<SUBMISSION>
<ACCESSION-NUMBER>0000950134-06-010561
<TYPE>DEF 14A
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20060628
<FILING-DATE>20060524
<DATE-OF-FILING-DATE-CHANGE>20060524
<EFFECTIVENESS-DATE>20060524
<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>06864384
</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>f18345dedef14a.htm
<DESCRIPTION>DEFINITIVE PROXY STATEMENT
<TEXT>
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<TITLE>def14a</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><font size="2"><B>UNITED STATES<BR>SECURITIES AND EXCHANGE COMMISSION<BR>
Washington, D.C. 20549</B>
</font>

<P align="center"><FONT size="2"><B>SCHEDULE 14A</B>
</FONT>


<P align="center"><FONT size="2">Proxy Statement Pursuant to Section 14(a) of the Securities<BR>
Exchange Act of 1934 (Amendment No.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;)
</FONT>

<P>
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<!-- TO GET A CHECK BOX, USE &#254 -->

<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">Filed by the Registrant
&nbsp;&nbsp;<FONT face="wingdings">&#254;</FONT></FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">Filed by a Party other than the Registrant &nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT></FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>



<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">Check the appropriate box:</FONT></TD>
</TR>
</TABLE>
<p>
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<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
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<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Preliminary Proxy Statement</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

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

<TD><FONT size="2"><FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp; Definitive Proxy Statement</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Definitive Additional Materials</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;
Soliciting Material Pursuant to &#167;240.14a-12</FONT></TD>
</TR>
</TABLE>
<P>

<DIV align="center"><FONT size="5">HARMONIC INC.<HR size="1"></FONT>
<DIV align="center"><FONT size="2">(Name of Registrant as Specified In Its Charter)
</FONT></DIV></DIV>



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

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

<P>
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<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp; No fee required.</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;
Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(1)
and 0-11.</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>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1)&nbsp;Title of each class of securities to which transaction applies:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2)&nbsp;Aggregate number of securities to which transaction applies:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3)&nbsp;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>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4)&nbsp;Proposed maximum aggregate value of transaction:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5)&nbsp;Total fee paid:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Fee paid previously with preliminary materials.</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; 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>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1)&nbsp;Amount Previously Paid:</FONT></TD>
</TR>
</TABLE>
<HR size="1">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2)&nbsp;Form, Schedule or Registration Statement No.:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3)&nbsp;Filing Party:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4)&nbsp;Date Filed:</FONT></TD>
</TR>
</TABLE>
<HR size="1">

<p>
<center>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="20%"></TD>
        <TD width="80%"></TD>
</TR>
<TR valign="top">
        <TD valign="bottom"><font size="2">SEC 1913 (11-01)</font></TD>
        <TD><font size="2"><b>Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number.</b></font></TD>
</TR>
</TABLE>
</center>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<FONT face="helvetica,arial">

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>HARMONIC INC.</B>
</DIV>

<DIV align="center" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 45%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTICE OF ANNUAL MEETING OF STOCKHOLDERS</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>To be held on June&nbsp;28, 2006</B>
</DIV>

<DIV align="center" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 45%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>TO THE STOCKHOLDERS OF HARMONIC INC.:</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTICE IS HEREBY GIVEN </B>that the Annual Meeting of
Stockholders of Harmonic Inc., a Delaware corporation (the
&#147;Company&#148;), will be held on Wednesday, June&nbsp;28,
2006 at 8:00 <FONT style="font-variant:SMALL-CAPS">a.m
</FONT>., Pacific Time, at The Hyatt Regency&nbsp;&#150;
Santa&nbsp;Clara Hotel, 5101 Great America Parkway,
Santa&nbsp;Clara, California, 95054, for the following purposes:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.</TD>
    <TD align="left">
    To elect seven directors to serve until the 2007 Annual
    Stockholders Meeting or until their successors are elected and
    duly qualified.</TD>
</TR>

<TR valign="top">
    <TD>2.</TD>
    <TD align="left">
    To approve amendments to the 2002 Employee Stock Purchase Plan
    to reduce the term of future Offering Periods to six
    (6)&nbsp;months and increase the number of shares of common
    stock available for issuance thereunder by 2,000,000&nbsp;shares.</TD>
</TR>

<TR valign="top">
    <TD>3.</TD>
    <TD align="left">
    To approve amendments to the 2002&nbsp;Director Option Plan to
    increase the maximum number of shares which may become subject
    to options and sold under the Plan by an additional
    300,000&nbsp;shares and reduce the term of future options
    granted under the Plan to seven (7)&nbsp;years.</TD>
</TR>

<TR valign="top">
    <TD>4.</TD>
    <TD align="left">
    To ratify the appointment of PricewaterhouseCoopers LLP as the
    independent registered public accounting firm of the Company for
    the fiscal year ending December&nbsp;31, 2006.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The foregoing items of business are more fully described in the
Proxy Statement accompanying this notice.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Only stockholders of record at the close of business on
May&nbsp;1, 2006 are entitled to notice of and to vote at the
meeting and any adjournment thereof.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 on the proxy card. Any stockholder of
record attending the meeting may vote in person even if such
stockholder has returned a proxy.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

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

<TR>
    <TD style="font-size: 12.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="f18345def1834522.gif" alt="-s- Jeffrey D. Saper"></TD>
</TR>

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

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

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Sunnyvale, California
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
May&nbsp;24, 2006
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 30pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>YOUR VOTE IS IMPORTANT</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>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 on the
proxy card.</B>
</DIV>

</FONT>
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<!-- 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">PROXY STATEMENT</A></TD></TR>
<TR><TD colspan="9"><A HREF="#001">PROPOSAL ONE ELECTION OF DIRECTORS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#002">PROPOSAL TWO APPROVAL OF THE AMENDED 2002 EMPLOYEE STOCK PURCHASE PLAN</A></TD></TR>
<TR><TD colspan="9"><A HREF="#003">PROPOSAL THREE AMENDMENTS TO THE 2002 DIRECTOR OPTION PLAN</A></TD></TR>
<TR><TD colspan="9"><A HREF="#004">PROPOSAL FOUR RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></TD></TR>
<TR><TD colspan="9"><A HREF="#005">ADDITIONAL INFORMATION</A></TD></TR>
</TABLE>
</CENTER>
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<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>HARMONIC INC.</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>549 Baltic Way</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>Sunnyvale, California 94089</B>
</DIV>

<DIV align="center" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 45%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<!-- link1 "PROXY STATEMENT" -->
<DIV align="left"><A NAME="000"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>PROXY STATEMENT</B>
</DIV>

<DIV align="center" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 45%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>INFORMATION CONCERNING SOLICITATION AND VOTING</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>General</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The enclosed proxy is solicited on behalf of the Board of
Directors of Harmonic Inc., a Delaware corporation
(&#147;Harmonic&#148; or the &#147;Company&#148;), for use at
the Annual Meeting of Stockholders (the &#147;Annual
Meeting&#148;) to be held June&nbsp;28, 2006 at 8:00
<FONT style="font-variant:SMALL-CAPS">a.m
</FONT>., 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 Hyatt Regency&nbsp;&#150;
Santa&nbsp;Clara Hotel, 5101 Great America Parkway,
Santa&nbsp;Clara, California, 95054. The telephone number of the
Company&#146;s principal offices is (408)&nbsp;542-2500.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
These proxy materials and the Company&#146;s Annual Report to
Stockholders for the year ended December&nbsp;31, 2005,
including financial statements, were first mailed on or about
May&nbsp;24, 2006 to all stockholders entitled to vote at the
Annual Meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Record Date and Voting Securities</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Stockholders of record at the close of business on May&nbsp;1
(the &#147;Record Date&#148;) are entitled to notice of and to
vote at the Annual Meeting. At the Record Date,
74,168,674&nbsp;shares of the Company&#146;s common stock,
$0.001&nbsp;par value per share, were issued and outstanding.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Revocability of Proxies</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Voting and Solicitation</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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.
</DIV>

</FONT>

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<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">1
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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Quorum; Abstentions; Broker Non-Votes</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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&nbsp;Cast&#148;) with respect to such matter.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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&nbsp;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 on a given proposal will
have the same effect as a vote against the proposal, but will
not affect the election of directors.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Stockholder Proposal&nbsp;Procedures and Deadlines</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company&#146;s 2007 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
Baltic Way, Sunnyvale, California 94089 no later than
January&nbsp;25, 2007, which is 120 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 2007 Annual
Meeting is April&nbsp;10, 2007, 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 2007 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 Securities and Exchange Act of 1934.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Multiple Stockholders Sharing One Address</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In some instances, we may deliver to multiple stockholders
sharing a common address only one copy of this proxy statement
and its attachments. If requested in writing, we will promptly
provide a separate copy of the proxy statement and its
attachments to a stockholder sharing an address with another
stockholder. Requests should be directed to our Corporate
Secretary to Harmonic Inc., Attention: Corporate Secretary, 549
Baltic Way, Sunnyvale, CA 94089. Stockholders sharing an address
who currently receive multiple copies and wish to receive only a
single copy should contact their broker or send a signed,
written request to us at the address above.
</DIV>

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<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;ONE</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>ELECTION OF DIRECTORS</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Nominees</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company has authorized a board of seven directors, and seven
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 2007 or until such
director&#146;s successor has been duly elected and qualified.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Unless otherwise instructed, the proxy holders identified on the
enclosed proxy card will vote the proxies received by them for
the Company&#146;s seven 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The names of the nominees for director and certain information
about each of them are set forth below.
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 18pt; ">

<TR style="font-size: 1pt;">
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="center" nowrap><B><FONT face="helvetica,arial">Name</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Age</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B><FONT face="helvetica,arial">Principal Occupation</FONT></B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Anthony J. Ley
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">67</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Chairman of the Board
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Patrick J. Harshman
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">41</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Chief Executive Officer, Harmonic
    Inc.
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">E. Floyd Kvamme
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">68</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Partner Emeritus, Kleiner Perkins
    Caufield&nbsp;&#38; Byers
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">William F. Reddersen
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">58</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Retired, former Executive Vice
    President, BellSouth
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Lewis Solomon
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">72</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Chairman, G&#38;L Investments
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Michel L. Vaillaud
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">74</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Retired, former Chairman and CEO,
    Schlumberger Limited
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">David R. Van Valkenburg
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">64</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Chairman, Balfour Associates, Inc.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>
</FONT>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Anthony J. Ley </I>has served as Harmonic&#146;s Chairman of
the Board since February 1995 and has been a director since
1988. Previously Mr.&nbsp;Ley served also as President and Chief
Executive Officer from November 1988 until May&nbsp;4, 2006.
From 1963 to 1987, Mr.&nbsp;Ley was employed at Schlumberger
Limited both in Europe and the U.S., 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, is a Fellow of the I.E.E. (U.K.) and a senior member of
the I.E.E.E.
</DIV>

