8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 28, 2006

NVIDIA CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	0-23985	94-3177549
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

2701 San Tomas Expressway, Santa Clara, CA	95050
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (408) 486-2000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

SECTION 1 - Registrant’s Business and Operations

Item 1.01 Entry Into a Material Definitive Agreement.

(a)   On March 29, 2006, the Compensation Committee of the Board of Directors of NVIDIA Corporation (the “Company”) approved the Fiscal Year 2007 Variable Compensation Plan (the “2007 Plan”) which is designed to provide variable cash compensation to the Company’s chief executive officer, senior officers, vice presidents, directors, managers and qualifying senior contributors (the “Participants”), as determined by the Compensation Committee, if certain pre-set corporate and individual targets are achieved during the year.

Under the 2007 Plan, variable cash compensation will be paid to the Participants if the Company achieves pre-set Company targets based on the Company's net income objectives as set by the Compensation Committee and/or if individuals achieve their individual targets which are determined by the Compensation Committee for the chief executive officer, by the chief executive officer for the senior officers, by the senior officer to whom a vice presdient or a director reports, and based on individual rankings for the managers and the other qualifying senior contributors.  Fifty percent (50%) of a Participant's potential variable cash compensation will be allocated to the achievement of corporate targets and fifty percent (50%) will be allocated to the achievement of individual targets.

Variable compensation resulting from achievement of the corporate targets is determined by the Compensation Committee. The achievement of individual targets is determined by the Compensation Committee in the case of the chief executive officer, by the chief executive officer in the case of the senior officers, by the senior officer to whom a vice president or a director reports in the case of vice presidents and directors, and by the senior officer or director to whom a manager or senior contributor reports in the case of managers and senior contributors.

The Company's Board of Directors and the Compensation Committee reserve the right to modify these targets and criteria at any time or to grant additional variable cash compensation to the Participants even if the performance targets are not met.

The 2007 Plan is filed with this report as Exhibit 10.1 and is incorporated herein by reference. The foregoing description is subject to, and qualified in their entirety by, the 2007 Plan.

(b)   On March 28, 2006, the Board of Directors of the Company approved an amendment and restatement of the Company’s 1998 Non-Employee Directors’ Stock Option Plan (the "Plan"). The amendments to the Plan:

·   reduce the number of shares issuable pursuant to an option to a new member of the Board of Directors to 90,000 shares, which represents a 40% reduction from the 150,000 shares previously issuable to new members;

·   reduce the number of shares issuable pursuant to an option to members of the Board of Directors for their annual service to 30,000 shares, which represents a 40% reduction from the 50,000 shares previously issuable annually to existing members of the Company’s Board of Directors;

·   eliminate annual option grants for the Company’s Nominating and Corporate Governance Committee;

·   modify the vesting of annual committee grants to provide that in the event that a recipient dies or is disabled prior to the one-year anniversary in which such grant vests in full, the applicable grant shall immediately vest and become exercisable for the number of months served in that year on the respective committee for which the grant was made, rather than for service on the Board of Directors in general; and

·   reduce the term of options issuable pursuant to such Plan to six years from the prior term of ten years.

Share amounts above reflect the 2-for-1 stock split recently announced by the Company. The foregoing summary of changes contained in the Plan is qualified in its entirety by the Plan itself, which is attached hereto as Exhibit 10.2 and is incorporated herein by reference. The amendments to the Plan did not require stockholder approval and were effective upon approval by the Company’s Board of Directors.

SECTION 9 - Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

	(d)	Exhibits
Exhibit		Description
10.1		1998 Non-Employee Directors’ Stock Option Plan, as amended and restated on March 28, 2006.
10.2		Fiscal Year 2007 Variable Compensation Plan, approved March 29, 2006.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	NVIDIA Corporation
	By: /s/ Marvin D. Burkett
	Marvin D. Burkett
	Chief Financial Officer
Date: March 31, 2006

	(d)	Exhibits
Exhibit		Description
10.1		1998 Non-Employee Directors’ Stock Option Plan, as amended and restated on March 28, 2006.
10.2		Fiscal Year 2007 Variable Compensation Plan, approved March 29, 2006.

