matters required to be discussed by Statement of Accounting
    Standards 61 (Communications with Audit Committees) and 100
    (Interim Financial Information), as amended, including the
    quality and acceptability of Harmonic&#146;s financial reporting
    process and controls;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">3.&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reviewed the written disclosures and the letter
    from PricewaterhouseCoopers LLP required by Independence
    Standards Board Standard No.&nbsp;1 (Independence Discussions
    with Audit Committees), discussed with PricewaterhouseCoopers
    LLP its independence and also considered whether provision of
    the non-audit services described below were compatible with
    maintaining their independence.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The Audit Committee meets regularly with the
Company&#146;s independent auditors, with and without management
present, to discuss the results of their examinations, the
evaluations of the Company&#146;s internal controls and the
overall quality of the Company&#146;s accounting principles.
</FONT>

<P align="left">
<FONT size="2">In performing all these functions, the Audit
Committee acts only in an oversight capacity and necessarily
relies on the work and assurances of Harmonic&#146;s management
and independent accountants, which, in their report, express an
opinion on the conformity of Harmonic&#146;s annual consolidated
financial statements to accounting principles generally accepted
in the United States. In reliance on the reviews and discussions
referred to in this report, and in light of its role and
responsibilities, the Audit Committee recommended to the board
of directors, and the board of directors has approved, that the
audited financial statements for Harmonic for the three years
ended December&nbsp;31, 2003 be included for filing with the
Securities and Exchange Commission in the Company&#146;s Annual
Report on Form&nbsp;10-K for the year ended December&nbsp;31,
2003.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">The Audit Committee
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">E. Floyd Kvamme
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">William F. Reddersen
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Michel L. Vaillaud
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">30
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">Services Provided by Independent Auditors
</FONT>

<P align="left">
<FONT size="2">Aggregate fees for professional services rendered
for the Company by PricewaterhouseCoopers LLP
(&#147;PricewaterhouseCoopers&#148;) for<SUP>(1)</SUP> the years
ended December&nbsp;31, 2003 and 2002, were:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="67%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><FONT size="1">($Thousands)</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Audit<SUP>(1)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">817.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">668.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="10"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Audit Related
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">192.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="10"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tax Compliance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">214.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="10"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Tax Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="10"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="7" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD colspan="10"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,183.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,022.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="7" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)</FONT></TD>
    <TD align="left">
    <FONT size="2">The aggregate fees included in Audit are fees
    billed <I>for</I> the fiscal years for the audit of the
    registrant&#146;s annual financial statements and review of the
    financial statements and statutory and regulatory filings or
    engagements. The aggregate fees included in each of the other
    categories are fees billed <I>in</I> the fiscal years.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The <I>Audit</I> fees for the years ended
December&nbsp;31, 2003 and 2002, respectively, were for
professional services rendered for the audits of the
consolidated financial statements of the Company and statutory
and subsidiary audits, issuance of comfort letters, consents,
and assistance with the review of documents filed with the SEC.
Included in the 2003 and 2002 Audit fees were costs for filing
Form&nbsp;S-3 registration statements of $306,250 and $283,916,
respectively.
</FONT>

<P align="left">
<FONT size="2">The <I>Audit Related </I>fees for the years ended
December&nbsp;31, 2003 and 2002, were for due diligence
assignments, internal control reviews and advisory services
related to section&nbsp;404 and consultations concerning
financial accounting and reporting standards.
</FONT>

<P align="left">
<I><FONT size="2">Tax Compliance </FONT></I><FONT size="2">fees
for the years ended December&nbsp;31, 2003 and 2002, were for
services related to the preparation of tax returns, claims for
refunds and the establishment of foreign entities.
</FONT>

<P align="left">
<I><FONT size="2">Other Tax Services
</FONT></I><FONT size="2">fees for the years ended
December&nbsp;31, 2003 and 2002, were for tax planning and tax
advice, including consulting services related to indirect taxes
and assistance with tax audits and appeals.
</FONT>

<P align="left">
<I><FONT size="2">All Other </FONT></I><FONT size="2">fees for
the years ended December&nbsp;31, 2003 and 2002, were for
technical and advisory services rendered for employee benefit
plans, general consulting and license fees for various technical
accounting reference software.
</FONT>

<P align="left">
<FONT size="2">Our Audit Committee pre-approves all audit and
non-audit services.
</FONT>

<P align="left">
<FONT size="2">The Audit Committee has considered whether the
services provided by PricewaterhouseCoopers LLP are compatible
with maintaining the independence of PricewaterhouseCoopers LLP
and has concluded that the independence of
PricewaterhouseCoopers LLP is maintained and is not compromised
by the services provided.
</FONT>

<P align="left">
<FONT size="2">The Audit Committee has engaged
PricewaterhouseCoopers as auditors for the fiscal year ending
December&nbsp;31, 2004.
</FONT>

<P align="left">
<FONT size="2">The information contained above under the
captions &#147;Report of the Compensation and Equity Ownership
Committee of the board of directors on Executive
Compensation&#148; and &#147;Performance Graph&#148; and
&#147;Report of the Audit Committee of the board of
directors&#148; shall not be deemed to be &#147;soliciting
material&#148; or to be &#147;filed&#148; with the SEC, nor
shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically incorporates it by
reference into such filing.
</FONT>

<P align="center"><FONT size="2">31
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<FONT size="2">Security Ownership of Certain Beneficial Owners
and Management
</FONT>

<P align="left">
<FONT size="2">The following table sets forth certain
information known to the Company with respect to beneficial
ownership of the Company&#146;s common stock as of the Record
Date by (i)&nbsp;each beneficial owner of more than 5% of the
common stock; (ii)&nbsp;each director and each nominee;
(iii)&nbsp;each Named Executive Officer; and (iv)&nbsp;all
directors and executive officers as a group. Except as otherwise
indicated, each person has sole voting and investment power with
respect to all shares shown as beneficially owned, subject to
community property laws where applicable.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">Name and Address of Beneficial Owner</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="9"></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fidelity Management&nbsp;&#38; Research
    Co.<SUP>(1)<BR>
    </SUP>82 Devonshire Street<BR>
    Boston, MA 02109
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,192,861</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Barclays Global Investors, NA.<SUP>(1)<BR>
    </SUP>45 Fremont Street<BR>
    San&nbsp;Francisco, CA 94105
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,220,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State of Wisconsin Investment Board,<SUP>(1)<BR>
    </SUP>P.O. Box&nbsp;7842, Madison, WI 53703
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,987,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Anthony J. Ley<SUP>(2)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">851,461</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">E. Floyd Kvamme<SUP>(3)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">492,017</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William F. Reddersen<SUP>(4)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lewis Solomon<SUP>(5)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michel L. Vaillaud<SUP>(6)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David R. Van Valkenburg<SUP>(7)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robin N. Dickson<SUP>(8)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">273,985</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Israel Levi<SUP>(9)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">164,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patrick Harshman<SUP>(10)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Yaron Simler<SUP>(11)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">137,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All directors and executive officers as a group
    (10&nbsp;persons)&nbsp;(12)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,220,532</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*</FONT></TD>
    <TD align="left">
    <FONT size="2">Percentage of shares beneficially owned is less
    than one percent of total.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Based solely on a review of Schedule&nbsp;13D,
    13F and 13G filings with the Securities and Exchange Commission.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 570,417&nbsp;shares which may be
    acquired upon exercise of options exercisable within
    60&nbsp;days of April&nbsp;7, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 23,333&nbsp;shares which may be acquired
    upon exercise of options exercisable within 60&nbsp;days of
    April&nbsp;7, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 22,222&nbsp;shares which may be acquired
    upon exercise of options exercisable within 60&nbsp;days of
    April&nbsp;7, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 27,333&nbsp;shares which may be acquired
    upon exercise of options exercisable within 60&nbsp;days of
    April&nbsp;7, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 43,333&nbsp;shares which may be acquired
    upon exercise of options exercisable within 60&nbsp;days of
    April&nbsp;7, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 27,333&nbsp;shares which may be acquired
    upon exercise of options exercisable within 60&nbsp;days of
    April&nbsp;7, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(8)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 198,706&nbsp;shares which may be
    acquired upon exercise of options exercisable within
    60&nbsp;days of April&nbsp;7, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(9)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 164,747&nbsp;shares which may be
    acquired upon exercise of options exercisable within
    60&nbsp;days of April&nbsp;7, 2004.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(10)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 150,999&nbsp;shares which may be
    acquired upon exercise of options exercisable within
    60&nbsp;days of April&nbsp;7, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(11)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 123,664&nbsp;shares which may be
    acquired upon exercise of options exercisable within
    60&nbsp;days of April&nbsp;7, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(12)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 1,292,087&nbsp;shares which may be
    acquired upon exercise of options exercisable within
    60&nbsp;days of April&nbsp;7, 2004.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Section&nbsp;16(a) Beneficial Ownership Reporting
Compliance
</FONT>

<P align="left">
<FONT size="2">Section&nbsp;16(a) of the Securities Exchange Act
of 1934, as amended (the &#147;Exchange Act&#148;) requires the
Company&#146;s executive officers and directors and persons who
own more than ten percent of a registered class of the
Company&#146;s equity securities to file an initial report of
ownership on Form&nbsp;3 and changes in ownership on Form&nbsp;4
or Form&nbsp;5 with the SEC and
</FONT>

<P align="center"><FONT size="2">32
</FONT>

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<DIV align="left">
<FONT size="2">the National Association of Securities
Dealers,&nbsp;Inc. Executive officers, directors and greater
than ten percent stockholders are also required by SEC rules to
furnish the Company with copies of all Section&nbsp;16(a) forms
they file. Based solely on its review of the copies of such
forms received by it or written representations from certain
reporting persons, the Company believes that, with respect to
2003, all filing requirements applicable to its officers,
directors and ten percent stockholders were complied with.
</FONT>
</DIV>

<P align="left">
<FONT size="2">Certain Relationships and Related Transactions
</FONT>

<P align="left">
<FONT size="2">Except for the compensation agreements and other
arrangements that are described under &#147;Change of Control
and Severance Agreements&#148; and the transactions described
under &#147;Transactions with Directors, Executive Officers and
5% Stockholders,&#148; there was not during fiscal 2003, nor is
there currently proposed, any transaction or series of similar
transactions to which the Company was or is to be a party in
which the amount involved exceeds $60,000 and in which any
director, executive officer, 5% stockholder or any member of the
immediate family of any of the foregoing persons had or will
have a direct or indirect material interest.
</FONT>
<!-- link1 "<FONT size="2">OTHER MATTERS</FONT>" -->
<DIV align="left"><A NAME="007"></A></DIV>
<P align="left">
<FONT size="2">OTHER MATTERS
</FONT>

<P align="left">
<FONT size="2">The Company knows of no other matters to be
submitted for stockholder action at the 2004 Annual Meeting. If
any other matters properly come before the Annual Meeting or any
adjournments or postponements thereof, it is the intention of
the persons named in the enclosed form of proxy to vote the
shares they represent as the board of directors may recommend.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Dated: April&nbsp;21, 2004
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">By Order of the Board of Directors,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="f97733def9773300.gif" alt="-s- Jeffrey D. Saper"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Jeffrey D. Saper
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Secretary
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">33
</FONT>

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<!-- link1 "<FONT size="2">EXHIBIT&nbsp;1</FONT>" -->
<DIV align="left"><A NAME="008"></A></DIV>
<P align="right">
<FONT size="2">EXHIBIT&nbsp;1
</FONT>

<P align="center">
<FONT size="2">HARMONIC INC.
</FONT>

<DIV align="center">
<FONT size="2">2002 EMPLOYEE STOCK PURCHASE PLAN
</FONT>
</DIV>

<P align="center">
<FONT size="2">(As amended and restated as of May&nbsp;27, 2004)
</FONT>

<P align="left">
<FONT size="2">The following constitute the provisions of the
2002 Employee Stock Purchase Plan (the <I>&#147;Plan&#148;</I>)
of Harmonic Inc.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">1)&nbsp;Purpose.</FONT></I><FONT size="2"> The
purpose of the Plan is to provide employees of the Company and
its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll
deductions. It is the intention of the Company to have the Plan
qualify as an &#147;Employee Stock Purchase Plan&#148; under
Section&nbsp;423 of the Code. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit
participation in a uniform and nondiscriminatory basis
consistent with the requirements of Section&nbsp;423.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">2)&nbsp;Definitions.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">a)&nbsp;&#147;Administrator&#148;</FONT></I><FONT size="2">
shall mean the Board or any Committee designated by the Board to
administer the Plan pursuant to Section&nbsp;14.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">b)&nbsp;&#147;Board&#148;</FONT></I><FONT size="2">
shall mean the Board of Directors of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">c)&nbsp;&#147;Change-of-Control&#148;</FONT></I><FONT size="2">
shall mean the occurrence of any of the following events:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">i)&nbsp;any &#147;person&#148; (as such term is
used in Sections&nbsp;13(d) and 14(d) of the Exchange Act)
becomes the &#147;beneficial owner&#148; (as defined in
Rule&nbsp;13d-3 of the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company&#146;s
then outstanding voting securities;&nbsp;or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ii)&nbsp;the consummation of the sale or
disposition by the Company of all or substantially all of the
Company&#146;s assets;&nbsp;or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">iii)&nbsp;the consummation of a merger or
consolidation of the Company, with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity
or its parent) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company, or
such surviving entity or its parent outstanding immediately
after such merger or consolidation;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">iv)&nbsp;a change in the composition of the
Board, as a result of which fewer than a majority of the
Directors are Incumbent Directors. &#147;Incumbent
Directors&#148; shall mean Directors who either (A)&nbsp;are
Directors of the Company, as applicable, as of the date hereof,
or (B)&nbsp;are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of those
Directors whose election or nomination was not in connection
with any transaction described in subsections (i), (ii)&nbsp;or
(iii)&nbsp;or in connection with an actual or threatened proxy
contest relating to the election of Directors of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">d)&nbsp;&#147;Code&#148;</FONT></I><FONT size="2">
shall mean the Internal Revenue Code of 1986, as amended.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">e)&nbsp;&#147;Committee&#148;</FONT></I><FONT size="2">
means a committee of the Board appointed by the Board in
accordance with Section&nbsp;14 hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">f)&nbsp;&#147;Common
Stock&#148;</FONT></I><FONT size="2"> shall mean the common
stock of the Company.
</FONT>

