BROADCOM CORP
DEF 14A, 2000-03-27
SEMICONDUCTORS & RELATED DEVICES
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<PAGE>   1

                            SCHEDULE 14A INFORMATION

                PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                               (AMENDMENT NO.   )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ]  Preliminary Proxy Statement
[ ]  Confidential, for Use of the Commission Only
     (as permitted by Rule 14a-6(e)(2))
[X]  Definitive Proxy Statement
[ ]  Definitive Additional Materials
[ ]  Soliciting Material Pursuant to sections 240.14a-11(c) or 240.14a-12

                              Broadcom Corporation
- --------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)


- --------------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X]  No fee required.

[ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

     (1)  Title of each class of securities to which transaction applies:

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

     (2)  Aggregate number of securities to which transaction applies:

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

     (3)  Per unit price or other underlying value of transaction computed
          pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
          filing fee is calculated and state how it was determined):

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

     (4)  Proposed maximum aggregate value of transaction:

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

     (5)  Total fee paid:

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

[ ]  Fee paid previously with preliminary materials.

[ ]  Check box if any part of the fee is offset as provided by Exchange Act Rule
     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.

     (1)  Amount Previously Paid:

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

     (2)  Form, Schedule or Registration Statement No.:

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

     (3)  Filing Party:

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

     (4)  Date Filed:

          ----------------------------------------------------------------------
<PAGE>   2

                                [BROADCOM LOGO]

                              BROADCOM CORPORATION
                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                           TO BE HELD APRIL 27, 2000
                            ------------------------

TO OUR SHAREHOLDERS:

     NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of Broadcom Corporation, a California corporation (the "Company"),
will be held on Thursday, April 27, 2000, at 10:00 a.m. Pacific Time at the
Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach, California 92660,
for the following purposes, as more fully described in the Proxy Statement
accompanying this Notice:

     1. To elect five directors to serve on the Company's Board of Directors
        until the next Annual Meeting of Shareholders or until their successors
        are duly elected and qualified.

     2. To approve the amendment of the Company's Amended and Restated Articles
        of Incorporation to increase the aggregate number of authorized shares
        of Class A common stock from 400,000,000 shares to 800,000,000 shares
        and to increase the aggregate number of authorized shares of Class B
        common stock from 200,000,000 shares to 400,000,000 shares.

     3. To approve the amendment of the Company's 1998 Stock Incentive Plan, as
        amended, to increase the number of shares of Class A common stock
        reserved for issuance under the plan by 15,000,000 shares.

     4. To ratify the appointment of Ernst & Young LLP as the independent
        auditors of the Company for the fiscal year ending December 31, 2000.

     5. To transact such other business as may properly come before the meeting
        or any adjournment(s) or postponement(s) thereof.

     All shareholders of record at the close of business on March 3, 2000 are
entitled to notice of and to vote at the Annual Meeting and any adjournment(s)
or postponement(s) thereof.

     All shareholders are cordially invited to attend the Annual Meeting in
person. Whether or not you plan to attend, please sign and return the enclosed
proxy as promptly as possible in the envelope enclosed for your convenience.
Should you receive more than one proxy because your shares are registered in
different names or addresses, please be sure to sign and return each proxy to
assure that all of your shares will be voted. If your shares are held of record
by a broker, bank or other nominee, you will not be able to vote in person at
the Annual Meeting unless you first obtain a proxy issued in your name from the
record holder.

                                      Sincerely,

                                      /s/ Henry T. Nicholas
                                      Henry T. Nicholas III, Ph.D.
                                      President, Chief Executive Officer and
                                      Co-Chairman

Irvine, California
March 27, 2000

YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, AND RETURN THE PROXY CARD IN THE
ENCLOSED ENVELOPE.
<PAGE>   3

                                [BROADCOM LOGO]

                              BROADCOM CORPORATION
                              16215 ALTON PARKWAY
                         IRVINE, CALIFORNIA 92618-3616
                          ---------------------------

                                PROXY STATEMENT
                     FOR THE ANNUAL MEETING OF SHAREHOLDERS
                           TO BE HELD APRIL 27, 2000
                          ---------------------------

GENERAL

     The enclosed proxy (the "Proxy") is solicited on behalf of the Board of
Directors of Broadcom Corporation, a California corporation (the "Company"), for
use at the Annual Meeting of Shareholders to be held on Thursday, April 27, 2000
(the "Annual Meeting") and at any adjournment(s) or postponement(s) thereof. The
Annual Meeting will be held at 10:00 a.m. Pacific Time at the Sutton Place
Hotel, 4500 MacArthur Boulevard, Newport Beach, California 92660. These proxy
solicitation materials were mailed on or about March 27, 2000 to all
shareholders of the Company entitled to vote at the Annual Meeting.

VOTING; QUORUM

     The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy Statement. On March 3, 2000, the record date for
determination of shareholders entitled to notice of and to vote at the Annual
Meeting, 116,478,059 shares of the Company's Class A common stock, par value
$0.0001 per share, were issued and outstanding, and 96,786,343 shares of the
Company's Class B common stock, par value $0.0001 per share, were issued and
outstanding. No shares of the Company's Preferred Stock, par value $0.0001 per
share, were outstanding. The Class A common stock and the Class B common stock
are collectively referred to herein as the "common stock." All share numbers and
prices reported in this Proxy Statement reflect (i) the two-for-one stock split
that was effected on February 17, 1999 through the payment of a dividend of one
additional share of Class A common stock for every share of Class A common stock
outstanding, and one additional share of Class B common stock for every share of
Class B common stock outstanding, as of February 5, 1999 and (ii) the
two-for-one stock split that was effected on February 11, 2000 through the
payment of a dividend of one additional share of Class A common stock for every
share of Class A common stock outstanding, and one additional share of Class B
common stock for every share of Class B common stock outstanding, as of January
31, 2000.

     Holders of common stock will vote at the Annual Meeting as a single class
on all matters, with each holder of Class A common stock entitled to one vote
per share held, and each holder of Class B common stock entitled to ten votes
per share held.

     In the election of directors, the five nominees receiving the highest
number of affirmative votes shall be elected. Proposal Two requires the approval
of the affirmative vote of the holders of common stock representing a majority
of the voting power of all shares of the common stock outstanding on the record
date, voting together as a single class. Proposals Three and Four require the
approval of the affirmative vote of the holders of common stock representing a
majority of the voting power present or represented by proxy and voting at the
Annual Meeting, together with the affirmative vote of the majority of the voting
power of the required quorum. The presence at the Annual Meeting, either in
person or by proxy, of holders of shares of outstanding common stock entitled to
vote and representing a majority of the voting power of such shares shall
constitute a quorum for the transaction of business. Abstentions and shares held
by brokers that are present in person or represented by proxy but that are not
voted because the brokers were prohibited from exercising
<PAGE>   4

discretionary authority ("broker non-votes") will be counted for the purpose of
determining whether a quorum is present for the transaction of business.
Abstentions and broker non-votes can have the effect of preventing approval of a
proposal where the number of affirmative votes, though a majority of the votes
cast, does not constitute a majority of the required quorum. All votes will be
tabulated by the inspector of election appointed for the Annual Meeting, who
will separately tabulate affirmative and negative votes, abstentions and broker
non-votes.

     The stock transfer books of the Company will remain open between the record
date and the date of the Annual Meeting. A list of shareholders entitled to vote
at the Annual Meeting will be available for inspection at the executive offices
of the Company.

PROXIES

     Should you receive more than one proxy because your shares are registered
in different names or addresses, please be sure to sign and return each proxy to
assure that all of your shares will be voted. If the enclosed form of Proxy is
properly signed and returned, the shares represented thereby will be voted at
the Annual Meeting in accordance with the instructions specified thereon. If the
Proxy does not specify how the shares represented thereby are to be voted, the
Proxy will be voted FOR the election of each of the five nominees to the Board
of Directors listed in the Proxy, unless the authority to vote for the election
of any such nominee is withheld, and, if no contrary instructions are given, the
Proxy will be voted FOR the approval of Proposals Two, Three and Four. You may
revoke or change your Proxy at any time before the Annual Meeting by filing a
notice of revocation or another signed Proxy with a later date with the
Secretary of the Company at the Company's principal executive offices, located
at 16215 Alton Parkway, Irvine, California 92618-3616. If you attend the Annual
Meeting and vote by ballot, your proxy will be revoked automatically and only
your vote at the Annual Meeting will be counted. If your shares are held of
record by a broker, bank or other nominee, you will not be able to vote in
person at the Annual Meeting unless you first obtain a proxy issued in your name
from the record holder.

SOLICITATION

     The Company will bear the entire cost of the solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the shareholders. Copies
of solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
The Company may reimburse such persons for their reasonable expenses in
forwarding solicitation materials to beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
personal contacts, telephone, telegram, facsimile, electronic or any other means
by directors, officers or employees of the Company. No additional compensation
will be paid to these individuals for any such services. Except as described
above, the Company does not presently intend to solicit proxies other than by
mail.

DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS

     Proposals of shareholders of the Company that are intended to be presented
by such shareholders at next year's Annual Meeting of Shareholders must be
received by the Company no later than November 28, 2000 in order that they may
be included in the proxy statement and form of proxy relating to that meeting.
In addition, the proxy solicited by the Board of Directors for next year's
Annual Meeting of Shareholders will confer discretionary authority to vote on
any shareholder proposal presented at that meeting, unless the Company receives
notice of such proposal on or before February 10, 2001. Please address any
shareholder proposals to the Secretary of the Company at the Company's principal
executive offices, located at 16215 Alton Parkway, Irvine, California
92618-3616.

                                        2
<PAGE>   5

                 MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING

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

                                 PROPOSAL ONE:

                             ELECTION OF DIRECTORS
GENERAL

     Five directors are to be elected to the Company's Board of Directors at the
Annual Meeting to hold office until their successors are duly elected and
qualified. Each returned Proxy cannot be voted for a greater number of persons
than the nominees named (five). Unless individual shareholders specify
otherwise, each returned Proxy will be voted for the election of the five
nominees who are listed below. If, however, any of the nominees named herein is
unable to serve or declines to serve at the time of the Annual Meeting, the
persons named in the enclosed Proxy will exercise discretionary authority to
vote for substitutes. The nominees for election have agreed to serve if elected,
and management has no reason to believe that any of the nominees will be
unavailable to serve.

     The following table sets forth certain information concerning the nominees
for directors of the Company as of December 31, 1999:

<TABLE>
<CAPTION>
                                          DIRECTOR
               NAME                 AGE    SINCE         POSITIONS WITH THE COMPANY
               ----                 ---   --------       --------------------------
<S>                                 <C>   <C>        <C>
Henry T. Nicholas III, Ph.D.(1)...  40      1991     President, Chief Executive Officer
                                                     and Co-Chairman
Henry Samueli, Ph.D.(1)...........  45      1991     Vice President of Research &
                                                     Development, Chief Technical
                                                     Officer and Co-Chairman
Myron S. Eichen(3)................  70      1998     Director
Alan E. Ross(2)(3)................  64      1995     Director
Werner F. Wolfen(2)...............  69      1994     Director
</TABLE>

     --------------------
     (1) Member of the Option Committee.
     (2) Member of the Audit Committee.
     (3) Member of the Compensation Committee.

     Unless otherwise instructed, the proxy holders will vote the Proxies
received by them FOR each of the nominees named below.

     HENRY T. NICHOLAS III, PH.D. co-founded the Company and has served as its
President, Chief Executive Officer and Co-Chairman since the Company's
inception. From 1988 through 1991, Dr. Nicholas was first a consultant and then
the Director of Microelectronics for PairGain Technologies, Inc., a
telecommunications equipment manufacturer, and was the founder of PairGain's
microelectronics organization. Prior to joining PairGain, Dr. Nicholas held
various senior management positions with the Microelectronics Center of TRW,
Inc. between 1982 and 1989. Dr. Nicholas attended the United States Air Force
Academy, and received a B.S., M.S. and Ph.D. in Electrical Engineering from the
University of California, Los Angeles.

     HENRY SAMUELI, PH.D. co-founded the Company and has served as its Vice
President of Research & Development, Chief Technical Officer and Co-Chairman
since the Company's inception. Since 1985, Dr. Samueli has also been a professor
in the Electrical Engineering Department at the University of California, Los
Angeles, where he supervises advanced research programs in broadband
communications circuits and has published more than 100 papers on the subject.
Dr. Samueli was the Chief Scientist and one of the founders of PairGain, and he
consulted for PairGain from 1988 to 1994. From 1980 until 1985, Dr. Samueli was
employed in various engineering management positions in the Electronics and
Technology Division of TRW. Dr. Samueli received a B.S., M.S. and Ph.D. in
Electrical Engineering from the University of California, Los Angeles.

     MYRON S. EICHEN has been a director of the Company since February 1998 and
served as an advisor to the Board of Directors from 1994 to February 1998. Mr.
Eichen is presently a director of Rokenbok Toy Company

                                        3
<PAGE>   6

and has founded and served as a director of a number of public and private
companies. Mr. Eichen also served as Chairman of the Board of Brooktree
Corporation (now a division of Conexant Systems Inc.), a semiconductor
manufacturer, from 1981 to 1990, and was Chief Executive Officer of Brooktree
from 1981 to 1987.

     ALAN E. ROSS has been a director of the Company since November 1995. Mr.
Ross is a director of several companies in the semiconductor industry, including
Artest Corporation (of which he is Chairman of the Board). Mr. Ross also served
as Chairman of the Board of Worldwide Semiconductor Manufacturing Corporation
from March 1996 until April 1999. Since January 1999 Mr. Ross has served as
Chief Executive Officer and a director of Intellicore, Inc. In addition, Mr.
Ross served as Chief Executive Officer of Gambit Automated Design, Inc. from
June 1997 to February 1998, and was a director of that company from 1991 to
1998. Mr. Ross served as President of Rockwell Telecommunications Group from
April 1990 to December 1995. Mr. Ross received a B.S. from San Diego State
University.