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<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Patrick J. Harshman </I>joined Harmonic in 1993 and was
appointed President and Chief Executive Officer and elected as a
director on May&nbsp;4, 2006. From December 2005 to May 2006,
Dr.&nbsp;Harshman was the Company&#146;s Executive Vice
President, with responsibility for research and development,
marketing, operations and technical services. He was President
of the Broadband Access Networks Division from January 2001
until December 2005. Prior to January 2001, Dr.&nbsp;Harshman
was Vice President of Marketing, responsible for Harmonic&#146;s
digital video and fiber optic transmission product lines.
Dr.&nbsp;Harshman received a Ph.D. in Electrical Engineering
from the University of California, Berkeley, where his graduate
research focused on nonlinear optical phenomena in optical
communication systems. He also completed an Executive Management
Program at Stanford University.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>E. Floyd Kvamme </I>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 and Power Integrations, 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>William F. Reddersen </I>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. 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Lewis Solomon </I>has been a director of the Company since
January 2002. He is Co-Founder and Chairman of G&#38;L
Investments, a consulting firm specializing in technology.
Mr.&nbsp;Solomon also co-founded and was Chief Executive Officer
of Broadband Services, Inc. (BSI), an outsource provider of
supply chain management, network planning, and fulfillment
services from 1999 to 2004. 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 Communication Systems, Inc. and
several private companies.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Michel L. Vaillaud </I>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 is a Trustee Emeritus of the Institute of
Advanced Studies in Princeton, New Jersey.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>David R. Van Valkenburg </I>has been a director of the
Company since October 2001. Mr.&nbsp;Van Valkenburg currently
serves as Chairman of Balfour Associates, Inc., a firm providing
counsel to chief executive officers, boards of directors and
private equity funds and Chairman and President of
privately-held Zero Point Corporation, a computer network
engineering company. From 1995 to 2000, he was Executive Vice
President of MediaOne Group, 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 Moscow Cablecom Corporation, 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Board Meetings and Committees</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Board of Directors of the Company held a total of ten
meetings during the fiscal year ended December&nbsp;31, 2005. No
incumbent director attended fewer than 75% of the meetings of
the Board of Directors or the committees upon which such
director served during 2005, except for Mr.&nbsp;Solomon who was
recused from four meetings.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Board of Directors has determined that Messrs.&nbsp;Kvamme,
Reddersen, Solomon, Vaillaud and Van Valkenburg are independent
and have no material relationship with the Company.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 www.harmonicinc.com.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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
registered public accounting firm 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 ten
meetings during 2005.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 compensation policies
and the compensation paid to executive officers, and approves
all grants of equity compensation to employees. The Compensation
and Equity Ownership Committee held six meetings during 2005.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Corporate Governance and Nominating 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
Corporate Governance and Nominating Committee held no meetings
in 2005. Matters within the scope of the Corporate Governance
and Nominating Committee were discussed in executive sessions at
each board meeting. See &#147;Meetings of Non-Employee
Directors.&#148;
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Corporate Governance and Nominating Committee has proposed,
and the Board of Directors has approved, the nomination of all
seven 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Identification and Evaluation of Candidates for Board
Membership</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Corporate Governance and Nominating Committee may utilize a
variety of methods to identify and evaluate candidates for
service on the Company&#146;s Board of Directors. Candidates may
come to the attention of the Corporate Governance and Nominating
Committee through current directors, management, professional
search firms, stockholders or other persons. Any candidate
presented would be evaluated at regular or special meetings of
the Corporate Governance and Nominating Committee or at
executive sessions at regular board meetings and may be
considered at any point during the year. The Corporate
Governance and Nominating Committee may take such measures that
it considers appropriate in connection with its evaluation of a
candidate, including candidate interviews, inquiry of the person
recommending the candidate or reliance on the knowledge of the
members of the Corporate Governance and Nominating Committee,
the Board of Directors or management. To date, the Corporate
Governance and Nominating
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Committee has not used outside consultants to assist it in
identifying and screening potential candidates for election to
the Board of Directors. In evaluating a candidate, the Corporate
Governance and Nominating Committee may consider a variety of
criteria. 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Nomination Proposals from Stockholders</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Corporate Governance and Nominating Committee will consider
proposals from stockholders for Board of Directors nominees at
the 2007 Annual Meeting, provided that such proposals are
submitted, in a timely manner in accordance with the
Company&#146;s bylaws, as amended, 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. For stockholder
nominations of persons for election to the Board of Directors of
the Company at the 2007 Annual Stockholder Meeting, timely
written notice of such nomination must be 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., January&nbsp;24, 2007), 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)&nbsp;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 Securities Exchange Act of 1934
(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&nbsp;Procedures and Deadlines&#148;
for a stockholder notice of business to be brought before an
annual meeting. In evaluating director 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Meetings of Non-Employee Directors</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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, Mr.&nbsp;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
corporate strategy, succession planning, and board policies,
processes and practices in executive session.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Compensation Committee Interlocks and Insider
Participation</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Compensation of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Each non-employee director is paid an annual retainer of
$20,000, plus $2,000&nbsp;per board meeting attended and
$1,000&nbsp;per board committee meeting attended. Fees of $1,000
and $500, respectively, are paid for telephonic Board of
Directors and committee meetings. In addition, the Chair of the
Audit Committee receives an annual retainer of $7,500 and the
Chairs of the Compensation and Equity Ownership Committee and
the Corporate Governance and Nominating Committee each are paid
a retainer of $4,000&nbsp;per annum (but only one retainer will
be paid if held by the same person). Maximum total board
compensation is capped at $35,000&nbsp;per annum, excluding
committee remuneration.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The 2002&nbsp;Director Option Plan currently provides for grants
of options to be made in two ways:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.&nbsp;</TD>
    <TD align="left">
    Each non-employee director is automatically granted an option to
    purchase&nbsp;30,000&nbsp;shares on the date on which such
    person first becomes a non-employee director, whether through
    election by our stockholders or 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 an option upon such occurrence;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>2.&nbsp;</TD>
    <TD align="left">
    Each non-employee director is automatically granted an option to
    purchase&nbsp;10,000&nbsp;shares 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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Communication with the Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Attendance of the Board of Directors at Annual Meetings</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
No non-employee members of the Board of Directors attended the
2005 Annual Meeting. The Board of Directors has adopted a policy
encouraging Board of Directors members to attend future annual
stockholder meetings and anticipates that certain board members
will be present at the June 28 annual shareholder meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Vote Required and Recommendation</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The seven 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING
&#147;FOR&#148; EACH OF THE DIRECTOR NOMINEES SET FORTH
ABOVE.</B>
</DIV>

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<!-- link1 "PROPOSAL TWO APPROVAL OF THE AMENDED 2002 EMPLOYEE STOCK PURCHASE PLAN" -->
<DIV align="left"><A NAME="002"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;TWO</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>APPROVAL OF THE AMENDED 2002 EMPLOYEE STOCK PURCHASE PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
This is a proposal to approve amendments to our 2002 Employee
Stock Purchase Plan (the &#147;ESPP&#148;) to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    reduce the term of future offering periods (&#147;Offering
    Periods&#148;) to six (6)&nbsp;months,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    increase the maximum number of shares of common stock available
    for issuance under the ESPP by an additional
    2,000,000&nbsp;shares.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The ESPP was initially adopted by our Board of Directors in
March 2002 and was approved by our stockholders in May 2002. An
amendment to the ESPP, adopted in May 2004, increased the
maximum number of shares available for issuance under the ESPP
by an additional 2,000,000&nbsp;shares. If this proposal is not
approved by our stockholders, the ESPP is scheduled to run out
of shares available for issuance in January 2007.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our Board of Directors approved amendments to the ESPP, subject
to obtaining stockholder approval, to reduce the term of future
Offering Periods to six (6)&nbsp;months and to increase the
number of shares of common stock available for issuance. The
ESPP is currently implemented by consecutive, overlapping
Offering Periods that are approximately twenty-four
(24)&nbsp;months in length, with a new Offering Period
commencing approximately every six (6)&nbsp;months. If this
proposal is approved by our stockholders, Offering Periods
commencing on or after January&nbsp;1, 2007, will be
approximately six (6)&nbsp;months in length, commencing
approximately every six (6)&nbsp;months on the first day on
which national securities markets (such as the Nasdaq National
Market) are open for trading on or after January 1 or July 1.
The number of shares of our common stock currently reserved for
issuance under the ESPP is 883,736. If this proposal is approved
by our stockholders, the shares available for issuance under the
ESPP for Offering Periods commencing on or after January&nbsp;1,
2007, will be increased by 2,000,000&nbsp;shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Historically, the Company was not required to record any direct
compensation expense for financial accounting purposes in
connection with the ESPP. Under new accounting rules effective
for Harmonic on January&nbsp;1, 2006, which mandate expensing
for all compensatory equity awards, including stock rights under
most employee stock purchase plans, the Company will recognize
compensation expense in connection with the ESPP. This will
result in a direct charge to the Company&#146;s reported
earnings. However, management believes that shortening the ESPP
offering period from 24 to 6&nbsp;months should reduce the
magnitude of the compensation expense recognized by the Company.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Approval of this proposal requires the affirmative vote of the
holders of a majority of the shares of our common stock that are
present in person or by proxy and entitled to vote at annual
meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our named executive officers and employee directors have an
interest in this proposal because they are eligible to
participate in the ESPP.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Purposes and Effects of the Proposal</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Encouraging employees to acquire equity ownership in the Company
assures a closer alignment of the interests of employees
participating in the ESPP with those of the Company&#146;s
stockholders. The proposed adjustments to the ESPP will enable
the Company to continue to use the ESPP as a valuable tool for
attracting and retaining key personnel and aligning the
interests of ESPP participants with those of the Company&#146;s
stockholders. The Company believes that the 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 we compete for employees.
Currently, approximately 77% of our employees participate in the
ESPP.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Description of Employee Stock Purchase Plan</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following is a summary of the principal features of the ESPP
and its operation. This summary is qualified in its entirety by
reference to the ESPP as set forth in Exhibit&nbsp;1.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Purpose.</I> The purpose of the ESPP is to provide employees
with an opportunity to purchase our common stock through payroll
deductions.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Administration.</I> The ESPP is administered by the Board of
Directors or a committee appointed by the Board of Directors.
The administrator has full and exclusive discretionary authority
to construe, interpret and apply the terms of the ESPP, and the
administrator&#146;s findings, decisions, and determinations are
final and binding upon all parties.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Eligibility.</I> Each of our employees and each employee of
our designated subsidiaries, whose customary employment with the
Company or the designated subsidiary is at least twenty
(20)&nbsp;hours per week and more than five (5)&nbsp;months in
any calendar year, is eligible to participate in the ESPP. As of
the date hereby, approximately 596 employees, including our
executive officers, were eligible to participate in the ESPP. No
employee who owns stock and/or holds outstanding options to
purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of our stock or
any of our subsidiaries may participate. Moreover, no employee
may participate to the extent that they may purchase stock under
all employee stock purchase plans of the Company and its
subsidiaries at a rate which exceeds $25,000 of fair market
value (determined on the first day of any Offering Period) in
any calendar year.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Shares Available for Issuance.</I> As of May&nbsp;1, 2006,
there are approximately 883,736&nbsp;shares of our common stock
available are available for issuance under the ESPP. If our
stockholders approve this proposal, an additional
2,000,000&nbsp;shares will become available for issuance in
Offering Periods commencing on or after January&nbsp;1, 2007.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Offering Period.</I> The ESPP currently has consecutive and
overlapping Offering Periods that begin approximately every six
(6)&nbsp;months commencing on the first trading day on or after
each January 1 and July&nbsp;1 and terminating on the first
trading day on or after July&nbsp;1 and January&nbsp;1,
approximately twenty-four (24)&nbsp;months later. Each Offering
Period includes four (4)&nbsp;six-month purchase periods. If our
stockholders approve this proposal, commencing with Offering
Periods on or after January&nbsp;1, 2007, the ESPP will have
Offering Periods that begin every six (6)&nbsp;months commencing
on the first trading day on or after each January 1 and
July&nbsp;1 and terminating on the first trading day on or after
January 1 and July&nbsp;1 approximately six (6)&nbsp;months
later. Each such Offering Period will include one six-month
purchase period. Our Board of Directors has the power to change
the 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Participation.</I> To participate in the ESPP, an eligible
employee must authorize payroll deductions pursuant to the ESPP.
Payroll deductions are withheld in whole percentages only and
cannot exceed ten percent (10%) of a participant&#146;s
compensation he or she receives on each pay day during the
Offering Period. A participant may not make any additional
payments into his or her account. To comply with
Section&nbsp;423(b)(8) of the Internal Revenue Code and
eligibility limitations pursuant to the ESPP, a
participant&#146;s payroll deductions may be decreased to zero
percent (0%). A participant may increase or decrease the rate of
payroll deductions, except the administrator may, in its
discretion, limit the nature and/or number of participation rate
changes during any Offering Period.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Option Grant.</I> The number of shares of our common stock a
participant purchases in each Offering Period is determined by
dividing the total amount of payroll deductions withheld from
the participant&#146;s compensation on or prior to the last day
of the purchase period by the purchase price; however, a
participant may purchase no more than 3,000&nbsp;shares in any
purchase period.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Option Exercise.</I> The Internal Revenue Service views
participants in our ESPP as receiving options. The price per
share subject to the option is the lower of (i)&nbsp;eighty-five
percent (85%) of the fair market value of our common stock on
the first day of the Offering Period, or (ii)&nbsp;eighty-five
percent (85%) of the fair market value of a share of our common
stock
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
on the purchase date. Unless a participant withdraws from the
ESPP or an employee&#146;s employment terminates with us or our
designated subsidiary, a participant&#146;s option for the
purchase of shares is exercised automatically on each purchase
date. No fractional shares may be purchased and any accumulated
payroll deductions not sufficient to purchase a full share is
retained in the participant&#146;s account for the subsequent
purchase period or Offering Period.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If the number of shares with respect to which options are to be
exercised exceed shares available for sale under the ESPP on a
purchase date or commencement of an Offering Period, the
administrator may in its sole discretion make a pro rata
allocation of the shares available for purchase and either
continue all Offering Periods then in effect or terminate any or
all Offering Periods then in effect. The administrator may make
such pro rata allocation of shares notwithstanding any
authorization of additional shares for issuance under the ESPP
by our stockholders subsequent to the commencement of such
Offering Periods.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Automatic Transfer to Low Price Offering Period.</I> With
respect to <FONT style="white-space: nowrap">24-month</FONT>
offering periods commencing prior to January&nbsp;1, 2007, in
the event that the fair market value of our common stock is
lower on a purchase date than it was on the first day of the
Offering Period, all employees participating in the ESPP on the
purchase date are deemed to have withdrawn from the Offering
Period immediately after exercise of their option and to have
enrolled as participants in the newly commencing Offering
Period. We expect that the ESPP will run out of shares on the
purchase date in January 2007 unless this Proposal&nbsp;Two is
approved by stockholders.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Withdrawal; Termination of Employment.</I> 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 ESPP at any time by written notice to
the Company. If a participant withdraws from an Offering Period,
no further payroll deductions will be made during the Offering
Period under the ESPP and payroll deductions will not resume at
the beginning of the succeeding Offering Period. Additionally,
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 or, in the case of
his or her death, to the person or persons entitled thereto, and
the participant&#146;s option will automatically terminate.
Withdrawal from an Offering Period has no effect upon a
participant&#146;s eligibility to participate in succeeding
Offering Periods which commence after termination of the
Offering Period from which the participant withdrew, or in any
similar plan which we may thereafter adopt. If a participant
fails to remain as our employee or an employee of our designated
subsidiary, or ceases to meet the ESPP eligibility requirements,
he or she is deemed to withdraw from the ESPP.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Adjustments Upon Changes in Capitalization&nbsp;&#38; Certain
Transactions.</I> Any increase or decrease in the number of
issued shares of our common stock resulting from a stock split
or payment of a dividend or any other increase or decrease in
the number of shares of our common stock effected without our
receiving consideration proportionately adjusts:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    the number of shares of common stock covered by each ESPP option,</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    the number of shares of common stock which have been authorized
    for issuance under the ESPP,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    the price per share of common stock covered by each ESPP option.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Any other issuance by us of shares of stock of any class, or
securities convertible into shares of stock of any class, will
not affect the number or price of shares of common stock subject
to an ESPP option.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the event of a proposed dissolution or liquidation of the
Company, all Offering Periods are shortened by setting a new
exercise date and terminated immediately prior to the
consummation of the proposed dissolution or liquidation unless
the administrator provides otherwise.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the event of a merger or
<FONT style="white-space: nowrap">change-of</FONT>-control, each
outstanding option under the ESPP is assumed or an equivalent
option substituted by the successor corporation or a parent or
subsidiary of the successor corporation. If the successor
corporation refuses to assume or substitute for the option, all
Offering Periods and any purchase period then in progress
</DIV>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">10
</FONT>