<P align="center"><FONT size="2">34
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">g)&nbsp;&#147;Company&#148;</FONT></I><FONT size="2">
shall mean Harmonic Inc., a Delaware corporation and any
Designated Subsidiary of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">h)&nbsp;&#147;Compensation&#148;</FONT></I><FONT size="2">
shall mean all base straight time gross earnings, including
commissions and payments for overtime and shift premiums, but
exclusive of payments for incentive compensation, incentive
payments, bonuses and other compensation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">i)&nbsp;&#147;Designated
Subsidiary&#148;</FONT></I><FONT size="2"> shall mean any
Subsidiary selected by the Administrator as eligible to
participate in the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">j)&nbsp;&#147;Director&#148;</FONT></I><FONT size="2">
shall mean a member of the Board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">k)&nbsp;&#147;Eligible
Employee&#148;</FONT></I><FONT size="2"> shall mean any
individual who is a common law employee of the Company or any
Designated Subsidiary and whose customary employment with the
Company or Designated Subsidiary is at least twenty
(20)&nbsp;hours per week and more than five (5)&nbsp;months in
any calendar year. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved
by the Company. Where the period of leave exceeds 90&nbsp;days
and the individual&#146;s right to reemployment is not
guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the
91st&nbsp;day of such leave.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">l)&nbsp;&#147;Exchange
Act&#148;</FONT></I><FONT size="2"> shall mean the Securities
Exchange Act of 1934, as amended.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">m)&nbsp;&#147;Exercise
Date&#148;</FONT></I><FONT size="2"> shall mean the first
Trading Day on or after July&nbsp;1 and January&nbsp;1 of each
year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">n)&nbsp;&#147;Fair Market
Value&#148;</FONT></I><FONT size="2"> shall mean, as of any
date, the value of Common Stock determined as follows:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;if the Common Stock is listed on any
established stock exchange or a national market system,
including without limitation the Nasdaq National Market or The
Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such
exchange or system on the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems
reliable;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;if the Common Stock is regularly quoted
by a recognized securities dealer but selling prices are not
reported, its Fair Market Value shall be the mean of the closing
bid and asked prices for the Common Stock on the date of
determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iii)&nbsp;in the absence of an established
market for the Common Stock, the Fair Market Value thereof shall
be determined in good faith by the Board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">o)&nbsp;&#147;Offering
Date&#148;</FONT></I><FONT size="2"> shall mean the first
Trading Day of each Offering Period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">p)&nbsp;&#147;Offering
Periods&#148;</FONT></I><FONT size="2"> shall mean the periods
of approximately 24 (twenty-four) months during which an option
granted pursuant to the Plan may be exercised, commencing on the
first Trading Day on or after July&nbsp;1 and January&nbsp;1 of
each year and terminating on the first Trading Day on or after
the January&nbsp;1 and July&nbsp;1 Offering Period commencement
date approximately 24 (twenty-four) months later. The duration
and timing of Offering Periods may be changed pursuant to
Section&nbsp;4 of this Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">q)&nbsp;&#147;Plan&#148;</FONT></I><FONT size="2">
shall mean this 2002 Employee Stock Purchase Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">r)&nbsp;&#147;Purchase
Period&#148;</FONT></I><FONT size="2"> shall mean the
approximately six (6)&nbsp;month period commencing on one
Exercise Date and ending with the next Exercise Date, except
that the first Purchase Period of any Offering Period shall
commence on the Offering Date and end with the next Exercise
Date.
</FONT>

<P align="center"><FONT size="2">35
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">s)&nbsp;&#147;Purchase Price&#148;
</FONT></I><FONT size="2">shall mean 85% (eighty-five percent)
of the Fair Market Value of a share of Common Stock on the
Offering Date or on the Exercise Date, whichever is lower;
provided however, that the Purchase Price may be adjusted by the
Administrator pursuant to Section&nbsp;20.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">t)&nbsp;&#147;Subsidiary&#148;
</FONT></I><FONT size="2">shall mean a &#147;subsidiary
corporation,&#148; whether now or hereafter existing, as defined
in Section&nbsp;424(f) of the Code.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">u)&nbsp;&#147;Trading Day&#148;
</FONT></I><FONT size="2">shall mean a day on which national
stock exchanges and the Nasdaq System are open for trading.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">3)&nbsp;Eligibility.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;<I>Offering Periods.</I> Any Eligible
Employee on a given Offering Date shall be eligible to
participate in the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;<I>Limitations.</I> Any provisions of
the Plan to the contrary notwithstanding, no Eligible Employee
shall be granted an option under the Plan (i)&nbsp;to the extent
that, immediately after the grant, such Eligible Employee (or
any other person whose stock would be attributed to such
Eligible Employee pursuant to Section&nbsp;424(d) of the Code)
would own capital stock of the Company and/or hold outstanding
options to purchase such stock possessing 5% (five percent) or
more of the total combined voting power or value of all classes
of the capital stock of the Company or of any Subsidiary, or
(ii)&nbsp;to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds $25,000
(twenty-five thousand dollars) worth of stock (determined at the
fair market value of the shares at the time such option is
granted) for each calendar year in which such option is
outstanding at any time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">4)&nbsp;Offering
Periods.</FONT></I><FONT size="2"> The Plan shall be implemented
by consecutive, overlapping Offering Periods with a new Offering
Period commencing on the first Trading Day on or after
July&nbsp;1 and January 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until
terminated in accordance with Section&nbsp;20 hereof. The Board
shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is
announced prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to Section&nbsp;20 hereof, all Offering
Periods in effect on June&nbsp;30, 2004 shall terminate on
July&nbsp;1, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">5)&nbsp;Participation.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;<I>Offering Periods.</I> An Eligible
Employee may become a participant in the Plan by completing a
subscription agreement authorizing payroll deductions in the
form of Exhibit&nbsp;1 to this Plan and filing it with the
Company&#146;s payroll office at least 5 (five)&nbsp;days prior
to the applicable Offering Date or as otherwise determined by
the Administrator.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;<I>Payroll Deductions.</I> Payroll
deductions for a participant shall commence on the first payroll
following the first day of the applicable Offering Period and
shall end on the last payroll in the Offering Period to which
such authorization is applicable, unless sooner terminated by
the participant as provided in Section&nbsp;10 hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">6)&nbsp;Payroll Deductions.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;At the time a participant files his or
her subscription agreement, he or she shall elect to have
payroll deductions made on each pay day during the Offering
Period in an amount not exceeding 10% (ten percent) of the
Compensation which he or she receives on each pay day during the
Offering Period; provided, however, that should a pay day occur
on an Exercise Date, a participant shall have the payroll
deductions made on such day applied to his or her account under
the new Offering Period or Purchase Period, as the case may be.
A participant&#146;s subscription agreement shall remain in
effect for successive Offering Periods unless terminated as
provided in Section&nbsp;10 hereof.
</FONT>

<P align="center"><FONT size="2">36
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Payroll deductions for a participant
shall commence on the first payday following the Offering Date
and shall end on the last payday in the Offering Period to which
such authorization is applicable, unless sooner terminated by
the participant as provided in Section&nbsp;10 hereof, for any
Offering Period as determined.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;All payroll deductions made for a
participant shall be credited to his or her account under the
Plan and shall be withheld in whole percentages only. A
participant may not make any additional payments into such
account.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;A participant may discontinue his or her
participation in the Plan as provided in Section&nbsp;10 hereof,
or may increase or decrease the rate of his or her payroll
deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a
change in payroll deduction rate. The Administrator may, in its
discretion, limit the nature and/or number of participation rate
changes during any Offering Period. The change in rate shall be
effective with the first full payroll period following 5
(five)&nbsp;business days after the Company&#146;s receipt of
the new subscription agreement unless the Company elects to
process a given change in participation more quickly.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(e)&nbsp;Notwithstanding the foregoing, to the
extent necessary to comply with Section&nbsp;423(b)(8) of the
Code and Section&nbsp;3(b) hereof, a participant&#146;s payroll
deductions may be decreased to zero percent&nbsp;(0%) at any
time during a Purchase Period. Payroll deductions shall
recommence at the rate provided in such participant&#146;s
subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in
Section&nbsp;10 hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(f)&nbsp;At the time the option is exercised, in
whole or in part, or at the time some or all of the
Company&#146;s Common Stock issued under the Plan is disposed
of, the participant must make adequate provision for the
Company&#146;s federal, state, or other tax withholding
obligations, if any, which arise upon the exercise of the option
or the disposition of the Common Stock. At any time, the Company
may, but shall not be obligated to, withhold from the
participant&#146;s compensation the amount necessary for the
Company to meet applicable withholding obligations, including
any withholding required to make available to the Company any
tax deductions or benefits attributable to sale or early
disposition of Common Stock by the Eligible Employee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">7)&nbsp;Grant of
Option.</FONT></I><FONT size="2"> On the Offering Date of each
Offering Period, each Eligible Employee participating in such
Offering Period shall be granted an option to purchase on each
Exercise Date during such Offering Period (at the applicable
Purchase Price) up to a number of shares of the Company&#146;s
Common Stock determined by dividing such Eligible
Employee&#146;s payroll deductions accumulated prior to such
Exercise Date and retained in the Participant&#146;s account as
of the Exercise Date by the applicable Purchase Price; provided
that in no event shall an Eligible Employee be permitted to
purchase during each Purchase Period more than 3,000&nbsp;shares
of the Company&#146;s Common Stock (subject to any adjustment
pursuant to Section&nbsp;19), and provided further that such
purchase shall be subject to the limitations set forth in
Sections&nbsp;3(b), 7 and 12 hereof. The Eligible Employee may
accept the grant of such option by turning in a completed
Subscription Agreement (attached hereto as Exhibit&nbsp;1) to
the Company at least 5 (five)&nbsp;days prior to an Offering
Date or as otherwise determined by the Administrator. The
Administrator may, for future Offering Periods, increase or
decrease, in its absolute discretion, the maximum number of
shares of the Company&#146;s Common Stock an Eligible Employee
may purchase during each Purchase Period of such Offering
Period. Exercise of the option shall occur as provided in
Section&nbsp;8 hereof, unless the participant has withdrawn
pursuant to Section&nbsp;10 hereof. The option shall expire on
the last day of the Offering Period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">8)&nbsp;Exercise of Option.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Unless a participant withdraws from the
Plan as provided in Section&nbsp;10 hereof, his or her option
for the purchase of shares shall be exercised automatically on
the Exercise Date, and the maximum number of full shares subject
to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll
deductions in his or her account. No fractional shares shall be
purchased; any payroll deductions accumulated in a
participant&#146;s account which are not sufficient to purchase
a full share shall be retained in the participant&#146;s account
for the subsequent Purchase Period or Offering Period, subject
to earlier withdrawal by the participant as provided in
Section&nbsp;10 hereof. Any other funds left over in a
participant&#146;s account after the Exercise Date shall be
returned to the participant. During a participant&#146;s
lifetime, a participant&#146;s option to purchase shares
hereunder is exercisable only by him or her.
</FONT>

<P align="center"><FONT size="2">37
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;If the Administrator determines that, on
a given Exercise Date, the number of shares with respect to
which options are to be exercised may exceed (i)&nbsp;the number
of shares of Common Stock that were available for sale under the
Plan on the Offering Date of the applicable Offering Period, or
(ii)&nbsp;the number of shares available for sale under the Plan
on such Exercise Date, the Administrator may in its sole
discretion (x)&nbsp;provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for
purchase on such Offering Date or Exercise Date, as applicable,
in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect,
or (y)&nbsp;provide that the Company shall make a pro rata
allocation of the shares available for purchase on such Offering
Date or Exercise Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising
options to purchase Common Stock on such Exercise Date, and
terminate any or all Offering Periods then in effect pursuant to
Section&nbsp;20 hereof. The Company may make pro rata allocation
of the shares available on the Offering Date of any applicable
Offering Period pursuant to the preceding sentence,
notwithstanding any authorization of additional shares for
issuance under the Plan by the Company&#146;s stockholders
subsequent to such Offering Date.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">9)&nbsp;Delivery.</FONT></I><FONT size="2"> As
soon as reasonably practicable after each Exercise Date on which
a purchase of shares occurs, the Company shall arrange the
delivery to each participant the shares purchased upon exercise
of his or her option in a form determined by the Administrator.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">10)&nbsp;Withdrawal.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;A participant may withdraw all but not
less than all the payroll deductions credited to his or her
account and not yet used to exercise his or her option under the
Plan at any time by giving written notice to the Company in the
form of Exhibit&nbsp;2 to this Plan. All of the
participant&#146;s payroll deductions credited to his or her
account shall be paid to such participant as promptly as
practicable after receipt of notice of withdrawal and such
participant&#146;s option for the Offering Period shall be
automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period.
If a participant withdraws from an Offering Period, payroll
deductions shall not resume at the beginning of the succeeding
Offering Period unless the participant delivers to the Company a
new subscription agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;A participant&#146;s withdrawal from an
Offering Period shall not have any effect upon his or her
eligibility to participate in any similar plan that may
hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering
Period from which the participant withdraws.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">11)&nbsp;Termination of
Employment.</FONT></I><FONT size="2"> In the event a participant
ceases to be an Eligible Employee of the Company or any
Designated Subsidiary, as applicable, he or she will be deemed
to have elected to withdraw from the Plan and the payroll
deductions credited to such participant&#146;s account during
the Offering Period but not yet used to exercise the option will
be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under
Section&nbsp;15 hereof, and such participant&#146;s option will
be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of
notice of termination of employment shall be treated as
continuing to be an Employee for the participant&#146;s
customary number of hours per week of employment during the
period in which the participant is subject to such payment in
lieu of notice.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">12)&nbsp;Interest.</FONT></I><FONT size="2">
No interest shall accrue on the payroll deductions of a
participant in the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">13)&nbsp;Stock.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Subject to adjustment upon changes in
capitalization of the Company as provided in Section&nbsp;19
hereof, the maximum number of shares of the Company&#146;s
Common Stock which shall be made available for sale under the
Plan shall be 3,500,000&nbsp;shares; provided, however, that
2,000,000&nbsp;shares, which were approved for issuance under
the Plan by the stockholders of the Company on May&nbsp;27,
2004, shall only be used for Offering Periods commencing on or
after July&nbsp;1, 2004.
</FONT>

<P align="center"><FONT size="2">38
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Until the shares are issued (as
evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company), a
participant shall only have the rights of an unsecured creditor
with respect to such shares, and no right to vote or receive
dividends or any other rights as a stockholder shall exist with
respect to such shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Shares to be delivered to a participant
under the Plan shall be registered in the name of the
participant or in the name of the participant and his or her
spouse.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">14)&nbsp;<I>Administration.</I> The Administrator
shall administer the Plan and shall have full and exclusive
discretionary authority to construe, interpret and apply the
terms of the Plan, to determine eligibility and to adjudicate
all disputed claims filed under the Plan. Every finding,
decision and determination made by the Administrator shall, to
the full extent permitted by law, be final and binding upon all
parties.
</FONT>

<P align="left">
<FONT size="2">15)&nbsp;<I>Designation of Beneficiary.</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;A participant may file a written
designation of a beneficiary who is to receive any shares and
cash, if any, from the participant&#146;s account under the Plan
in the event of such participant&#146;s death subsequent to an
Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In
addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the
participant&#146;s account under the Plan in the event of such
participant&#146;s death prior to exercise of the option. If a
participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation
to be effective.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Such designation of beneficiary may be
changed by the participant at any time by written notice. In the
event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at
the time of such participant&#146;s death, the Company shall
deliver such shares and/or cash to the executor or administrator
of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such
shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such
other person as the Company may designate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;All beneficiary designations shall be in
such form and manner as the Administrator may designate from
time to time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">16)&nbsp;<I>Transferability.</I> Neither payroll
deductions credited to a participant&#146;s account nor any
rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws
of descent and distribution or as provided in Section&nbsp;15
hereof) by the participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with
Section&nbsp;10 hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">17)&nbsp;<I>Use of Funds.</I> All payroll
deductions received or held by the Company under the Plan may be
used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
Until shares are issued, participants shall only have the rights
of an unsecured creditor.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">18)&nbsp;<I>Reports.</I> Individual accounts
shall be maintained for each participant in the Plan. Statements
of account shall be given to participating Eligible Employees at
least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">19)&nbsp;<I>Adjustments Upon Changes in
Capitalization, Dissolution, Liquidation, Merger or
Change-in-Control.</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Changes in Capitalization. Subject to
any required action by the stockholders of the Company, the
maximum number of shares of the Company&#146;s Common Stock
which shall be made available for sale under the Plan, the
maximum number of shares each participant may purchase each
Purchase Period (pursuant to Sections&nbsp;3(b), and 7), as well
as the price per share and the number of shares of Common Stock
covered by each option under the Plan which has
</FONT>