EX-10.1

Exhibit 10.1

NVIDIA Corporation

1998 Non-Employee Directors’ Stock Option Plan

1.    PURPOSE.

(a)This Plan is an amendment and restatement of the NVIDIA Corporation (the “Company”) 1998 Non-Employee Directors’ Stock Option Plan adopted on February 17, 1998 (the “Prior Plan”). The Prior Plan hereby is amended and restated in its entirety as follows (the “Plan”) and shall become effective on the date of approval of the Plan (the “Effective Date”) by the Board of Directors of the Company (the “Board”). The terms of the Prior Plan (other than the aggregate number of shares issuable thereunder) shall remain in effect and apply to all options granted pursuant to the Prior Plan.

(b)The purpose of the Plan is to provide a means by which each director of NVIDIA Corporation (the “Company”) who is not otherwise at the time of grant an employee of or consultant to the Company or of any Affiliate of the Company (each such person being hereafter referred to as a “Non-Employee Director”) will be given an opportunity to purchase stock of the Company.

(c)The word “Affiliate” as used in the Plan means any parent corporation or subsidiary corporation of the Company as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended from time to time (the “Code”).

(d)The Company, by means of the Plan, seeks to retain the services of persons now serving as Non-Employee Directors of the Company, to secure and retain the services of persons capable of serving in such capacity, and to provide incentives for such persons to exert maximum efforts for the success of the Company.

2.    ADMINISTRATION.

(a)  The Board shall administer the Plan unless and until the Board delegates administration to a committee, as provided in subparagraph 2(b).

(b)  The Board may delegate administration of the Plan to a committee composed of two (2) or more members of the Board (the “Committee”). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.

3.    SHARES SUBJECT TO THE PLAN.

(a)  Subject to the provisions of paragraph 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate One Million Two Hundred Thousand (1,200,000) shares of the Company’s common stock. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan.

(b)  The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

4.    ELIGIBILITY.

Options shall be granted only to Non-Employee Directors of the Company.

5.    NON-DISCRETIONARY GRANTS.

(a)  Each person who is elected or appointed for the first time to be a Non-Employee Director automatically shall, upon the date of his or her initial election or appointment to be a Non-Employee Director by the Board or stockholders of the Company, be granted an option to purchase Ninety Thousand (90,000) shares of common stock of the Company on the terms and conditions set forth herein (an “Initial Grant”).

(b)  On August 1^st of each year, commencing with August 1^st, 2006, each person who is then a Non-Employee Director automatically shall be granted an option to purchase Thirty Thousand (30,000) shares of common stock of the Company (an “Annual Grant”); provided, however, that if the person has not been serving as a Non-Employee Director for the entire period since the preceding August 1^st, then the number of shares subject to the Annual Grant shall be reduced pro rata for each full quarter prior to the date of grant during which such person did not serve as a Non-Employee Director.

(c)  On August 1^st of each year, commencing with August 1^st, 2006, each Non-Employee Director who is then a member of the Audit Committee or the Compensation Committee of the Board automatically shall be granted, for each such committee, an option to purchase Ten Thousand (10,000) shares of common stock of the Company (a “Committee Grant”), respectively; provided, however, that if the person has not been serving as a member of either such committee for the entire period since the preceding August 1^st, the number of shares subject to the Committee Grant shall be reduced pro rata for each full quarter prior to the date of grant during which such person did not serve as a member of either such committee.

6.    OPTION PROVISIONS.

Each option shall be subject to the following terms and conditions:

(a)  The term of each option commences on the date it is granted and, unless sooner terminated as set forth herein, expires on the date six (6) years from the date of grant (“Expiration Date”). If the optionee’s service as a Non-Employee Director of the Company or an employee, member of the Board of Directors or consultant to the Company or any Affiliate terminates for any reason or for no reason, the option shall terminate on the earlier of the Expiration Date or the date twelve (12) months following the date of termination of all such service; provided, however, that if such termination of service is due to the optionee’s death, the option shall terminate on the earlier of the Expiration Date or eighteen (18) months following the date of the optionee’s death.