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

<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
under the ESPP are shortened by setting a new exercise date and
terminated before the date of the proposed merger or
<FONT style="white-space: nowrap">change-of</FONT>-control.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Amendment or Termination.</I> The ESPP administrator may at
any time and for any reason terminate or amend the ESPP. Without
stockholder approval and without regard to whether any
participant rights may be considered to have been adversely
affected, the administrator is entitled to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    change the Offering Periods,</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    limit the frequency and/or number of changes in the amount
    withheld during an Offering Period,</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    establish the exchange ratio applicable to amounts withheld in a
    currency other than U.S.&nbsp;dollars,</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    permit payroll withholding in excess of the amount designated by
    a participant in order to adjust for delays or mistakes in our
    processing of properly completed withholding elections,</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    establish reasonable waiting and adjustment periods and/or
    accounting and crediting procedures to ensure that amounts
    applied toward the purchase of our common stock properly
    correspond with amounts withheld,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    establish such other limitations or procedures as the
    administrator determines in its sole discretion advisable which
    are consistent with the ESPP.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the event the administrator determines that the ongoing
operation of the ESPP may result in unfavorable financial
accounting consequences, the Board may, in its discretion,
without stockholder approval or the consent of any participant,
and to the extent necessary or desirable, modify or amend the
ESPP to reduce or eliminate such accounting consequence
including, but not limited to (i)&nbsp;increasing the purchase
price for any Offering Period including an Offering Period
underway at the time of the change in purchase price,
(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, and
(iii)&nbsp;allocating shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Number of Shares Purchased by Certain Individuals and
Groups</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Given that the number of shares that may be purchased under the
ESPP is determined, in part, on our common stock&#146;s market
value at the beginning of an Offering Period and at the end of a
purchase period (or upon a purchase date within an Offering
Period) and given that participation in the ESPP is voluntary on
the part of employees, the actual number of shares that may be
purchased by any individual is not determinable. For
illustrative purposes, the following table sets forth
(a)&nbsp;the number of shares of our common stock that were
purchased during fiscal year 2005 under the ESPP and
(b)&nbsp;the average per share purchase price paid for such
shares.
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Employee Stock Purchase Plan Transactions 2005</FONT></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Number of Purchased</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Weighted Average</FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="left" nowrap><B><FONT face="helvetica,arial">Name</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Shares</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Purchase Price</FONT></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Anthony J. Ley
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Robin N. Dickson
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">650</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5.02&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Patrick J. Harshman
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

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

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">All executive officers as a group
    (4&nbsp;persons)
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">650</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5.02&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">All employees, including current
    officers who are not executive<BR>
    officers, as a group (618&nbsp;persons)
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">705,171</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5.05&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>
</FONT>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">11
</FONT>

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<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Tax Aspects</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The tax consequences of the purchase of shares of common stock
under the ESPP are as follows.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
An employee will not have taxable income when the shares of
common stock are purchased, but the employee generally will have
taxable income when the employee sells or otherwise disposes of
ESPP shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
For shares that the employee does not dispose of until more than
24&nbsp;months after the first day of the Offering Period and
more than 12&nbsp;months after the purchase date (the
&#147;holding period&#148;), any gain up to 15% of the market
price of the stock on the first day of the Offering Period is
taxed as ordinary income. Any additional gain above that amount
is taxed at long-term capital gain rates. If, after the holding
period, the employee sells the stock for less than the purchase
price, the difference is a long-term capital loss. Shares sold
within the holding period are taxed at ordinary income rates on
the amount of discount received from the stock&#146;s market
price on the purchase date. Any additional gain (or loss) is
taxed to the stockholder as long-term or short-term capital gain
(or loss). The purchase date begins the period for determining
whether the gain (or loss) is short-term or long-term.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company may deduct for federal income tax purposes an amount
equal to the ordinary income an employee must recognize when he
or she disposes of stock purchased under the ESPP within the
holding period. The Company may not deduct any amount for shares
disposed of after the holding period.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING
&#147;FOR&#148; THE APPROVAL OF THE AMENDMENTS TO THE 2002
EMPLOYEE STOCK PURCHASE PLAN.</B>
</DIV>

<!-- link1 "PROPOSAL THREE AMENDMENTS TO THE 2002 DIRECTOR OPTION PLAN" -->
<DIV align="left"><A NAME="003"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;THREE</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>AMENDMENTS TO THE 2002 DIRECTOR OPTION PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
This is a proposal to approve amendments to our
2002&nbsp;Director Option Plan (the &#147;Plan&#148;) to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    increase the maximum number of shares which may become subject
    to options and sold under the Plan by an additional
    300,000&nbsp;shares;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    reduce the term of future options granted under the Plan to
    seven (7)&nbsp;years.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Plan was initially adopted by our Board of Directors on
March 2002 and was approved by our stockholders in May 2002. As
of May&nbsp;1, 2006, approximately 100,000&nbsp;shares remain
available to become subject to options and sold under the Plan.
The Plan is scheduled to expire in 2012.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our Board of Directors approved amendments to the Plan, subject
to obtaining stockholder approval, to increase the maximum
number of shares available to become subject to options and sold
under the Plan by an additional 300,000&nbsp;shares, and to
reduce the term of the options granted on or after approval of
this proposal by our stockholders to seven (7)&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Approval of this proposal requires the affirmative vote of the
holders of a majority of the shares of our common stock that are
present in person or by proxy and entitled to vote at our 2006
Annual Stockholders&#146; Meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our Company&#146;s non-employee directors have an interest in
this proposal as they may receive options under the
2002&nbsp;Director Option Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Description of the 2002&nbsp;Director Option Plan</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following is a summary of the principal features of the
2002&nbsp;Director Option Plan and its operation. This summary
is qualified in its entirety by reference to the Plan as set
forth in Exhibit&nbsp;2.
</DIV>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">12
</FONT>