<P align="center"><FONT size="2">39
</FONT>

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<DIV align="left">
<FONT size="2">not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of
the Common Stock, or any other change in the number of shares of
Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been
&#147;effected without receipt of consideration.&#148; Such
adjustment shall be made by the Administrator, whose
determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an
option.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Dissolution or Liquidation. In the event
of the proposed dissolution or liquidation of the Company, the
Offering Period then in progress shall be shortened by setting a
New Exercise Date (the &#147;New Exercise Date&#148;), and shall
terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the
Administrator. The New Exercise Date shall be before the date of
the Company&#146;s proposed dissolution or liquidation. The
Administrator shall notify each participant in writing, at least
10 (ten)&nbsp;business days prior to the New Exercise Date, that
the Exercise Date for the participant&#146;s option has been
changed to the New Exercise Date and that the participant&#146;s
option shall be exercised automatically on the New Exercise
Date, unless prior to such date the participant has withdrawn
from the Offering Period as provided in Section&nbsp;10 hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Merger or Change-of-Control. In the
event of a merger or Change-of-Control, each outstanding option
shall be assumed or an equivalent option substituted by the
successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses
to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a New Exercise
Date and any Offering Periods then in progress shall end on the
New Exercise Date. The New Exercise Date shall be before the
date of the Company&#146;s proposed merger or Change-of-Control.
The Administrator shall notify each participant in writing, at
least 10 (ten) business days prior to the New Exercise Date,
that the Exercise Date for the participant&#146;s option has
been changed to the New Exercise Date and that the
participant&#146;s option shall be exercised automatically on
the New Exercise Date, unless prior to such date the participant
has withdrawn from the Offering Period as provided in
Section&nbsp;10 hereof.
</FONT>

<P align="left">
<FONT size="2">20)&nbsp;<I>Amendment or Termination.</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;The Administrator may at any time and
for any reason terminate or amend the Plan. Except as otherwise
provided in the Plan, no such termination can affect options
previously granted, provided that an Offering Period may be
terminated by the Administrator on any Exercise Date if the
Administrator determines that the termination of the Offering
Period or the Plan is in the best interests of the Company and
its stockholders. Except as provided in Section&nbsp;19 and this
Section&nbsp;20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with
Section&nbsp;423 of the Code (or any successor rule or provision
or any other applicable law, regulation or stock exchange rule),
the Company shall obtain stockholder approval in such a manner
and to such a degree as required.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Without stockholder consent and without
regard to whether any participant rights may be considered to
have been &#147;adversely affected,&#148; the Administrator
shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during
an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S.&nbsp;dollars,
permit payroll withholding in excess of the amount designated by
a participant in order to adjust for delays or mistakes in the
Company&#146;s processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that
amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the
participant&#146;s Compensation, and establish such other
limitations or procedures as the Administrator determines in its
sole discretion advisable which are consistent with the Plan.
</FONT>

<P align="center"><FONT size="2">40
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;In the event the Administrator
determines that the ongoing operation of the Plan may result in
unfavorable financial accounting consequences, the Board may, in
its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;increasing the Purchase Price for any
Offering Period including an Offering Period underway at the
time of the change in Purchase Price;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;shortening any Offering Period so that
Offering Period ends on a new Exercise Date, including an
Offering Period underway at the time of the Board
action;&nbsp;and
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iii)&nbsp;allocating shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Such modifications or amendments shall not
require stockholder approval or the consent of any Plan
participants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">21)&nbsp;<I>Notices.</I> All notices or other
communications by a participant to the Company under or in
connection with the Plan shall be deemed to have been duly given
when received in the form and manner specified by the Company at
the location, or by the person, designated by the Company for
the receipt thereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">22)&nbsp;<I>Conditions Upon Issuance of
Shares.</I> Shares shall not be issued with respect to an option
unless the exercise of such option and the issuance and delivery
of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Exchange
Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a condition to the exercise of an option, the
Company may require the person exercising such option to
represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of
law.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">23)&nbsp;<I>Term of Plan.</I> The Plan shall
become effective upon the earlier to occur of its adoption by
the Board of Directors or its approval by the stockholders of
the Company. It shall continue in effect until terminated under
Section&nbsp;20 hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">24)&nbsp;<I>Automatic Transfer to Low Price
Offering Period.</I> To the extent permitted by any applicable
laws, regulations, or stock exchange rules if the Fair Market
Value of the Common Stock on any Exercise Date in an Offering
Period is lower than the Fair Market Value of the Common Stock
on the Offering Date of such Offering Period, then all
participants in such Offering Period shall be automatically
withdrawn from such Offering Period immediately after the
exercise of their option on such Exercise Date and automatically
re-enrolled in the immediately following Offering Period.
</FONT>

<P align="center"><FONT size="2">41
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="right">
<FONT size="2">Exhibit&nbsp;1
</FONT>

<P align="center">
<FONT size="2">HARMONIC INC.
</FONT>

<P align="center">
<FONT size="2">2002 EMPLOYEE STOCK PURCHASE PLAN
</FONT>

<P align="center">
<FONT size="2">SUBSCRIPTION AGREEMENT
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="19%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="15%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Original Application
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Change in Payroll Deduction Rate
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Change of Beneficiary(ies)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Offering Date
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">1.&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
hereby elects to participate in the Harmonic,&nbsp;Inc. 2002
Employee Stock Purchase Plan (the &#147;Employee Stock Purchase
Plan&#148;) and subscribes to purchase shares of the
Company&#146;s Common Stock in accordance with this Subscription
Agreement and the Employee Stock Purchase Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">2.&nbsp;I hereby authorize payroll deductions
from each paycheck in the amount of
<U>&nbsp;&nbsp;&nbsp;&nbsp;</U>% of my Compensation on each
payday (from 1% to 10%) during the Offering Period in accordance
with the Employee Stock Purchase Plan. (Please note that no
fractional percentages are permitted.)
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">3.&nbsp;I understand that said payroll deductions
shall be accumulated for the purchase of shares of Common Stock
at the applicable Purchase Price determined in accordance with
the Employee Stock Purchase Plan. I understand that if I do not
withdraw from an Offering Period, any accumulated payroll
deductions will be used to automatically exercise my option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">4.&nbsp;I have received a copy of the complete
Employee Stock Purchase Plan. I understand that my participation
in the Employee Stock Purchase Plan is in all respects subject
to the terms of the Plan. I understand that my ability to
exercise the option under this Subscription Agreement is subject
to stockholder approval of the Employee Stock Purchase Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">5.&nbsp;Shares purchased for me under the
Employee Stock Purchase Plan should be issued in the name(s) of
(Eligible Employee or Eligible Employee and Spouse only).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">6.&nbsp;I understand that if&nbsp;I dispose of
any shares received by me pursuant to the Plan within
2&nbsp;years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or one
year after the Exercise Date, I will be treated for federal
income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the
fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I
hereby agree to notify the Company in writing within
30&nbsp;days after the date of any disposition of my shares and
I will make adequate provision for Federal, state or other tax
withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not
be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year and 1-year
holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time
of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the
lesser of (1)&nbsp;the excess of the fair market value of the
shares at the time of such disposition over the purchase price
which I paid for the shares, or (2)&nbsp;15% of the fair market
value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition
will be taxed as capital gain.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">7.&nbsp;I hereby agree to be bound by the terms
of the Employee Stock Purchase Plan. The effectiveness of this
Subscription Agreement is dependent upon my eligibility to
participate in the Employee Stock Purchase Plan.
</FONT>

<P align="center"><FONT size="2">42
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">8.&nbsp;In the event of my death, I hereby
designate the following as my beneficiary(ies) to receive all
payments and shares due me under the Employee Stock Purchase
Plan:
</FONT>

<P align="left">
<FONT size="2">NAME: (Please
print)&nbsp;<HR size="1" width="100%" align="left" noshade>
</FONT>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="25%"></TD>
    <TD width="25%"></TD>
    <TD width="25%"></TD>
    <TD width="25%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">(First)</FONT></TD>
    <TD align="center"><FONT size="2">(Middle)</FONT></TD>
    <TD align="center"><FONT size="2">(Last)</FONT></TD>
    <TD align="right"></TD>
</TR>

</TABLE>

<P align="left">
<HR size="1" width="100%" align="left" noshade>

<DIV align="left">
<FONT size="2">Relationship
</FONT>
</DIV>

<P align="left">
<HR size="1" width="100%" align="left" noshade>

<DIV align="left">
<FONT size="2">Address
</FONT>
</DIV>

<P align="left">
<HR size="1" width="100%" align="left" noshade>

<P align="left">
<HR size="1" width="100%" align="left" noshade>

<P align="left">
<FONT size="2">Percentage
Benefit&nbsp;<HR size="1" width="37%" align="left" noshade>
</FONT>

<P align="left">
<FONT size="2">NAME: (Please
print)&nbsp;<HR size="1" width="100%" align="left" noshade>
</FONT>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="25%"></TD>
    <TD width="25%"></TD>
    <TD width="25%"></TD>
    <TD width="25%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">(First)</FONT></TD>
    <TD align="center"><FONT size="2">(Middle)</FONT></TD>
    <TD align="center"><FONT size="2">(Last)</FONT></TD>
    <TD align="right"></TD>
</TR>

</TABLE>

<P align="left">
<HR size="1" width="100%" align="left" noshade>

<DIV align="left">
<FONT size="2">Relationship
</FONT>
</DIV>

<P align="left">
<HR size="1" width="100%" align="left" noshade>

<DIV align="left">
<FONT size="2">Address
</FONT>
</DIV>

<P align="left">
<HR size="1" width="100%" align="left" noshade>

<P align="left">
<HR size="1" width="100%" align="left" noshade>

<P align="left">
<FONT size="2">Percentage
Benefit&nbsp;<HR size="1" width="37%" align="left" noshade>
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employee&#146;s Social Security Number:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employee&#146;s Address:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT
SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS
UNLESS TERMINATED BY ME.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dated:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Signature of Employee
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Spouse&#146;s Signature (if beneficiary other
    than spouse)
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">43
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="right">
<FONT size="2">Exhibit&nbsp;2
</FONT>

<DIV align="left">

</DIV>

<P align="center">
<FONT size="2">HARMONIC INC.
</FONT>

<P align="center">
<FONT size="2">2002 EMPLOYEE STOCK PURCHASE PLAN
</FONT>

<P align="center">
<FONT size="2">NOTICE OF WITHDRAWAL
</FONT>

<P align="left">
<FONT size="2">The undersigned participant in the Offering
Period of the Harmonic Inc. 2002 Employee Stock Purchase Plan
which began
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(the
&#147;Offering Date&#148;) hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she
hereby directs the Company to pay to the undersigned as promptly
as practicable all the payroll deductions credited to his or her
account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned
understands further that no further payroll deductions will be
made for the purchase of shares in the current Offering Period
and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a
new Subscription Agreement. Name and Address of Participant:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Print Name
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Address&nbsp;</FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Signature
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Date
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">44
</FONT>

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<!-- link1 "<FONT size="2">EXHIBIT&nbsp;2</FONT>" -->
<DIV align="left"><A NAME="009"></A></DIV>
<P align="right">
<FONT size="2">EXHIBIT&nbsp;2
</FONT>

<DIV align="left">

</DIV>

<P align="center">
<FONT size="2">HARMONIC INC.
</FONT>

<P align="center">
<FONT size="2">1995 STOCK PLAN
</FONT>

<P align="center">
<FONT size="2">(As Amended and Restated Effective May&nbsp;27,
2004)
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">1)&nbsp;Purposes of the Plan. The purposes of
this Stock Plan are:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="2%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to attract and retain the best available
    personnel for positions of substantial responsibility,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to provide additional incentive to Employees and
    Consultants,&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to promote the success of the Company&#146;s
    business.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Awards granted under the Plan may be Incentive
Stock Options, Nonstatutory Stock Options, Restricted Stock,
Stock Appreciation Rights, Performance Shares, Performance Units
or Deferred Stock Units, as determined by the Administrator at
the time of grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">2)&nbsp;Definitions. As used herein, the
following definitions shall apply:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">a)&nbsp;&#147;Administrator&#148; means the Board
or any of its Committees as shall be administering the Plan, in
accordance with Section&nbsp;4 of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">b)&nbsp;&#147;Applicable Laws&#148; means the
legal requirements relating to the administration of equity
compensation plans under state corporate and securities laws and
the Code.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">c)&nbsp;&#147;Annual Revenue&#148; means the
Company&#146;s or a business unit&#146;s net sales for the
Fiscal Year, determined in accordance with generally accepted
accounting principles; provided, however, that prior to the
Fiscal Year, the Administrator shall determine whether any
significant item(s) shall be excluded or included from the
calculation of Annual Revenue with respect to one or more
Participants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">d)&nbsp;&#147;Award&#148; means, individually or
collectively, a grant under the Plan of Options, Restricted
Stock, Stock Appreciation Rights, Performance Shares,
Performance Units or Deferred Stock Units.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">e)&nbsp;&#147;Award Agreement&#148; means the
written agreement setting forth the terms and provisions
applicable to each Award granted under the Plan. The Award
Agreement is subject to the terms and conditions of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">f)&nbsp;&#147;Awarded Stock&#148; means the
Common Stock subject to an Award.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">g)&nbsp;&#147;Board&#148; means the Board of
Directors of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">h)&nbsp;&#147;Cash Position&#148; means the
Company&#146;s level of cash and cash equivalents.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">i)&nbsp;&#147;Code&#148; means the Internal
Revenue Code of 1986, as amended.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">j)&nbsp;&#147;Committee&#148; means a Committee
of Board members appointed by the Board in accordance with
Section&nbsp;4 of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">k)&nbsp;&#147;Common Stock&#148; means the Common
Stock of the Company.
</FONT>

<P align="center"><FONT size="2">45
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">l)&nbsp;&#147;Company&#148; means Harmonic Inc.,
a Delaware corporation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">m)&nbsp;&#147;Consultant&#148; means any person,
including an advisor, engaged by the Company or a Parent or
Subsidiary to render services and who is compensated for such
services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">n)&nbsp;&#147;Continuous Status as an Employee or
Consultant&#148; means that the employment or consulting
relationship with the Company, any Parent, or Subsidiary, is not
interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of
(i)&nbsp;any leave of absence approved by the Company or
(ii)&nbsp;transfers between locations of the Company or between
the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick
leave, military leave, or any other personal leave approved by
an authorized representative of the Company. For purposes of
Incentive Stock Options, no such leave may exceed 90&nbsp;days,
unless reemployment upon expiration of such leave is guaranteed
by statute or contract. If reemployment upon expiration of a
leave of absence approved by the Company is not so guaranteed,
on the 91st&nbsp;day of such leave any Incentive Stock Option
held by the Participant shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">o)&nbsp;&#147;Deferred Stock Unit&#148; means a
deferred stock unit Award granted to a Participant pursuant to
Section&nbsp;15.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">p)&nbsp;&#147;Director&#148; means a member of
the Board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">q)&nbsp;&#147;Disability&#148; means total and
permanent disability as defined in Section&nbsp;22(e)(3) of the
Code.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">r)&nbsp;&#147;Earnings Per Share&#148; means as
to any Fiscal Year, the Company&#146;s or a business unit&#146;s
Net Income, divided by a weighted average number of common
shares outstanding and dilutive common equivalent shares deemed
outstanding, determined in accordance with generally accepted
accounting principles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">s)&nbsp;&#147;Employee&#148; means any person,
including Officers and Directors, employed by the Company or any
Parent or Subsidiary of the Company. Neither service as a
Director nor payment of a director&#146;s fee by the Company
shall be sufficient to constitute &#147;employment&#148; by the
Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">t)&nbsp;&#147;Exchange Act&#148; means the
Securities Exchange Act of 1934, as amended.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">u)&nbsp;&#147;Fair Market Value&#148; means, as
of any date, the value of Common Stock determined as follows:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">i)&nbsp;If the Common Stock is listed on any
established stock exchange or a national market system,
including without limitation the Nasdaq National Market of the
National Association of Securities Dealers,&nbsp;Inc. Automated
Quotation (&#147;NASDAQ&#148;) System, the Fair Market Value of
a Share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the day of
determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ii)&nbsp;If the Common Stock is quoted on the
NASDAQ System (but not on the Nasdaq National Market thereof) or
is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a
Share of Common Stock shall be the mean between the high bid and
low asked prices for the Common Stock on the last market trading
day prior to the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems
reliable;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">iii)&nbsp;In the absence of an established market
for the Common Stock, the Fair Market Value shall be determined
in good faith by the Administrator.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">v)&nbsp;&#147;Incentive Stock Option&#148; means
an Option intended to qualify as an incentive stock option
within the meaning of Section&nbsp;422 of the Code and the
regulations promulgated thereunder.
</FONT>