(b)  The exercise price of each option shall be equal to one hundred percent (100%) of the Fair Market Value of the stock (as such term is defined in subparagraph 9(d)) subject to such option on the date such option is granted.

(c)  The optionee may elect to make payment of the exercise price under one of the following alternatives:

(i)  Payment of the exercise price per share in cash at the time of exercise;

(ii)  Provided that at the time of the exercise the Company’s common stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of shares of common stock of the Company already owned by the optionee, held for the period required to avoid a charge to the Company’s reported earnings, and owned free and clear of any liens, claims, encumbrances or security interest, which common stock shall be valued at its Fair Market Value on the date preceding the date of exercise; or

(iii)  Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which results in the receipt of cash (or check) by the Company either prior to the issuance of shares of the Company’s common stock or pursuant to the terms of irrevocable instructions issued by the optionee prior to the issuance of shares of the Company’s common stock.

(iv)  Payment by a combination of the methods of payment specified in subparagraph 6(c)(i) through 6(c)(iii) above.

(d)  An option shall be transferable only to the extent specifically provided in the option agreement; provided, however, that if the option agreement does not specifically provide for the transferability of an option, then the option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the option is granted only by such person (or by his guardian or legal representative) or transferee pursuant to such an order. Notwithstanding the foregoing, the optionee may, by delivering written notice to the Company in a form satisfactory to the Company, designate a third party who, in the event of the death of the optionee, shall thereafter be entitled to exercise the option.

(e)  The options granted pursuant to Section 5 shall vest and become exercisable as follows:

(i)  The Initial Grant shall vest quarterly over the three (3)-year period following the date of grant such that the entire Initial Grant shall become exercisable on the three (3)-year anniversary of the date of grant of the option, provided that the optionee has, during the entire period prior to each such vesting installment date, continuously served as a director or employee of or consultant to the Company or any Affiliate of the Company, whereupon such option shall become fully vested and exercisable in accordance with its terms with respect to that portion of the shares represented by that installment.

(ii)  With respect to an Annual Grant, if the optionee has attended at least seventy-five percent (75%) of the meetings of the Board held between the date of grant of the option and the two (2)-year anniversary of the date of grant of the option, then the Annual Grant shall begin vesting quarterly in equal installments on the two (2)-year anniversary of the date of grant such that entire Annual Grant shall become vested and exercisable on the three (3)-year anniversary of the date of the grant of the option. If the optionee’s service as a Director terminates between the date of grant of the option and the two (2)-year anniversary of the date of grant of the option due to the disability or death of the optionee, then the Annual Grant shall immediately vest and become exercisable on a quarterly pro rata basis. Unless the Annual Grant sooner vests and becomes exercisable as provided in this subsection 6(e)(ii), the Annual Grant shall vest over the four (4)-year period following the date of grant at the rate of thirty percent (30%) on the three (3)-year anniversary of the date of grant of the option and seventy percent (70%) on the four (4)-year anniversary such that the entire Annual Grant shall become vested and exercisable on the four (4)-year anniversary of the date of grant of the option, provided that the optionee has, during the entire period prior to each such vesting installment date, continuously served as a director or employee of or consultant to the Company or any Affiliate of the Company, whereupon such option shall become fully vested and exercisable in accordance with its terms with respect to that portion of the shares represented by that installment.

(iii)  With respect to each Committee Grant, if the optionee has attended at least seventy-five percent (75%) of the meetings of the committee held between the date of grant of the option and the one (1)-year anniversary of the date of grant of the option, then the Committee Grant shall vest and become exercisable in full on the one (1)-year anniversary of the date of grant. If the optionee’s service as a committee member terminates between the date of grant of the option and the one (1)-year anniversary of the date of grant of the option due to the disability or death of the optionee, then the Committee Grant shall immediately vest and become exercisable on a monthly pro rata basis for each month served on the respective committee. Unless the Committee Grant sooner vests and becomes exercisable as provided in this subsection 6(e)(iii), the Committee Grant shall vest annually over the four (4)-year period following the date of grant at the rate of ten percent (10%) per year for the first three (3) years and seventy percent (70%) for the fourth (4th) year such that the entire Committee Grant shall become exercisable on the four (4)-year anniversary of the date of grant of the option, provided that the optionee has, during the entire period prior to each such vesting installment date, continuously served as a director or employee of or consultant to the Company or any Affiliate of the Company, whereupon such option shall become fully vested and exercisable in accordance with its terms with respect to that portion of the shares represented by that installment.