     WERNER F. WOLFEN has been a director of the Company since July 1994, when
he joined the Board of Directors as the nominee of a group of investors. Until
December 1998, Mr. Wolfen served as a Senior Partner of the law firm of Irell &
Manella LLP and was Co-Chairman of the firm's Executive Committee from 1982 to
1992. Since January 1999 Mr. Wolfen has been a Senior Partner Emeritus of Irell
& Manella LLP and President of Capri Investments, LLC, an investment advisory
firm. Irell & Manella LLP has represented and continues to represent the Company
in various transactional and litigation matters. Mr. Wolfen has served as a
director of several public and private companies and currently serves as a
director of Vixel Corporation, a public company, and of Rokenbok Toy Company and
Sequel Technologies, both private companies. Mr. Wolfen received a B.S. from the
University of California, Berkeley and a J.D. from the University of California
Boalt Hall School of Law.

BOARD COMMITTEES AND MEETINGS

     The Board of Directors held ten meetings during the fiscal year ended
December 31, 1999 (the "1999 Fiscal Year"). The Board of Directors has an Audit
Committee, a Compensation Committee and an Option Committee. Each director
attended or participated in 75% or more of the aggregate of (i) the total number
of meetings of the Board of Directors and (ii) the total number of meetings held
by all committees of the Board on which such director served during the 1999
Fiscal Year. Members of the Board of Directors and its committees also consulted
informally with management from time to time and acted by written consent
without a meeting during the 1999 Fiscal Year.

     AUDIT COMMITTEE. The Audit Committee of the Board of Directors currently
consists of two directors, Messrs. Ross and Wolfen. The Audit Committee reviews
and monitors the corporate financial reporting and the internal and external
audits of the Company, including, among other things, the Company's internal
audit and control functions, the results and scope of the annual audit and other
services provided by the Company's independent auditors and the Company's
compliance with legal matters that have a significant impact on the Company's
financial reports. The Audit Committee also consults with the Company's
management and the Company's independent auditors prior to the presentation of
financial statements to shareholders and, as appropriate, initiates inquiries
into various aspects of the Company's financial affairs. In addition, the Audit
Committee is responsible for considering and recommending the appointment of,
and reviewing fee arrangements with, the Company's independent auditors. The
Audit Committee held three meetings during the 1999 Fiscal Year.

     COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors currently consists of two directors, Messrs. Eichen and Ross. The
Compensation Committee reviews and makes recommendations to the Board regarding
the Company's compensation policies and all forms of compensation to be provided
to executive officers and directors of the Company, including, among other
things, annual salaries and bonuses, and stock option and other incentive
compensation arrangements. In addition, the Compensation Committee reviews bonus
and stock compensation arrangements for all other employees of the Company. The
Compensation Committee also administers the Discretionary Option Grant Program
and Stock Issuance Program with respect to the Company's executive officers and
Board members and the Salary Investment

                                        4
<PAGE>   7

Option Grant Program under the Company's 1998 Stock Incentive Plan. The
Compensation Committee held one meeting during the 1999 Fiscal Year.

     OPTION COMMITTEE. The Option Committee of the Board of Directors currently
consists of two directors, Dr. Nicholas and Dr. Samueli. The Option Committee is
responsible for administering the Discretionary Option Grant Program and the
Stock Issuance Program under the 1998 Stock Incentive Plan with respect to
eligible individuals other than the Company's executive officers or Board
members. The Option Committee held no meetings but, in lieu thereof, acted on
various occasions by written consent without a meeting during the 1999 Fiscal
Year.

DIRECTOR COMPENSATION

     Directors of the Company do not receive cash compensation for their service
as directors. Under the Automatic Option Grant Program in effect under the
Company's 1998 Stock Incentive Plan, each new non-employee director will receive
an option to purchase 160,000 shares of Class A common stock upon joining the
Board of Directors. On the date of each Annual Meeting of Shareholders, each
incumbent non-employee director who is to continue to serve as a director will
be granted an option to purchase an additional 12,000 shares of Class A common
stock, provided that such individual has served as a non-employee director of
the Company for at least six months. Each grant under the Automatic Option Grant
Program will have an exercise price per share equal to the fair market value per
share of the Company's Class A common stock on the grant date, and will have a
maximum term of ten years, subject to earlier termination should the optionee
cease to serve as a member of the Board of Directors.

     The current non-employee members of the Board of Directors, Messrs. Eichen,
Ross and Wolfen, each received an option grant on April 16, 1998 for 160,000
shares of the Company's Class A common stock. The exercise price per share in
effect under each such option is $6.00, the fair market value per share of Class
A common stock on the grant date. Each option is immediately exercisable for all
the option shares, but any shares purchased under the option will be subject to
repurchase by the Company, at the exercise price paid per share, upon the
optionee's cessation of Board service prior to vesting in those shares. The
shares subject to each option grant will vest in (and the Company's repurchase
right will lapse over) four successive equal installments upon the optionee's
completion of each year of Board service over the four-year period measured from
the option grant date. The incumbent non-employee directors are also entitled to
receive annual stock grants under the Automatic Option Grant Program. The shares
subject to each outstanding automatic option grant will immediately vest in full
under certain circumstances as provided in the 1998 Stock Incentive Plan. At the
Company's Annual Meeting of Shareholders in May 1999, Messrs. Eichen, Ross and
Wolfen were each eligible to receive a 12,000 share annual stock option grant
but declined to accept such grant for 1999.

REQUIRED VOTE

     The five nominees receiving the highest number of affirmative votes of the
outstanding shares of Class A common stock and Class B common stock, voting
together as a single class, present or represented by proxy and entitled to be
voted for them, shall be elected as directors. Each Proxy cannot be voted for a
greater number of persons than five.

RECOMMENDATION OF THE BOARD OF DIRECTORS

     THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF EACH OF THE NOMINEES LISTED ABOVE. UNLESS AUTHORITY TO DO SO IS
WITHHELD, THE PROXY HOLDERS NAMED IN EACH PROXY WILL VOTE THE SHARES REPRESENTED
THEREBY "FOR" THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVE.

                                        5
<PAGE>   8

                                 PROPOSAL TWO:

               APPROVAL OF AMENDMENT OF ARTICLES OF INCORPORATION
                 TO INCREASE AUTHORIZED SHARES OF COMMON STOCK

     Under the Company's present capital structure, the Company is authorized to
issue 400,000,000 shares of Class A common stock, par value $0.0001 per share,
200,000,000 shares of Class B common stock, par value $0.0001 per share, and
10,000,000 shares of Preferred Stock, par value $0.0001 per share. The Board of
Directors believes the number of authorized shares of common stock is inadequate
for the present and future needs of the Company and, in particular, limits the
Company's ability to effect future stock splits in the form of a stock dividend.
Therefore, the Board has unanimously approved the amendment of Article III of
the Company's Amended and Restated Articles of Incorporation, as previously
amended, to increase the aggregate number of shares of Class A common stock
authorized for issuance by 400,000,000 shares, to an aggregate of 800,000,000
shares authorized, and to increase the aggregate number of shares of Class B
common stock authorized for issuance by 200,000,000 shares, to an aggregate of
400,000,000 shares authorized. The Board's action is subject to shareholder
approval at the Annual Meeting. The Board believes this capital structure more
appropriately reflects the present and future needs of the Company and
recommends that the Company's shareholders approve such amendment. The Preferred
Stock may be issued from time to time in one or more series with such rights,
preferences and privileges, including dividend rates, conversion and redemption
prices, and voting rights, as may be determined by the Board of Directors. On
March 3, 2000, 116,478,059 shares of Class A common stock were outstanding,
96,786,343 shares of Class B common stock were outstanding, and no shares of
Preferred Stock were outstanding. On March 3, 2000, assuming the exercise of all
outstanding options, approximately 159,469,874 shares of Class A common stock
and 118,084,708 shares of Class B common stock would be outstanding on a fully
diluted basis.

PURPOSE OF AUTHORIZING ADDITIONAL COMMON STOCK

     The authorization of an additional 400,000,000 shares of Class A common
stock and 200,000,000 shares of Class B common stock would give the Board of
Directors the ability to issue such shares of common stock from time to time as
the Board deems necessary. The Board believes it is necessary to have the
ability to issue such additional shares of common stock for any proper corporate
purpose, such as stock splits and stock dividends, future acquisitions, stock
and option grants, and convertible debt and equity financings. Because the
broadband communications market is experiencing rapid technological changes,
evolving industry standards and new product introductions, the Company expects
to continue to need to issue stock and options to attract key individuals and
other personnel and to acquire complementary businesses, technologies and
products. The Company may also fund its activities and acquisitions through
several different means, including equity and convertible debt financings.

     The Company has no specific plans, understandings or agreements at present
for the issuance of the proposed additional shares of common stock. The Board of
Directors, however, believes that if an increase in the authorized number of
shares of common stock were to be postponed until a specific need arose, the
delay and expense incident to obtaining the approval of the Company's
shareholders at that time could significantly impair the Company's ability to
consummate an acquisition or to meet financing requirements or other objectives.
It may also delay the effectiveness of a stock dividend.

     The additional common stock would be available for issuance by the Board of
Directors without any future action by the shareholders, unless such action were
specifically required by the Company's Amended and Restated Articles of
Incorporation as then in effect, applicable law or the rules of any stock
exchange or quotation system on which the Company's securities may then be
listed.

     The proposed increase in the authorized number of shares of common stock
could have a number of effects on the Company's shareholders depending upon the
exact nature and circumstances of any actual issuances of the authorized shares.
The increase could have an anti-takeover effect, in that additional shares could
be issued (within the limits imposed by applicable law) in one or more
transactions that could make a change in control or takeover of the Company more
difficult. For example, additional shares could be issued by the Company to
dilute the stock ownership or voting rights of persons seeking to obtain control
of the

                                        6
<PAGE>   9

Company. Similarly, the issuance of additional shares to certain persons allied
with the Company's management could have the effect of making it more difficult
to remove the Company's current management by diluting the stock ownership or
voting rights of persons seeking to cause such removal. In addition, an issuance
of additional shares by the Company could have an effect on the potential
realizable value of a shareholder's investment. In the absence of a
proportionate increase in the Company's earnings and book value, an increase in
the aggregate number of the Company's outstanding shares of common stock caused
by the issuance of the additional shares would dilute the earnings per share and
book value per share of all outstanding shares of the Company's capital stock.
If such factors were reflected in the price per share of common stock, the
potential realizable value of a shareholder's investment could be adversely
affected.

REQUIRED VOTE

     The affirmative vote of the holders of common stock representing a majority
of the voting power of all shares of the Company's Class A common stock and
Class B common stock outstanding on the record date, voting together as a single
class, is required for approval of the amendment of the Company's Amended and
Restated Articles of Incorporation, as previously amended, to increase the
aggregate number of shares of Class A common stock authorized for issuance by
400,000,000 shares, to an aggregate of 800,000,000 shares, and to increase the
aggregate number of shares of Class B common stock authorized for issuance by
200,000,000 shares, to an aggregate of 400,000,000 shares.

RECOMMENDATION OF THE BOARD OF DIRECTORS

     THE BOARD OF DIRECTORS DEEMS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE PROPOSAL. UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PROXY HOLDERS NAMED IN
EACH PROXY WILL VOTE THE SHARES REPRESENTED THEREBY "FOR" THE APPROVAL OF THE
AMENDMENT OF THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK AS PROVIDED IN PROPOSAL
TWO.

                                        7
<PAGE>   10

                                PROPOSAL THREE:

             APPROVAL OF AMENDMENT OF THE 1998 STOCK INCENTIVE PLAN

     The shareholders are being asked to approve the amendment of the Company's
1998 Stock Incentive Plan, as previously amended (the "1998 Plan"), to increase
the number of shares of the Company's Class A common stock reserved for issuance
under the 1998 Plan by 15,000,000 shares.

     The Board of Directors unanimously adopted this amendment on February 29,
2000, subject to shareholder approval at the Annual Meeting.

     The proposed amendment will assure that a sufficient reserve of Class A
common stock remains available for issuance under the 1998 Plan in order to
allow the Company to continue to utilize equity incentives to attract and retain
the services of key individuals and other personnel essential to the Company's
long-term growth and financial success. The Company relies significantly on
equity incentives in the form of stock option grants in order to attract and
retain key employees and other personnel and believes that such equity
incentives are necessary for the Company to remain competitive in the
marketplace for executive talent and other key employees. Option grants made to
newly-hired or continuing employees will be based on both competitive market
conditions and individual performance.

     The following is a summary of the principal features of the 1998 Plan, as
most recently amended. Any shareholder of the Company who wishes to obtain a
copy of the actual plan document may do so upon written request to Investor
Relations, Broadcom Corporation, P.O. Box 57013, Irvine, California 92619-7013.
The 1998 Plan serves as the successor to the Company's 1994 Stock Option Plan
and the Special Stock Option Plan (collectively, the "Predecessor Plans"), which
terminated in connection with the initial public offering of the Company's Class
A common stock in April 1998. All outstanding options under the Predecessor
Plans at the time of such termination were transferred to the 1998 Plan.

EQUITY INCENTIVE PROGRAMS

     The 1998 Plan consists of five separate equity incentive programs: (i) the
Discretionary Option Grant Program, (ii) the Salary Investment Option Grant
Program, (iii) the Stock Issuance Program, (iv) the Automatic Option Grant
Program for non-employee members of the Board of Directors, and (v) the Director
Fee Option Grant Program for such Board members. The principal features of each
program are described below. The Compensation Committee of the Board of
Directors will have the exclusive authority to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to option grants and stock
issuances made to the Company's executive officers and non-employee members of
the Board and will also have the authority to make option grants and stock
issuances under those programs to all other eligible individuals. However, the
Board of Directors may at any time appoint a secondary committee of one or more
members of the Board to have separate but concurrent authority with the
Compensation Committee to make option grants and stock issuances under those two
programs to individuals other than the Company's executive officers and
non-employee members of the Board. The Compensation Committee will also have
complete discretion to select the individuals who are to participate in the
Salary Investment Option Grant Program, but all grants made to the selected
individuals will be governed by the express terms of that program.

     As of the date of this Proxy Statement, the Company has only implemented
the Discretionary Option Grant Program and Automatic Option Grant Program and
has not issued any shares or granted any options under the Stock Issuance
Program, the Salary Investment Option Grant Program or the Director Fee Option
Grant Program. The Board of Directors may determine to implement such programs
in the future.

     The term "Plan Administrator," as used in this summary, will mean the
Compensation Committee and any secondary committee, to the extent each such
entity is acting within the scope of its administrative jurisdiction under the
1998 Plan. However, neither the Compensation Committee nor any secondary
committee will exercise any administrative discretion under the Automatic Option
Grant and Director Fee Option Grant Programs. All grants under those programs
will be made in strict compliance with the express provisions of such programs.