<P align="center"><FONT size="2">46
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">w)&nbsp;&#147;Net Income&#148; means as to any
Fiscal Year, the income after taxes of the Company for the
Fiscal Year determined in accordance with generally accepted
accounting principles, provided that prior to the Fiscal Year,
the Administrator shall determine whether any significant
item(s) shall be included or excluded from the calculation of
Net Income with respect to one or more Participants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">x)&nbsp;&#147;Nonstatutory Stock Option&#148;
means an Option not intended to qualify as an Incentive Stock
Option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">y)&nbsp;&#147;Notice of Grant&#148; means a
written notice evidencing certain terms and conditions of an
individual Option or Stock Purchase Right grant. The Notice of
Grant is part of the Option Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">z)&nbsp;&#147;Officer&#148; means a person who is
an officer of the Company within the meaning of Section&nbsp;16
of the Exchange Act and the rules and regulations promulgated
thereunder.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">aa)&nbsp;&#147;Operating Cash Flow&#148; means
the Company&#146;s or a business unit&#146;s sum of Net Income
plus depreciation and amortization less capital expenditures
plus changes in working capital comprised of accounts
receivable, inventories, other current assets, trade accounts
payable, accrued expenses, product warranty, advance payments
from customers and long-term accrued expenses, determined in
accordance with generally acceptable accounting principles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">bb)&nbsp;&#147;Operating Income&#148; means the
Company&#146;s or a business unit&#146;s income from operations
but excluding any unusual items, determined in accordance with
generally accepted accounting principles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">cc)&nbsp;&#147;Option&#148; means a stock option
granted pursuant to the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">dd)&nbsp;&#147;Option Agreement&#148; means a
written agreement between the Company and a Participant
evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and
conditions of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ee)&nbsp;&#147;Parent&#148; means a &#147;parent
corporation&#148;, whether now or hereafter existing, as defined
in Section&nbsp;424(e) of the Code.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ff)&nbsp;&#147;Participant&#148; means the holder
of an outstanding Award granted under the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">gg)&nbsp;&#147;Performance Goals&#148; means the
goal(s) (or combined goal(s)) determined by the Administrator
(in its discretion) to be applicable to a Participant with
respect to a Restricted Stock award. As determined by the
Administrator, the Performance Goals applicable to a Restricted
Stock award may provide for a targeted level or levels of
achievement using one or more of the following measures:
(a)&nbsp;Annual Revenue, (b)&nbsp;Cash Position,
(c)&nbsp;Earnings Per Share, (d)&nbsp;Net Income,
(e)&nbsp;Operating Cash Flow, (f)&nbsp;Operating Income,
(g)&nbsp;Return on Assets, (h)&nbsp;Return on Equity,
(i)&nbsp;Return on Sales, and (j)&nbsp;Total Shareholder Return.
The Performance Goals may differ from Participant to Participant
and from award to award.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">hh)&nbsp;&#147;Performance Share&#148; means a
performance share Award granted to a Participant pursuant to
Section&nbsp;13.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ii)&nbsp;&#147;Performance Unit&#148; means a
performance unit Award granted to a Participant pursuant to
Section&nbsp;14.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">jj)&nbsp;&#147;Plan&#148; means this Harmonic
Inc. 1995 Stock Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">kk)&nbsp;&#147;Restricted Stock&#148; means
Shares granted pursuant to Section&nbsp;12 of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ll)&nbsp;&#147;Return on Assets&#148; means the
percentage equal to the Company&#146;s or a business unit&#146;s
Operating Income before incentive compensation, divided by
average net Company or business unit, as applicable, assets,
determined in accordance with generally accepted accounting
principles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">mm)&nbsp;&#147;Return on Equity&#148; means the
percentage equal to the Company&#146;s Net Income divided by
average stockholder&#146;s equity, determined in accordance with
generally accepted accounting principles.
</FONT>

<P align="center"><FONT size="2">47
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">nn)&nbsp;&#147;Return on Sales&#148; means the
percentage equal to the Company&#146;s or a business unit&#146;s
Operating Income before incentive compensation, divided by the
Company&#146;s or the business unit&#146;s, as applicable,
revenue, determined in accordance with generally accepted
accounting principles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">oo)&nbsp;&#147;Rule&nbsp;16b-3&#148; means
Rule&nbsp;16b-3 of the Exchange Act or any successor to
Rule&nbsp;16b-3, as in effect when discretion is being exercised
with respect to the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">pp)&nbsp;&#147;Section&nbsp;16(b)&#148; means
Section&nbsp;16(b) of the Securities Exchange Act of 1934, as
amended.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">qq)&nbsp;&#147;Share&#148; means a share of the
Common Stock, as adjusted in accordance with Section&nbsp;17 of
the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">rr)&nbsp;&#147;Stock Appreciation Right&#148; or
&#147;SAR&#148; means an Award granted pursuant to
Section&nbsp;11 hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ss)&nbsp;&#147;Subsidiary&#148; means a
&#147;subsidiary corporation&#148;, whether now or hereafter
existing, as defined in Section&nbsp;424(f) of the Code.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">tt)&nbsp;&#147;Total Shareholder Return&#148;
means the total return (change in share price plus reinvestment
of any dividends) of a Share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">3)&nbsp;Stock Subject to the Plan. Subject to the
provisions of Section&nbsp;17 of the Plan, the maximum aggregate
number of Shares which may be issued under the Plan is
8,300,000&nbsp;Shares, plus any shares subject to options under
the Company&#146;s 1999 Non-Statutory Stock Plan that are
outstanding as of May&nbsp;27, 2004 that expire unexercised, up
to an additional maximum of 1,800,000&nbsp;Shares; provided,
however, that in no event shall more than 30% of the Shares
(i)&nbsp;remaining issuable under the Plan as of May&nbsp;27,
2004, or (ii)&nbsp;that are subsequently returned to the Plan
upon expiration of 1999 Non-Statutory Stock Options be issued
pursuant to Awards with an exercise price or purchase price that
is less than 100% of Fair Market Value on the date of grant. The
Shares may be authorized, but unissued, or reacquired Common
Stock.
</FONT>

<P align="left">
<FONT size="2">If an Award expires or becomes unexercisable
without having been exercised in full, or, with respect to
Restricted Stock, Performance Shares, Performance Units or
Deferred Stock Units, is forfeited to or repurchased by the
Company, the unpurchased Shares (or for Awards other than
Options and SARs, the forfeited or repurchased shares) which
were subject thereto shall become available for future grant or
sale under the Plan (unless the Plan has terminated). With
respect to SARs, only shares actually issued pursuant to an SAR
shall cease to be available under the Plan; all remaining shares
under SARs, shall remain available for future grant or sale
under the Plan (unless the Plan has terminated). However, Shares
that have actually been issued under the Plan under any Award
shall not be returned to the Plan and shall not become available
for future distribution under the Plan, except that if Shares of
Restricted Stock, Performance Shares, Performance Units or
Deferred Stock Units are repurchased by the Company at their
original purchase price or are forfeited to the Company, such
Shares shall become available for future grant under the Plan.
To the extent an Award under the Plan is paid out in cash rather
than stock, such cash payment shall not result in reducing the
number of Shares available for issuance under the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">4)&nbsp;Administration of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">a)&nbsp;Procedure.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">i)&nbsp;Multiple Administrative Bodies. The Plan
may be administered by different Committees with respect to
different groups of Employees or Consultants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ii)&nbsp;Section&nbsp;162(m). To the extent that
the Administrator determines it to be desirable to qualify
Options granted hereunder as &#147;performance-based
compensation&#148; within the meaning of Section&nbsp;162(m) of
the Code, the Plan shall be administered by a Committee of two
or more &#147;outside directors&#148; within the meaning of
Section&nbsp;162(m) of the Code.
</FONT>

<P align="center"><FONT size="2">48
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">iii)&nbsp;Rule&nbsp;16b-3. To the extent
desirable to qualify transactions hereunder as exempt under
Rule&nbsp;16b-3, the transactions contemplated hereunder shall
be structured to satisfy the requirements for exemption under
Rule&nbsp;16b-3.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">iv)&nbsp;Other Administration. Other than as
provided above, the Plan shall be administered by (A)&nbsp;the
Board or (B)&nbsp;a Committee, which committee shall be
constituted to satisfy Applicable Laws.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">b)&nbsp;Powers of the Administrator. Subject to
the provisions of the Plan, and in the case of a Committee,
subject to the specific duties delegated by the Board to such
Committee, the Administrator shall have the authority, in its
discretion:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">i)&nbsp;to determine the Fair Market Value of the
Common Stock, in accordance with Section&nbsp;2(u) of the Plan;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ii)&nbsp;to select the Consultants and Employees
to whom Awards may be granted hereunder;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">iii)&nbsp;to determine whether and to what extent
Awards or any combination thereof, are granted hereunder;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">iv)&nbsp;to determine the number of shares of
Common Stock to be covered by each Award granted hereunder;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">v)&nbsp;to approve forms of agreement for use
under the Plan;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">vi)&nbsp;to determine the terms and conditions,
not inconsistent with the terms of the Plan, of any award
granted hereunder. Such terms and conditions include, but are
not limited to, the exercise price, the time or times when
Options or SARs may be exercised or other Awards vest (which may
be based on performance criteria), any vesting acceleration or
waiver of forfeiture restrictions, and any restriction or
limitation regarding any Award or the shares of Common Stock
relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">vii)&nbsp;to construe and interpret the terms of
the Plan and Awards;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">viii)&nbsp;to prescribe, amend and rescind rules
and regulations relating to the Plan, including rules and
regulations relating to sub-plans established for the purpose of
qualifying for preferred tax treatment under foreign tax laws;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ix)&nbsp;to modify or amend each Award (subject
to Section&nbsp;20(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period
of Options and SARs longer than is otherwise provided for in the
Plan;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">x)&nbsp;to authorize any person to execute on
behalf of the Company any instrument required to effect the
grant of an Option or Stock Purchase Right previously granted by
the Administrator;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">xi)&nbsp;to allow Participants to satisfy
withholding tax obligations by electing to have the Company
withhold from the Shares or cash to be issued upon exercise,
vesting of an Award (or distribution of a Deferred Stock Unit)
that number of Shares or cash having a Fair Market Value equal
to the minimum amount required to be withheld. The Fair Market
Value of any Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined.
All elections by a Participant to have Shares or cash withheld
for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">xii)&nbsp;to determine the terms and restrictions
applicable to Awards;&nbsp;and
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">xiii)&nbsp;to make all other determinations
deemed necessary or advisable for administering the Plan.
</FONT>

<P align="center"><FONT size="2">49
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">c)&nbsp;Effect of Administrator&#146;s Decision.
The Administrator&#146;s decisions, determinations and
interpretations shall be final and binding on all Participants
and any other holders of Awards.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">5)&nbsp;Eligibility. Restricted Stock,
Performance Shares, Performance Units, Stock Appreciation
Rights, Deferred Stock Units and Nonstatutory Stock Options may
be granted to Service Providers. Incentive Stock Options may be
granted only to Employees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">6)&nbsp;Limitations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Each Option shall be designated in the
Notice of Grant as either an Incentive Stock Option or a
Nonstatutory Stock Option. However, notwithstanding such
designations, to the extent that the aggregate Fair Market Value:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;of Shares subject to a
Participant&#146;s Incentive Stock Options granted by the
Company, any Parent or Subsidiary, which
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;become exercisable for the first time
during any calendar year (under all plans of the Company or any
Parent or Subsidiary)
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">exceeds $100,000, such excess Options shall be
treated as Nonstatutory Stock Options. For purposes of this
Section&nbsp;6(a),&nbsp;Incentive Stock Options shall be taken
into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the
time of grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Neither the Plan nor any Award shall
confer upon a Participant any right with respect to continuing
the Participant&#146;s employment with the Company or its
Subsidiaries, nor shall they interfere in any way with the
Participant&#146;s right or the Company&#146;s or
Subsidiary&#146;s right, as the case may be, to terminate such
employment at any time, with or without cause or notice.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;The following limitations shall apply to
grants of Options and Stock Appreciation Rights to Employees:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;No Employee shall be granted, in any
fiscal year of the Company, Options and Stock Appreciation
Rights to purchase more than 600,000&nbsp;Shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;The foregoing limitations shall be
adjusted proportionately in connection with any change in the
Company&#146;s capitalization as described in Section&nbsp;17.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">7)&nbsp;Term of Plan. The Plan shall continue in
effect for a term of nine (9) years following the date upon
which the Board approved the 2004 amendment and restatement of
the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">8)&nbsp;Term of Option. The term of each Option
shall be stated in the Notice of Grant; provided, however, that
in no event shall the term be more than ten (10)&nbsp;years from
the date of grant. Moreover, in the case of an Incentive Stock
Option granted to a Participant who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5)&nbsp;years from the date of grant
or such shorter term as may be provided in the Notice of Grant.
</FONT>

<P align="center"><FONT size="2">50
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">9)&nbsp;Option Exercise Price and Consideration.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Exercise Price. The per share exercise
price for the Shares to be issued pursuant to exercise of an
Option shall be determined by the Administrator, subject to the
following:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;In the case of an Incentive Stock Option
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(1)&nbsp;granted to an Employee who, at the time
the Incentive Stock Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(2)&nbsp;granted to any Employee other than an
Employee described in paragraph (A)&nbsp;immediately above, the
per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;In the case of a Nonstatutory Stock
Option, the per Share exercise price shall be no less than 100%
of the Fair Market Value per share on the date of grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iii)&nbsp;Notwithstanding the foregoing, Options
may be granted with a per Share exercise price of less than 100%
of the Fair Market Value per Share on the date of grant pursuant
to a merger or other corporate transaction.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iv)&nbsp;The exercise price for an Option may
not be reduced without the consent of the Company&#146;s
stockholders. This shall include, without limitation, a
repricing of the Option as well as an Option exchange program
whereby the Participant agrees to cancel an existing Option in
exchange for an Option, SAR or other Award.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Waiting Period and Exercise Dates. At
the time an Option is granted, the Administrator shall fix the
period within which the Option may be exercised and shall
determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may
specify that an Option may not be exercised until the completion
of a service period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Form of Consideration. The Administrator
shall determine the acceptable form of consideration for
exercising an Option, including the method of payment. In the
case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of
grant. Subject to Applicable Laws, such consideration may
consist entirely of:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;cash;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;check;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iii)&nbsp;other Shares which (A)&nbsp;in the
case of Shares acquired upon exercise of an option, have been
owned by the Participant for more than six months on the date of
surrender, and (B)&nbsp;have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iv)&nbsp;delivery of a properly executed
exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to
effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(v)&nbsp;any combination of the foregoing methods
of payment;&nbsp;or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(vi)&nbsp;such other consideration and method of
payment for the issuance of Shares to the extent permitted by
Applicable Laws.
</FONT>