(f)  The Company may require any optionee, or any person to whom an option is transferred under subparagraph 6(d), as a condition of exercising any such option: (i) to give written assurances satisfactory to the Company as to the optionee’s knowledge and experience in financial and business matters; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person’s own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then currently-effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may require any optionee to provide such other representations, written assurances or information that the Company shall determine is necessary, desirable or appropriate to comply with applicable securities laws as a condition of granting an option to the optionee or permitting the optionee to exercise the option. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock.

(g)  Notwithstanding anything to the contrary contained herein, an option may not be exercised unless the shares issuable upon exercise of such option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act.

7.    COVENANTS OF THE COMPANY.

(a)  During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options.

(b)  The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan, or any stock issued or issuable pursuant to any such option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options.

8.    USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company.

9.    MISCELLANEOUS.

(a)  Neither an optionee nor any person to whom an option is transferred under subparagraph 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms.

(b)  Nothing in the Plan or in any instrument executed pursuant thereto shall confer upon any Non-Employee Director any right to continue in the service of the Company or any Affiliate in any capacity or shall affect any right of the Company, its Board or stockholders or any Affiliate, to remove any Non-Employee Director pursuant to the Company’s Bylaws and the provisions of Delaware general corporation law.

(c)  In connection with each option made pursuant to the Plan, it shall be a condition precedent to the Company’s obligation to issue or transfer shares to a Non-Employee Director, or to evidence the removal of any restrictions on transfer, that such Non-Employee Director make arrangements satisfactory to the Company to insure that the amount of any federal, state or local withholding tax required to be withheld with respect to such sale or transfer, or such removal or lapse, is made available to the Company for timely payment of such tax.

(d)  As used in this Plan, “Fair Market Value” means, as of any date, the value of the common stock of the Company determined as follows:

(i)  If the common stock is listed on any established stock exchange or a national market system, including without limitation the NASDAQ National Market (“NASDAQ”) or The NASDAQ SmallCap, the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in common stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; or

(ii)  In the absence of an established market for the common stock, the Fair Market Value shall be determined in good faith by the Board.

10.    ADJUSTMENTS UPON CHANGES IN STOCK.

(a)  If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan and outstanding options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding options. Such adjustments shall be made by the Board, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a “transaction not involving the receipt of consideration by the Company.”)

(b)  In the event of: (1) a dissolution, liquidation, or sale of all or substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company’s common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) the acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then to the extent not prohibited by applicable law, (i) any surviving or acquiring corporation shall assume any options outstanding under the Plan or shall substitute similar options (including an option to acquire the same consideration paid to the shareholders in the transaction described in this subparagraph 10(b)) for those outstanding under the Plan, or (ii) such options shall continue in full force and effect. In the event any surviving or acquiring corporation refuses to assume such options, or to substitute similar options for those outstanding under the Plan, then such options shall be terminated if not exercised prior to such event.

11.    AMENDMENT OF THE PLAN.

(a)  The Board at any time, and from time to time, may amend the Plan and/or some or all outstanding options granted under the Plan. However, except as provided in paragraph 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary for the Plan to satisfy the requirements of Rule 16b-3 under the Exchange Act or any NASDAQ or securities exchange listing requirements.

(b)  Rights and obligations under any option granted before any amendment of the Plan shall not be impaired by such amendment unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing.

12.    TERMINATION OR SUSPENSION OF THE PLAN.

(a)  The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate ten (10) years after the date adopted by the Board. No options may be granted under the Plan while the Plan is suspended or after it is terminated.

(b)  Suspension or termination of the Plan shall not impair rights and obligations under any option granted while the Plan is in effect, except with the consent of the person to whom the option was granted.

13.    EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.

(a)  The Plan shall become effective on the same day that the Company’s initial public offering of shares of common stock becomes effective, subject to the condition subsequent that the stockholders of the Company approve the Plan.