                                        8
<PAGE>   11

     The Board of Directors has appointed an Option Committee, consisting of Dr.
Nicholas and Dr. Samueli, and has authorized such committee to make option
grants and stock issuances under the Discretionary Option Grant Program and the
Stock Issuance Program to eligible individuals other than the Company's
executive officers and non-employee members of the Board.

SHARE RESERVE

     A total of 78,165,410 shares of Class A common stock and 31,792,912 shares
of Class B common stock have been reserved in the aggregate for issuance over
the term of the 1998 Plan. The foregoing share reserve includes the additional
increase of 15,000,000 shares of Class A common stock for which shareholder
approval is sought under this Proposal. In addition, the number of shares of
Class A common stock reserved for issuance under the 1998 Plan will
automatically increase on the first trading day of January of each calendar year
by an amount equal to four and one-half percent (4.5%) of the total number of
shares of Class A common stock and Class B common stock outstanding on the last
trading day of December in the immediately preceding calendar year, but in no
event will any such annual increase exceed 18,000,000 shares of Class A common
stock.

     No participant in the 1998 Plan may receive option grants, separately
exercisable stock appreciation rights or direct stock issuances for more than
6,000,000 shares of Class A common stock in the aggregate per calendar year.
Shareholder approval of this Proposal will also constitute a reapproval of the
6,000,000 share limitation for purposes of Internal Revenue Code Section 162(m).

     The shares of Class A common stock and Class B common stock issuable under
the 1998 Plan may be drawn from shares of the Company's authorized but unissued
shares of such common stock or from shares of such common stock reacquired by
the Company, including shares repurchased on the open market.

     Shares subject to any outstanding options under the 1998 Plan (including
options transferred from the Predecessor Plans) which expire or otherwise
terminate prior to exercise will be available for subsequent issuance. Unvested
shares issued under the 1998 Plan and subsequently repurchased by the Company,
at the option exercise or direct issue price paid per share, pursuant to the
Company's repurchase rights under the 1998 Plan will be added back to the number
of shares reserved for issuance under the 1998 Plan and will accordingly be
available for subsequent issuance. In addition, the share reserve under the 1998
Plan will be increased by any unvested shares originally issued under the
Predecessor Plans and subsequently repurchased by the Company, at the option
exercise price paid per share, in connection with the optionee's termination of
service prior to vesting in those shares, but in no event will such increase
exceed 2,878,284 shares as of March 3, 2000. However, any shares subject to
stock appreciation rights exercised under the 1998 Plan will not be available
for reissuance.

     Should the exercise price of an option under the 1998 Plan be paid with
shares of Class A common stock or should shares of Class A common stock
otherwise issuable under the 1998 Plan be withheld by the Company in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the 1998 Plan, then the
number of shares of Class A common stock available for issuance under the 1998
Plan will be reduced only by the net number of shares of Class A common stock
issued to the holder of such option or stock issuance, and not by the gross
number of shares for which the option is exercised or which vest under the stock
issuance.

ELIGIBILITY

     Officers, employees, non-employee members of the Board of Directors and
independent consultants in the service of the Company or its parent and
subsidiaries, whether now existing or subsequently established, will be eligible
to participate in the Discretionary Option Grant and Stock Issuance Programs.
The Company's executive officers and other highly paid employees will also be
eligible to participate in the Salary Investment Option Grant Program, and
non-employee members of the Board of Directors will also be eligible to
participate in the Automatic Option Grant and Director Fee Option Grant
Programs.

                                        9
<PAGE>   12

     As of March 3, 2000 eight executive officers, three non-employee members of
the Board of Directors and approximately 1,137 other employees were eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs. The
eight executive officers were eligible to participate in the Salary Investment
Option Grant Program, and the three non-employee members of the Board of
Directors were eligible to participate in the Automatic Option Grant and
Director Fee Option Grant Programs.

VALUATION

     The fair market value per share of Class A common stock on any relevant
date under the 1998 Plan will be deemed to be equal to the closing selling price
per share on that date on the Nasdaq National Market. On March 3, 2000 the fair
market value per share determined on such basis was $232.88.

DISCRETIONARY OPTION GRANT PROGRAM

     The Plan Administrator will have complete discretion under the
Discretionary Option Grant Program to determine which eligible individuals are
to receive option grants, the time or times when those grants are to be made,
the number of shares subject to each such grant, the status of any granted
option as either an incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule, if any, to be in effect for the option
grant and the maximum term for which any granted option is to remain
outstanding.

     Each granted option will have an exercise price per share determined by the
Plan Administrator, but in no event will such exercise price be less than
eighty-five percent (85%) of the fair market value of the option shares on the
grant date. No granted option will have a term in excess of ten years, and the
option will generally become exercisable in one or more installments over a
specified period of service measured from the grant date. However, options may
be structured so that they will be immediately exercisable for any or all of the
option shares. The shares acquired under those options may be subject to
repurchase by the Company, at the exercise price paid per share, if the optionee
ceases service with the Company prior to vesting in those shares.

     Upon cessation of service with the Company, the optionee will have a
limited period of time in which to exercise any outstanding option to the extent
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.

     The Plan Administrator is authorized to issue tandem stock appreciation
rights under the Discretionary Option Grant Program, which will provide the
holders with the right to surrender their options for an appreciation
distribution from the Company. The amount of such distribution will be equal to
the excess of (i) the fair market value of the vested shares of Class A common
stock subject to the surrendered option over (ii) the aggregate exercise price
payable for such shares. Such appreciation distribution may, at the discretion
of the Plan Administrator, be made in cash or in shares of Class A common stock.

     The Plan Administrator also has the authority to effect the cancellation of
any or all options outstanding under the Discretionary Option Grant Program and
to grant, in substitution therefor, new options covering the same or a different
number of shares of Class A common stock or Class B common stock, but with an
exercise price per share based upon the fair market value of the option shares
on the new grant date.

SALARY INVESTMENT OPTION GRANT PROGRAM

     The Compensation Committee will have complete discretion in implementing
the Salary Investment Option Grant Program for one or more calendar years and in
selecting the executive officers and other eligible individuals who are to
participate in the program for those years. As a condition to such
participation, each selected individual must, prior to the start of the calendar
year of participation, file with the Compensation Committee an irrevocable
authorization directing the Company to reduce his or her base salary for the
upcoming calendar year by a specified dollar amount not less than $10,000 nor
more than $50,000 and to apply

                                       10
<PAGE>   13

that amount to the acquisition of a special option grant under the program. As
of March 3, 2000 no individuals had participated in this program.

     Each selected individual who files such a timely election will
automatically be granted a non-statutory option on the first trading day in
January of the calendar year for which that salary reduction is to be in effect.
Shareholder approval of this Proposal will also constitute pre-approval of each
option granted under the Salary Investment Option Grant Program after the date
of the Annual Meeting and the subsequent exercise of that option in accordance
with the terms of the program summarized below.

     The number of shares subject to each such option will be determined by
dividing the salary reduction amount by two-thirds of the fair market value per
share of Class A common stock on the grant date, and the exercise price will be
equal to one-third of the fair market value of the option shares on the grant
date. As a result, the total spread on the option shares at the time of grant
(the fair market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will be equal to the salary reduction
amount. In effect, the salary reduction will constitute a pre-payment of the
remaining two-thirds of the fair market value of the option shares on the grant
date.

     The option will become exercisable in a series of twelve equal monthly
installments upon the optionee's completion of each calendar month of service in
the calendar year for which the salary reduction is in effect and will become
immediately exercisable for all the option shares on an accelerated basis upon
certain changes in ownership or control of the Company. Each option will remain
exercisable for any vested shares until the earlier of (i) the expiration of the
ten year option term or (ii) the end of the three year period measured from the
date of the optionee's cessation of service.

STOCK ISSUANCE PROGRAM

     Shares of Class A common stock may be issued under the Stock Issuance
Program for such valid consideration under the California General Corporation
Law as the Plan Administrator deems appropriate, including cash and promissory
notes. The shares may also be issued as a bonus for past services without any
cash outlay required of the recipient. In addition, shares of Class A common
stock may be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals. The Plan Administrator will have complete
discretion under the program to determine which eligible individuals are to
receive such stock issuances or share right awards, the time or times when those
issuances or awards are to be made, the number of shares subject to each such
issuance or award and the vesting schedule to be in effect for the stock
issuance or share rights award. As of March 3, 2000 the Company had not issued
any shares under the Stock Issuance Program.

     The shares issued may be fully vested upon issuance or may vest upon the
completion of a designated service period or the attainment of pre-established
performance goals. The Plan Administrator will, however, have the discretionary
authority at any time to accelerate the vesting of any and all unvested shares
outstanding under the Stock Issuance Program.

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

AUTOMATIC OPTION GRANT PROGRAM

     Under the Automatic Option Grant Program, eligible non-employee members of
the Board of Directors will receive a series of option grants over their period
of service on the Board of Directors. Each non-employee member of the Board of
Directors will, at the time of his or her initial election or appointment to the
Board, receive an option grant for 160,000 shares of Class A common stock,
provided that such individual has not previously been in the employ of the
Company or any of its parents or subsidiaries. In addition to an initial option
grant, on the date of each Annual Meeting of Shareholders, each individual who
is to continue to serve

                                       11
<PAGE>   14

as a non-employee member of the Board of Directors will automatically be granted
an option to purchase 12,000 shares of Class A common stock, provided he or she
has served as a non-employee member of the Board for at least six months. There
will be no limit on the number of such 12,000 share option grants any one
eligible non-employee member of the Board may receive over his or her period of
continued service on the Board, and non-employee members of the Board who have
previously been in the Company's employ will be eligible to receive one or more
such annual option grants over their period of service on the Board. At the
Company's Annual Meeting of Shareholders in May 1999, each non-employee member
of the Board who was eligible to receive a 12,000 share annual stock option
grant declined to accept such grant for 1999.

     Shareholder approval of this Proposal will also constitute pre-approval of
each option granted under the Automatic Option Grant Program on or after the
date of the Annual Meeting and the subsequent exercise of that option in
accordance with the terms of the program summarized below.

     Each automatic grant will have an exercise price per share equal to the
fair market value per share of Class A common stock on the grant date and will
have a maximum term of ten years, subject to earlier termination following the
optionee's cessation of service on the Board of Directors. Each automatic option
will be immediately exercisable for all of the option shares; however, any
unvested shares purchased under such option will be subject to repurchase by the
Company, at the exercise price paid per share, should the optionee cease service
on the Board prior to vesting in those shares. The shares subject to each
initial 160,000 share automatic option grant will vest in a series of four
successive equal annual installments upon the optionee's completion of each year
of service on the Board over the four-year period measured from the grant date.
The shares subject to each annual 12,000 share automatic grant will vest upon
the optionee's completion of one year of service on the Board measured from the
grant date. However, the shares subject to each outstanding automatic option
grant will immediately vest in full upon certain changes in control or ownership
of the Company or upon the optionee's death or disability while a member of the
Board of Directors. Following the optionee's cessation of service on the Board
for any reason, each option will remain exercisable for a twelve month period
and may be exercised during that time for any or all shares in which the
optionee is vested at the time of such cessation of service on the Board.

DIRECTOR FEE OPTION GRANT PROGRAM

     Each non-employee member of the Board of Directors will have the right to
apply all or a portion of his total retainer fee, if any, otherwise payable in
cash each year to the acquisition of a special option grant under the Director
Fee Option Grant Program. The grant will automatically be made on the first
trading day in January following the filing of the retainer-fee election and
will have an exercise price per share equal to one-third of the fair market
value of the option shares on the grant date. The number of option shares will
be determined by dividing the total dollar amount of the retainer fee subject to
the director's election by two-thirds of the fair market value per share of
Class A common stock on the option grant date. As a result, the total spread on
the option (the fair market value of the option shares on the grant date less
the aggregate exercise price payable for those shares) will be equal to the
portion of the retainer fee subject to the director's election. In effect, the
retainer-fee election will constitute a pre-payment of the remaining two-thirds
of the fair market value of the option shares on the grant date. As of March 3,
2000 no members of the Company's Board of Directors participated in this
program.

     Shareholder approval of this Proposal will constitute pre-approval of each
option granted pursuant to the provisions of the Director Fee Option Grant
Program after the date of the Annual Meeting and the subsequent exercise of that
option in accordance with its terms.

     Options granted under this program will become exercisable for the option
shares in a series of twelve successive equal monthly installments upon the
optionee's completion of each month of service on the Board of Directors during
the calendar year for which the retainer-fee election is in effect. In the event
the optionee ceases service on the Board for any reason (other than death or
permanent disability), the option will immediately terminate with respect to any
unvested shares subject to the option at the time. However, the option will
remain exercisable for the vested shares subject to the option until the earlier
of (i) the expiration of the ten year option term or (ii) the end of the three
year period measured from the date of the

                                       12
<PAGE>   15

optionee's cessation of service on the Board. Should the optionee's service as a
member of the Board cease by reason of death or permanent disability, then the
option will immediately become exercisable for all the shares of common stock
subject to the option and may be exercised for any or all of those shares until
the earlier of (i) the expiration of the ten year option term or (ii) the end of
the three year period measured from the date of the optionee's cessation of
service on the Board.

LIMITED STOCK APPRECIATION RIGHTS

     Each option granted under the Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program will include a limited stock
appreciation right. Upon the successful completion of a hostile tender offer for
more than fifty percent of the Company's outstanding voting securities or a
change in a majority of the Board of Directors as a result of one or more
contested elections for membership on the Board of Directors, each outstanding
option under the Salary Investment Option Grant, Automatic Option Grant or
Director Fee Option Grant Program may be surrendered to the Company in return
for a cash distribution from the Company. The amount of the distribution per
surrendered option share will be equal to the excess of (i) the fair market
value per share at the time the option is surrendered or, if greater, the tender
offer price paid per share in the hostile take-over over (ii) the exercise price
payable per share under such option.

     Shareholder approval of this Proposal will also constitute pre-approval of
each limited stock appreciation right granted under the Salary Investment Option
Grant, Automatic Option Grant or Director Fee Option Grant Program and the
subsequent exercise of that right in accordance with the foregoing terms.