<P align="center"><FONT size="2">51
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">10)&nbsp;Exercise of Option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Procedure for Exercise; Rights as a
Stockholder. Any Option granted hereunder shall be exercisable
according to the terms of the Plan and at such times and under
such conditions as determined by the Administrator and set forth
in the Option Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">An Option may not be exercised for a fraction of
a Share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">An Option shall be deemed exercised when the
Company receives: (i)&nbsp;written notice of exercise (in
accordance with the Option Agreement) from the person entitled
to exercise the Option, and (ii)&nbsp;full payment for the
Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment
authorized by the Administrator and permitted by the Option
Agreement and the Plan. Shares issued upon exercise of an Option
shall be issued in the name of the Participant or, if requested
by the Participant, in the name of the Participant and his or
her spouse. Until the stock certificate evidencing such Shares
is issued (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate
promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is
prior to the date the stock certificate is issued, except as
provided in Section&nbsp;17 of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Exercising an Option in any manner shall decrease
the number of Shares thereafter available, both for purposes of
the Plan and for sale under the Option, by the number of Shares
as to which the Option is exercised.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Termination of Employment or Consulting
Relationship. Upon termination of a Participant&#146;s
Continuous Status as an Employee or Consultant, other than upon
the Participant&#146;s death or Disability, the Participant may
exercise his or her Option, but only within such period of time
as is specified in the Notice of Grant, and only to the extent
that the Participant was entitled to exercise it at the date of
termination (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant). In the
absence of a specified time in the Notice of Grant, the Option
shall remain exercisable for three months following the
Participant&#146;s termination of Continuous Status as an
Employee or Consultant. In the case of an Incentive Stock
Option, such period of time shall not exceed three months from
the date of termination. If, at the date of termination, the
Participant is not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the
Option shall revert to the Plan. If, after termination, the
Participant does not exercise his or her Option within the time
specified by the Administrator, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Disability of Participant. In the event
that a Participant&#146;s Continuous Status as an Employee or
Consultant terminates as a result of the Participant&#146;s
Disability, the Participant may exercise his or her Option at
any time within twelve (12)&nbsp;months from the date of such
termination, but only to the extent that the Participant was
entitled to exercise it at the date of such termination (but in
no event later than the expiration of the term of such Option as
set forth in the Notice of Grant). If, at the date of
termination, the Participant is not entitled to exercise his or
her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after
termination, the Participant does not exercise his or her Option
within the time specified herein, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;Death of Participant. In the event of
the death of a Participant, the Option may be exercised at any
time within twelve (12)&nbsp;months following the date of death
(but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the
Participant&#146;s estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to
the extent that the Participant was entitled to exercise the
Option at the date of death. If, at the time of death, the
Participant was not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after death,
the Participant&#146;s estate or a person who acquired the right
to exercise the Option by bequest or inheritance does not
exercise the Option within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall
revert to the Plan.
</FONT>

<P align="center"><FONT size="2">52
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">11)&nbsp;Stock Appreciation Rights.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Grant of SARs. Subject to the terms and
conditions of the Plan, SARs may be granted to Participants at
any time and from time to time as shall be determined by the
Administrator, in its sole discretion. The Administrator shall
have complete discretion to determine the number of SARs granted
to any Participant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Exercise Price and other Terms. Subject
to Section&nbsp;6(c) of the Plan, the Administrator, subject to
the provisions of the Plan, shall have complete discretion to
determine the terms and conditions of SARs granted under the
Plan; provided, however, that no SAR may have a term of more
than ten (10)&nbsp;years from the date of grant. The exercise
price for the Shares or cash to be issued pursuant to an already
granted SAR may not be changed without the consent of the
Company&#146;s stockholders. This shall include, without
limitation, a repricing of the SAR as well as an SAR exchange
program whereby the Participant agrees to cancel an existing SAR
in exchange for an Option, SAR or other Award.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Payment of SAR Amount. Upon exercise of
a SAR, a Participant shall be entitled to receive payment from
the Company in an amount determined by multiplying:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;The difference between the Fair Market
Value of a Share on the date of exercise over the exercise
price; times
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;the number of Shares with respect to
which the SAR is exercised.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;Payment upon Exercise of SAR. At the
discretion of the Administrator, payment for a SAR may be in
cash, Shares or a combination thereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(e)&nbsp;SAR Agreement. Each SAR grant shall be
evidenced by an Award Agreement that shall specify the exercise
price, the term of the SAR, the conditions of exercise, and such
other terms and conditions as the Administrator, in its sole
discretion, shall determine.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(f)&nbsp;Expiration of SARs. A SAR granted under
the Plan shall expire upon the date determined by the
Administrator, in its sole discretion, and set forth in the
Award Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(g)&nbsp;Termination of Employment or Consulting
Relationship. Upon termination of a Participant&#146;s
Continuous Status as an Employee or Consultant, other than upon
the Participant&#146;s death or Disability, the Participant may
exercise his or her SAR, but only within such period of time as
is specified in the Notice of Grant, and only to the extent that
the Participant was entitled to exercise it at the date of
termination (but in no event later than the expiration of the
term of such SAR as set forth in the Notice of Grant). In the
absence of a specified time in the Notice of Grant, the SAR
shall remain exercisable for three months following the
Participant&#146;s termination of Continuous Status as an
Employee or Consultant. If, at the date of termination, the
Participant is not entitled to exercise his or her entire SAR,
the Shares covered by the unexercisable portion of the SAR shall
revert to the Plan. If, after termination, the Participant does
not exercise his or her SAR within the time specified by the
Administrator, the SAR shall terminate, and the Shares covered
by such SAR shall revert to the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(h)&nbsp;Disability of Participant. In the event
that a Participant&#146;s Continuous Status as an Employee or
Consultant terminates as a result of the Participant&#146;s
Disability, the Participant may exercise his or her SAR at any
time within twelve (12)&nbsp;months from the date of such
termination, but only to the extent that the Participant was
entitled to exercise it at the date of such termination (but in
no event later than the expiration of the term of such SAR as
set forth in the Notice of Grant). If, at the date of
termination, the Participant is not entitled to exercise his or
her entire SAR, the Shares covered by the unexercisable portion
of the SAR shall revert to the Plan. If, after termination, the
Participant does not exercise his or her SAR within the time
specified herein, the SAR shall terminate, and the Shares
covered by such SAR shall revert to the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;Death of Participant. In the event of
the death of a Participant, the SAR may be exercised at any time
within twelve (12)&nbsp;months following the date of death (but
in no event later than the expiration of the term of such SAR
</FONT>

<P align="center"><FONT size="2">53
</FONT>

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<DIV align="left">
<FONT size="2">as set forth in the Notice of Grant), by the
Participant&#146;s estate or by a person who acquired the right
to exercise the SAR by bequest or inheritance, but only to the
extent that the Participant was entitled to exercise the SAR at
the date of death. If, at the time of death, the Participant was
not entitled to exercise his or her entire SAR, the Shares
covered by the unexercisable portion of the SAR shall
immediately revert to the Plan. If, after death, the
Participant&#146;s estate or a person who acquired the right to
exercise the SAR by bequest or inheritance does not exercise the
SAR within the time specified herein, the SAR shall terminate,
and the Shares covered by such SAR shall revert to the Plan.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">12)&nbsp;Restricted Stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Grant of Restricted Stock. Subject to
the terms and conditions of the Plan, Restricted Stock may be
granted to Participants at any time as shall be determined by
the Administrator, in its sole discretion. The Administrator
shall have complete discretion to determine (i)&nbsp;the number
of Shares subject to a Restricted Stock award granted to any
Participant (provided that during any fiscal year of the
Company, no Participant shall be granted more than
200,000&nbsp;Shares of Restricted Stock), and (ii)&nbsp;the
conditions that must be satisfied, which typically will be based
principally or solely on continued provision of services but may
include a performance-based component, upon which is conditioned
the grant or vesting of Restricted Stock. Restricted Stock shall
be granted in the form of units to acquire Shares. Each such
unit shall be the equivalent of one Share for purposes of
determining the number of Shares subject to an Award. Until the
Shares are issued, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the
units to acquire Shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Other Terms. The Administrator, subject
to the provisions of the Plan, shall have complete discretion to
determine the terms and conditions of Restricted Stock granted
under the Plan. Restricted Stock grants shall be subject to the
terms, conditions, and restrictions determined by the
Administrator at the time the stock is awarded. The
Administrator may require the recipient to sign a Restricted
Stock Award agreement as a condition of the award. Any
certificates representing the Shares of stock awarded shall bear
such legends as shall be determined by the Administrator.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Restricted Stock Award Agreement. Each
Restricted Stock grant shall be evidenced by an agreement that
shall specify the purchase price (if any) and such other terms
and conditions as the Administrator, in its sole discretion,
shall determine; provided; however, that if the Restricted Stock
grant has a purchase price, such purchase price must be paid no
more than ten (10)&nbsp;years following the date of grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;Section&nbsp;162(m) Performance
Restrictions. For purposes of qualifying grants of Restricted
Stock as &#147;performance-based compensation&#148; under
Section&nbsp;162(m) of the Code, the Administrator, in its
discretion, may set restrictions based upon the achievement of
Performance Goals. The Performance Goals shall be set by the
Administrator on or before the latest date permissible to enable
the Restricted Stock to qualify as &#147;performance-based
compensation&#148; under Section&nbsp;162(m) of the Code. In
granting Restricted Stock which is intended to qualify under
Section&nbsp;162(m) of the Code, the Administrator shall follow
any procedures determined by it from time to time to be
necessary or appropriate to ensure qualification of the
Restricted Stock under Section&nbsp;162(m) of the Code (e.g., in
determining the Performance Goals).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">13)&nbsp;Performance Shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Grant of Performance Shares. Subject to
the terms and conditions of the Plan, Performance Shares may be
granted to Participants at any time as shall be determined by
the Administrator, in its sole discretion. The Administrator
shall have complete discretion to determine (i)&nbsp;the number
of Shares subject to a Performance Share award granted to any
Participant (provided that during any fiscal year of the
Company, no Participant shall be granted more than
200,000&nbsp;units of Performance Shares), and (ii)&nbsp;the
conditions that must be satisfied, which typically will be based
principally or solely on achievement of performance milestones
but may include a service-based component, upon which is
conditioned the grant or vesting of Performance Shares.
Performance Shares shall be granted in the form of units to
acquire Shares. Each such unit shall be the equivalent of one
Share for purposes of determining the number of Shares subject
to an Award. Until the Shares are issued, no right to vote or
receive dividends or any other rights as a shareholder shall
exist with respect to the units to acquire Shares.
</FONT>

<P align="center"><FONT size="2">54
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Other Terms. The Administrator, subject
to the provisions of the Plan, shall have complete discretion to
determine the terms and conditions of Performance Shares granted
under the Plan. Performance Share grants shall be subject to the
terms, conditions, and restrictions determined by the
Administrator at the time the stock is awarded, which may
include such performance-based milestones as are determined
appropriate by the Administrator. The Administrator may require
the recipient to sign a Performance Shares agreement as a
condition of the award. Any certificates representing the Shares
of stock awarded shall bear such legends as shall be determined
by the Administrator.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Performance Share Award Agreement. Each
Performance Share grant shall be evidenced by an agreement that
shall specify such other terms and conditions as the
Administrator, in its sole discretion, shall determine.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;Section&nbsp;162(m) Performance
Restrictions. For purposes of qualifying grants of Performance
Shares as &#147;performance-based compensation&#148; under
Section&nbsp;162(m) of the Code, the Administrator, in its
discretion, may set restrictions based upon the achievement of
Performance Goals. The Performance Goals shall be set by the
Administrator on or before the latest date permissible to enable
the Performance Shares to qualify as &#147;performance-based
compensation&#148; under Section&nbsp;162(m) of the Code. In
granting Performance Shares which are intended to qualify under
Section&nbsp;162(m) of the Code, the Administrator shall follow
any procedures determined by it from time to time to be
necessary or appropriate to ensure qualification of the
Performance Shares under Section&nbsp;162(m) of the Code (e.g.,
in determining the Performance Goals).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">14)&nbsp;Performance Units.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Grant of Performance Units. Performance
Units are similar to Performance Shares, except that they shall
be settled in a cash equivalent to the Fair Market Value of the
underlying Shares, determined as of the vesting date. Subject to
the terms and conditions of the Plan, Performance Units may be
granted to Participants at any time and from time to time as
shall be determined by the Administrator, in its sole
discretion. The Administrator shall have complete discretion to
determine the conditions that must be satisfied, which typically
will be based principally or solely on achievement of
performance milestones but may include a service-based
component, upon which is conditioned the grant or vesting of
Performance Units. Performance Units shall be granted in the
form of units/rights to acquire Shares. Each such unit/right
shall be the cash equivalent of one Share of Common Stock. No
right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to Performance Units or the
cash payable thereunder.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Number of Performance Units. The
Administrator will have complete discretion in determining the
number of Performance Units granted to any Participant, provided
that during any fiscal year of the Company, no Participant shall
receive Performance Units having an initial value greater than
$1,000,000, except that such Participant may receive Performance
Units in a fiscal year of the Company in which his or her
service as a Participant first commences with an initial value
no greater than $2,000,000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Other Terms. The Administrator, subject
to the provisions of the Plan, shall have complete discretion to
determine the terms and conditions of Performance Units granted
under the Plan. Performance Unit grants shall be subject to the
terms, conditions, and restrictions determined by the
Administrator at the time the stock is awarded, which may
include such performance-based milestones as are determined
appropriate by the Administrator. The Administrator may require
the recipient to sign a Performance Unit agreement as a
condition of the award. Any certificates representing the Shares
awarded shall bear such legends as shall be determined by the
Administrator.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;Performance Unit Award Agreement. Each
Performance Unit grant shall be evidenced by an agreement that
shall specify such terms and conditions as the Administrator, in
its sole discretion, shall determine.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(e)&nbsp;Section&nbsp;162(m) Performance
Restrictions. For purposes of qualifying grants of Performance
Units as &#147;performance-based compensation&#148; under
Section&nbsp;162(m) of the Code, the Administrator, in its
discretion, may set restrictions based upon the achievement of
Performance Goals. The Performance Goals shall be set by the
Administrator on or before the latest date permissible to enable
the Performance Units to qualify as &#147;performance-based
compensation&#148; under Section&nbsp;162(m) of the Code. In
granting Performance Units which are intended to qualify under
Section&nbsp;162(m) of the Code, the Administrator shall follow
any procedures determined by it from time to time to be
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">necessary or appropriate to ensure qualification
of the Performance Units under Section&nbsp;162(m) of the Code
(e.g., in determining the Performance Goals).
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">15)&nbsp;Deferred Stock Units.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Description. Deferred Stock Units shall
consist of a Restricted Stock, Performance Share or Performance
Unit Award that the Administrator, in its sole discretion
permits to be paid out in installments or on a deferred basis,
in accordance with rules and procedures established by the
Administrator.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;162(m) Limits. Deferred Stock Units
shall be subject to the annual 162(m) limits applicable to the
underlying Restricted Stock, Performance Share or Performance
Unit Award.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">16)&nbsp;Non-Transferability of Awards. Unless
determined otherwise by the Administrator, an Award may not be
sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the
recipient, only by the recipient. If the Administrator makes an
Award transferable, such Award shall contain such additional
terms and conditions as the Administrator deems appropriate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">17)&nbsp;Adjustments Upon Changes in
Capitalization, Dissolution, Merger or Asset Sale.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Changes in Capitalization. Subject to
any required action by the stockholders of the Company, the
number of shares of Common Stock covered by each outstanding
Award, the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Awards
have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Award, as well as the
price per share of Common Stock covered by each such outstanding
Award and the 162(m) annual share issuance limits under
Sections&nbsp;6(c), 12(a) and 13(a) shall be proportionately
adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall
not be deemed to have been &#147;effected without receipt of
consideration.&#148; Such adjustment shall be made by the
Compensation Committee, whose determination in that respect
shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock
of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of
Common Stock subject to an Award.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Dissolution or Liquidation. In the event
of the proposed dissolution or liquidation of the Company, the
Administrator shall notify each Participant as soon as
practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for
a Participant to have the right to exercise his or her Option or
SAR until ten (10)&nbsp;days prior to such transaction as to all
of the Awarded Stock covered thereby, including Shares as to
which the Award would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option
or forfeiture rights applicable to any Award shall lapse 100%,
and that any Award vesting shall accelerate 100%, provided the
proposed dissolution or liquidation takes place at the time and
in the manner contemplated. To the extent it has not been
previously exercised (with respect to Options and SARs) or
vested (with respect to other Awards), an Award will terminate
immediately prior to the consummation of such proposed action.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Merger or Asset Sale.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;Stock Options and SARs. In the event of
a merger of the Company with or into another corporation, or the
sale of substantially all of the assets of the Company, each
outstanding Option and SAR shall be assumed or an equivalent
option or SAR substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute
for the Option or SAR, the Participant shall fully vest in and
have the right to exercise the Option or SAR as to all of the
Awarded Stock, including Shares as to which it would not
otherwise be vested or exercisable. If an Option or SAR becomes
fully vested and exercisable in lieu of
</FONT>