(b)  No option granted under the Plan shall be exercised or exercisable unless and until the condition of subparagraph 13(a) above has been met.

EX-10.2

Exhibit 10.2

NVIDIA CORPORATION

FISCAL YEAR 2007 VARIABLE COMPENSATION PLAN

Overview

The compensation philosophy of NVIDIA Corporation (the “Company”) is to attract, motivate, retain and reward its management through a combination of base salary and performance based compensation. Senior Officers, Directors and Managers as defined below (collectively, the “Participants”), who are employed at the Company during fiscal year 2007 and are employees of the Company on and as of January 28, 2007, shall be eligible to participate in the Fiscal Year 2007 Variable Compensation Plan (the “Plan”). The Plan is designed to award a cash payment (each a “Variable Cash Payment”) for performance in fiscal year 2007 to a Participant if the Company achieves certain corporate performance targets (“Corporate Targets”) and/or if the Participant achieves certain Individual Targets (as defined below) and/or certain Individual Rankings (as defined below).

For purposes of the Plan, the Company’s chief executive officer, other executive officers and certain other senior officers shall be considered “Senior Officers,” other employees at the level of vice president or director shall be considered “Directors” and managers or qualifying senior contributors shall be considered “Managers.” The Compensation Committee (the “Committee”) shall determine (i) the persons to be specified as Senior Officers for purposes of this Plan, (ii) the class of employees who may be designated by Senior Officers as Directors for purposes of this Plan and (iii) the class of employees who many be designated by Senior Officers or Directors as Managers for purposes of this Plan.

For fiscal year 2007, for purposes of the Plan, “Individual Targets” shall be set for Senior Officers and Directors as follows:

·   For the chief executive officer, certain key performance objectives set by the Committee;

·   For the other Senior Officers, certain key performance objectives set by the chief executive officer; and

·   For the Directors, certain key performance objectives set by the respective Senior Officer to whom the applicable Director reports.

For fiscal year 2007, for purposes of the Plan, “Individual Rankings” for Managers shall be the ranking of such Manager in January or February 2007 by the Senior Officer or Director to whom the Manager reports.

Determination of Fiscal Year 2007 Variable Cash Payments

Senior Officers and Directors are eligible to receive a Variable Cash Payment if the Company achieves its Corporate Targets and/or the Senior Officer or Director achieves their Individual Targets at specified levels. Managers are eligible to receive a Variable Cash Payment if the Company achieves its Corporate Targets and/or based on the level of their Individual Ranking. The aggregate potential amount of the Variable Cash Payment a Participant may receive upon achievement of the Corporate Targets and/or his or her Individual Targets and/or Individual Ranking, as applicable, and the pool available to all Participants under the Plan will be set by the Committee for all Participants based

on a recommendation made by the chief executive officer (the “Variable Cash Payment Target Amount”). A Participant’s Variable Cash Payment Target Amount is based on the difficulty and responsibility of each position. For fiscal year 2007, each Participant’s Variable Cash Payment Target Amount will be split such that fifty percent (50%) is allocated to the achievement of the Corporate Targets (the “Corporate Variable Cash Payment”) and fifty percent (50%) is allocated to the achievement of the Individual Targets or Individual Ranking, as applicable, (the “Individual Variable Cash Payment”). A Participant may be eligible to receive more or less than his or her Variable Cash Payment Target Amount as described more fully below.

Individual Variable Cash Payment

An Individual Variable Cash Payment may be awarded to a Participant based on the achievement of his or her Individual Targets or Individual Ranking, as applicable, or other criteria determined by the Committee.