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<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Purposes</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The purposes of the 2002&nbsp;Director Option Plan are to
attract and retain the best available personnel for service as
non-employee directors of our Company, and to encourage their
continued service on the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Term of Plan</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Plan is scheduled to expire in 2012.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Eligibility</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Only non-employee directors are eligible to receive options
under the Plan. Currently, our Board of Directors consists of
seven (7)&nbsp;directors of whom five (5)&nbsp;are non-employee
directors. Mr.&nbsp;Ley, who retired as President and Chief
Executive Officer on May&nbsp;4, 2006, is not eligible to
receive options under this Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Shares Subject to the Plan</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The maximum aggregate number of shares which may be optioned and
sold under the Plan is 400,000&nbsp;shares. If this proposal is
approved by our stockholders, an additional 300,000&nbsp;shares
will become available to be optioned and sold under the Plan.
The shares may be authorized, but unissued, or reacquired common
stock.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Administration</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Plan provides for grants of options to be made in two ways:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.</TD>
    <TD align="left">
    Each non-employee director is automatically granted an option to
    purchase&nbsp;30,000&nbsp;shares (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. An
    employee director who ceases to be an employee director but who
    remains a director will not receive a First Option.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>2.</TD>
    <TD align="left">
    Each non-employee director is automatically granted an option to
    purchase&nbsp;10,000&nbsp;shares (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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Terms of Options</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Each option is evidenced by written option agreements between us
and the relevant non-employee director in such form as the Board
shall approve. Options are subject to the following terms and
conditions:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.</TD>
    <TD align="left">
    <I>Option Term.</I> The term of options granted has been ten
    (10)&nbsp;years. If this proposal is approved, options granted
    under the Plan on or after the date of approval by our
    stockholders will have a term of seven (7)&nbsp;years. No option
    may be exercised after expiration of its term.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>2.</TD>
    <TD align="left">
    <I>Option Vesting and Exercise.</I> First Options vest monthly
    over three (3) years from the date of grant. Annual Options vest
    monthly over one (1) year from the date of grant. Options are
    exercisable only while the non-employee director remains a
    director of our Company, except as set forth in the Plan. An
    option is exercisable by providing written notice to us
    accompanied by full payment for the exercised shares.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>3.</TD>
    <TD align="left">
    <I>Exercise Price.</I> The exercise price per share is 100% of
    the fair market value per share of our common stock on the date
    of grant.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>4.</TD>
    <TD align="left">
    <I>Termination of Continuous Status as Director.</I> If a
    non-employee director&#146;s status as a director terminates,
    all of their vested options expire upon the earlier of the
    options&#146; original maximum term or three (3) years following
    such termination of employment.</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">13
</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>

<FONT face="helvetica,arial">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>5.</TD>
    <TD align="left">
    <I>Nontransferability of Options.</I> Options granted under this
    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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Adjustments upon Changes in Capitalization, Dissolution,
Merger or
<FONT style="white-space: nowrap">Change-in</FONT>-Control</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the event of a stock split, reverse stock split, stock
dividend, or any combination or reclassification of our common
stock, or other similar change in our capital structure effected
without receipt of consideration by us, proportionate
adjustments will be made to the number of shares covered by each
outstanding option, the number of shares authorized for issuance
that remain available to be optioned and sold under the Plan,
and the number of shares issuable as First Options or Annual
Options. For this purpose, any conversion of convertible
securities is not considered effected without our receiving
consideration.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the event of a proposed dissolution or liquidation of our
Company, any unexercised options will terminate prior to the
consummation of such proposed action.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If a successor corporation assumes or substitutes the options
under the Plan as a result of a merger of our Company with or
into another corporation or a
<FONT style="white-space: nowrap">Change-in</FONT>-Control of
our Company, such options will remain exercisable in accordance
with the Plan. In the event of a
<FONT style="white-space: nowrap">Change-in</FONT>-Control, all
options held by non-employee directors immediately become fully
vested and exercisable.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Amendment and Termination of the Plan</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Board may at any time amend, alter, suspend, or discontinue
the Plan to the extent such actions do not impair the rights of
any recipient of options under the Plan, unless he or she
consents. Any amendment or termination does not affect options
already granted under the Plan. To the extent necessary and
desirable to comply with any applicable law, regulation or stock
exchange rule, our Company must obtain stockholder approval of
any Plan amendment in the manner or to the degree required.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>No Repricing.</I> Any reduction of the exercise price of
shares subject to an option under the Plan requires the approval
of our stockholders, including a change in exercise price due to
a repricing or an option exchange program.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Certain Federal Income Tax Information</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Options granted under the Plan are nonstatutory options and do
not qualify as incentive stock options under Section&nbsp;422 of
the Internal Revenue Code (the &#147;Code&#148;). An optionee
will not recognize any taxable income at the time of grant of a
nonstatutory option. However, upon its exercise, the optionee
will recognize ordinary income for tax purposes measured by the
excess of the fair market value of the shares on the date of
exercise over the exercise price. Because the optionee is a
director and therefore subject to Section&nbsp;16 of the
Exchange Act, the date of taxation (and the date of measurement
of taxable ordinary income) may be deferred unless the optionee
files an election under Section&nbsp;83(b) of the Code. Upon
resale of such shares by the optionee, any difference between
the sales price and the exercise price, to the extent not
recognized as ordinary income as provided above, will be treated
as capital gain or loss. We will be entitled to a tax deduction
in the amount and at the time that the optionee recognizes
ordinary income with respect to shares acquired upon exercise of
an option.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The foregoing summary of the federal income tax consequences of
the 2002&nbsp;Director Option Plan transactions is based on
federal income tax laws in effect on the date of this Proxy
Statement. This summary is not intended to be complete, and does
not describe foreign, state, or local tax consequences.
</DIV>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">14
</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>

<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table summarizes the approximate dollar value and
number of option shares granted under the Plan in 2005 to
(i)&nbsp;each director who is not an executive officer and
(ii)&nbsp;all directors who are not executive officers as a
group. Only directors who are not also executive officers are
eligible to receive options under the Plan.
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="18%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">2002 Director Option Plan<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></FONT></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Number of Option</FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="3" align="center" nowrap><B><FONT face="helvetica,arial">Name and Position</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Dollar Value<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Shares Granted</FONT></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">E. Floyd Kvamme
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">0&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">10,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Director
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">William F. Reddersen
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">0&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">10,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Director
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Lewis Solomon
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">0&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">10,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Director
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Michel L. Vaillaud
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">0&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">10,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Director
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">David R. Van Valkenburg
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">0&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">10,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Director
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Non-Executive Officer Director
    Group (5&nbsp;persons)
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">0&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">50,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>
</FONT>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.</TD>
    <TD align="left">
    Future benefits under the 2002&nbsp;Director Option Plan are not
    determinable because the value of options depends on the market
    price of our common stock on the date of grant.</TD>
</TR>

<TR valign="top">
    <TD>2.</TD>
    <TD align="left">
    Indicates the difference between the exercise price at which
    shares were granted under the 2002&nbsp;Director Plan and $4.85,
    the closing price of our common stock on December&nbsp;30, 2005,
    the last business day in fiscal year 2005.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Vote Required and Recommendation</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The affirmative vote of a majority of the Votes&nbsp;Cast will
be required to approve the amendments to the 2002&nbsp;Director
Option Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
&#147;FOR&#148; THE APPROVAL OF THE AMENDMENTS TO THE 2002
DIRECTOR OPTION PLAN.</B>
</DIV>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">15
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<FONT face="helvetica,arial">

<!-- link1 "PROPOSAL FOUR RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM" -->
<DIV align="left"><A NAME="004"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;FOUR</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Audit Committee of the Board of Directors has appointed
PricewaterhouseCoopers LLP, independent registered public
accounting firm, to audit the financial statements of the
Company for the year ending December&nbsp;31, 2006.
PricewaterhouseCoopers LLP has served as the Company&#146;s
independent registered public accounting firm 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 an
independent registered public accounting firm. 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 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING
&#147;FOR&#148; THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY&#146;S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING
DECEMBER&nbsp;31, 2006.</B>
</DIV>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">16
</FONT>

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

<FONT face="helvetica,arial">

<!-- link1 "ADDITIONAL INFORMATION" -->
<DIV align="left"><A NAME="005"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>ADDITIONAL INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Executive Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following Summary Compensation Table sets forth certain
information regarding the compensation of the Chief Executive
Officer of the Company and each of the executive officers of the
Company (collectively, the &#147;Named Executive Officers&#148;)
for services rendered in all capacities to the Company during
the fiscal years ended December&nbsp;31, 2003, December&nbsp;31,
2004 and December&nbsp;31, 2005.
</DIV>

<DIV align="center" style="font-size: 8.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Summary Compensation Table</B>
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR style="font-size: 8.0pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B><FONT face="helvetica,arial">Annual Compensation</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Long Term</FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Compensation</FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Securities</FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Underlying</FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="2" align="left" nowrap><B><FONT face="helvetica,arial">Name and Principal Position</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Year</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Salary</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Bonus</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Options</FONT></B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Anthony J.
    Ley<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2005</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">500,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">80,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Chairman of the Board of Directors
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2004</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">467,308</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">525,366</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">200,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2003</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">450,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">30,938</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">80,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="18">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Robin N. Dickson
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2005</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">330,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">50,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Chief Financial Officer
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2004</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">311,538</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">262,683</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">40,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2003</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">300,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">20,625</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">50,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="18">&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Patrick J.
    Harshman<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2005</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">275,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">50,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">President and Chief Executive
    Officer
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2004</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">259,615</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">158,416</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">50,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2003</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">250,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">50,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="18">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Israel Levi
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2005</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">275,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">40,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Senior Vice President,
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2004</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">270,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">227,659</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">40,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Operations&nbsp;&#38; Quality
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2003</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">260,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">17,876</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">55,000</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>
</FONT>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.</TD>
    <TD align="left">
    Mr.&nbsp;Ley retired from his positions as President and Chief
    Executive Officer on May&nbsp;4, 2006. He subsequently entered
    into a Transition Agreement, including an Amended and Restated
    <FONT style="white-space: nowrap">Change-of</FONT>-Control
    Agreement, with Harmonic. Under the terms of this agreement,
    Mr.&nbsp;Ley will cease to be an employee of the Company on
    June&nbsp;30, 2006, and will thereafter provide consulting
    services to Harmonic until June&nbsp;30, 2008 at an annual
    remuneration of $225,000 and will receive a grant of options to
    purchase&nbsp;100,000&nbsp;shares of common stock, as well as
    certain other benefits. In the event of the execution before
    December&nbsp;31, 2006 of a definitive agreement for a change in
    control of the Company, he is entitled to payments of two times
    his base salary immediately prior to retirement and a portion of
    his target bonus, and in the event of the execution between
    January 1 and June&nbsp;30, 2007 of a definitive agreement for a
    change in control of the Company, he is entitled to a payment of
    two times his annual consulting fee.</TD>
</TR>

<TR valign="top">
    <TD>2.</TD>
    <TD align="left">
    The annual base salary of Dr.&nbsp;Harshman was increased on
    January&nbsp;1, 2006 to $325,000 and on May&nbsp;4, 2006 to
    $400,000 following his promotions to Executive Vice President
    and to President and Chief Executive Officer, respectively.</TD>
</TR>

<TR valign="top">
    <TD>3.</TD>
    <TD align="left">
    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 or $50,000.</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">17
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<FONT face="helvetica,arial">

<DIV align="center" style="font-size: 8.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Option Grants in Last Fiscal Year</B>
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Potential Realizable Value at</FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Assumed Annual Rates of Stock</FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Price Appreciation for Option</FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Individual Grants</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Term<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></FONT></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Number of</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Securities</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Percent of Total</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Underlying</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Option Granted</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Options</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">to Employees in</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Exercise Price</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Expiration</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="center" nowrap><B><FONT face="helvetica,arial">Name</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Granted<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Fiscal Year</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">($/share)</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Date</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">5%</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">10%</FONT></B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Anthony J. Ley
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">80,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5.9%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5.86&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5/3/2015</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">294,826</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">747,146</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Robin N. Dickson
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">50,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">3.7%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5.86&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5/3/2015</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">184,266</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">466,967</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Patrick J. Harshman
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">50,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">3.7%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5.86&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5/3/2015</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">184,266</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">466,967</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Israel Levi
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">40,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2.9%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5.86&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5/3/2015</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">147,413</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">373,573</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>
</FONT>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR valign="top">
    <TD>2.</TD>
    <TD align="left">
    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 one of the realizable
    value calculation methods prescribed 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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table provides information with respect to the
exercise of stock options during 2005 and the value of stock
options held as of December&nbsp;31, 2005 by each of the Named
Executive Officers.
</DIV>