<P align="center"><FONT size="2">56
</FONT>

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<DIV align="left">
<FONT size="2">assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the
Participant in writing or electronically that the Option or SAR
shall be fully vested and exercisable for a period of fifteen
(15)&nbsp;days from the date of such notice, and the Option or
SAR shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or SAR shall be
considered assumed if, following the merger or sale of assets,
the option or stock appreciation right confers the right to
purchase or receive, for each Share of Awarded Stock subject to
the Option or SAR immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets
by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders
of a majority of the outstanding Shares); provided, however,
that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation
or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be
received upon the exercise of the Option or SAR, for each Share
of Awarded Stock subject to the Option or SAR, to be solely
common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;Restricted Stock, Performance Shares,
Performance Units and Deferred Stock Units. In the event of a
merger of the Company with or into another corporation, or the
sale of substantially all of the assets of the Company, each
outstanding Restricted Stock, Performance Share, Performance
Unit and Deferred Stock Unit award shall be assumed or an
equivalent Restricted Stock, Performance Share, Performance Unit
and Deferred Stock Unit award substituted by the successor
corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses
to assume or substitute for the Restricted Stock, Performance
Share, Performance Unit or Deferred Stock Unit award, the
Participant shall fully vest in the Restricted Stock,
Performance Share, Performance Unit or Deferred Stock Unit
including as to Shares (or with respect to Performance Units,
the cash equivalent thereof) which would not otherwise be
vested. For the purposes of this paragraph, a Restricted Stock,
Performance Share, Performance Unit and Deferred Stock Unit
award shall be considered assumed if, following the merger or
sale of assets, the award confers the right to purchase or
receive, for each Share (or with respect to Performance Units,
the cash equivalent thereof) subject to the Award immediately
prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received
in the merger or sale of assets by holders of Common Stock for
each Share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the
outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not
solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received, for
each Share and each unit/right to acquire a Share subject to the
Award, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger
or sale of assets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">18)&nbsp;Date of Grant. The date of grant of an
Award shall be, for all purposes, the date on which the
Administrator makes the determination granting such Award, or
such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each
Participant within a reasonable time after the date of such
grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">19)&nbsp;Amendment and Termination of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Amendment and Termination. The Board may
at any time amend, alter, suspend or terminate the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Stockholder Approval. The Company shall
obtain stockholder approval of any Plan amendment to the extent
necessary and desirable to comply Section&nbsp;422 of the Code
(or any successor rule or statute or other applicable law, rule
or regulation, including the requirements of any exchange or
quotation system on which the Common Stock is listed or quoted).
Such stockholder approval, if required, shall be obtained in
such a manner and to such a degree as is required by the
applicable law, rule or regulation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Effect of Amendment or Termination. No
amendment, alteration, suspension or termination of the Plan
shall impair the rights of any Participant, unless mutually
agreed otherwise between the Participant and the Administrator,
which agreement must be in writing and signed by the Participant
and the Company.
</FONT>

<P align="center"><FONT size="2">57
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">20)&nbsp;Conditions Upon Issuance of Shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Legal Compliance. Shares shall not be
issued pursuant to the exercise of an Award unless the exercise
of the Award or the issuance and delivery of such Shares (or
with respect to Performance Units, the cash equivalent thereof)
shall comply with Applicable Laws and shall be further subject
to the approval of counsel for the Company with respect to such
compliance.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Investment Representations. As a
condition to the exercise or receipt of an Award, the Company
may require the person exercising or receiving such Award to
represent and warrant at the time of any such exercise or
receipt that the Shares are being purchased only for investment
and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a
representation is required.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">21)&nbsp;Liability of Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Inability to Obtain Authority. The
inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the
Company&#146;s counsel to be necessary to the lawful issuance
and sale of any Shares hereunder, shall relieve the Company of
any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been
obtained.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Grants Exceeding Allotted Shares. If the
Awarded Stock covered by an Award exceeds, as of the date of
grant, the number of Shares which may be issued under the Plan
without additional stockholder approval, such Award shall be
void with respect to such excess Awarded Stock, unless
stockholder approval of an amendment sufficiently increasing the
number of Shares subject to the Plan is timely obtained in
accordance with Section&nbsp;19(b) of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">22)&nbsp;Reservation of Shares. The Company,
during the term of this Plan, will at all times reserve and keep
available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
</FONT>

<P align="center"><FONT size="2">58
</FONT>

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<!-- link1 "<FONT size="2">EXHIBIT&nbsp;3</FONT>" -->
<DIV align="left"><A NAME="010"></A></DIV>
<P align="right">
<FONT size="2">EXHIBIT&nbsp;3
</FONT>

<P align="center">
<FONT size="2">HARMONIC INC.
</FONT>

<P align="center">
<FONT size="2">2002 DIRECTOR OPTION PLAN
</FONT>

<P align="center">
<FONT size="2">(As amended and restated as of May&nbsp;27, 2004)
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">1)<I>&nbsp;Purposes of the Plan.</I> The purposes
of this 2002&nbsp;Director Option Plan are to attract and retain
the best available personnel for service as Outside Directors
(as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as
Directors, and to encourage their continued service on the Board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All options granted hereunder shall be
nonstatutory stock options.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">2)<I>&nbsp;Definitions.</I> As used herein, the
following definitions shall apply:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">a)<I>&nbsp;&#147;Board&#148;</I> means the Board
of Directors of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">b)<I>&nbsp;&#147;Change-in-Control&#148;</I>
means the occurrence of any of the following events:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;Any &#147;person&#148; (as such term is
used in Sections&nbsp;13(d) and 14(d) of the Exchange Act)
becomes the &#147;beneficial owner&#148; (as defined in
Rule&nbsp;13d-3 of the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company&#146;s
then outstanding voting securities;&nbsp;or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;The consummation of the sale or
disposition by the Company of all or substantially all of the
Company&#146;s assets;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iii)&nbsp;A change in the composition of the
Board occurring within a two-year period, as a result of which
fewer than a majority of the directors are Incumbent Directors.
<I>&#147;Incumbent Directors&#148;</I> means directors who
either (A)&nbsp;are Directors as of the date hereof, or
(B)&nbsp;are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination
(but will not include an individual whose election or nomination
is in connection with an actual or threatened proxy contest
relating to the election of directors to the Company); or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iv)&nbsp;The consummation of a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity
or its parent) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company or
such surviving entity or its parent outstanding immediately
after such merger or consolidation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">c)<I>&nbsp;&#147;Code&#148;</I> means the
Internal Revenue Code of 1986, as amended.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">d)<I>&nbsp;&#147;Common Stock&#148;</I> means the
common stock of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">e)<I>&nbsp;&#147;Company&#148;</I> means Harmonic
Inc., a Delaware corporation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">f)<I>&nbsp;&#147;Director&#148;</I> means a
member of the Board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">g)<I>&nbsp;&#147;Disability&#148;</I> means total
and permanent disability as defined in section&nbsp;22(e)(3) of
the Code.
</FONT>

<P align="center"><FONT size="2">59
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">h)<I>&nbsp;&#147;Employee&#148;</I> means any
person, including officers and Directors, employed by the
Company or any Parent or Subsidiary of the Company. The payment
of a Director&#146;s fee by the Company shall not be sufficient
in and of itself to constitute &#147;employment&#148; by the
Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">i)<I>&nbsp;&#147;Exchange Act&#148;</I> means the
Securities Exchange Act of 1934, as amended.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">j)<I>&nbsp;&#147;Fair Market Value&#148;</I>
means, as of any date, the value of Common Stock determined as
follows:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;If the Common Stock is listed on any
established stock exchange or a national market system,
including without limitation the Nasdaq National Market or The
Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the
time of determination as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;If the Common Stock is regularly quoted
by a recognized securities dealer but selling prices are not
reported, the Fair Market Value of a Share of Common Stock shall
be the mean between the high bid and low asked prices for the
Common Stock for the last market trading day prior to the time
of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;&nbsp;or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iii)&nbsp;In the absence of an established
market for the Common Stock, the Fair Market Value thereof shall
be determined in good faith by the Board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">k)<I>&nbsp;&#147;Inside Director&#148;</I> means
a Director who is an Employee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">l)<I>&nbsp;&#147;Option&#148;</I> means a stock
option granted pursuant to the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">m)<I>&nbsp;&#147;Optioned Stock&#148;</I> means
the Common Stock subject to an Option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">n)<I>&nbsp;&#147;Optionee&#148;</I> means a
Director who holds an Option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">o)<I>&nbsp;&#147;Outside Director&#148;</I> means
a Director who is not an Employee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">p)<I>&nbsp;&#147;Parent&#148;</I> means a
&#147;parent corporation,&#148; whether now or hereafter
existing, as defined in Section&nbsp;424(e) of the Code.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">q)<I>&nbsp;&#147;Plan&#148;</I> means this
2002&nbsp;Director Option Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">r)<I>&nbsp;&#147;Securities Act&#148;</I> means
the Securities Act of 1933, as amended.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">s)<I>&nbsp;&#147;Share&#148;</I> means a share of
the Common Stock, as adjusted in accordance with Section&nbsp;10
of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">t)<I>&nbsp;&#147;Subsidiary&#148;</I> means a
&#147;subsidiary corporation,&#148; whether now or hereafter
existing, as defined in Section&nbsp;424(f) of the Internal
Revenue Code of 1986.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">3)&nbsp;<I>Stock Subject to the Plan.</I> Subject
to the provisions of Section&nbsp;10 of the Plan, the maximum
aggregate number of Shares which may be optioned and sold under
the Plan is 400,000&nbsp;Shares (the &#147;Pool&#148;). The
Shares may be authorized, but unissued, or reacquired Common
Stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If an Option expires or becomes unexercisable
without having been exercised in full, the unpurchased Shares
which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).
Shares that have actually been issued under the Plan shall not
be returned to the Plan and shall not become available for
future distribution under the Plan.
</FONT>

<P align="center"><FONT size="2">60
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">4)<I>&nbsp;Administration and Grants of Options
under the Plan.</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">a)<I>&nbsp;Procedure for Grants.</I> All grants
of Options to Outside Directors under this Plan shall be
automatic and nondiscretionary and shall be made strictly in
accordance with the following provisions:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;No person shall have any discretion to
select which Outside Directors shall be granted Options or to
determine the number of Shares to be covered by Options.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(ii)&nbsp;Each Outside Director shall be
automatically granted an Option to purchase 30,000&nbsp;Shares
(the <I>&#147;First Option&#148;</I>&nbsp;) on the date on which
the later of the following events occurs: (A)&nbsp;the effective
date of this Plan, as determined in accordance with
Section&nbsp;6 hereof, or (B)&nbsp;the date on which such person
first becomes an Outside Director, whether through election by
the stockholders of the Company or appointment by the Board to
fill a vacancy; provided, however, that an Inside Director who
ceases to be an Inside Director but who remains a Director shall
not receive a First Option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iii)&nbsp;Each Outside Director shall be
automatically granted an Option to purchase 10,000&nbsp;Shares
(a <I>&#147;Subsequent Option&#148;</I>&nbsp;) on the date such
Outside Director is reelected to the Board by the stockholders
of the Company at the Company&#146;s annual meeting of
stockholders or otherwise; provided that he or she is then an
Outside Director and if, as of such date, he or she shall have
served on the Board for at least the preceding six
(6)&nbsp;months.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(iv)&nbsp;Each Outside Director as of
May&nbsp;27, 2004 shall receive a special one-time Option to
purchase 10,000&nbsp;Shares (the &#147;Special Option&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(v)&nbsp;Notwithstanding the provisions of
subsections&nbsp;(ii), (iii) and (iv) hereof, any exercise of an
Option granted before the Company has obtained stockholder
approval of the Plan shall be conditioned upon obtaining such
stockholder approval of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(A)&nbsp;The terms of a First Option granted
hereunder shall be as follows:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(B)&nbsp;the term of the First Option shall be
ten (10)&nbsp;years;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(C)&nbsp;the First Option shall be exercisable
only while the Outside Director remains a Director of the
Company, except as set forth in Sections&nbsp;8 and 10 hereof;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(D)&nbsp;the exercise price per Share shall be
100% of the Fair Market Value per Share on the date of grant of
the First Option;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(E)&nbsp;subject to Section&nbsp;10 hereof, the
First Option shall become exercisable as to 1/36th of the Shares
subject to the First Option at the end of each month following
its date of grant, provided that the Optionee continues to serve
as a Director on such dates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(vi)&nbsp;The terms of a Subsequent Option and
the Special Option granted hereunder shall be as follows:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(A)&nbsp;the term of the Subsequent Option and
the Special Option shall be ten (10)&nbsp;years;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(B)&nbsp;the Subsequent Option and the Special
Option shall be exercisable only while the Outside Director
remains a Director of the Company, except as set forth in
Sections&nbsp;8 and 10 hereof;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(C)&nbsp;the exercise price per Share shall be
100% of the Fair Market Value per Share on the date of grant of
the Subsequent Option or the Special Option;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(D)&nbsp;subject to Section&nbsp;10 hereof, the
Subsequent Option and the Special Option shall become
exercisable as to 1/12th of the Shares subject to the Subsequent
Option and the Special Option, respectively, at the end of each
month following its date of grant, provided that the Optionee
continues to serve as a Director on such dates.
</FONT>

<P align="center"><FONT size="2">61
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(vii)&nbsp;In the event that any Option granted
under the Plan would cause the number of Shares subject to
outstanding Options plus the number of Shares previously
purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options
to the Outside Directors on a pro rata basis. No further grants
shall be made until such time, if any, as additional Shares
become available for grant under the Plan through action of the
Board or the stockholders to increase the number of Shares which
may be issued under the Plan or through cancellation or
expiration of Options previously granted hereunder.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">5)&nbsp;<I>Eligibility.</I> Options may be
granted only to Outside Directors. All Options shall be
automatically granted in accordance with the terms set forth in
Section&nbsp;4 hereof.
</FONT>