PREDECESSOR PLANS

     All outstanding options under the Predecessor Plans that were transferred
to the 1998 Plan will continue to be governed by the terms of the original
agreements evidencing those options, and no provision of the 1998 Plan will
affect or otherwise modify the rights or obligations of the holders of the
transferred options with respect to their acquisition of Class A common stock or
Class B common stock. However, the Plan Administrator has complete discretion to
extend one or more provisions of the 1998 Plan to the transferred options, to
the extent those options do not otherwise contain such provisions.

                                       13
<PAGE>   16

STOCK AWARDS

     The table below sets forth, as to the Company's Chief Executive Officer,
the four other most highly compensated executive officers of the Company (with
base salary and bonus for the past fiscal year in excess of $100,000) and the
other individuals and groups indicated, the number of shares of common stock
subject to option grants made under the 1998 Plan from the April 8, 1998
effective date of the 1998 Plan through March 3, 2000, together with the
weighted average exercise price payable per share for such option grants. The
Company has not made any direct stock issuances to date under the 1998 Plan.

                              OPTION TRANSACTIONS

<TABLE>
<CAPTION>
                                           NUMBER OF SHARES                             WEIGHTED AVERAGE
                                              UNDERLYING         TYPE OF SECURITIES    EXERCISE PRICE PER
           NAME AND POSITION              OPTIONS GRANTED(#)     UNDERLYING OPTIONS         SHARE($)
           -----------------              -------------------   --------------------   ------------------
<S>                                       <C>                   <C>                    <C>
Henry T. Nicholas III, Ph.D.............              --                          --              --
  President, Chief Executive Officer and
  Co-Chairman
Henry Samueli, Ph.D. ...................              --                          --              --
  Vice President of Research &
  Development, Chief Technical Officer
  and Co-Chairman
David A. Dull...........................         200,000        Class A common stock        $20.4532
  Vice President of Business Affairs,
  General Counsel and Secretary
Aurelio E. Fernandez....................         200,000        Class A common stock        $20.4532
  Vice President of Worldwide Sales
William J. Ruehle.......................         600,000        Class A common stock        $20.4532
  Vice President and Chief Financial
  Officer
Myron S. Eichen.........................         160,000        Class A common stock        $   6.00
  Director
Alan E. Ross............................         160,000        Class A common stock        $   6.00
  Director
Werner F. Wolfen........................         160,000        Class A common stock        $   6.00
  Director
All current executive officers as a
  group (8 persons).....................       1,960,000        Class A common stock        $20.4532
All current non-employee directors as a
  group (3 persons).....................         480,000        Class A common stock        $   6.00
All employees, including current
  officers who are not executive
  officers, as a group..................      42,728,089        Class A common stock        $49.3283
</TABLE>

All of the options granted to the persons individually named in the foregoing
table were granted in 1998. As of March 3, 2000, 42,951,273 shares of Class A
common stock and 19,878,057 shares of Class B common stock were subject to
outstanding options under the 1998 Plan, 1,790,088 shares of Class A common
stock and 11,488,605 shares of Class B common stock had been issued under the
1998 Plan, and 18,865,049 shares of Class A common stock remained available for
future issuance. In February 2000 the Board of Directors approved an amendment
to the 1998 Plan to increase the number of shares available for future issuance
by 15,000,000 shares, subject to shareholder approval of this Proposal.

OPTION GRANTS AND ISSUANCES OF SHARES UNDER THE AMENDMENT

     As of March 3, 2000 no stock options had been granted, and no shares had
been issued, under the 1998 Plan on the basis of the share increase that will
result from the amendment to the 1998 Plan for which shareholder approval is
sought at the Annual Meeting.

                                       14
<PAGE>   17

GENERAL PROVISIONS

  Acceleration

     In the event a change in control of the Company occurs, each outstanding
option under the Discretionary Option Grant Program will automatically
accelerate in full, unless (i) the option is assumed by the successor
corporation or otherwise continued in effect or (ii) the option is replaced with
a cash incentive program which preserves the spread existing on the unvested
option shares (the excess of the fair market value of those shares over the
option exercise price payable for such shares) and provides for subsequent
payout in accordance with the same vesting schedule in effect for those option
shares. In addition, all unvested shares outstanding under the Discretionary
Option Grant and Stock Issuance Programs will immediately vest, except to the
extent the Company's repurchase rights with respect to those shares are to be
assigned to the successor corporation or otherwise continued in effect. The Plan
Administrator will have complete discretion to grant one or more options under
the Discretionary Option Grant Program that will become exercisable for all the
option shares in the event the optionee's service with the Company or the
successor entity is terminated (actually or constructively) within a designated
period following a change in control transaction in which those options are
assumed or otherwise continued in effect. The vesting of outstanding shares
under the Stock Issuance Program may also be structured to accelerate upon
similar terms and conditions.

     The Plan Administrator will have the discretion to structure one or more
option grants under the Discretionary Option Grant Program so that those options
will vest immediately upon a change in control, whether or not the options are
to be assumed or otherwise continued in effect. The Plan Administrator may also
structure stock issuances under the Stock Issuance Program so that those
issuances will immediately vest upon a change in control or upon the subsequent
termination of the individual's service with the Company. The shares subject to
each option under the Salary Investment Option Grant, Automatic Option Grant and
Director Fee Option Grant Programs will immediately vest upon any change in
control transaction. A change in control will be deemed to occur upon (i) an
acquisition of the Company by merger or asset sale, (ii) the successful
completion of a tender offer for more than fifty percent of the Company's
outstanding voting stock, or (iii) a change in the majority of the Board of
Directors effected through one or more contested elections for membership on the
Board of Directors.

     The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.

  Shareholder Rights and Option Transferability

     No optionee will have any shareholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise price
for the purchased shares. Options are not assignable or transferable other than
by will or the laws of inheritance following optionee's death, and during the
optionee's lifetime, the option may only be exercised by the optionee. However,
non-statutory options may be transferred or assigned during the optionee's
lifetime to one or more members of the optionee's family or to a trust
established for one or more such family members or to the optionee's former
spouse, to the extent such transfer is in connection with the optionee's estate
plan or pursuant to a domestic relations order.

  Changes in Capitalization

     In the event any change is made to the outstanding shares of Class A common
stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and/or class of securities issuable under
the 1998 Plan, (ii) the maximum number and/or class of securities for which any
one person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the 1998 Plan per calendar
year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee members of the Board of Directors, (iv) the number
and/or class of securities and the exercise price per share in effect under each
outstanding option, (v) the number and/or

                                       15
<PAGE>   18

class of securities and the exercise price per share in effect under each
outstanding option transferred from the Predecessor Plans to the 1998 Plan, (vi)
the maximum number and/or class of securities by which the share reserve under
the 1998 Plan is to increase automatically each year, and (vii) the maximum
number and/or class of securities by which the share reserve under the 1998 Plan
may increase as a result of the repurchase of unvested shares originally issued
under the Predecessor Plan. Such adjustments will be designed to preclude any
dilution or enlargement of benefits under the Plan or the outstanding options
thereunder.

  Financial Assistance

     The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options under the
Discretionary Option Grant Program or the purchase of shares under the Stock
Issuance Program through full-recourse interest-bearing promissory notes.
However, the maximum amount of financing provided any participant may not exceed
the cash consideration payable for the issued shares plus all applicable taxes
incurred in connection with the acquisition of those shares.

  Special Tax Election

     The Plan Administrator may provide one or more holders of non-statutory
options or unvested share issuances under the 1998 Plan with the right to have
the Company withhold a portion of the shares otherwise issuable to such
individuals in satisfaction of the withholding taxes to which such individuals
become subject in connection with the exercise of those options or the vesting
of those shares. Alternatively, the Plan Administrator may allow such
individuals to deliver previously acquired shares of common stock in payment of
such withholding tax liability.

  Amendment and Termination

     The Board of Directors may amend or modify the 1998 Plan at any time,
subject to any required shareholder approval pursuant to applicable laws and
regulations. Unless sooner terminated by the Board of Directors, the 1998 Plan
will terminate on the earliest of (i) January 31, 2008, (ii) the date on which
all shares available for issuance under the 1998 Plan have been issued as
fully-vested shares, or (iii) the termination of all outstanding options in
connection with certain changes in control or ownership of the Company.

FEDERAL INCOME TAX CONSEQUENCES

  Option Grants

     Options granted under the 1998 Plan may be either incentive stock options,
which satisfy the requirements of Section 422 of the Internal Revenue Code (the
"Code"), or non-statutory stock options, which are not intended to meet such
requirements. The federal income tax treatment for the two types of options
differs as follows:

     Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two years after the option grant date and more
than one year after the exercise date. If either of these two holding periods is
not satisfied, then a disqualifying disposition will result.

     Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.

                                       16
<PAGE>   19

     If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. If the optionee makes a qualifying disposition, the
Company will not be entitled to any income tax deduction.

     Non-Statutory Stock Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will, in general,
recognize ordinary income in the year in which the option is exercised, equal to
the excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.

     If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.

     The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.

  Stock Appreciation Rights

     No taxable income is recognized upon receipt of a stock appreciation right.
The holder will recognize ordinary income in the year in which the stock
appreciation right is exercised, in an amount equal to the excess of the fair
market value of the underlying shares of common stock on the exercise date over
the base price in effect for the exercised right, and the holder will be
required to satisfy the tax withholding requirements applicable to such income.

     The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the holder in connection with the exercise of
the stock appreciation right. The deduction will be allowed for the taxable year
in which such ordinary income is recognized.

  Direct Stock Issuances

     The tax principles applicable to direct stock issuances under the 1998 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory stock option grants.

DEDUCTIBILITY OF EXECUTIVE COMPENSATION

     The Company anticipates that any compensation deemed paid by it in
connection with the disqualifying disposition of incentive stock option shares
or the exercise of non-statutory stock options with exercise prices equal to the
fair market value of the option shares on the grant date under the 1998 Plan
will qualify as performance-based compensation for purposes of Code Section
162(m) and will not have to be taken into account for purposes of the $1.0
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company. Accordingly, all
compensation deemed paid with respect to those options will remain deductible by
the Company without limitation under Code Section 162(m).

ACCOUNTING TREATMENT

     Option grants under the Discretionary Option Grant and Automatic Option
Grant Programs with exercise prices equal to the fair market value of the option
shares on the grant date will not result in any direct

                                       17
<PAGE>   20

charge to the Company's reported earnings. However, the fair value of those
options is required to be disclosed in the notes to the Company's consolidated
financial statements, and the Company must also disclose, in the notes to the
Company's consolidated financial statements, the pro forma impact those options
would have upon the Company's reported earnings were the fair value of those
options at the time of grant treated as a compensation expense. In addition, the
number of outstanding options may be a factor in determining the Company's
earnings per share on a fully-diluted basis.

     Option grants or stock issuances made under the 1998 Plan with exercise or
issue prices less than the fair market value of the shares on the grant or issue
date will result in a direct compensation expense to the Company in an amount
equal to the excess of such fair market value over the exercise or issue price.
The expense must be amortized against the Company's earnings over the period
that the option shares or issued shares are to vest.

     On March 31, 1999 the Financial Accounting Standards Board issued an
exposure draft of a proposed interpretation of APB Opinion No. 25 governing the
accounting principles applicable to equity incentive plans. Under the proposed
interpretation, as subsequently modified on August 11, 1999, option grants made
to non-employee consultants (but not non-employee members of the Board of
Directors) after December 15, 1998 will result in a direct charge to the
Company's reported earnings based upon the fair value of the option measured
initially as of the grant date and then subsequently on the vesting date of each
installment of the underlying option shares. Such charge will accordingly
include the appreciation in the value of the option shares over the period
between the grant date of the option (or, if later, the effective date of the
final interpretation) and the vesting date of each installment of the option
shares. In addition, if the proposed interpretation is adopted, any options that
are repriced after December 15, 1998 will also trigger a direct charge to the
Company's reported earnings measured by the appreciation in the value of the
underlying shares over the period between the grant date of the option (or, if
later, the effective date of the final interpretation) and the date the option
is exercised for those shares.

     Should one or more individuals be granted tandem stock appreciation rights
under the 1998 Plan, then such rights would result in a compensation expense to
be charged against the Company's reported earnings. Accordingly, at the end of
each fiscal quarter, the amount, if any, by which the fair market value of the
shares of common stock subject to such outstanding stock appreciation rights has
increased from the prior quarter-end would be accrued as compensation expense,
to the extent such fair market value is in excess of the aggregate exercise
price in effect for those rights.

REQUIRED VOTE

     The affirmative vote of the holders of common stock representing a majority
of the voting power of the outstanding Class A common stock and Class B common
stock, voting together as a single class, present or represented by proxy and
voting at the Annual Meeting, together with the affirmative vote of the majority
of the voting power of the required quorum, is required for approval of the
amendment to the 1998 Plan. Should such shareholder approval not be obtained,
then the 15,000,000 share increase to the share reserve under the 1998 Plan will
not be implemented, any stock options granted under the 1998 Plan on the basis
of such increase will immediately terminate without ever becoming exercisable
for the shares of Class A common stock subject to those options, and no
additional options or stock issuances will be made on the basis of such
increase. The 1998 Plan will, however, continue in effect, and option grants and
direct stock issuances may continue to be made under the 1998 Plan until all the
shares available for issuance under the 1998 Plan have been issued pursuant to
such option grants and direct stock issuances.

RECOMMENDATION OF THE BOARD OF DIRECTORS

     THE BOARD OF DIRECTORS DEEMS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE PROPOSAL. UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PROXY HOLDERS NAMED IN
EACH PROXY WILL VOTE THE SHARES REPRESENTED THEREBY "FOR" THE APPROVAL OF THE
AMENDMENT OF THE 1998 STOCK INCENTIVE PLAN AS PROVIDED IN PROPOSAL THREE.

                                       18
<PAGE>   21

                                 PROPOSAL FOUR:

                      RATIFICATION OF INDEPENDENT AUDITORS

     Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of Ernst & Young LLP, independent public auditors for the
Company during the 1999 Fiscal Year, to serve in the same capacity for the
fiscal year ending December 31, 2000, and is asking the shareholders to ratify
this appointment. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting, will have the opportunity to make a statement if
he or she desires to do so, and will be available to respond to appropriate
questions.

REQUIRED VOTE

     The affirmative vote of the holders of common stock representing a majority
of the voting power of the outstanding Class A common stock and Class B common
stock, voting together as a single class, present or represented by proxy and
voting at the Annual Meeting, together with the affirmative vote of the majority
of the voting power of the required quorum, is required to ratify the
appointment of Ernst & Young LLP. In the event that the shareholders do not
approve the selection of Ernst & Young LLP, the appointment of the independent
auditors will be reconsidered by the Board of Directors. Even if the selection
is ratified, the Board of Directors in its discretion may direct the appointment
of a different independent auditing firm at any time during the year if the
Board of Directors believes that such a change would be in the best interests of
the Company and its shareholders.