<DIV align="center" style="font-size: 8.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Aggregate Option Exercises in Last Fiscal Year and Year-End
Values</B>
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Number of Securities</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Underlying Unexercised</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Value of Unexercised In-the-</FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Options at 12/31/05</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><FONT face="helvetica,arial">Money Options at 12/31/05<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></FONT></B></TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Shares</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Acquired on</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Value</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="center" nowrap><B><FONT face="helvetica,arial">Name</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Exercise</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Realized<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Exercisable</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Unexercisable</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Exercisable</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Unexercisable</FONT></B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Anthony J. Ley
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">90,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">431,999</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">592,498&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">207,502&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">81,083&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">30,117&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Robin N. Dickson
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">22,972</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">113,404</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">237,880&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">85,148&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">32,646&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">18,823&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Patrick J. Harshman
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">10,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5,511</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">210,478&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">90,522&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">50,677&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">18,823&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Israel Levi
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">&#151;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">224,644&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">76,356&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">37,675&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">20,705&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>
</FONT>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR valign="top">
    <TD>2.</TD>
    <TD align="left">
    Calculated by determining the difference between the fair market
    value of the Company&#146;s common stock as of December&nbsp;31,
    2005 and the exercise price of the underlying options.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Retirement Benefits</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
There are no pension or retirement benefit plans for any of the
Named Executive Officers, other than a 401(k) deferred
compensation plan which is available to all U.S.&nbsp;employees
of the Company.
</DIV>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">18
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Employment Agreements</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Current Executive Officers</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company has entered into
<FONT style="white-space: nowrap">change-of</FONT>-control
severance agreements with each of Dr.&nbsp;Harshman,
Mr.&nbsp;Dickson, and Mr.&nbsp;Levi. Under the terms of the
respective Named Executive Officer&#146;s agreement, in the
event of termination within eighteen months of a
<FONT style="white-space: nowrap">change-in</FONT>-control of
the Company, Dr.&nbsp;Harshman will receive a lump-sum payment
of twice his annual salary, bonus and benefits, and
Mr.&nbsp;Dickson and Mr.&nbsp;Levi 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Former Executive Officer</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Mr.&nbsp;Ley entered into an Amended and Restated
<FONT style="white-space: nowrap">Change-of</FONT>-Control
Agreement on May&nbsp;4, 2006, as described in &#147;Executive
Compensation.&#148;
</DIV>

<DIV align="center" style="font-size: 8.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Equity Compensation Plan Information</B>
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="31%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="18%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">(c)</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Number of securities</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">remaining available for</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">(a)</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">(b)</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">future issuance under</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Number of securities to be</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Weighted-average</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">equity compensation</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">issued upon exercise of</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">exercise price of</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">plans (excluding</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">outstanding options,</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">outstanding options,</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">securities reflected in</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="center" nowrap><B><FONT face="helvetica,arial">Plan Category</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">warrants and rights<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">warrants and rights<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">column(a))</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Equity plans approved by security
    holders<SUP style="font-size: 85%; vertical-align: text-top">(1)(4)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">8,520,896</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">11.18&nbsp;&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5,279,113</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>
</FONT>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.</TD>
    <TD align="left">
    The Company has no equity compensation plans which are not
    approved by shareholders.</TD>
</TR>

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

<TR valign="top">
    <TD>3.</TD>
    <TD align="left">
    This column does not reflect the price of shares underlying the
    assumed options referred to in footnote (2)&nbsp;of this table.</TD>
</TR>

<TR valign="top">
    <TD>4.</TD>
    <TD align="left">
    This row includes the 1995 Stock Plan, 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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Report of the Compensation and Equity Ownership Committee of
the Board of Directors on Executive Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Compensation Philosophy</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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. The Committee has retained
an independent compensation consultant to assist in its review
of executive management compensation.
</DIV>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">19
</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The three key components of executive compensation in 2005 were:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    base salary</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    incentive bonus plan</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;</TD>
    <TD align="left">
    stock option plans</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Base Salary</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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. The increases in
salaries effective January&nbsp;1, 2005 and approved in January
2005 were the first awarded to the Named Executive Officers
since 2001, due to the Company&#146;s ongoing cost control
efforts. No further salary increases have been awarded since
January&nbsp;1, 2005, except to Dr.&nbsp;Harshman in connection
with his promotions to Executive Vice President and to President
and Chief Executive Officer with effect from January&nbsp;1,
2006 and May&nbsp;4, 2006, respectively.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Incentive Bonus Plan</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company&#146;s annual incentive bonus plan reflects the
Compensation and Equity Ownership Committee&#146;s belief that a
meaningful component of executive compensation should be
contingent on the performance of the Company. In 2005, the
Company&#146;s incentive bonus plan was based in part upon the
attainment of a Company revenue goal and an operating income
goal and in part upon divisional or Company financial objectives
for each individual officer, with a goal bonus established for
each participant. In addition, the plan had a minimum
profitability threshold which had to be met in order for any
bonus payments to be made. In 2005, no bonus payments were made
to the participants.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Stock Option and Stock Purchase Plans</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 stock 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 an initial stock option grant 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 the 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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.
</DIV>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">20
</FONT>

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

<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Statement&nbsp;123R of the Financial Accounting Standards Board
(FASB)&nbsp;requires the Company to record a charge to earnings
for employee stock option grants and employee purchase plan
rights, with effect from January&nbsp;1, 2006. The Compensation
Committee believes that, for the time being, the Company should
continue to operate its equity plans in substantially their
present form, pending further developments. This includes an
assessment of the impact of the new accounting standard on
Harmonic&#146;s earnings, changes in the design and operation of
equity plans by other companies, particularly those with whom
the Company competes locally for employees, and the attitude of
financial analysts and investors towards these significant and
potentially volatile non-cash charges. However, in order to
mitigate the impact on earnings, the Company has reduced the
term of employee option grants from 10&nbsp;years to
7&nbsp;years. In addition, the Board has approved an amendment
to the Company&#146;s 2002 Employee Stock Purchase Plan (ESPP),
which reduces the &#147;look-back&#148; feature from
24&nbsp;months to 6&nbsp;months. Subject to stockholder
approval, this change to the ESPP will become effective on
January&nbsp;1, 2007. The Committee continues to believe that
broad-based equity plans remain an essential element of a
competitive compensation package, as such plans are offered
currently by most public and private technology companies in
Silicon Valley. Over 99% of our employees currently hold stock
options and approximately 77% participate in the Company&#146;s
ESPP.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Retirement Benefits</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As is typical of technology companies in the Company&#146;s
geographic area, the Company provides no pension benefits and
has no deferred compensation plans for any of its employees,
including executive officers, other than a 401(k) deferred
compensation plan. The Company made matching contributions to
the 401(k) plan of up to $750&nbsp;per annum per participant in
2005. This match has been raised to $1,000&nbsp;per annum with
effect from January&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Other Compensation</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Other elements of executive compensation include life and
long-term disability insurance and medical benefits. These
benefits are available to all regular, full-time
U.S.&nbsp;employees of the Company and similar benefits are
provided to most employees in other countries.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Approvals</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In January, 2005, the Compensation Committee approved the 2005
compensation for all executive officers. The Company&#146;s
former Chief Executive Officer, who is also the Chairman of the
Company&#146;s Board of Directors, was not present during the
portion of the meetings during which his compensation was
discussed and approved.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The compensation of the Company&#146;s Chief Executive Officer
in 2005 was determined according to the principles described
above.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Section&nbsp;162(m)</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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).
</DIV>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <B>The Compensation&nbsp;&#38; Equity Ownership Committee</B></TD>
</TR>

<TR>
    <TD style="font-size: 9.0pt">&nbsp;</TD>
</TR>

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

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

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">21
</FONT>

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

<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Performance Graph</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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,
2000 and ending on December&nbsp;31, 2005. 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, 2000, 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.
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<IMG src="f18345def1834501.gif" alt="(PERFORMANCE GRAPH)">
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">12/31/00</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">12/31/01</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">12/31/02</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">12/31/03</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">12/31/04</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">12/31/05</FONT></B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Harmonic Inc.
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">100</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">211.25</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">40.42</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">127.42</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">146.57</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">85.24</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">NASDAQ Telecom Index
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">100</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">66.54</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">30.63</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">50.93</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">54.32</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">51.61</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">S&#38;P 500 Index
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">100</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">88.11</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">68.64</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">88.33</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">97.97</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">102.75</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>
</FONT>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">22
</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>

<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Report of the Audit Committee of the Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In accordance with a written charter adopted by Harmonic&#146;s
Board of Directors 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
registered public accounting firm 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Harmonic&#146;s independent registered public accounting firm,
PricewaterhouseCoopers LLP, is responsible for expressing an
opinion on the conformity of Harmonic&#146;s audited financial
statements to generally accepted accounting principles.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Audit Committee of the Board of Directors has:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.</TD>
    <TD align="left">
    reviewed and discussed the audited consolidated financial
    statements and certifications thereof with Company management
    and the independent registered public accounting firm, 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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>2.</TD>
    <TD align="left">
    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</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>3.</TD>
    <TD align="left">
    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 the provision of the
    non-audit services described below was compatible with
    maintaining their independence.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Audit Committee meets regularly with the Company&#146;s
independent registered public accounting firm, 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In performing all of these functions, the Audit Committee acts
only in an oversight capacity and necessarily relies on the work
and assurances of Harmonic&#146;s management which has primary
responsibility for preparing financial statements and the
financial reporting process and the independent registered
public accounting firm, 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 of Harmonic for the three years
ended December&nbsp;31, 2005 be included for filing with the
Securities and Exchange Commission in the Company&#146;s Annual
Report on
Form&nbsp;<FONT style="white-space: nowrap">10-K</FONT> for the
year ended December&nbsp;31, 2005.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

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

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

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

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

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">23
</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>

<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Independent Registered Public Accounting Firm</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Aggregate fees for professional services rendered for the
Company by PricewaterhouseCoopers LLP for the years ended
December&nbsp;31, 2005 and 2004 were:
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 18pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="2" align="left" nowrap><B><FONT face="helvetica,arial">($ Thousands)</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">2005</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">2004</FONT></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Audit
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">1,966</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">1,949</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Audit Related
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">477</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">138</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Tax Fees
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">129</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">193</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">All Other
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Total
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2,577</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><FONT face="helvetica,arial">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2,282</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>
</FONT>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Audit Fees</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The audit fees for the years ended December&nbsp;31, 2005 and
2004 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Audit Related Fees</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The audit related fees for the years ended December&nbsp;31,
2005 and 2004 were for due diligence assignments and
consultations concerning financial accounting and reporting
standards.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Tax Fees</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The tax compliance fees for the years ended December&nbsp;31,
2005 and 2004 were for services related to the preparation of
tax returns, discussions with tax authorities, claims for tax
refunds and the establishment of foreign entities, and for tax
planning and tax advice, including consulting services related
to indirect taxes and assistance with tax audits and appeals.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>All Other Fees</I>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
All other fees for the years ended December&nbsp;31, 2005 and
2004 were for license fees for various technical accounting
reference software.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our Audit Committee pre-approves all audit and non-audit
services.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 non-audit services
provided.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Audit Committee has engaged PricewaterhouseCoopers LLP as
its independent registered public accounting firm for the fiscal
year ending December&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 to such filing.
</DIV>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">24
</FONT>