<P align="left">
<FONT size="2">The Plan shall not confer upon any Optionee any
right with respect to continuation of service as a Director or
nomination to serve as a Director, nor shall it interfere in any
way with any rights which the Director or the Company may have
to terminate the Director&#146;s relationship with the Company
at any time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">6)&nbsp;<I>Term of Plan.</I> The Plan shall
become effective upon its initial approval by the stockholders
of the Company. It shall continue in effect for a term of ten
(10)&nbsp;years unless sooner terminated under Section&nbsp;11
of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">7)&nbsp;<I>Form of Consideration.</I> The
consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall
consist of
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">a)&nbsp;cash;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">b)&nbsp;check;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">c)&nbsp;other shares which (x)&nbsp;in the case
of Shares acquired upon exercise of an option, have been owned
by the Optionee for more than six (6)&nbsp;months on the date of
surrender, and (y)&nbsp;have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">d)&nbsp;consideration received by the Company
under a cashless exercise program implemented by the Company in
connection with the Plan;&nbsp;or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">e)&nbsp;any combination of the foregoing methods
of payment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">8)&nbsp;<I>Exercise of Option.</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">a)&nbsp;<I>Procedure for Exercise; Rights as a
Stockholder.</I> Any Option granted hereunder shall be
exercisable at such times as are set forth in Section&nbsp;4
hereof; provided, however, that no Options shall be exercisable
until stockholder approval of the Plan has been obtained.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">An Option may not be exercised for a fraction of
a Share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in
accordance with the terms of the Option by the person entitled
to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and
method of payment allowable under Section&nbsp;7 of the Plan.
Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of
the Company) of the stock certificate evidencing such Shares, no
right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate
for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No
adjustment shall be made for a dividend or other right for which
the record date is prior to the date the stock certificate is
issued, except as provided in Section&nbsp;10 of the Plan.
</FONT>

<P align="center"><FONT size="2">62
</FONT>

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<P align="left">
<FONT size="2">Exercise of an Option in any manner shall result
in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is
exercised.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">b)&nbsp;<I>Termination of Continuous Status as a
Director.</I> Subject to Section&nbsp;10 hereof, in the event an
Optionee&#146;s status as a Director terminates (other than upon
the Optionee&#146;s death or Disability), the Optionee may
exercise his or her Option, but only within three
(3)&nbsp;months (extended to three (3)&nbsp;years for Options
granted on or after May&nbsp;27, 2004) following the date of
such termination, and only to the extent that the Optionee was
entitled to exercise it on the date of such termination (but in
no event later than the expiration of its ten (10)&nbsp;year
term). To the extent that the Optionee was not vested as to his
or her entire Option on the date of such termination, the Shares
covered by the unvested portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall
revert to the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">c)&nbsp;<I>Disability of Optionee.</I> In the
event Optionee&#146;s status as a Director terminates as a
result of Disability, the Optionee may exercise his or her
Option, but only within twelve (12)&nbsp;months following the
date of such termination (extended to three (3)&nbsp;years for
Options granted on or after May&nbsp;27, 2004), and only to the
extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration
of its ten (10)&nbsp;year term). To the extent that the Optionee
was not vested as to his or her entire Option on the date of
termination, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">d)&nbsp;<I>Death of Optionee.</I> In the event of
an Optionee&#146;s death, the Optionee&#146;s estate or a person
who acquired the right to exercise the Option by bequest or
inheritance may exercise the Option, but only within twelve
(12)&nbsp;months following the date of death (extended to three
(3)&nbsp;years for Options granted on or after May&nbsp;27,
2004), and only to the extent that the Optionee was entitled to
exercise it on the date of death (but in no event later than the
expiration of its ten (10)&nbsp;year term). To the extent that
the Optionee was not vested as to his or her entire Option on
the date of death, the Shares covered by the unvested portion of
the Option shall revert to the Plan. To the extent that the
Optionee&#146;s estate or a person who acquired the right to
exercise such Option does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein,
the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">9)&nbsp;<I>Non-Transferability of Options.</I>
The Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">10)&nbsp;<I>Adjustments Upon Changes in
Capitalization, Dissolution, Merger or Change-in-Control.</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">a)&nbsp;<I>Changes in Capitalization.</I> Subject
to any required action by the stockholders of the Company, the
number of Shares covered by each outstanding Option, the number
of Shares which have been authorized for issuance under the Plan
but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share covered by each such
outstanding Option, and the number of Shares issuable pursuant
to the automatic grant provisions of Section&nbsp;4 hereof shall
be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the
number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion
of any convertible securities of the Company shall not be deemed
to have been &#147;effected without receipt of
consideration.&#148; Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an Option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">b)&nbsp;<I>Dissolution or Liquidation.</I> In the
event of the proposed dissolution or liquidation of the Company,
to the extent that an Option has not been previously exercised,
it shall terminate immediately prior to the consummation of such
proposed action.
</FONT>

<P align="center"><FONT size="2">63
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">c)&nbsp;<I>Merger or Change-in-Control.</I> In
the event of a merger of the Company with or into another
corporation or a Change-in-Control of the Company, outstanding
Options may be assumed or equivalent options may be substituted
by the successor corporation or a Parent or Subsidiary thereof
(the &#147;Successor Corporation&#148;). If an option is assumed
or substituted for, the Option or equivalent option shall
continue to be exercisable as provided in Section&nbsp;4 hereof
for so long as the Optionee serves as a Director or a director
of the Successor Corporation. In addition, whether or not the
Successor Corporation assumes an outstanding option or
substitutes for it an equivalent option, immediately upon a
Change-in-Control each Option or option shall become fully
vested and exercisable, including as to Shares for which it
would not otherwise be exercisable. Thereafter, the Option or
option shall remain exercisable in accordance with
Section&nbsp;8(b) through (d)&nbsp;above.
</FONT>

<P align="left">
<FONT size="2">For the purposes of this Section&nbsp;10(c), an
Option shall be considered assumed if, following the merger or
Change-in-Control, the Option confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or Change-in-Control, the
consideration (whether stock, cash, or other securities or
property) received in the merger or Change-in-Control by holders
of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders
of a majority of the outstanding Shares). If such consideration
received in the merger or Change-in-Control is not solely common
stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon
the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value
to the per share consideration received by holders of Common
Stock in the merger or Change-in-Control.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">11)&nbsp;<I>Amendment and Termination of the
Plan; No Repricing.</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">a)&nbsp;<I>Amendment and Termination.</I> The
Board may at any time amend, alter, suspend, or discontinue the
Plan, but no amendment, alteration, suspension, or
discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or
her consent. In addition, to the extent necessary and desirable
to comply with any applicable law, regulation or stock exchange
rule, the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">b)&nbsp;<I>Effect of Amendment or
Termination.</I> Any such amendment or termination of the Plan
shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been
amended or terminated.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">c)&nbsp;<I>No Repricing.</I> The exercise price
for an Option may not be reduced without the consent of the
Company&#146;s stockholders. This shall include, without
limitation, a repricing of the Option as well as an option
exchange program whereby the Participant agrees to cancel an
existing Option in exchange for another award.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">12)&nbsp;<I>Time of Granting Options.</I> The
date of grant of an Option shall, for all purposes, be the date
determined in accordance with Section&nbsp;4 hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">13)&nbsp;<I>Conditions Upon Issuance of
Shares.</I> Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, state securities
laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such
compliance.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a condition to the exercise of an Option, the
Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.
</FONT>

<P align="center"><FONT size="2">64
</FONT>

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<P align="left">
<FONT size="2">Inability of the Company to obtain authority from
any regulatory body having jurisdiction, which authority is
deemed by the Company&#146;s counsel to be necessary to the
lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue
or sell such Shares as to which such requisite authority shall
not have been obtained.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">14)&nbsp;<I>Reservation of Shares.</I> The
Company, during the term of this Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient
to satisfy the requirements of the Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">15)&nbsp;<I>Option Agreement.</I> Options shall
be evidenced by written option agreements in such form as the
Board shall approve.
</FONT>

<P align="center"><FONT size="2">65
</FONT>

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<!-- link1 "<FONT size="2">EXHIBIT&nbsp;4</FONT>" -->
<DIV align="left"><A NAME="011"></A></DIV>
<P align="right">
<FONT size="2">EXHIBIT&nbsp;4
</FONT>

<P align="center">
<FONT size="2">HARMONIC INC.
</FONT>

<P align="center">
<FONT size="2">BOARD OF DIRECTORS AUDIT COMMITTEE CHARTER
</FONT>

<P align="center">
<FONT size="2">(as revised April 2004)
</FONT>

<P align="left">
<FONT size="2">PURPOSE:
</FONT>

<P align="left">
<FONT size="2">The purpose of the Audit Committee of the Board
of Directors of Harmonic Inc. (the &#147;Company&#148;) shall be:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">To assist the board of directors in overseeing:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#150;</FONT></TD>
    <TD align="left">
    <FONT size="2">The Company&#146;s internal control over
    financial reporting;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#150;</FONT></TD>
    <TD align="left">
    <FONT size="2">The integrity of the Company&#146;s consolidated
    financial statements;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#150;</FONT></TD>
    <TD align="left">
    <FONT size="2">The Company&#146;s compliance with legal and
    regulatory requirements.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">To provide the Company&#146;s board of directors
    with the results of its oversight and recommendations derived
    therefrom;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">To prepare the report that the rules and
    regulations of the Securities and Exchange Commission (the
    &#147;SEC&#148;) require be included in the Company&#146;s
    annual proxy statement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">To outline to the board of directors improvements
    made, or to be made, in internal control over financial
    reporting;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">To appoint independent auditors to audit the
    Company&#146;s consolidated financial statements and oversee the
    activities, qualifications, performance and independence of the
    auditors;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">To provide to the board of directors such
    additional information and materials as it may deem necessary to
    make the board of directors aware of significant financial
    matters that require the attention of the board of directors.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The Audit Committee will undertake those specific
duties and responsibilities listed below and such other duties
as the board of directors may from time to time prescribe.
</FONT>

<P align="left">
<FONT size="2">MEMBERSHIP
</FONT>

<P align="left">
<FONT size="2">The Audit Committee members will be appointed by,
and will serve at the discretion of, the board of directors and
will consist of at least three members of the board of
directors. The members will meet the following criteria:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Each member will be an independent director, as
    defined in (i)&nbsp;Nasdaq Rule&nbsp;4200 and
    (ii)&nbsp;Section&nbsp;10A(m)(3) of the Securities Exchange Act
    of 1934, as amended, and (iii)&nbsp;the rules and regulations of
    the SEC (the &#147;SEC Rules&#148;);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Each member will be able to read and understand
    fundamental financial statements, in accordance with the Nasdaq
    National Market Audit Committee requirements;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">At least one member will qualify as an audit
    committee financial expert under Nasdaq and SEC Rules and
    regulations.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">66
</FONT>

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<P align="left">
<FONT size="2">Notwithstanding the foregoing, one director who
meets the independence standards set forth under the applicable
SEC Rules, but who does not meet all of the standards set forth
under Nasdaq Rule&nbsp;4200, may serve on the Audit Committee
for a limited time in compliance with applicable Nasdaq rules.
</FONT>

<P align="left">
<FONT size="2">RESPONSIBILITIES
</FONT>

<P align="left">
<FONT size="2">The responsibilities of the Audit Committee shall
include:
</FONT>

<P align="left">
<I><FONT size="2">Engagement and Oversight of Independent
Auditors:</FONT></I>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Exercising its sole authority to appoint or
    replace the Company&#146;s independent auditors (subject, if
    applicable, to stockholder ratification);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Reviewing fee arrangements with the independent
    auditors, including pre-approving audit and non-audit services
    provided to the Company by the independent auditors and
    subsequently approving non-audit services in those circumstances
    where a subsequent approval is necessary and permissible; in
    this regard:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="2%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the Audit Committee shall have the sole authority
    to approve all audit engagement fees and terms and all non-audit
    engagements with the independent auditors, to the extent such
    engagements are permissible under the SEC Rules and the rules of
    Nasdaq;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the Audit Committee may elect to form and
    delegate authority to subcommittees consisting of one or more
    members, when appropriate, including the authority to grant
    pre-approvals of audit and permitted non-audit services,
    provided that decisions of such subcommittee to grant
    pre-approvals shall be presented to the full Audit Committee at
    its next scheduled meeting;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the Audit Committee may establish pre-approval
    policies and procedures that are detailed as to the particular
    services, provided the Audit Committee is informed of each
    service and such policies and procedures do not include a
    delegation of the Audit Committee&#146;s responsibilities under
    the Securities Exchange Act of 1934 to management;
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Reviewing the independent auditors&#146; proposed
    audit scope and approach;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Providing for appropriate funding, as determined
    by the Audit Committee, for payment of compensation to the
    independent auditor for the purpose of rendering or issuing an
    audit report and to any advisors employed by the Audit Committee;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Discussing with the independent auditors, before
    filing with the SEC, the Company&#146;s interim consolidated
    financial statements and the related disclosures included in
    Quarterly Reports on Form&nbsp;10-Q, including the results of
    the independent auditors&#146; reviews of the quarterly
    consolidated financial statements in accordance with
    professional standards and procedures for conducting such
    reviews;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Discussing with the independent auditors, before
    filing with the SEC, the audited consolidated financial
    statements and Management Discussion and Analysis of Financial
    Condition and Results of Operations included in the Annual
    Report on Form&nbsp;10-K;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Overseeing (i)&nbsp;the Company&#146;s
    relationship with its independent auditors, including their
    activities with respect to the Company&#146;s financial
    reporting process and the Company&#146;s internal control over
    financial reporting; (ii)&nbsp;the
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">67
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <FONT size="2">independence of the independent auditors; and
    (iii)&nbsp;compliance with SEC Rules for disclosure of
    auditors&#146; services. This oversight will include:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="2%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Requiring the independent auditors to deliver to
    the Audit Committee on a periodic basis a formal written
    statement delineating all relationships between the auditor and
    the Company, consistent with Independent Standards Board
    Standard No.&nbsp;1, and engaging in a dialogue with the
    auditors with respect to any disclosed relationships or services
    that may impact the objectivity and independence of the auditors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">actively engaging in dialogue with the
    independent auditors with respect to any disclosed relationships
    or services that may impact the objectivity and independence of
    the independent auditors and recommending that the board of
    directors take appropriate action to satisfy itself with regard
    to the auditors&#146; independence;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">discussing with the independent auditors the
    consolidated financial statements and audit findings, including
    any significant adjustments; management judgments and accounting
    estimates; significant new accounting policies; disagreements
    with management; any other matters described in Statement of
    Accounting Standards (&#147;SAS&#148;) No.&nbsp;61, as modified
    or supplemented; all critical accounting policies and practices
    used or to be used; all alternative treatments within generally
    accepted accounting principles (&#147;GAAP&#148;) for policies
    and practices related to material items that have been discussed
    with management (including the ramifications of the use of such
    alternative disclosures and treatments and the treatment
    preferred by the independent auditors); all material written
    communications between the independent auditors and the Company,
    such as any management letter or schedule of unadjusted
    differences; and any other suggestions for improvements provided
    to management by the independent auditors;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">discussing with the independent auditors any
    reports submitted to the Audit Committee by the independent
    auditors in accordance with applicable SEC requirements,
    including any attestation report on management&#146;s assessment
    of internal control over financial reporting; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#150;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">discussing with the independent auditors any
    significant matters regarding internal control over financial
    reporting that came to the independent auditors&#146; attention
    during the conduct of their audit;
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<I><FONT size="2">Review of Financial Disclosures,&nbsp;Internal
Control Over Financial Reporting, Disclosure Controls and
Procedures, Accounting Policies and Related Matters</FONT></I>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Overseeing management&#146;s activities with
    respect to the Company&#146;s financial reporting process;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Discussing with management, before filing with
    the SEC, the Company&#146;s interim consolidated financial
    statements and the related Management Discussion and Analysis of
    Financial Condition and Results of Operations included in
    Quarterly Reports on Form&nbsp;10-Q;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Discussing with management, before filing with
    the SEC, and recommending to the board of directors for
    inclusion in the Company&#146;s Annual Report on Form&nbsp;10-K,
    the audited consolidated financial statements and Management
    Discussion and Analysis of Financial Condition and Results of
    Operations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Discussing with management on a continuing basis
    the adequacy of the Company&#146;s system of internal control
    over financial reporting and the Company&#146;s disclosure
    controls and procedures, including (i)&nbsp;meeting periodically
    with the Company&#146;s management to review the adequacy of
    such internal control over financial reporting and disclosure
    controls and procedures and (ii)&nbsp;discussing with management
    before release the disclosure regarding such system of internal
    control over financial reporting and disclosure controls and
    procedures required under SEC rules to be contained in the
    Company&#146;s periodic filings;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">68
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Discussing with management and the independent
    auditors, before release, the unaudited quarterly operating
    results in the Company&#146;s quarterly earnings release as well
    as the annual results included in the Company&#146;s year-end
    earnings release;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Discussing with management such accounting
    policies and practices (and changes therein) of the Company as
    are deemed appropriate for review by the Audit Committee prior
    to any interim or year-end filings with the SEC or other
    regulatory body;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Discussing with management the selection,
    application and disclosure of the Company&#146;s critical
    accounting policies and practices, including an analysis of the
    effect of alternative treatments within GAAP for policies and
    practices relating to material items;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Reviewing with management and the independent
    auditors the effect of regulatory and accounting initiatives
    that, in the Audit Committee&#146;s judgment, may have a
    material effect on the Company&#146;s consolidated financial
    statements;
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<I><FONT size="2">Reporting to the Board, General Compliance and
Related Matters</FONT></I>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Providing a report in the Company&#146;s proxy
    statement in accordance with the requirements of Item&nbsp;306
    of Regulation&nbsp;S-K and Item&nbsp;7(d)(3) of
    Schedule&nbsp;14A;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Reviewing the Audit Committee&#146;s own
    structure, processes and membership requirements and overseeing
    compliance with the requirements of the SEC for disclosure of
    audit committee members, member qualifications and activities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Reporting at least quarterly to the board of
    directors regarding fulfillment of the Audit Committee&#146;s
    responsibilities and such other matters that the Audit Committee
    deems appropriate to report to the board of directors or as
    requested by the board of directors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Securing independent expert advice, including
    retaining independent counsel, accountants, consultants or
    others, to assist the Audit Committee in fulfilling its duties
    and responsibilities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">If necessary, instituting special investigations
    with full access to all books, records, facilities and personnel
    of the Company and, if appropriate, hiring special counsel or
    other experts to assist in such investigations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Discussing with management and (when appropriate)
    counsel, when necessary, any legal matters generally, including
    those that could have a significant impact on the Company&#146;s
    consolidated financial statements;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Reviewing proposed related party transactions for
    potential conflicts of interest and approving all such
    transactions in advance;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Establishing and maintaining free and open means
    of communication between and among the board of directors, the
    Audit Committee, the Company&#146;s independent auditors and
    management, including providing such parties with appropriate
    opportunities to meet privately with the Audit Committee;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Providing oversight and review of the
    Company&#146;s investment policies;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Overseeing compliance by the Company&#146;s chief
    executive officer and senior financial officers with the Code of
    Ethics for Principal Executive and Senior Financial Officers, as
    adopted by the Company;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Overseeing compliance by the Company&#146;s
    employees with Code of Business Conduct and Ethics, as adopted
    or to be adopted by the Company;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">69
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Establishing procedures for receiving, retaining
    and treating complaints received by the Company regarding its
    practices and procedures for the confidential, anonymous
    submission by employees of concerns regarding questionable
    practices (including with respect to accounting or auditing
    matters);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Overseeing management&#146;s monitoring of
    compliance with the Foreign Corrupt Practices Act;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"> &#149; </FONT></TD>
    <TD align="left">
    <FONT size="2">Performing such other duties as may be requested
    or delegated by the board of directors.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">While the Audit Committee has the
responsibilities and powers set forth in this Charter, the
Company&#146;s financial statements are the responsibility of
management and the independent auditors are responsible for
planning and conducting audits to determine whether the
Company&#146;s consolidated financial statements present fairly
in all material respects the financial position of the Company.
</FONT>