RECOMMENDATION OF THE BOARD OF DIRECTORS

     THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP TO SERVE AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000. UNLESS
AUTHORITY TO DO SO IS WITHHELD, THE PROXY HOLDERS NAMED IN EACH PROXY WILL VOTE
THE SHARES REPRESENTED THEREBY "FOR" THE RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP.

                                 OTHER MATTERS

     The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, 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. Discretionary authority with respect to such other matters is
expressly granted by the execution of the enclosed Proxy.

                                       19
<PAGE>   22

                            OWNERSHIP OF SECURITIES

     The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's common stock as of
March 3, 2000 by (i) all persons known to the Company to beneficially own five
percent (5%) or more of either class of the Company's common stock, (ii) each
director of the Company, (iii) the executive officers named in the Summary
Compensation Table of the Executive Compensation and Other Information section
of this Proxy Statement, and (iv) all current directors and executive officers
as a group.

<TABLE>
<CAPTION>
                                             SHARES AND PERCENTAGE BENEFICIALLY OWNED(1)     PERCENTAGE
                                           -----------------------------------------------    OF TOTAL
                                             CLASS A                  CLASS B                  VOTING
            BENEFICIAL OWNER               COMMON STOCK   PERCENT   COMMON STOCK   PERCENT   POWER(1)(2)
            ----------------               ------------   -------   ------------   -------   -----------
<S>                                        <C>            <C>       <C>            <C>       <C>
Henry T. Nicholas III, Ph.D.(3)(4).......          --         *%     35,355,150     36.2%       32.4%
Henry Samueli, Ph.D.(3)(5)...............           4         *      35,361,500     36.2        32.4
General Instrument Corporation(6)........     320,000         *       8,300,000      8.6         7.7
FMR Corp.(7).............................   5,848,878       5.0              --        *           *
Myron S. Eichen(8).......................     160,000         *         282,000        *           *
Werner F. Wolfen(9)......................     134,516         *         442,500        *           *
Alan E. Ross(10).........................     127,308         *          12,248        *           *
David A. Dull(11)........................       5,164         *          97,139        *           *
Aurelio E. Fernandez.....................       3,236         *         524,158        *           *
William J. Ruehle(12)....................       4,976         *       1,069,768      1.1         1.0
All current directors and executive
  officers as a group (11 persons)(13)...     527,316         *      74,354,749     75.0%       67.1%
</TABLE>

- ---------------
  *  Less than one percent.

 (1) The percentage of shares beneficially owned is based on 116,480,059 shares
     of Class A common stock and 96,786,343 shares of Class B common stock
     outstanding as of March 3, 2000. Beneficial ownership is determined in
     accordance with the rules and regulations of the Securities and Exchange
     Commission (the "SEC" or the "Commission"). Shares of common stock subject
     to options that are currently exercisable or exercisable within 60 days
     after March 3, 2000 are deemed to be outstanding and beneficially owned by
     the person holding such options for the purpose of computing the number of
     shares beneficially owned and the percentage ownership of such person, but
     are not deemed to be outstanding for the purpose of computing the
     percentage ownership of any other person. Except as indicated in the
     footnotes to this table, and subject to applicable community property laws,
     such persons have sole voting and investment power with respect to all
     shares of the Company's common stock shown as beneficially owned by them.

 (2) Holders of Class A common stock are entitled to one vote per share and
     holders of Class B common stock are entitled to ten votes per share.
     Holders of common stock will vote together as a single class on all matters
     submitted to a vote of shareholders, except (i) as otherwise required by
     law and (ii) in the case of a proposed issuance of shares of Class B common
     stock, which issuance currently requires the affirmative vote of the
     holders of the majority of the outstanding shares of Class B common stock
     voting separately as a class, unless such issuance is approved by at least
     two-thirds of the members of the Board of Directors then in office.

 (3) The address for Dr. Nicholas and Dr. Samueli is 16215 Alton Parkway,
     Irvine, California 92618-3616.

 (4) Includes 34,542,650 shares of Class B common stock held by Dr. Nicholas and
     his spouse, as trustees of the Nicholas Family Trust. Also includes 812,500
     shares of Class B common stock issuable upon exercise of options that are
     currently exercisable or will become exercisable within 60 days after March
     3, 2000.

 (5) Includes (i) 3,445,000 shares of Class B common stock owned by HS
     Management, L.P., of which Dr. Samueli is the General Partner, (ii)
     4,800,000 shares of Class B common stock held by Dr. Samueli, as Trustee
     for the Lifetime Benefit Trust for Henry Samueli, (iii) 8,303,950 shares of

                                       20
<PAGE>   23

     Class B common stock held by Dr. Samueli and his spouse, as Trustees of the
     Samueli Family 1995 Trust, and (iv) 18,000,000 shares of Class B common
     stock held by HS Portfolio L.P., of which Dr. Samueli is the General
     Partner. Also includes 812,550 shares of Class B common stock issuable upon
     exercise of options that are currently exercisable or will become
     exercisable within 60 days after March 3, 2000.

 (6) The address for General Instrument Corporation ("General Instrument") is
     101 Tournament Drive, Horsham, Pennsylvania 19044. General Instrument is
     the wholly-owned subsidiary of Motorola, Inc. Motorola became the
     beneficial owner of these shares upon Motorola's acquisition of General
     Instrument in January 2000.

 (7) Includes (i) 5,348,060 shares beneficially owned by Fidelity Management &
     Research Company, a wholly-owned subsidiary of FMR Corp., (ii) 321,318
     shares beneficially owned by Fidelity Management Trust Company, a
     wholly-owned subsidiary of FMR Corp., and (iii) 179,500 shares beneficially
     owned by Fidelity International Limited and various foreign-based
     subsidiaries. FMR Corp. has sole dispositive power with respect to all of
     these shares and sole voting power with respect to 500,818 of these shares.
     The address for FMR Corp. is 82 Devonshire Street, Boston, Massachusetts
     02109-3614.

 (8) Includes 282,000 shares of Class B common stock owned by the Eichen Family
     Trust, of which Mr. Eichen is a trustee. Also includes 160,000 shares of
     Class A common stock issuable upon exercise of options that are currently
     exercisable or will become exercisable within 60 days after March 3, 2000.

 (9) Includes (i) 28,780 shares of Class B common stock held by the Werner F.
     Wolfen Annuity Trust B, of which Mr. Wolfen is a beneficiary, (ii) 28,780
     shares of Class B common stock held by the Mary G. Wolfen Annuity Trust B,
     of which Mr. Wolfen's spouse is a beneficiary, (iii) 16,412 shares of Class
     B common stock held by Werner F. Wolfen, a professional corporation, and
     (iv) 1,220 shares of Class A common stock held by Mary G. Wolfen, Mr.
     Wolfen's spouse. Also includes 50,004 shares of Class B common stock owned
     by the Estate of Lawrence P. Wolfen, of which Mr. Wolfen serves as executor
     and as to which Mr. Wolfen disclaims beneficial ownership. Also includes
     132,076 shares of Class A common stock issuable upon exercise of options
     that are currently exercisable or will become exercisable within 60 days
     after March 3, 2000.

(10) Includes 127,308 shares of Class A common stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days after March 3, 2000

(11) Includes an aggregate of 808 shares of Class B common stock held by Mr.
     Dull as custodian for his children. Also includes 62,143 shares of Class B
     common stock issuable upon exercise of options that are currently
     exercisable or will become exercisable within 60 days after March 3, 2000

(12) Includes 485,392 shares of Class B common stock held by a family trust as
     to which shares Mr. Ruehle, as co-trustee of such trust, shares voting and
     dispositive power.

(13) Includes 446,316 shares of Class A common stock and 2,403,311 shares of
     Class B common stock issuable upon exercise of options that are currently
     exercisable or will become exercisable within 60 days after March 3, 2000.

                                       21
<PAGE>   24

                  EXECUTIVE COMPENSATION AND OTHER INFORMATION

EXECUTIVE OFFICERS AND KEY EMPLOYEES

     The following table sets forth certain information regarding all executive
officers and certain key employees of the Company as of March 3, 2000:

<TABLE>
<CAPTION>
                NAME                   AGE             POSITIONS WITH THE COMPANY
                ----                   ---             --------------------------
<S>                                    <C>    <C>
Henry T. Nicholas III, Ph.D..........  40     President, Chief Executive Officer and
                                              Co-Chairman
Henry Samueli, Ph.D. ................  45     Vice President of Research & Development,
                                              Chief Technical Officer and Co-Chairman
Martin J. Colombatto.................  41     Vice President and General Manager,
                                              Networking Business Unit
David A. Dull........................  51     Vice President of Business Affairs,
                                              General Counsel and Secretary
Aurelio E. Fernandez.................  44     Vice President of Worldwide Sales
Timothy M. Lindenfelser..............  40     Vice President and General Manager,
                                              Broadband Communications Business Unit
Vahid Manian.........................  39     Vice President of Manufacturing Operations
William J. Ruehle....................  57     Vice President and Chief Financial Officer
Jeffrey L. Thermond..................  47     Vice President and General Manager,
                                              Home Networking Business Unit
Nancy M. Tullos......................  48     Vice President of Human Resources
</TABLE>

     The following is a brief description of the capacities in which each of the
executive officers and key employees has served during the past five years. The
biographies of Dr. Nicholas and Dr. Samueli appear earlier in this Proxy
Statement. See "Election of Directors."

     MARTIN J. COLOMBATTO joined the Company in July 1996 as its Director of
Marketing for Broadband Access and became the Vice President and General Manager
of the Networking Business Unit in December 1997. Prior to joining the Company,
Mr. Colombatto held various sales positions with LSI Logic Corp., a
semiconductor manufacturer, including Director, North American Sales
Communication Segment, from August 1995 to July 1996; Director, European Sales
Communication and Consumer Segment, from April 1992 to July 1995; and Regional
Sales Manager from August 1987 to June 1992. Mr. Colombatto received a B.S. from
the California Polytechnic University, Pomona.

     DAVID A. DULL has served as the Vice President of Business Affairs and
General Counsel since March 1998 and was appointed Secretary in April 1998. From
1985 until 1998, Mr. Dull was a Partner in the law firm of Irell & Manella LLP,
where as a business lawyer he represented a number of public and private
companies and individuals in the entertainment and high technology industries,
including the Company. Irell & Manella LLP has represented and continues to
represent the Company in various transactional and litigation matters. Mr. Dull
received a B.A. and a J.D. from Yale University.

     AURELIO E. FERNANDEZ has served as the Vice President of Worldwide Sales
since joining the Company in December 1997. From November 1996 to December 1997,
Mr. Fernandez served as the Senior Vice President of Sales at Exar Corporation,
a semiconductor manufacturer. From November 1994 to November 1996, Mr. Fernandez
served as the Senior Vice President of Sales at ICWorks, Inc., a semiconductor
manufacturer. Prior to that, Mr. Fernandez served in a number of positions, most
recently as Vice President of Telecom Sales at VLSI Technology, Inc., a
semiconductor manufacturer. Mr. Fernandez received a B.S.E.E. from the
University of Florida and an M.B.A. from Florida Atlantic University.

     TIMOTHY M. LINDENFELSER became the Vice President and General Manager of
the Broadband Communications Business Unit in January 2000. Previously he served
as the Company's Vice President of Marketing since joining the Company in
February 1994. From February 1994 until December 1997, Mr. Lindenfelser also
served as Vice President of Worldwide Sales. Prior to joining the Company, Mr.
Lindenfelser was employed by Brooktree Corporation, a semiconductor
manufacturer, from November 1988 until February

                                       22
<PAGE>   25

1994, where he was responsible for all marketing and new business development
for the Communications Strategic Business Unit. Mr. Lindenfelser received a
B.S.E.E. from the University of Minnesota and an M.B.A. from the University of
San Diego.

     VAHID MANIAN joined the Company in January 1996 as its Director of
Operations and became the Vice President of Manufacturing Operations in December
1997. Prior to joining the Company, Mr. Manian served as the Director of
Operations at Silicon Systems, Inc., a semiconductor manufacturer, from November
1983 to January 1996, where he led the implementation, production ramp and
qualification of advanced PRML-read channel integrated circuits. Mr. Manian
received a B.S.E.E. and an M.B.A. from the University of California, Irvine.

     WILLIAM J. RUEHLE has served as the Vice President and Chief Financial
Officer since joining the Company in June 1997. Mr. Ruehle was employed by
SynOptics Communications, Inc. as Vice President and Chief Financial Officer
from 1987 until the merger with Wellfleet Communications Incorporated in 1994
that created Bay Networks, Inc., a networking communications company. Following
the merger, Mr. Ruehle was promoted to Executive Vice President and served as
Chief Financial Officer of Bay Networks until January 1997. Mr. Ruehle received
a B.A. in Economics from Allegheny College and an M.B.A. from Harvard Business
School.

     JEFFREY L. THERMOND has served as the Vice President and General Manager of
the Home Networking Business Unit since joining the Company in May 1999 upon its
acquisition of Epigram, Inc. Mr. Thermond was President and Chief Executive
Officer of Epigram, Inc. from August 1997 to May 1999. From 1994 to August 1997,
he was Vice President and General Manager of the Network Systems Division at
3Com Corporation, a networking communications company. Mr. Thermond received a
B.A. from Yale University and an M.B.A. from Indiana University.

     NANCY M. TULLOS joined the Company in September 1998 as its Vice President
of Human Resources. From January 1998 to August 1998, Ms. Tullos was Vice
President, Worldwide Human Resources for Cybermedia, Inc., a commercial software
company. From 1987 to January 1998 she was Vice President, Human Resources and
Administrative Services for Micropolis Corporation, a designer and manufacturer
of disk drives. Ms. Tullos received a B.S. from Ohio University and an M.B.A.
from Pepperdine University.

                                       23
<PAGE>   26

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

     The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company whose
aggregate salary and bonus for the 1999 Fiscal Year were in excess of $100,000,
for services rendered in all capacities to the Company and its subsidiaries for
the fiscal years ended December 31, 1997, 1998 and 1999. The listed individuals
are hereinafter referred to as the "Named Executive Officers."