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

<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Security Ownership of Certain Beneficial Owners and
Management</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 to the
Company&#146;s Board of Directors; (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.
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 18pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Name and Address of Beneficial Owner</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Number of Shares</FONT></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><FONT face="helvetica,arial">Percent of Total</FONT></B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Barclay&#146;s Global Investors,
    NA<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">45 Fremont Street<BR>
     San&nbsp;Francisco, CA 94015
    </FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">3,720,553</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">5.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT face="helvetica,arial">%</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Anthony J.
    Ley<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">941,876</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">1.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT face="helvetica,arial">%</FONT></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">E. Floyd
    Kvamme<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">528,684</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">*</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">William F.
    Reddersen<SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">60,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">*</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Lewis
    Solomon<SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">64,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">*</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Michel L.
    Vaillaud<SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">100,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">*</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">David R. Van
    Valkenburg<SUP style="font-size: 85%; vertical-align: text-top">(7)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">74,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">*</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Robin N.
    Dickson<SUP style="font-size: 85%; vertical-align: text-top">(8)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">341,581</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">*</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Patrick J.
    Harshman<SUP style="font-size: 85%; vertical-align: text-top">(9)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">237,456</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">*</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Israel
    Levi<SUP style="font-size: 85%; vertical-align: text-top">(10)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">248,030</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">*</FONT></TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">All directors and executive
    officers as a group (9
    persons)<SUP style="font-size: 85%; vertical-align: text-top">(11)</SUP>
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">2,595,627</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><FONT face="helvetica,arial">3.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT face="helvetica,arial">%</FONT></TD>
</TR>

</TABLE>
</CENTER>
</FONT>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9.0pt;color: #000000; background: #ffffff;">

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

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

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9.0pt;color: #000000; background: #ffffff;">

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

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

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>2.</TD>
    <TD align="left">
    &nbsp;Includes 600,832&nbsp;shares which may be acquired upon
    exercise of options exercisable within 60&nbsp;days of
    May&nbsp;1, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>3.</TD>
    <TD align="left">
    &nbsp;Includes 60,000&nbsp;shares which may be acquired upon
    exercise of options exercisable within 60&nbsp;days of
    May&nbsp;1, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>4.</TD>
    <TD align="left">
    &nbsp;Includes 60,000&nbsp;shares which may be acquired upon
    exercise of options exercisable within 60&nbsp;days of
    May&nbsp;1, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>5.</TD>
    <TD align="left">
    &nbsp;Includes 64,000&nbsp;shares which may be acquired upon
    exercise of options exercisable within 60&nbsp;days of
    May&nbsp;1, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>6.</TD>
    <TD align="left">
    &nbsp;Includes 80,000&nbsp;shares which may be acquired upon
    exercise of options exercisable within 60&nbsp;days of
    May&nbsp;1, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>7.</TD>
    <TD align="left">
    &nbsp;Includes 64,000&nbsp;shares which may be acquired upon
    exercise of options exercisable within 60&nbsp;days of
    May&nbsp;1, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>8.</TD>
    <TD align="left">
    &nbsp;Includes 263,444&nbsp;shares which may be acquired upon
    exercise of options exercisable within 60&nbsp;days of
    May&nbsp;1, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>9.</TD>
    <TD align="left">
    &nbsp;Includes 237,456&nbsp;shares which may be acquired upon
    exercise of options exercisable within 60&nbsp;days of
    May&nbsp;1, 2006.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>10.</TD>
    <TD align="left">
    Includes 247,976&nbsp;shares which may be acquired upon exercise
    of options exercisable within 60&nbsp;days of May&nbsp;1, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>11.</TD>
    <TD align="left">
    Includes 1,665,935&nbsp;shares which may be acquired upon
    exercise of options exercisable within 60&nbsp;days of
    May&nbsp;1, 2006.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Section&nbsp;16(a) Beneficial Ownership Reporting
Compliance</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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 the National Association of
Securities Dealers, 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 2005, all filing requirements
applicable to its officers, directors and ten percent
stockholders were complied with, except in one instance.
Dr.&nbsp;Yaron Simler, a former executive officer of the
Company, sold 1,000&nbsp;shares in February 2005 and
subsequently filed a Form&nbsp;4 report two days late.
</DIV>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">25
</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>

<FONT face="helvetica,arial">

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Certain Relationships and Related Transactions</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Except for the compensation agreements and other arrangements
that are described under &#147;Executive Compensation&#148; and
&#147;Change of Control and Severance Agreements,&#148; there
was not during fiscal year 2005, 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OTHER MATTERS</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company knows of no other matters to be submitted for
stockholder action at the 2006 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.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Dated: May&nbsp;24, 2006</TD>
</TR>

<TR>
    <TD style="font-size: 12.0pt">&nbsp;</TD>
</TR>

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

<TR>
    <TD style="font-size: 12.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="f18345def1834522.gif" alt="-s- Jeffrey D. Saper"></TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

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

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

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">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>

<FONT face="helvetica,arial">

<DIV align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Exhibit&nbsp;1
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>HARMONIC INC.</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>2002 EMPLOYEE STOCK PURCHASE PLAN</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>(As Amended and Restated Effective as of May&nbsp;2, 2006)</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following constitute the provisions of the 2002 Employee
Stock Purchase Plan (the <I>&#147;Plan&#148;</I>) of Harmonic
Inc.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1)</TD>
    <TD align="left">
    <I>Purpose.</I> 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>2)</TD>
    <TD align="left">
    <I>Definitions.</I></TD>
</TR>

</TABLE>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

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

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>b)</TD>
    <TD align="left">
    <I>&#147;Board&#148; </I>shall mean the Board of Directors of
    the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>c)</TD>
    <TD align="left">
    <FONT style="white-space: nowrap"><I>&#147;Change-of</FONT>-Control&#148;
    </I>shall mean the occurrence of any of the following events:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>i)</TD>
    <TD align="left">
    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;<FONT style="white-space: nowrap">13d-3</FONT> 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</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>ii)</TD>
    <TD align="left">
    the consummation of the sale or disposition by the Company of
    all or substantially all of the Company&#146;s assets;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>iii)</TD>
    <TD align="left">
    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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>iv)</TD>
    <TD align="left">
    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) 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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>d)</TD>
    <TD align="left">
    <I>&#147;Code&#148; </I>shall mean the Internal Revenue Code of
    1986, as amended.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

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

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>f)</TD>
    <TD align="left">
    <I>&#147;Common Stock&#148; </I>shall mean the common stock of
    the Company.</TD>
</TR>

</TABLE>

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

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

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>h)</TD>
    <TD align="left">
    <I>&#147;Compensation&#148; </I>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

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

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>j)</TD>
    <TD align="left">
    <I>&#147;Director&#148; </I>shall mean a member of the Board.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>k)</TD>
    <TD align="left">
    <I>&#147;Eligible Employee&#148; </I>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>l)</TD>
    <TD align="left">
    <I>&#147;Exchange Act&#148; </I>shall mean the Securities
    Exchange Act of 1934, as amended.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

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

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

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

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(i)</TD>
    <TD align="left">
    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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(ii)</TD>
    <TD align="left">
    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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(iii)</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>o)</TD>
    <TD align="left">
    <I>&#147;Offering Date&#148; </I>shall mean the first Trading
    Day of each Offering Period.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>p)</TD>
    <TD align="left">
    <I>&#147;Offering Periods&#148; </I>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 1 of each
    year and terminating on the first Trading Day on or after the
    January 1 and July&nbsp;1 Offering Period commencement date
    approximately 24 (twenty-four) months later; provided, however,
    for periods commencing January&nbsp;1, 2007, &#147;Offering
    Periods&#148; shall mean the periods of approximately 6
    (six)&nbsp;months during which an option granted pursuant to the
    Plan may be exercised, commencing on the first Trading Day on or
    after January 1 of each year and terminating on the last Trading
    Day on or after the January 1 and July&nbsp;1 Offering Period
    commencement date approximately 6 (six)&nbsp;months later. The
    duration and timing of Offering Periods may be changed pursuant
    to Section&nbsp;4 of this Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>q)</TD>
    <TD align="left">
    <I>&#147;Plan&#148; </I>shall mean this 2002 Employee Stock
    Purchase Plan.</TD>
</TR>

</TABLE>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>r)</TD>
    <TD align="left">
    <I>&#147;Purchase Period&#148; </I>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>s)</TD>
    <TD align="left">
    <I>&#147;Purchase Price&#148; </I>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

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

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

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

</TABLE>

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

<TR valign="top">
    <TD>3)</TD>
    <TD align="left">
    <I>Eligibility.</I></TD>
</TR>

</TABLE>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(a)</TD>
    <TD align="left">
    <I>Offering Periods.</I> Any Eligible Employee on a given
    Offering Date shall be eligible to participate in the Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(b)</TD>
    <TD align="left">
    <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.</TD>
</TR>

</TABLE>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>4)</TD>
    <TD align="left">
    <I>Offering Periods.</I> The Plan shall be implemented by
    consecutive 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>5)</TD>
    <TD align="left">
    <I>Participation.</I></TD>
</TR>

</TABLE>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(a)</TD>
    <TD align="left">
    <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 Appendix&nbsp;1.1
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(b)</TD>
    <TD align="left">
    <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.</TD>
</TR>

</TABLE>

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

<TR valign="top">
    <TD>6)</TD>
    <TD align="left">
    <I>Payroll Deductions.</I></TD>
</TR>

</TABLE>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(a)</TD>
    <TD align="left">
    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</TD>
</TR>

</TABLE>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(b)</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(c)</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(d)</TD>
    <TD align="left">
    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) 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(e)</TD>
    <TD align="left">
    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 (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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(f)</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>7)</TD>
    <TD align="left">
    <I>Grant of Option.</I> 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 Appendix&nbsp;1.1) 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.</TD>
</TR>

</TABLE>

</FONT>

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

<FONT face="helvetica,arial">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>8)</TD>
    <TD align="left">
    <I>Exercise of Option.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(a)</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(b)</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>9)</TD>
    <TD align="left">
    <I>Delivery.</I> 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>10)</TD>
    <TD align="left">
    <I>Withdrawal.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(a)</TD>
    <TD align="left">
    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 Appendix&nbsp;1.2
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(b)</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>11)</TD>
    <TD align="left">
    <I>Termination of Employment.</I> 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</TD>
</TR>

</TABLE>

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

<FONT face="helvetica,arial">

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD></TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>12)</TD>
    <TD align="left">
    <I>Interest.</I> No interest shall accrue on the payroll
    deductions of a participant in the Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>13)</TD>
    <TD align="left">
    <I>Stock.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(a)</TD>
    <TD align="left">
    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; and provided, however, that
    2,000,000&nbsp;shares, which were approved for issuance under
    the Plan by the stockholders of the Company on the date of the
    2006 annual stockholders&#146; meeting, shall only be used for
    Offering Periods commencing on or after January&nbsp;1, 2007.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(b)</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(c)</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>14)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>15)</TD>
    <TD align="left">
    <I>Designation of Beneficiary.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(a)</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(b)</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(c)</TD>
    <TD align="left">
    All beneficiary designations shall be in such form and manner as
    the Administrator may designate from time to time.</TD>
</TR>

</TABLE>

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</FONT>

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

<FONT face="helvetica,arial">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>16)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>17)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>18)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>19)</TD>
    <TD align="left">
    <I>Adjustments Upon Changes in Capitalization, Dissolution,
    Liquidation, Merger or
    <FONT style="white-space: nowrap">Change-in</FONT>-Control.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(a)</TD>
    <TD align="left">
    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 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(b)</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(c)</TD>
    <TD align="left">
    Merger or
    <FONT style="white-space: nowrap">Change-of</FONT>-Control. In
    the event of a merger or
    <FONT style="white-space: nowrap">Change-of</FONT>-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
    <FONT style="white-space: nowrap">Change-of</FONT>-Control. 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</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">33
</FONT>