<P align="left">
<FONT size="2">MEETINGS
</FONT>

<P align="left">
<FONT size="2">The Audit Committee will meet as often as it
determines, but not less frequently than once quarterly. The
Audit Committee, in its discretion, will ask members of
management or others to attend its meetings (or portions
thereof) and to provide pertinent information as necessary. The
Audit Committee will meet separately with the Chief Executive
Officer and separately with the Chief Financial Officer of the
Company at such times as it deems appropriate in order to review
the financial affairs of the Company. The Audit Committee will
meet periodically in separate executive session with the
independent auditors at such times as it deems appropriate in
order to fulfill the responsibilities of the Audit Committee
under this charter.
</FONT>

<P align="left">
<FONT size="2">MINUTES
</FONT>

<P align="left">
<FONT size="2">The Audit Committee will maintain written minutes
of its formal meetings, which minutes will be filed with the
minutes of the meetings of the Board of Directors.
</FONT>

<P align="left">
<FONT size="2">REPORTS
</FONT>

<P align="left">
<FONT size="2">Apart from the report prepared pursuant to
Item&nbsp;306 of Regulation&nbsp;S-K and Item&nbsp;7(d)(3) of
Schedule&nbsp;14A, the Audit Committee will summarize its
examinations and recommendations to the board of directors in
written form from time to time as the Audit Committee deems
appropriate, consistent with the Audit Committee&#146;s charter.
</FONT>

<P align="center"><FONT size="2">70
</FONT>
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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 14pt" cellspacing="0" border="0" cellpadding="0" width="100%">

<!-- Begin Table Head --><TR valign="bottom">
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
</TR>

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<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top"><B>PROXY</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>HARMONIC INC.</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>&nbsp;</B></TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">549 Baltic Way<BR>
Sunnyvale, CA 94089<BR>
PROXY FOR AN ANNUAL MEETING OF STOCKHOLDERS<BR>
May&nbsp;27, 2004



<P align="center" style="font-size: 10pt"><B>THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS</B>



<P align="justify" style="margin-left:10%; margin-right:10%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby appoints Anthony J. Ley and Robin N. Dickson, and
each or either of them, as Proxies of the undersigned, with full power of
substitution, and hereby authorizes them to represent and to vote, as
designated on the reverse side, all of the shares of common stock of Harmonic
Inc., held of record by the undersigned on April&nbsp;7, 2004 at the Annual Meeting
of Stockholders of Harmonic Inc. to be held at The Westin Santa Clara Hotel,
5101 Great America Parkway, Santa Clara, California, on May&nbsp;27, 2004, at 8:00
a.m. Pacific Time, or at any adjournment thereof.


<P align="justify" style="margin-left:10%; margin-right:10%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting and Proxy Statement, dated April&nbsp;21, 2004, and a copy of the Company&#146;s
2003 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March&nbsp;9, 2004. The undersigned hereby expressly revokes any and
all proxies heretofore given or executed by the undersigned with respect to the
shares of stock represented by this proxy and, by filing this proxy with the
Secretary of the Company, gives notice of such revocation.


<P align="center" style="font-size: 10pt"><B>(Continued and to be marked, dated and signed on other side)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">

<!-- Begin Table Head --><TR valign="bottom">
    <TD width="100%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="100%">&nbsp;</TD>
</TR>

<!-- End Table Head -->

<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><B>Address Change/Comments </B><FONT style="font-size:8pt"><B>(Mark the corresponding box on the reverse side)</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><HR size="1" noshade></TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><HR size="1" color="#000000">


<DIV align="center" style="font-size: 10pt">&#9650; <FONT style="font-size:9pt"><B>FOLD AND DETACH HERE</B></FONT> &#9650;</DIV>



<P align="center" style="font-size: 18pt"><B><I>You can now access your Harmonic Inc. account online.</I></B>



<P align="justify" style="margin-left:3%; margin-right:3%; font-size: 10pt">Access your Harmonic Inc. stockholder account online via Investor
ServiceDirectSM (ISD).


<P align="justify" style="margin-left:3%; margin-right:3%; font-size: 10pt">Mellon Investor Services LLC, agent for Harmonic Inc., now makes it easy and
convenient to get current information on your stockholder account. After a
simple and secure process of establishing a Personal Identification Number
(PIN), you are ready to log in and access your account to:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="70%">

<!-- Begin Table Head --><TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>

<!-- End Table Head -->

<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#149; View account status
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#149; Make address changes</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#149; View certificate history
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#149; Obtain a duplicate 1099 tax form</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#149; View book-entry information
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#149; Establish/change your PIN</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B><I>Visit us on the web at http://www.melloninvestor.com</I></B>



<P align="center" style="font-size: 12pt"><B><I>For Technical Assistance Call 1-877-978-7778 between 9am-7pm<BR>
Monday-Friday Eastern Time</I></B>



<P align="center" style="font-size: 12pt"><B><I>Investor ServiceDirect&#174; is a registered trademark of Mellon Investor Services LLC</I></B>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>
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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">

<!-- Begin Table Head --><TR valign="bottom">
    <TD width="75%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<!-- End Table Head -->

<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>THIS PROXY WILL BE VOTED AS SPECIFIED HEREON. THIS PROXY WILL BE VOTED FOR
PROPOSAL NOS. 1, 2, 3, 4, AND 5 IF NO SPECIFICATION IS MADE. THIS PROXY WILL BE
VOTED BY THE APPLICABLE PROXIES IN THEIR DISCRETION ON OTHER BUSINESS THAT
COMES BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mark Here<br>
for Address<br>
Change or<br>
Comments
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>PLEASE SEE REVERSE SIDE</B></TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P><DIV style="position: relative; float: left; margin-right: 1%; width: 48%">
<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">

<!-- Begin Table Head --><TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>

<!-- End Table Head -->

<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><B>The Board of Directors of Harmonic Inc. recommends a
vote FOR Proposal Nos. 1, 2, 3, 4, and 5.</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center">FOR</TD>
    <TD>&nbsp;</TD>
    <TD align="center">WITHHELD<BR>
FOR ALL</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">1.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">To elect the following
directors to serve for
the ensuing year or until
their successors are
elected and duly
qualified.
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">01 Anthony J. Ley</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">02 E. Floyd Kvamme</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">03 William F. Reddersen</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">04 Lewis Solomon</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">05 Michel L. Vaillaud</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">06 David R. Van Valkenburg</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="9" valign="top" align="left">To withhold authority to vote for a particular nominee or nominees, write the name(s) of such nominee(s) here:</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="9" valign="top" align="left"><HR size="1" noshade width="50%" align="left"></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">AGAINST
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">ABSTAIN</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">To approve an amendment
to the 2002 Employee
Stock Purchase Plan to
increase the number of
shares of common stock
reserved for issuance
thereunder by 2,000,000
shares.
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">WILL ATTEND</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><B>If you plan to attend the Annual Meeting,
please mark the WILL&nbsp;ATTEND box</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>


</DIV>

<DIV style="position: relative; float: right; margin-left: 1%; width: 48%">
<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">

<!-- Begin Table Head --><TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>

<!-- End Table Head -->

<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;<br>
&nbsp;<br>
FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="center">AGAINST
</TD>
    <TD>&nbsp;</TD>
    <TD align="center">ABSTAIN</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">To approve amendments to the 1995 Stock Plan to: (i)
extend the term of the Plan by 9&nbsp;years to 2014, (ii)&nbsp;to
increase the number of shares of common stock reserved
for issuance by 2,500,000 shares, (iii)&nbsp;to transfer to
the 1995 Stock Plan all shares remaining available for
grant in the 1999 Non-Statutory Stock Plan including up
to 1,800,000 shares subject to outstanding options if
they expire, (iv)&nbsp;to add the ability to grant
restricted stock, stock appreciation rights,
performance shares, performance units and deferred
stock units (subject to limits on discounted awards),
and (v)&nbsp;to approve the material terms of the 1995 Plan
and the performance goals thereunder for purposes of
Internal Revenue Code Section&nbsp;162(m).
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">To approve amendments to the 2002 Director Plan to
increase the initial grant to 30,000 shares, to
authorize a one-time grant of 10,000 shares to each
non-employee director re-elected at this annual
meeting, and to extend the exercisability period of all
new options granted under this plan to three years
following a director&#146;s resignation from the board.
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">5.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">To ratify the appointment of PricewaterhouseCoopers LLP
as independent auditors of the Company for the fiscal
year ending December&nbsp;31, 2004.
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-size:24pt"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>


</DIV>
<BR clear="all"><BR>

<P align="left" style="font-size: 8pt"><B>&nbsp;</B>


<P align="left" style="font-size: 8pt"><B>PLEASE COMPLETE, SIGN AND DATE THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">

<!-- Begin Table Head --><TR valign="bottom">
    <TD width="9%"></TD>
    <TD width="1%"></TD>
    <TD width="27%"></TD>
    <TD width="1%"></TD>
    <TD width="9%"></TD>
    <TD width="1%"></TD>
    <TD width="27%"></TD>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="16%"></TD>
</TR>

<!-- End Table Head -->

<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top"><B>Signature</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Signature</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><HR size="1" noshade>&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><HR size="1" noshade>&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 8pt">Please sign exactly as your name(s) is (are)&nbsp;shown on the share certificate to
which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as an attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
</DIV>


<P align="center" style="font-size: 10pt"><HR size="1" color="#000000">


<DIV align="center" style="font-size: 10pt">&#9650; <FONT style="font-size:8pt"><B>FOLD AND DETACH HERE</B></FONT> &#9650;</DIV>



<P align="center" style="font-size: 16pt"><B>Vote by Internet or Telephone or Mail</B>


<DIV align="center" style="font-size: 14pt"><B>24 Hours a Day, 7 Days a Week</B></DIV>



<P align="center" style="font-size: 12pt"><B>Internet and telephone voting is available through 4 PM EST<BR>
the day prior to annual meeting day.</B>



<P align="center" style="font-size: 12pt"><B>Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.</B>



<P><DIV style="position: relative; float: left; margin-right: 1%; width: 30%">

<P align="center" style="font-size: 10pt"><B>Internet<BR>
http://www.eproxy.com/hlit</B>



<P align="left" style="font-size: 9pt">Use the Internet to vote your proxy. Have your proxy card in hand when you
access the web site. You will be prompted to enter your control number, located
in the box below, to create and submit an electronic ballot.

</DIV>

<DIV style="position: relative; float: left; margin: 0% 1%; width: 2%">

<P align="center" style="font-size: 10pt">&nbsp;



<P align="center" style="font-size: 10pt">&nbsp;



<P align="center" style="font-size: 10pt"><B>OR</B>


</DIV>

<DIV style="position: relative; float: left; margin: 0% 1%; width: 30%">

<P align="center" style="font-size: 10pt"><B>Telephone<BR>
1-800-435-6710</B>



<P align="left" style="font-size: 9pt">Use any touch-tone telephone to vote your proxy. Have your proxy card in hand
when you call. You will be prompted to enter your control number, located in
the box below, and then follow the directions given.

</DIV>

<DIV style="position: relative; float: left; margin: 0% 1%; width: 2%">

<P align="center" style="font-size: 10pt">&nbsp;



<P align="center" style="font-size: 10pt">&nbsp;



<P align="center" style="font-size: 10pt"><B>OR</B>


</DIV>

<DIV style="position: relative; float: right; margin-left: 1%; width: 26%">

<P align="center" style="font-size: 10pt"><B>Mail</B>



<P align="center" style="font-size: 9pt">Mark, sign and date<BR>
your proxy card<BR>
and<BR>
return it in the<BR>
enclosed postage-paid<BR>
envelope.


</DIV>
<BR clear="all"><BR>

<P align="center" style="font-size: 13pt"><B>If you vote your proxy by Internet or by telephone,<BR>
you do NOT need to mail back your proxy card.</B>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


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