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                           LONG TERM
                                                                                          COMPENSATION
                                                                                             AWARDS
                                                              ANNUAL COMPENSATION         ------------
                                                         ------------------------------    SECURITIES
                                                                         OTHER ANNUAL      UNDERLYING
         NAME AND PRINCIPAL POSITIONS            YEAR    SALARY($)(1)   COMPENSATION($)    OPTIONS(#)
         ----------------------------            ----    ------------   ---------------   ------------
<S>                                              <C>     <C>            <C>               <C>
Henry T. Nicholas III, Ph.D. ..................  1999      $110,000               --              --
  President, Chief Executive Officer             1998       112,115               --              --
  and Co-Chairman                                1997       165,000               --       1,500,000
Henry Samueli, Ph.D. ..........................  1999       110,000               --              --
  Vice President of Research & Development,      1998       112,115               --              --
  Chief Technical Officer and Co-Chairman        1997       165,000               --       1,500,000
David A. Dull..................................  1999       110,000        $29,661(3)             --
  Vice President of Business Affairs,            1998(2)     78,269               --       1,000,000
  General Counsel and Secretary                  1997            --               --              --
Aurelio E. Fernandez...........................  1999       110,000         98,430(5)             --
  Vice President of Worldwide Sales              1998       109,577        108,360(5)        200,000
                                                 1997(4)         --               --       1,020,000
William J. Ruehle..............................  1999       110,000         38,815(7)             --
  Vice President and Chief Financial Officer     1998       110,000         46,211(7)      1,000,000
                                                 1997(6)     60,077         24,506(7)      1,650,000
</TABLE>

- ---------------
(1) Includes amounts deferred under the Company's employee profit sharing plan,
    a tax-qualified plan under Section 401(k) of the Internal Revenue Code.

(2) Mr. Dull joined the Company in March 1998 and became an executive officer in
    April 1998.

(3) Represents reimbursement for relocation expenses plus a tax gross-up for the
    portion thereof includable as taxable income.

(4) Mr. Fernandez joined the Company and became an executive officer in December
    1997.

(5) Includes reimbursement of $91,373 and $108,360 in the fiscal years ended
    December 31, 1999 and 1998, respectively, for the interest expense on a
    $1,800,000 full-recourse promissory note delivered by Mr. Fernandez to the
    Company in December 1997 in connection with the exercise of a stock option.

(6) Mr. Ruehle joined the Company and became an executive officer in June 1997.

(7) Represents reimbursement of $25,055, $29,829 and $12,738 in the fiscal years
    ended December 31, 1999, 1998 and 1997, respectively, for the interest
    expense on a $467,500 full-recourse promissory note delivered by Mr. Ruehle
    to the Company in July 1997 in connection with the exercise of a stock
    option, plus a tax gross-up for the portion thereof includable as taxable
    income.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

     No stock options or stock appreciation rights were granted to any of the
Named Executive Officers during the 1999 Fiscal Year.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR END VALUES

     The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options during the 1999 Fiscal
Year and unexercised options held by them at the end of that fiscal

                                       24
<PAGE>   27

year. None of the Named Executive Officers exercised any stock appreciation
rights during the 1999 Fiscal Year and no stock appreciation rights were held by
the Named Executive Officers at the end of such year.

                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                           AND FISCAL YEAR END VALUES

<TABLE>
<CAPTION>
                                                        NUMBER OF SECURITIES
                                                             UNDERLYING                VALUE OF UNEXERCISED
                                                         UNEXERCISED OPTIONS           IN-THE-MONEY OPTIONS
                           SHARES         VALUE         AT FISCAL YEAR END(#)        AT FISCAL YEAR END($)(2)
                         ACQUIRED ON    REALIZED     ---------------------------   ----------------------------
         NAME            EXERCISE(#)     ($)(1)      EXERCISABLE   UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
         ----            -----------   -----------   -----------   -------------   ------------   -------------
<S>                      <C>           <C>           <C>           <C>             <C>            <C>
Henry T. Nicholas,
  III..................    687,500     $31,653,425     812,500              --     $110,399,088             --
Henry Samueli..........    687,450      32,781,411     812,550              --      110,405,881             --
David A. Dull..........    159,856       8,277,549      30,144         750,000        4,029,876    $96,674,985
Aurelio E. Fernandez...         --              --          --         200,000               --     23,146,860
William J. Ruehle......         --              --          --       1,000,000               --    122,915,580
</TABLE>

- ---------------
(1) Based upon the market price of the purchased shares on the exercise date
    less the option exercise price paid for those shares.

(2) Determined on the basis of the closing sales price per share of the
    Company's Class A common stock on the Nasdaq National Market on the last day
    of the 1999 Fiscal Year ($136.1875 per share), less the option exercise
    price payable per share.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

     None of the Named Executive Officers named in the Summary Compensation
Table has an employment agreement with the Company that governs the length of
his service. Accordingly, the employment of any such executive officer may be
terminated at any time at the discretion of the Board of Directors. The Company
has entered into a letter agreement with Mr. Ruehle which provides that Mr.
Ruehle shall be entitled to payment of his base salary for one year and
continuation of any benefit programs in the event of an acquisition of the
Company. In addition, the letter agreement provides that Mr. Ruehle's initial
option grant to purchase 1,650,000 shares of the Company's Class B common stock
will immediately vest in full in the event of an acquisition or merger of the
Company that results in a change in control of the Company or in which the
Company is not the surviving entity. The Company has entered into an agreement
with Mr. Dull which provides that Mr. Dull's initial option grant to purchase
800,000 shares of the Company's Class B common stock will immediately vest in
full in the event of Mr. Dull's death or disability or under certain
circumstances in the event of an acquisition or merger of the Company that
results in a change of control of the Company or in which the Company is not the
surviving entity.

     The Compensation Committee of the Board of Directors, as Plan Administrator
of the 1998 Plan, has the authority to provide for accelerated vesting of the
shares of common stock subject to any outstanding options held by the Chief
Executive Officer or any other executive officer or any unvested share issuances
actually held by such individual, in connection with certain changes in control
of the Company or the subsequent termination of the officer's employment
following the change in control event.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Compensation Committee of the Company's Board of Directors currently
consists of Messrs. Eichen and Ross. Neither of these individuals was an officer
or employee of the Company at any time during the 1999 Fiscal Year or at any
other time. No current executive officer of the Company has ever served as a
member of the board of directors or compensation committee of any other entity
that has or has had one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.

                                       25
<PAGE>   28

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

     It is the duty of the Compensation Committee to review and determine the
salaries and bonuses of executive officers of the Company, including the Chief
Executive Officer, and to establish the general compensation policies for such
individuals. The Compensation Committee believes that the compensation programs
for the executive officers should reflect the Company's performance and the
value created for our shareholders. In addition, the compensation programs
should support the short-term and long-term strategic goals and values of the
Company and should reward individual contributions to the Company's success. The
Company is engaged in a very competitive industry, and its success depends upon
its ability to attract and retain qualified executives through the competitive
compensation packages it offers to such individuals.

     General Compensation Policy. The Compensation Committee's policy is to
provide the Company's executive officers with compensation opportunities that
are based upon their personal performance, the financial performance of the
Company and their contribution to that performance, and that are competitive
enough to attract and retain highly skilled individuals. Each executive
officer's compensation package is comprised of two elements: (i) a base salary
that is substantially below market and (ii) long-term, stock-based incentive
awards designed to strengthen the mutuality of interests between the executive
officers and the shareholders. As an officer's level of responsibility
increases, a greater proportion of his or her total compensation will be
dependent upon the Company's financial performance and stock price appreciation
rather than base salary.

     Factors. The principal factors that were taken into account in establishing
each executive officer's compensation package for the 1999 Fiscal Year are
described below. The Compensation Committee may, however, in its discretion
apply entirely different factors, such as different measures of financial
performance, or create different compensation elements, for future fiscal years.

     Base Salary and Bonus. The base salary for each executive officer is
generally established on the basis of relative parity with other executive
officers of the Company. The Compensation Committee's policy is to target base
salary levels below the median of the estimated base salary levels paid for
similar positions at peer companies to reflect the fact that each executive
officer's overall compensation is primarily composed of an equity interest in
the Company. The philosophy behind this strategy is to have a very substantial
portion of each executive officer's total compensation tied to the Company's
performance and stock price appreciation in order to create a greater incentive
to create value for the Company's shareholders. The Company historically has not
paid cash bonuses to executive officers.

     Long-Term Incentives. To date, long-term incentives have consisted solely
of grants of options to purchase the Company's common stock. Generally, stock
option grants are made annually by the Compensation Committee to certain of the
Company's executive officers. Each grant is designed to align the interests of
the executive officer with those of the shareholders and provide each individual
with a significant incentive to manage the Company from the perspective of an
owner with an equity stake in the business. Each grant allows the officer to
acquire shares of the Company's common stock at a fixed price per share (the
market price on the grant date) over a specified period of time (up to ten
years). Each option generally becomes exercisable in a series of installments
over a four year period, contingent upon the officer's continued employment with
the Company. Accordingly, the option will provide a return to the executive
officer only if he remains employed by the Company during the vesting period,
and then only if the market price of the shares appreciates over the option
term.

     The size of the option grant to each executive officer is set by the
Compensation Committee at a level that is intended to create a meaningful
opportunity for stock ownership based upon the individual's current position
with the Company, the individual's personal performance in recent periods, and
his or her potential for future responsibility and promotion over the option
term. The Compensation Committee also takes into account the number of unvested
options held by the executive officer in order to maintain an appropriate level
of equity incentive for that individual. The relevant weight given to each of
these factors varies from individual to individual. The Compensation Committee
has established certain guidelines with respect to the option grants made to the
executive officers, but has the flexibility to make adjustments to those
guidelines at its discretion.

                                       26
<PAGE>   29

     CEO and CTO Compensation. The Compensation Committee has set the base
salaries of Dr. Nicholas, the Company's President and Chief Executive Officer
("CEO"), and Dr. Samueli, the Company's Vice President of Research & Development
and Chief Technical Officer ("CTO"), at levels that it believes are
substantially below the median of base salary levels of chief executive officers
and chief technical officers of those companies with which the Company competes
for executive talent, due to the substantial equity ownership interests of both
the CEO and CTO in the Company. Because the CEO and CTO each hold a significant
equity stake in the Company, the Compensation Committee believes that they have
a significant incentive to continue contributing to the Company's financial
success because they will benefit from any appreciation in the value of the
Company's common stock.

     Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers to the extent that such
compensation exceeds $1.0 million per covered officer in any fiscal year. The
limitation applies only to compensation that is not considered to be
performance-based. Non-performance-based compensation paid to the Company's
executive officers for the 1999 Fiscal Year did not exceed the $1.0 million
limit per officer, and the Compensation Committee plans to keep the
non-performance-based compensation to be paid to the Company's executive
officers for the 2000 Fiscal Year within that limit. The 1998 Plan has been
structured so that any compensation deemed paid in connection with the exercise
of option grants made under that Plan with an exercise price equal to the fair
market value of the option shares on the grant date will qualify as
performance-based compensation that will not be subject to the $1.0 million
limitation. Because it is unlikely that the cash compensation payable to any of
the Company's executive officers in the foreseeable future will approach the
$1.0 million limit, the Compensation Committee does not expect to take any
action to limit or restructure the elements of cash compensation payable to the
Company's executive officers. The Compensation Committee will reconsider this
decision should the individual cash compensation of any executive officer ever
approach the $1.0 million level.

     It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align the interests of each executive officer and the interests of
the Company's shareholders through the use of competitive and equitable
executive compensation in a balanced and reasonable manner, for both the short
and long-term.

     Submitted by the Compensation Committee of the Company's Board of
Directors:

                                          Myron S. Eichen
                                          Alan E. Ross

                                       27
<PAGE>   30

STOCK PERFORMANCE GRAPH

     The graph depicted below shows a comparison of cumulative total shareholder
returns for the Company, the Nasdaq Stock Market (U.S.) Index and the Hambrecht
& Quist Communications Index.

                COMPARISON OF 18 MONTH CUMULATIVE TOTAL RETURN*
        AMONG BROADCOM CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
                 AND THE HAMBRECHT & QUIST COMMUNICATIONS INDEX

<TABLE>
<CAPTION>
                                                        BROADCOM                  NASDAQ STOCK              HAMBRECHT & QUIST
                                                       CORPORATION                MARKET (U.S.)              COMMUNICATIONS
                                                       -----------                -------------             -----------------
<S>                                             <C>                         <C>                         <C>
4/17/98                                                    100                         100                         100
6/98                                                       307                         101                         106
9/98                                                       296                          91                          86
12/98                                                      503                         119                         122
3/99                                                       514                         133                         147
6/99                                                      1205                         145                         199
9/99                                                       908                         149                         201
12/99                                                     2270                         214                         383
</TABLE>

* $100 INVESTED ON APRIL 17, 1998 IN STOCK OR INDEX, INCLUDING REINVESTMENT OF
  DIVIDENDS, FISCAL YEAR ENDING DECEMBER 31.

     The graph covers the period from April 17, 1998, the first trading date of
the Company's Class A common stock, to December 31, 1999. The graph assumes that
$100 was invested on April 17, 1998 in the Company's Class A common stock at the
initial public offering price of $6.00 per share and in each index, and that all
dividends were reinvested. The Company has not paid or declared any cash
dividends on its Class A common stock. Shareholder returns over the indicated
period should not be considered indicative of future shareholder returns.

     The preceding Stock Performance Graph and the Compensation Committee Report
are not considered proxy solicitation materials and are not deemed filed with
the Commission. Notwithstanding anything to the contrary set forth in any of the
Company's previous filings made under the Securities Act of 1933, as amended, or
the Exchange Act that might incorporate future filings made by the Company under
those statutes, neither the preceding Stock Performance Graph nor the
Compensation Committee Report is to be incorporated by reference into any such
prior filings, nor shall such graph or report be incorporated by reference into
any future filings made by the Company under those statutes.

                                       28
<PAGE>   31

CERTAIN TRANSACTIONS

     Since January 1, 1999 there has not been any transaction or series of
similar transactions to which the Company was or is a party in which the amount
involved exceeded or exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of any class of the Company's voting securities,
or any member of the immediate family of any of the foregoing persons had or
will have a direct or indirect material interest, other than the transactions
described below.