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

<FONT face="helvetica,arial">

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>20)</TD>
    <TD align="left">
    <I>Amendment or Termination.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(a)</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(b)</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(c)</TD>
    <TD align="left">
    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:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(i)</TD>
    <TD align="left">
    increasing the Purchase Price for any Offering Period including
    an Offering Period underway at the time of the change in
    Purchase Price;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(ii)</TD>
    <TD align="left">
    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</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(iii)</TD>
    <TD align="left">
    allocating shares.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Such modifications or amendments shall not require stockholder
    approval or the consent of any Plan participants.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>21)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>22)</TD>
    <TD align="left">
    <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.</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">34
</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>

<FONT face="helvetica,arial">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>23)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>24)</TD>
    <TD align="left">
    <I>Automatic Transfer to Low Price Offering Period.</I> With
    respect to Offering Periods commencing prior to January&nbsp;1,
    2007, and 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.</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">35
</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>

<FONT face="helvetica,arial">

<DIV align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Appendix&nbsp;1.1
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>HARMONIC INC.</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>2002 EMPLOYEE STOCK PURCHASE PLAN</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>SUBSCRIPTION AGREEMENT</B>
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 15pt; ">

<TR style="font-size: 1pt;">
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <DIV style="font-size: 1pt; border-bottom: 1px solid #000000">&nbsp;</DIV></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Original Application
    </FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <DIV style="font-size: 1pt; border-bottom: 1px solid #000000">&nbsp;</DIV></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Change in Payroll Deduction Rate
    </FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <DIV style="font-size: 1pt; border-bottom: 1px solid #000000">&nbsp;</DIV></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Change of Beneficiary(ies)
    </FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    <FONT face="helvetica,arial">Offering Date
    </FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    <DIV style="font-size: 1pt; border-bottom: 1px solid #000000">&nbsp;</DIV></TD>
</TR>

</TABLE>
</CENTER>
</FONT>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1.</TD>
    <TD align="left">
    <U>&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>&nbsp;hereby
    elects to participate in the Harmonic, 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>2.</TD>
    <TD align="left">
    I hereby authorize payroll deductions from each paycheck in the
    amount of
    <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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.)</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>3.</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>4.</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>5.</TD>
    <TD align="left">
    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).</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>6.</TD>
    <TD align="left">
    I understand that if 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
    <FONT style="white-space: nowrap">2-year</FONT> and
    <FONT style="white-space: nowrap">1-year</FONT> 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.</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">36
</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>

<FONT face="helvetica,arial">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>7.</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>8.</TD>
    <TD align="left">
    In the event of my death, I hereby designate the following as my
    beneficiary(ies) to receive all payments and shares <BR>
     due me under the Employee Stock Purchase Plan:</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
NAME: (Please print)
</DIV>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 0.5pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="20%"></TD>
    <TD width="20%"></TD>
    <TD width="20%"></TD>
    <TD width="20%"></TD>
    <TD width="20%"></TD>
</TR>

<TR valign="top">
    <TD align="left"></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(First)</TD>
    <TD align="center">(Middle)</TD>
    <TD align="center">(Last)</TD>
    <TD align="right"></TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 0.5pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Relationship
</DIV>

<DIV align="right" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 0.5pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Address
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 8pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 12%; border-top: 0.5pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Percentage Benefit
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
NAME: (Please print)
</DIV>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 0.5pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="20%"></TD>
    <TD width="20%"></TD>
    <TD width="20%"></TD>
    <TD width="20%"></TD>
    <TD width="20%"></TD>
</TR>

<TR valign="top">
    <TD align="left"></TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(First)</TD>
    <TD align="center">(Middle)</TD>
    <TD align="center">(Last)</TD>
    <TD align="right"></TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 0.5pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Relationship
</DIV>

<DIV align="right" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 0.5pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Address
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 8pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 12%; border-top: 0.5pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Percentage Benefit
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9.5pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Employee&#146;s Social Security
    Number:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    <DIV style="font-size: 1pt; border-bottom: 1px solid #000000">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Employee&#146;s Address:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    <DIV style="font-size: 1pt; border-bottom: 1px solid #000000">&nbsp;</DIV></TD>
</TR>

</TABLE>
</CENTER>
</FONT>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 3.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="46%"></TD>
    <TD width="54%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="right">
    <DIV style="border-top: 1pt solid black; font-size: 1pt; margin-top: 2pt" align="right">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 12.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="right">
    <DIV style="border-top: 1pt solid black; font-size: 1pt; margin-top: 2pt" align="right">&nbsp;</DIV></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 9.5pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN
EFFECT THROUGHOUT SUCCESSIVE OFFERING <BR>
 PERIODS UNLESS TERMINATED BY ME.
</DIV>
<FONT face="times new roman,times">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9.5pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="helvetica,arial">Dated:&nbsp;</FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    <DIV style="font-size: 1pt; border-bottom: 1px solid #000000">&nbsp;</DIV></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    <FONT face="helvetica,arial">Signature of Employee
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    <FONT face="helvetica,arial">Spouse&#146;s Signature (If
    beneficiary other than spouse)
    </FONT></TD>
</TR>

</TABLE>
</CENTER>
</FONT>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">37
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<FONT face="helvetica,arial">

<DIV align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Appendix&nbsp;1.2
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>HARMONIC INC.</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>2002 EMPLOYEE STOCK PURCHASE PLAN</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTICE OF WITHDRAWAL</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 15pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The undersigned participant in the Offering Period of the
Harmonic Inc. 2002 Employee Stock Purchase Plan which began
on&nbsp;<U>&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;</U>&nbsp;,
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
(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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Name and Address of Participant:
</DIV>

<DIV style="margin-top: 48pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 3.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid black; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR valign="top"  style="font-size: 10.0pt;color: #000000; background: #ffffff;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Print Name</TD>
</TR>

<TR>
    <TD style="font-size: 25.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid black; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR valign="top"  style="font-size: 10.0pt;color: #000000; background: #ffffff;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Address</TD>
</TR>

<TR>
    <TD style="font-size: 25.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid black; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 20.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid black; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR valign="top"  style="font-size: 10.0pt;color: #000000; background: #ffffff;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Signature</TD>
</TR>

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

<TR>
    <TD style="font-size: 25.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid black; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR valign="top"  style="font-size: 10.0pt;color: #000000; background: #ffffff;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Date</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">38
</FONT>

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

<FONT face="helvetica,arial">

<DIV align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Exhibit&nbsp;2
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>HARMONIC INC.</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>2002 DIRECTOR OPTION PLAN</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>(As Amended and Restated Effective as of May&nbsp;2, 2006)</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>1)</TD>
    <TD align="left">
    <I>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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    All options granted hereunder shall be nonstatutory stock
    options.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>2)</TD>
    <TD align="left">
    <I>Definitions.</I> As used herein, the following definitions
    shall apply:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>a)</TD>
    <TD align="left">
    <I>&#147;Board&#148; </I>means the Board of Directors of the
    Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>b)</TD>
    <TD align="left">
    <FONT style="white-space: nowrap"><I>&#147;Change-in</FONT>-Control&#148;
    </I>means the occurrence of any of the following events:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(i)</TD>
    <TD align="left">
    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;<FONT style="white-space: nowrap">13d-3</FONT> 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</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(ii)</TD>
    <TD align="left">
    The consummation of the sale or disposition by the Company of
    all or substantially all of the Company&#146;s assets;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(iii)</TD>
    <TD align="left">
    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) 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);&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(iv)</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>c)</TD>
    <TD align="left">
    <I>&#147;Code&#148; </I>means the Internal Revenue Code of 1986,
    as amended.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>d)</TD>
    <TD align="left">
    <I>&#147;Common Stock&#148; </I>means the common stock of the
    Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>e)</TD>
    <TD align="left">
    <I>&#147;Company&#148; </I>means Harmonic Inc., a Delaware
    corporation.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>f)</TD>
    <TD align="left">
    <I>&#147;Director&#148; </I>means a member of the Board.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>g)</TD>
    <TD align="left">
    <I>&#147;Disability&#148; </I>means total and permanent
    disability as defined in section&nbsp;22(e)(3) of the Code.</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">39
</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>

<FONT face="helvetica,arial">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>h)</TD>
    <TD align="left">
    <I>&#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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>i)</TD>
    <TD align="left">
    <I>&#147;Exchange Act&#148; </I>means the Securities Exchange
    Act of 1934, as amended.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>j)</TD>
    <TD align="left">
    <I>&#147;Fair Market Value&#148; </I>means, as of any date, the
    value of Common Stock determined as follows:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(i)</TD>
    <TD align="left">
    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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(ii)</TD>
    <TD align="left">
    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</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(iii)</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>k)</TD>
    <TD align="left">
    <I>&#147;Inside Director&#148; </I>means a Director who is an
    Employee.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>l)</TD>
    <TD align="left">
    <I>&#147;Option&#148; </I>means a stock option granted pursuant
    to the Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>m)</TD>
    <TD align="left">
    <I>&#147;Optioned Stock&#148; </I>means the Common Stock subject
    to an Option.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>n)</TD>
    <TD align="left">
    <I>&#147;Optionee&#148; </I>means a Director who holds an Option.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>o)</TD>
    <TD align="left">
    <I>&#147;Outside Director&#148; </I>means a Director who is not
    an Employee.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>p)</TD>
    <TD align="left">
    <I>&#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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>q)</TD>
    <TD align="left">
    <I>&#147;Plan&#148; </I>means this 2002&nbsp;Director Option
    Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>r)</TD>
    <TD align="left">
    <I>&#147;Securities Act&#148; </I>means the Securities Act of
    1933, as amended.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>s)</TD>
    <TD align="left">
    <I>&#147;Share&#148; </I>means a share of the Common Stock, as
    adjusted in accordance with Section&nbsp;10 of the Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>t)</TD>
    <TD align="left">
    <I>&#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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>3)</TD>
    <TD align="left">
    <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
    700,000&nbsp;Shares (the &#147;Pool&#148;). The Shares may be
    authorized, but unissued, or reacquired Common Stock.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

</FONT>

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

<FONT face="helvetica,arial">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>4)</TD>
    <TD align="left">
    <I>Administration and Grants of Options under the Plan.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>a)</TD>
    <TD align="left">
    <I>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:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(i)</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(ii)</TD>
    <TD align="left">
    Each Outside Director shall be automatically granted an Option
    to purchase&nbsp;30,000&nbsp;Shares (the <I>&#147;First
    Option&#148;</I>) 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(iii)</TD>
    <TD align="left">
    Each Outside Director shall be automatically granted an Option
    to purchase&nbsp;10,000&nbsp;Shares (a <I>&#147;Subsequent
    Option&#148;</I>) 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(iv)</TD>
    <TD align="left">
    Notwithstanding the provisions of subsections (ii),
    (iii)&nbsp;and (iv)&nbsp;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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="3%"></TD>
    <TD width="87%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(A)</TD>
    <TD align="left">
    The terms of a First Option granted hereunder shall be as
    follows:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="13%"></TD>
    <TD width="3%"></TD>
    <TD width="84%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(I)</TD>
    <TD align="left">
    the term of the First Option shall be ten (10) years for Options
    granted before June&nbsp;28, 2006 and seven (7) years for
    Options granted on or after June&nbsp;28, 2006;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(II)</TD>
    <TD align="left">
    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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(III)</TD>
    <TD align="left">
    the exercise price per Share shall be 100% of the Fair Market
    Value per Share on the date of grant of the First Option;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(IV)</TD>
    <TD align="left">
    subject to Section&nbsp;10 hereof, the First Option shall become
    exercisable as to 1/36th&nbsp;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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(v)</TD>
    <TD align="left">
    The terms of a Subsequent Option granted hereunder shall be as
    follows:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="3%"></TD>
    <TD width="87%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(A)</TD>
    <TD align="left">
    the term of the Subsequent Option shall be ten (10) years for
    Options granted before June&nbsp;28, 2006, and seven (7) years
    for Options granted on or after June&nbsp;28, 2006;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(B)</TD>
    <TD align="left">
    the Subsequent 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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(C)</TD>
    <TD align="left">
    the exercise price per Share shall be 100% of the Fair Market
    Value per Share on the date of grant of the Subsequent Option;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(D)</TD>
    <TD align="left">
    subject to Section&nbsp;10 hereof, the Subsequent Option shall
    become exercisable as to 1/12th&nbsp;of the Shares subject to
    the Subsequent 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.</TD>
</TR>