The actual Individual Variable Cash Payments to be made for fiscal 2007 (the “Actual Individual Variable Cash Payments”) shall be made pursuant to the following guidelines and taking into account whether Individual Targets have been achieved or the level of the Individual Ranking, as applicable, and the amount of the Actual Individual Variable Cash Payment shall be determined as follows:

·   For the chief executive officer, the Committee shall determine if the Individual Targets have been achieved and shall determine the amount of the Actual Individual Variable Cash Payment;

·   For the other Senior Officers, the Committee, based on input from the chief executive officer of the Company, shall determine if the Individual Targets have been achieved by each other Senior Officer and shall determine the amount of the Actual Individual Variable Cash Payments for each other Senior Officer;

·   For Directors, the Senior Officer to whom a Director directly reports shall determine if the Individual Targets have been achieved by such Director and shall determine the amount of the Actual Individual Variable Cash Payments for such Director; and

·   For Managers, the Senior Officer or Director to whom a Manager directly reports shall determine the amount of the Actual Individual Variable Cash Payments for such Manager, based on the Individual Ranking achieved by such Manager.

An Actual Individual Variable Cash Payment that is in excess of fifty percent (50%) of the Variable Cash Payment Target Amount may be awarded to a Participant for extraordinary individual performance. If a Participant achieves only a portion of his or her Individual Targets, or in the case of a Manager who does not reach his or her Individual Ranking, the Participant may still be eligible to receive an Actual Individual Variable Cash Payment to the extent determined by the Committee (for the chief executive officer and other Senior Officers), Senior Officers (for other Directors) or Senior Officers or Directors (for Managers who report to such Senior Officer or Director, as applicable), each in their sole discretion. If a Participant does not receive an Individual Variable Cash Payment, he or she may still be eligible to receive a Corporate Variable Cash Payment as outlined below.

Corporate Variable Cash Payment

The Committee has set the Corporate Targets for the Participants, based on achievement of specified fiscal year 2007 net income. The amount of actual net income, as set forth in the Company’s financial statements for fiscal 2007, but (i) excluding the impact of stock-based compensation expense, and (ii) excluding or including items that the Committee in its sole discretion deems to be extraordinary or otherwise inappropriate to include or appropriate to include,

shall be the “Actual Result.” The Committee has also set threshold and maximum Actual Result targets for fiscal year 2007 for Participants, for the award of all of or a portion of the Corporate Variable Cash Payment (the “Threshold” and “Maximum”). The actual Corporate Variable Cash Payments to be made for fiscal 2007 (the “Actual Corporate Variable Cash Payments”) shall be made pursuant to the following guidelines:

·   If the Actual Result is less than or equal to the Threshold, a Participant will not receive any portion of his or her Corporate Variable Cash Payment.

·   If the Actual Result falls between the Threshold and the applicable Corporate Target, each Participant shall receive an Actual Corporate Variable Cash Payment based on the following formula:

Actual Corporate Variable Cash Payment =    (Actual Result - Threshold)   x Corporate Variable Cash Payment

(Corporate Target - Threshold)

·   If the Actual Result equals the Corporate Target, each Participant shall be eligible to receive the full amount of his or her Corporate Variable Cash Payment.

·   If the Actual Result exceeds the Corporate Target but is less than the Maximum, each Participant shall be eligible to receive an Actual Corporate Variable Cash Payment pursuant to the formula set forth below:

Actual Corporate Variable Cash Payment = [(Actual Result - Corporate Target) +1] x Corporate Variable Cash Payment

      (Maximum - Corporate Target)

·   If the Actual Result equals the Maximum, each Participant shall be eligible to receive 200% of his or her Corporate Variable Cash Payment.

In no event shall any Participant receive an Actual Corporate Variable Cash Payment in excess of two (2) times the amount of his or her Corporate Variable Cash Payment.

If a Participant does not receive a Corporate Variable Cash Payment, he or she may still be eligible to receive all or a portion of an Individual Variable Cash Payment as outlined above.

Miscellaneous Provisions

Payments under this Plan shall be made following the end of the fiscal year, on such schedule as may be approved by the Committee in its discretion.

Participation in the Plan shall not alter in any way the at will nature of the Company’s employment of a Participant, and such employment may be terminated at any time for any reason, with or without cause and with or without prior notice.

The Board of Directors or the Committee may amend or terminate this Plan at any time. Further, the Board of Directors or the Committee may modify the Corporate Targets, Individual Targets and/or Individual Ranking and/or Corporate and/or Individual Variable Cash Payment amounts at any time.

This Plan shall be governed by and construed in accordance with the laws of the State of California, without regard to its principles of conflicts of laws.