     Agreement with General Instrument. In September 1997 General Instrument and
the Company entered into a Development, Supply and License Agreement pursuant to
which, among other things, the Company has agreed to supply to General
Instrument, and General Instrument has agreed to purchase from the Company, a
specified percentage of General Instrument's silicon requirements for its
digital cable set-top box subscriber products annually for a specified period.
For 1999 the Company's total sales to General Instrument (and its
subcontractors) were approximately $142.7 million. As of March 3, 2000 General
Instrument was the beneficial owner of 8.6% of the Company's outstanding Class B
common stock.

     Agreements with Irell & Manella LLP. Pursuant to an agreement dated as of
October 31, 1997, the Company issued and sold 900,000 shares of Class B common
stock to Irell & Manella LLP for an aggregate purchase price of $1.1 million.
Mr. Wolfen served until December 1998 as a Senior Partner of Irell & Manella LLP
and currently is Senior Partner Emeritus of that firm. Mr. Dull was a Partner of
Irell & Manella LLP until March 1998. Irell & Manella LLP has represented and
continues to represent the Company in various legal matters pursuant to an
engagement agreement dated as of January 1, 1997, and amended as of January 1,
1998. Under the engagement agreement, the Company agreed to pay Irell & Manella
LLP a fixed fee plus costs for the firm's legal services rendered from and after
January 1, 1998 with respect to certain matters. Irell & Manella LLP agreed to
render legal services to the Company on most other matters at reduced rates from
the firm's standard rates for the two-year period commencing January 1, 1998.
During 1999 the Company paid approximately $2.0 million to Irell & Manella LLP
for legal services rendered by that firm. At December 31, 1999 approximately
$869,000 was due to Irell & Manella LLP.

     Agreements with Innovent Systems. Pursuant to a letter agreement dated as
of October 29, 1998, Dr. Nicholas and Dr. Samueli were given the right to
purchase shares of common stock of Innovent Systems, Inc., formerly known as
MicroLink Corporation ("Innovent"). In April 1999 Dr. Nicholas and Dr. Samueli
each assigned his right under the letter agreement to the Company, and the
Company purchased 1,555,555 shares of common stock from Innovent for an
aggregate purchase price of approximately $124,444, pursuant to a Restricted
Stock Purchase and Consulting Agreement (the "Innovent Agreement"). Under the
Innovent Agreement, approximately 518,518 of the shares purchased by the Company
were unvested and subject to a right of repurchase by Innovent. The Innovent
Agreement provides that such unvested shares will vest, and Innovent's
repurchase right will lapse, with respect to 1/36 of such shares on the last day
of each month, commencing with May 1999, if Dr. Nicholas, Dr. Samueli, Mr. Dull
and the Company's Vice President of Marketing provide certain consulting
services to Innovent. None of these individuals will receive any consideration
from Innovent for such consulting services. As of March 3, 2000 approximately
374,488 of the shares of Innovent common stock held by the Company remained
unvested.

     In January 1999 the Company loaned Innovent $250,000 pursuant to a
convertible promissory note that accrued interest at 6.0% per annum. The note
was convertible into shares of Innovent's Series A Preferred Stock. In April
1999 the Company acquired 307,692 shares of Innovent's Series A Preferred Stock,
at a purchase price per share of $1.30, by converting the note and paying
approximately $150,000 in cash to Innovent. Following the purchase of Innovent's
Series A Preferred Stock by the Company, Mr. Dull was appointed to the Board of
Directors of Innovent.

     In January 2000 the Company loaned Innovent $2.0 million pursuant to a
promissory note that is due and payable in April 2001 and accrues interest at
9.5% per annum.

     Agreements with Broadband Interactive Group. In July 1999 the Company
loaned Broadband Interactive Group, Inc. ("BIG") $500,000 pursuant to a
convertible promissory note that is due and payable in July 2000 and accrues
interest at the rate of 7.0% per annum. In August 1999 the Company elected to
convert

                                       29
<PAGE>   32

the outstanding principal under the note into 2,000,000 shares of Class B common
stock of BIG. As of March 3, 2000 each of Dr. Nicholas and Dr. Samueli was the
beneficial owner of 2,000,000 shares of BIG's Class B common stock, or 17.3% of
BIG's outstanding Class B common stock. In addition, each of Dr. Nicholas and
Dr. Samueli was issued a convertible promissory note by BIG in the principal
amount of $5.1 million. In the event that BIG consummates an equity financing,
each of Dr. Nicholas and Dr. Samueli may elect to convert all of the unpaid
principal and accrued interest on his note into shares of the equity securities
issued by BIG in such equity financing.

     Officer Promissory Notes. Between March 1995 and December 1997, the Company
entered into full-recourse promissory notes with certain of its officers and
directors to finance the purchase of Class B common stock upon exercise of stock
options. Each of the notes is secured by the purchased shares and is due and
payable upon the earlier of the stated due date or thirty days (ninety days in
the case of Mr. Ruehle) after the termination of such officer's employment with
the Company. In July 1997, in connection with the exercise of a stock option,
Mr. Ruehle delivered a $467,500 full-recourse promissory note to the Company.
Such note bears interest at 6.5% per annum and is due in July 2002. As of
December 31, 1999 the outstanding principal on Mr. Ruehle's note was
approximately $331,000. The Company has agreed to pay Mr. Ruehle the amount
necessary to compensate him for the interest expense. In December 1997, in
connection with the exercise of a stock option, Mr. Fernandez delivered a $1.8
million full-recourse promissory note to the Company. Such note bears interest
at 6.02% per annum and is due in December 2002. As of December 31, 1999 the
outstanding principal on this note was approximately $1.2 million. The Company
has agreed to pay Mr. Fernandez the amount necessary to compensate him for the
interest expense. In addition, in January 1998 Mr. Fernandez delivered a
$130,000 full-recourse promissory note to the Company. Such note, which accrued
interest at 6.02% per annum, evidenced a loan made to Mr. Fernandez to allow him
to pay off a similar loan from his prior employer that became due when he left
that company. Mr. Fernandez repaid the entire principal and interest on this
loan in April 1999.

     Indemnification Agreements with Directors and Officers.  In addition to the
indemnification provisions contained in the Company's Amended and Restated
Articles of Incorporation and Bylaws, the Company has entered into separate
indemnification agreements with each of its directors and officers. These
agreements require the Company, among other things, to indemnify each such
director or officer against expenses (including attorneys' fees), judgments,
fines and settlements (collectively, "Liabilities") paid by such individual in
connection with any action, suit or proceeding arising out of such individual's
status or service as a director or officer of the Company (other than
Liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest) and to advance expenses incurred by such
individual in connection with any proceeding against such individual with
respect to which such individual may be entitled to indemnification by the
Company.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding common
stock are subject to the reporting requirements of Section 16(a) of the Exchange
Act which require them to file reports with respect to their ownership of the
common stock and their transactions in such common stock. Based upon (i) the
copies of Section 16(a) reports which the Company received from such persons for
their 1999 Fiscal Year transactions in the common stock and their common stock
holdings, and (ii) the written representations received from one or more of such
persons that no annual Form 5 reports were required to be filed by them for the
1999 Fiscal Year, the Company believes that all reporting requirements under
Section 16(a) for such fiscal year were met in a timely manner by its directors,
executive officers and greater than 10% beneficial owners except as follows: Mr.
Ross did not timely file a Form 4 related to a sale of common stock in February
1999. Once this omission was discovered, Mr. Ross amended his Form 4 for
February 1999 to reflect the transaction.

                                       30
<PAGE>   33

ANNUAL REPORT TO SHAREHOLDERS

     A copy of the Annual Report to Shareholders of the Company for the 1999
Fiscal Year has been mailed concurrently with this Proxy Statement to all
shareholders entitled to notice of and to vote at the Annual Meeting. The Annual
Report is not incorporated into this Proxy Statement and is not considered proxy
solicitation material.

FORM 10-K

     On or before March 30, 2000, the Company will file with the SEC an Annual
Report on Form 10-K for the 1999 Fiscal Year. Shareholders may obtain a copy of
any of the Company's SEC reports, free of charge, by writing to Investor
Relations, Broadcom Corporation, P.O. Box 57013, Irvine, California 92619-7013.

                                          BY ORDER OF THE BOARD OF DIRECTORS
                                          OF BROADCOM CORPORATION

                                          /s/ DAVID A. DULL
                                          David A. Dull
                                          Vice President of Business Affairs,
                                          General Counsel and Secretary

Irvine, California
March 27, 2000

(C)2000 Broadcom Corporation. All rights reserved. Broadcom(R) and the Broadcom
pulse logo are trademarks of Broadcom Corporation and/or its subsidiaries in the
United States and certain other countries.

                                       31
<PAGE>   34

                                      LOGO
<PAGE>   35


                                                                        APPENDIX


                              BROADCOM CORPORATION
                            1998 STOCK INCENTIVE PLAN

                AMENDED AND RESTATED EFFECTIVE FEBRUARY 29, 2000

                                  ARTICLE ONE

                               GENERAL PROVISIONS



         I.       PURPOSE OF THE PLAN

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

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

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

         II.      STRUCTURE OF THE PLAN

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

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

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

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


<PAGE>   36

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

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

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

         III.     ADMINISTRATION OF THE PLAN

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

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

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

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


                                       2.
<PAGE>   37

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

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

         IV.      ELIGIBILITY

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

                     (i) Employees,

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

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

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

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

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

                                       3.


<PAGE>   38

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

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

         V.       STOCK SUBJECT TO THE PLAN

                  A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
109,958,322 shares.(1) Such reserve shall consist of (i) the 63,922,252 shares
which were transferred as of the Plan Effective Date from the Predecessor Plans
to this Plan, including the shares subject to outstanding options under that
Predecessor Plans, (ii) plus an additional increase of 1,619,168 shares on
January 4, 1999 pursuant to the automatic share increase provisions of Section
V.B of this Article One, plus (iii) an additional increase of 20,000,000 shares
authorized by the Board on September 24, 1999 and approved by the shareholders
at the Special Shareholders Meeting held on November 22, 1999, plus (iv) plus an
additional increase of 9,416,902 shares on January 3, 2000 pursuant to the
automatic share increase provisions of Section V.B of this Article One, plus (v)
an additional increase of 15,000,000 shares authorized by the Board on February
29, 2000, subject to shareholder approval at the 2000 Annual Shareholders
Meeting. To the extent any unvested shares of Common Stock outstanding under the
Predecessor Plans as of the Plan Effective Date are subsequently repurchased by
the Corporation, at the option exercise price paid per share, in connection with
the holder's termination of Service prior to vesting in those shares, the
repurchased shares shall be added to the reserve of Common Stock available for
issuance under the Plan, but in no event shall such addition exceed 18,000,000
shares.

                  B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of January
each calendar year during the term of the Plan, beginning with calendar year
2000, by an amount equal to four and one-half

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

                                       4.


<PAGE>   39

percent (4.5%) of the total number of shares of Class A and Class B Common Stock
outstanding on the last trading day in December of the immediately preceding
calendar year, but in no event shall any such annual increase exceed 18,000,000
shares.

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

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

                  E. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made by the Plan Administrator to (i) the maximum number and/or class
of securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances or share right
awards under the Plan per calendar year, (iii) the number and/or class of
securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan, (v) the number and/or class of
securities and exercise price per share in effect under each outstanding option
incorporated into


                                       5.
<PAGE>   40

this Plan from the Predecessor Plans, (vi) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year pursuant to the provisions of Section V.B of this Article One and (vii) the
maximum number and/or class of securities which may be added to the Plan through
the repurchase of unvested shares issued under the Predecessor Plans. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.

                                  6.


<PAGE>   41

                                  ARTICLE TWO

                       DISCRETIONARY OPTION GRANT PROGRAM



         I.       OPTION TERMS

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

                  A. EXERCISE PRICE.

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

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

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

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

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

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

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

                                       7.


<PAGE>   42

               C. EFFECT OF TERMINATION OF SERVICE.

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

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

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

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

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

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

                  (i) extend the period of time for which the option is to
         remain exercisable following the Optionee's cessation of Service from
         the limited exercise period otherwise in effect for that option to such
         greater period of time as the Plan Administrator shall deem
         appropriate, but in no event beyond the expiration of the option term,
         and/or

                  (ii) permit the option to be exercised, during the applicable
         post-Service exercise period, not only with respect to the number of
         vested shares of Common Stock for which such option is exercisable at
         the time of the Optionee's cessation of Service but also with respect
         to one or more additional installments in which the Optionee would have
         vested had the Optionee continued in Service.

                                       8.


<PAGE>   43


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

                  E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.

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

         II.      INCENTIVE OPTIONS

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

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

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

                                       9.


<PAGE>   44


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

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

             III. CHANGE IN CONTROL/HOSTILE TAKE-OVER

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

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

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

                                      10.


<PAGE>   45


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

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

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

                                      11.


<PAGE>   46


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

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

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

              IV. CANCELLATION AND REGRANT OF OPTIONS

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

               V. STOCK APPRECIATION RIGHTS

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

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

                                      12.


<PAGE>   47

                         (i) One or more Optionees may be granted the right,
                  exercisable upon such terms as the Plan Administrator may
                  establish, to elect between the exercise of the underlying
                  option for shares of Common Stock and the surrender of that
                  option in exchange for a distribution from the Corporation in
                  an amount equal to the excess of (a) the Fair Market Value (on
                  the option surrender date) of the number of shares in which
                  the Optionee is at the time vested under the surrendered
                  option (or surrendered portion thereof) over (b) the aggregate
                  exercise price payable for such shares.

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

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

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

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

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

                                      13.


<PAGE>   48

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

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

                                      14.


<PAGE>   49

                                 ARTICLE THREE

                     SALARY INVESTMENT OPTION GRANT PROGRAM

                   I. OPTION GRANTS

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

                 II.  OPTION TERMS

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

                      A. EXERCISE PRICE.

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

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

                      B. NUMBER OF OPTION SHARES. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):

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

                         X is the number of option shares,

                                      15.


<PAGE>   50

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

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

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

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

             III. CHANGE IN CONTROL/ HOSTILE TAKE-OVER

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

                                      16.


<PAGE>   51

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

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

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

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

                                      17.


<PAGE>   52

              IV. REMAINING TERMS

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

                                      18.


<PAGE>   53

                                  ARTICLE FOUR

                             STOCK ISSUANCE PROGRAM

               I. STOCK ISSUANCE TERMS

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

                  A. PURCHASE PRICE.

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

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

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

                     (ii) past services rendered to the Corporation (or any
          Parent or Subsidiary).