</TABLE>

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<FONT face="helvetica,arial">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(vi)</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>5)</TD>
    <TD align="left">
    <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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>6)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>7)</TD>
    <TD align="left">
    <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:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>a)</TD>
    <TD align="left">
    cash;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>b)</TD>
    <TD align="left">
    check;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>c)</TD>
    <TD align="left">
    other shares which 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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>d)</TD>
    <TD align="left">
    consideration received by the Company under a cashless exercise
    program implemented by the Company in connection with the
    Plan;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>e)</TD>
    <TD align="left">
    any combination of the foregoing methods of payment.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>8)</TD>
    <TD align="left">
    <I>Exercise of Option.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>a)</TD>
    <TD align="left">
    <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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    An Option may not be exercised for a fraction of a Share.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

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

<FONT face="helvetica,arial">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>b)</TD>
    <TD align="left">
    <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 the Option&#146;s term as set forth
    in Section&nbsp;4 hereof). 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>c)</TD>
    <TD align="left">
    <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 the
    Option&#146;s term as set forth in Section&nbsp;4 hereof). 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>d)</TD>
    <TD align="left">
    <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 the
    Option&#146;s term as set forth in Section&nbsp;4 hereof). 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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>9)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>10)</TD>
    <TD align="left">
    <I>Adjustments Upon Changes in Capitalization, Dissolution,
    Merger or
    <FONT style="white-space: nowrap">Change-in</FONT>-Control.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>a)</TD>
    <TD align="left">
    <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</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">43
</FONT>

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

<FONT face="helvetica,arial">

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>b)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>c)</TD>
    <TD align="left">
    <I>Merger or
    <FONT style="white-space: nowrap">Change-in</FONT>-Control.</I>
    In the event of a merger of the Company with or into another
    corporation or a
    <FONT style="white-space: nowrap">Change-in</FONT>-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
    <FONT style="white-space: nowrap">Change-in</FONT>-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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    For the purposes of this Section&nbsp;10(c), an Option shall be
    considered assumed if, following the merger or
    <FONT style="white-space: nowrap">Change-in</FONT>-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
    <FONT style="white-space: nowrap">Change-in</FONT>-Control, the
    consideration (whether stock, cash, or other securities or
    property) received in the merger or
    <FONT style="white-space: nowrap">Change-in</FONT>-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
    <FONT style="white-space: nowrap">Change-in</FONT>-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
    <FONT style="white-space: nowrap">Change-in</FONT>-Control.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>11)</TD>
    <TD align="left">
    <I>Amendment and Termination of the Plan; No Repricing.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>a)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>b)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>c)</TD>
    <TD align="left">
    <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.</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">44
</FONT>

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

<FONT face="helvetica,arial">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>12)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>13)</TD>
    <TD align="left">
    <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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>14)</TD>
    <TD align="left">
    <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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>15)</TD>
    <TD align="left">
    <I>Option Agreement.</I> Options shall be evidenced by written
    option agreements in such form as the Board shall approve.</TD>
</TR>

</TABLE>

</FONT>

<FONT face="helvetica,arial">
<P align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">45
</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>
<DIV style="font-family: Helvetica,Arial,sans-serif">

<DIV align="left" style="font-size: 12pt; margin-top: 12pt"><B>PROXY</B>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 18pt"><B>HARMONIC INC.</B>
</DIV>

<DIV align="center" style="font-size: 12pt">549 Baltic Way, Sunnyvale, CA 94089</DIV>

<DIV align="center" style="font-size: 12pt"><B>PROXY FOR AN ANNUAL MEETING OF STOCKHOLDERS</B></DIV>

<DIV align="center" style="font-size: 12pt"><B>JUNE 28, 2006</B></DIV>

<DIV align="center" style="font-size: 10pt"><B>THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The undersigned hereby appoints Patrick J. Harshman 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 May&nbsp;1, 2006 by the undersigned at the Annual Meeting of Stockholders
of Harmonic Inc. to be held at The Hyatt Hotel, 5101 Great America Parkway, Santa Clara,
California, on June&nbsp;28, 2006, at 8:00A.M. Pacific Time, or at any adjournment thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and Proxy Statement,
dated May&nbsp;24, 2006, and a copy of the Company&#146;s 2005 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March&nbsp;13, 2006. 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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>(Continued, and to be marked, dated and signed, on the other side)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="98%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px"><B>Address Change/Comments </B><FONT style="font-size:8pt"><B>(Mark the corresponding box on the reverse side)</B></FONT></DIV></TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
<BR>
<BR>
<BR>
<BR></DIV></TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px" valign="bottom">
    <TD nowrap align="left" colspan="3" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><DIV style="border-bottom: 1px dashed #000000; font-size: 1px">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt"><FONT face="Webdings">&#053;</FONT> <B>Detach here from proxy voting card. </B><FONT face="Webdings">&#053;</FONT></DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 18pt"><B><I>You can now access your Harmonic Inc. account online.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Access your Harmonic Inc. stockholder account online via Investor ServiceDirect <SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> (ISD).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mellon Investor Services LLC, Transfer Agent for Harmonic Inc., now makes it easy and convenient to
get current information on your stockholder account.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">&#149; View account status</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#149; Make address changes</TD>
    <TD>&nbsp;</TD>
    <TD align="left" 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">&#149; View certificate history</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#149; Obtain a duplicate 1099 tax form</TD>
    <TD>&nbsp;</TD>
    <TD align="left" 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">&#149; View book-entry information</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#149; Establish/change your PIN</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B><I>Visit us on the web at </I></B><U><B><I>http://www.melloninvestor.com/hlit</I></B></U>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 6pt"><B><I>For Technical Assistance Call 1-877-978-7778 between 9am-7pm<BR>
Monday-Friday Eastern Time</I></B>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 6pt"><B><I>Investor ServiceDirect<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> is a registered trademark of Mellon Investor Services LLC</I></B>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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

<DIV style="font-family: Helvetica,Arial,sans-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="83%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&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 and 4 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 nowrap align="left" valign="bottom">Mark Here<BR>for Address<BR>Change or<BR>Comments</TD>
    <TD align="center" valign="bottom"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" valign="bottom" align="left"><B>PLEASE SEE REVERSE SIDE</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 7pt; margin-top: 12pt"><B>The Board of Directors of Harmonic Inc. recommends a vote FOR Proposal Nos. 1, 2, 3 and 4.</B>
</DIV>

<DIV style="position: relative; float: left; width: 31%">

<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="82%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">FOR</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">WITHHELD</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 seven directors to serve until the 2007 annual meeting of stockholders or until their successors are elected and duly qualified.</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="5%">&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">01 Anthony J. Ley</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">05 Lewis Solomon</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">02 Patrick J. Harshman</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">06 Michael L. Vaillaud</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">03 E. Floyd Kvamme</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">07 David R. Van Valkenburg</TD>
</TR>
<TR valign="bottom">
    <TD nowrap valign="top"><DIV style="margin-left:0px; text-indent:-0px">04 William F. Reddersen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" 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>
</TR>
<TR valign="bottom">
    <TD colspan="3" 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>
</TR>
<TR style="font-size: 1px">
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
</DIV>

<DIV style="position: relative; float: left; margin-left: 2%; width: 34%">

<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">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 amendments to the 2002 Employee Stock Purchase Plan to reduce the term of future</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" valign="top">Offering Periods to six (6)&nbsp;months and increase the number of shares of common stock available for issuance thereunder to 2,000,000 shares.</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">WILL<BR>ATTEND</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="7" valign="top" align="left">If you plan to attend the Annual Meeting, please mark the WILL ATTEND box</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</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 colspan="9" valign="top" align="left"><B>PLEASE COMPLETE, SIGN AND DATE THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

</DIV>
<DIV style="position: relative; float: right; width: 31%">

<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">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">3.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">To approve amendments to the 2002 Director Option Plan to increase the</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" valign="top">maximum number of shares which may be
optioned and sold under the Plan by an
additional 300,000 shares; and reduce
the term of future options granted
under the Plan to seven (7)&nbsp;years.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" 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 ratify the appointment of
PricewaterhouseCoopers<BR>
LLP
as independent</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings" style="font-size: 17pt">&#111;</FONT></TD>
</TR>
<TR valign="top">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" valign="top">registered public accounting firm of the Company for the fiscal year ending December&nbsp;31, 2006.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 7pt; margin-top: 6pt">Choose <B>MLink</B><SUP style="font-size: 85%; vertical-align: text-top"><B>SM</B></SUP> for fast, easy and
secure 24/7 online access to your future
proxy materials, investment plan statements,
tax documents and more. Simply log on to
<B>Investor ServiceDirect</B><SUP style="font-size: 85%; vertical-align: text-top"><B><SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP></B></SUP> at
www.melloninvestor.com/isd where step-by-step
instructions will prompt you through
enrollment.
</DIV>

</DIV>
<BR clear="all">

<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B><FONT face="'Times New Roman',Times,serif">Signature</FONT></B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B><FONT face="'Times New Roman',Times,serif">Signature</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B><FONT face="'Times New Roman',Times,serif">Date</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 7pt">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
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>

<DIV align="center" style="font-size: 10pt"><DIV style="border-bottom: 1px dashed #000000; font-size: 1px">&nbsp;</DIV></DIV>

<DIV align="center" style="font-size: 7pt"><FONT face="Webdings">&#053;</FONT> <B>Detach here from proxy voting card </B><FONT face="Webdings">&#053;</FONT></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><FONT style="font-size:14pt"><B>Vote by Internet or Telephone or Mail</B></FONT><BR>
<FONT style="font-size:12pt"><B>24 Hours a Day, 7 Days a Week</B></FONT>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>Internet and telephone voting is available through 11:59&nbsp;P.M. Eastern Time<BR>
the business day prior to annual meeting day.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner<BR>
as if you marked, signed and returned your proxy card.</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD><!-- VRule -->
    <TD width="0%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD><!-- VRule -->
    <TD width="0%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD><!-- VRule -->
    <TD width="0%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD><!-- VRule -->
    <TD width="0%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 12pt" valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Internet</B></DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="font-size: 11pt" align="center" valign="top"><B>Telephone</B></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Mail</B></TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 12pt" valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>http://www.proxyvoting.com/hlit</B></DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="font-size: 11pt" align="center" valign="top"><B>1-866-540-5760</B></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="font-size: 8pt" rowspan="3" align="center" valign="top"><BR>Mark, sign and date<BR>your proxy card<BR>and<BR>return it in the<BR>enclosed postage-paid<BR>envelope.</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Use the Internet to vote your proxy. Have your proxy card in hand when you access the web site.</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="font-size: 12pt" align="center" valign="top"><B>OR</B></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="font-size: 12pt" align="center" valign="top"><B>OR</B></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 18pt"><B>If you vote your proxy by Internet or by telephone,<BR>
you do NOT need to mail back your proxy card.</B>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
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