                  B. VESTING PROVISIONS.

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

                                      19.


<PAGE>   54

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

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

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

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

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

              II. CHANGE IN CONTROL/HOSTILE TAKE-OVER

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

                                      20.


<PAGE>   55

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

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

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

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

             III. SHARE ESCROW/LEGENDS

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

                                      21.


<PAGE>   56

                                  ARTICLE FIVE

                         AUTOMATIC OPTION GRANT PROGRAM


               I. OPTION TERMS

                  A. GRANT DATES. Option grants shall be made on the dates
specified below:

                     1. Each individual who is first elected or appointed as a
non-employee Board member at any time after February 29, 2000 shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 160,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.

                     2. On the date of each Annual Shareholders Meeting held
after the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, whether or not that individual is standing for re-election to
the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 12,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 12,000-share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who joined the Board prior to the
Underwriting Date shall be eligible to receive one or more such annual option
grants over their period of continued Board service.

                  B. EXERCISE PRICE.

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

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

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


                                      22.


<PAGE>   57

                  D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any
unvested shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares. The shares subject to each
initial 90,000-share grant shall vest, and the Corporation's repurchase right
shall lapse, in a series of four (4) successive equal annual installments upon
the Optionee's completion of each year of service as a Board member over the
four (4)-year period measured from the option grant date. The shares subject to
each annual 12,000-share option grant shall vest, and the Corporation's
repurchase right shall lapse, upon the Optionee's completion of one (1) year of
Board service measured from the option grant date.

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

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

                     (i) The Optionee (or, in the event of Optionee's death, the
         personal representative of the Optionee's estate or the person or
         persons to whom the option is transferred pursuant to the Optionee's
         will or the laws of inheritance or the designated beneficiary or
         beneficiaries of such option) shall have a twelve (12)-month period
         following the date of such cessation of Board service in which to
         exercise each such option.

                     (ii) During the twelve (12)-month exercise period, the
         option may not be exercised in the aggregate for more than the number
         of vested shares of Common Stock for which the option is exercisable at
         the time of the Optionee's cessation of Board service.

                                      23.


<PAGE>   58


                (iii) Should the Optionee cease to serve as a Board member by
         reason of death or Permanent Disability, then all shares at the time
         subject to the option shall immediately vest so that such option may,
         during the twelve (12)-month exercise period following such cessation
         of Board service, be exercised for all or any portion of those shares
         as fully-vested shares of Common Stock.

                (iv) In no event shall the option remain exercisable after the
         expiration of the option term. Upon the expiration of the twelve
         (12)-month exercise period or (if earlier) upon the expiration of the
         option term, the option shall terminate and cease to be outstanding for
         any vested shares for which the option has not been exercised. However,
         the option shall, immediately upon the Optionee's cessation of Board
         service for any reason other than death or Permanent Disability,
         terminate and cease to be outstanding to the extent the option is not
         otherwise at that time exercisable for vested shares.

         II. CHANGE IN CONTROL/ HOSTILE TAKE-OVER

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

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

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

              D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is

                                      24.


<PAGE>   59

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

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

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

         III. REMAINING TERMS

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

                                      25.


<PAGE>   60

                                   ARTICLE SIX

                        DIRECTOR FEE OPTION GRANT PROGRAM

              I. OPTION GRANTS

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

              II. OPTION TERMS

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

                   A. EXERCISE PRICE.

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

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

                   B. NUMBER OF OPTION SHARES. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):

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

                      X is the number of option shares,

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

                                      26.


<PAGE>   61


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

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

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

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

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

                                      27.


<PAGE>   62

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

              III. CHANGE IN CONTROL/HOSTILE TAKE-OVER

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

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

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

                                      28.


<PAGE>   63

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

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

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

                  IV. REMAINING TERMS

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

                                      29.


<PAGE>   64

                                 ARTICLE SEVEN

                                 MISCELLANEOUS

                  I. FINANCING

                     The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price under the Discretionary Option
Grant Program or the purchase price of shares issued under the Stock Issuance
Program by delivering a full-recourse, interest bearing promissory note payable
in one or more installments. The terms of any such promissory note (including
the interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee or Participant exceed the sum of (i) the aggregate
option exercise price or purchase price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee or the Participant in connection with the option exercise or
share purchase.

                  II. TAX WITHHOLDING

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

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

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

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

                                      30.


<PAGE>   65

                 III. EFFECTIVE DATE AND TERM OF THE PLAN

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

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

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

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

                         (i) increase the number of shares of Common Stock
         reserved for issuance under the Plan by an additional 10,000,000
         shares; and

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

                                      31.


<PAGE>   66

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

                   E. The Plan was amended by the Board on February 29, 2000
(the "February 2000 Restatement") to effect the increase in the number of shares
of Common Stock reserved for issuance under the Plan by an additional 15,000,000
shares.

                      No option grants made on the basis of the 15,000,000 share
increase authorized by the February 2000 Restatement shall become exercisable in
whole or in part unless and until the February 2000 Restatement is approved by
the shareholders at the 2000 Annual Shareholders Meeting. Should such
shareholder approval not be obtained, then each option grant made pursuant to
the 15,000,000-share increase authorized by the February 2000 Restatement shall
terminate and cease to be outstanding, and no further option grants shall be
made on the basis of that share increase. However, the provisions of the Plan as
in effect immediately prior to that 15,000,000-share increase shall remain in
effect, and option grants and direct stock issuances may continue to be made
pursuant to those provisions of the Plan.

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

               IV. AMENDMENT OF THE PLAN

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

                   B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued under those
programs shall be held in escrow until there is obtained shareholder approval of
an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such shareholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any

                                      32.


<PAGE>   67

unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.

                  V. USE OF PROCEEDS

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

                  VI. REGULATORY APPROVALS

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

                      B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.

                 VII. NO EMPLOYMENT/SERVICE RIGHTS

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

                                      33.


<PAGE>   68

                                    APPENDIX

                  The following definitions shall be in effect under the Plan:

                  A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic
option grant program in effect under Article Five of the Plan.

                  B. BOARD shall mean the Corporation's Board of Directors.

                  C. CHANGE IN CONTROL shall mean a change in ownership or
control of the Corporation effected through any of the following transactions:

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

                     (ii) a shareholder-approved sale, transfer or other
         disposition of all or substantially all of the Corporation's assets in
         complete liquidation or dissolution of the Corporation, or

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

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

                  E. COMMON STOCK shall mean the Corporation's Class A Common
Stock.

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

                  G. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special
stock option grant in effect for non-employee Board members under Article Six of
the Plan.

                  H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under Article Two of the Plan.


<PAGE>   69

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

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

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

                  L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

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

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

                     (iii) For purposes of any option grants made on the
         Underwriting Date, the Fair Market Value shall be deemed to be equal to
         the price per share at which the Common Stock is to be sold in the
         initial public offering pursuant to the Underwriting Agreement.

                  M. HOSTILE TAKE-OVER shall mean either of the following events
effecting a change in control or ownership of the Corporation:

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

                                      A-2.


<PAGE>   70


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

                  N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.

                  O. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:

                     (i) such individual's involuntary dismissal or discharge by
         the Corporation for reasons other than Misconduct, or

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

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

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

                  R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.

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

                                      A-3.


<PAGE>   71

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

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

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

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

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

                  Y. PLAN EFFECTIVE DATE shall mean February 3, 1998.

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

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

                  BB. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the
salary investment option grant program in effect under Article Three of the
Plan.

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

                                      A-4.


<PAGE>   72

                  DD. SECTION 12 REGISTRATION DATE shall mean the date on which
the Common Stock is first registered under Section 12 of the 1934 Act.

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

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

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

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

                  II. STOCK ISSUANCE PROGRAM shall mean the stock issuance
program in effect under Article Four of the Plan.

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

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

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

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

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

                                      A-5.


<PAGE>   73

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

                                      A-6.

<PAGE>   74

PROXY                         BROADCOM CORPORATION                         PROXY

                              CLASS A COMMON STOCK
                 ANNUAL MEETING OF SHAREHOLDERS, APRIL 27, 2000
    THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BROADCOM
                                  CORPORATION

    The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Shareholders to be held April 27, 2000 and the
Proxy Statement, and appoints William J. Ruehle and Timothy M. Lindenfelser, and
each of them, the Proxy of the undersigned, with full power of substitution, to
vote all shares of Class A common stock of Broadcom Corporation (the "Company")
which the undersigned is entitled to vote, either on his or her own behalf or on
behalf of any entity or entities, at the Annual Meeting of Shareholders of the
Company to be held at the Sutton Place Hotel, 4500 MacArthur Boulevard, Newport
Beach, California 92660, on April 27, 2000 at 10:00 a.m. Pacific Time, and at
any adjournments or postponements thereof, with the same force and effect as the
undersigned might or could do if personally present thereat. The shares
represented by this Proxy shall be voted in the manner set forth below and on
the reverse side.

1. To elect five directors to serve on the Company's Board of Directors until
   the next Annual Meeting of Shareholders or until their successors are duly
   elected and qualified: Henry T. Nicholas III, Ph.D., Henry Samueli, Ph.D.,
   Myron S. Eichen, Alan E. Ross, and Werner F. Wolfen.

[ ] FOR ALL NOMINEES EXCEPT AS NOTED ABOVE            [ ] WITHHOLD AUTHORITY TO
                                      VOTE

2. To approve the amendment of the Company's Amended and Restated Articles of
   Incorporation to increase the aggregate number of authorized shares of Class
   A common stock from 400,000,000 shares to 800,000,000 shares and to increase
   the aggregate number of authorized shares of Class B common stock from
   200,000,000 shares to 400,000,000 shares.

               [ ] FOR            [ ] AGAINST            [ ] ABSTAIN
3. To approve the amendment of the Company's 1998 Stock Incentive Plan, as
   amended, to increase the number of shares of Class A common stock reserved
   for issuance under the plan by an additional 15,000,000 shares.

               [ ] FOR            [ ] AGAINST            [ ] ABSTAIN
4. To ratify the appointment of Ernst & Young LLP as independent auditors of the
   Company for the fiscal year ending December 31, 2000.

               [ ] FOR            [ ] AGAINST            [ ] ABSTAIN

                     (Please date and sign on reverse side)
<PAGE>   75

5. In accordance with the discretion of the proxy holders, to act upon all
   matters incident to the conduct of the meeting and upon such other matters as
   may properly come before the meeting.

The Board of Directors recommends a vote IN FAVOR OF the directors listed above
and a vote IN FAVOR OF each of the listed proposals. This Proxy, when properly
executed, will be voted as specified above. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED IN FAVOR OF THE ELECTION OF THE DIRECTORS LISTED ABOVE AND
IN FAVOR OF THE OTHER PROPOSALS.

                                                        Please print the name(s)
                                                        appearing on each share
                                                        certificate(s) over
                                                        which you have voting
                                                        authority.

                                                        ------------------------
                                                           (Print name(s) on
                                                              certificate)

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

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

                                                        Please sign your name(s)
                                                              (Authorized
                                                             Signature(s))

                                                        Date

   -----------------------------------------------------------------------------
<PAGE>   76

PROXY                         BROADCOM CORPORATION                         PROXY

                              CLASS B COMMON STOCK
                 ANNUAL MEETING OF SHAREHOLDERS, APRIL 27, 2000
    THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BROADCOM
                                  CORPORATION

    The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Shareholders to be held April 27, 2000 and the
Proxy Statement, and appoints William J. Ruehle and Timothy M. Lindenfelser, and
each of them, the Proxy of the undersigned, with full power of substitution, to
vote all shares of Class B common stock of Broadcom Corporation (the "Company")
which the undersigned is entitled to vote, either on his or her own behalf or on
behalf of any entity or entities, at the Annual Meeting of Shareholders of the
Company to be held at the Sutton Place Hotel, 4500 MacArthur Boulevard, Newport
Beach, California 92660, on April 27, 2000 at 10:00 a.m. Pacific Time, and at
any adjournments or postponements thereof, with the same force and effect as the
undersigned might or could do if personally present thereat. The shares
represented by this Proxy shall be voted in the manner set forth below and on
the reverse side.

1. To elect five directors to serve on the Company's Board of Directors until
   the next Annual Meeting of Shareholders or until their successors are duly
   elected and qualified: Henry T. Nicholas III, Ph.D., Henry Samueli, Ph.D.,
   Myron S. Eichen, Alan E. Ross, and Werner F. Wolfen.

[ ] FOR ALL NOMINEES EXCEPT AS NOTED ABOVE            [ ] WITHHOLD AUTHORITY TO
                                      VOTE

2. To approve the amendment of the Company's Amended and Restated Articles of
   Incorporation to increase the aggregate number of authorized shares of Class
   A common stock from 400,000,000 shares to 800,000,000 shares and to increase
   the aggregate number of authorized shares of Class B common stock from
   200,000,000 shares to 400,000,000 shares.
               [ ] FOR            [ ] AGAINST            [ ] ABSTAIN
3. To approve the amendment of the Company's 1998 Stock Incentive Plan, as
   amended, to increase the number of shares of Class A common stock reserved
   for issuance under the plan by an additional 15,000,000 shares.

               [ ] FOR            [ ] AGAINST            [ ] ABSTAIN
4. To ratify the appointment of Ernst & Young LLP as independent auditors of the
   Company for the fiscal year ending December 31, 2000.

               [ ] FOR            [ ] AGAINST            [ ] ABSTAIN

                     (Please date and sign on reverse side)
<PAGE>   77

5. In accordance with the discretion of the proxy holders, to act upon all
   matters incident to the conduct of the meeting and upon such other matters as
   may properly come before the meeting.

The Board of Directors recommends a vote IN FAVOR OF the directors listed above
and a vote IN FAVOR OF each of the listed proposals. This Proxy, when properly
executed, will be voted as specified above. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED IN FAVOR OF THE ELECTION OF THE DIRECTORS LISTED ABOVE AND
IN FAVOR OF THE OTHER PROPOSALS.

                                                        Please print the name(s)
                                                        appearing on each share
                                                        certificate(s) over
                                                        which you have voting
                                                        authority.

                                                        ------------------------
                                                           (Print name(s) on
                                                              certificate)

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

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

                                                        Please sign your name(s)
                                                              (Authorized
                                                             Signature(s))

                                                        Date

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


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