1998 DIRECTOR STOCK OPTION PLAN

1998 DIRECTOR STOCK OPTION PLAN


1. Purposes of the Plan. The purposes of this 1998 Director Stock Option Plan are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board.


All options granted hereunder shall be nonstatutory stock options.


2. Definitions. As used herein, the following definitions shall apply:


(a) "Board" means the Board of Directors of the Company.


(b) "Code" means the Internal Revenue Code of 1986, as amended.


(c) "Common Stock" means the common stock of the Company.


(d) "Company" means Altera Corporation, a Delaware corporation.


(e) "Director" means a member of the Board.


(f) "Employee" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company.


(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended.


(h) "Fair Market Value" means, as of any date, the value of Common Stock 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 or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable;


(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or


(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board.


(i) "Inside Director" means a Director who is an Employee.


(j) "Option" means a stock option granted pursuant to the Plan.


(k) "Optioned Stock" means the Common Stock subject to an Option.


(l) "Optionee" means a Director who holds an Option.


(m) "Outside Director" means a Director who is not an Employee.


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(n) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.


(o) "Plan" means this 1998 Director Stock Option Plan.


(p) "Share" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan.


(q) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986.


3. Stock Subject to the Plan. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 170,000 Shares of Common Stock (the "Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock.


If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan.


4. Administration and Grants of Options under the Plan.


(a) Except as otherwise provided herein, the Plan shall be administered by the Board.


(b) Procedure for Grants. All grants of Options to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions:


(i) Except as provided in Section 11(c), no person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors.


(ii) Each Outside Director shall be automatically granted an Option to purchase 20,000 Shares (the "First Option") on the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy.


(iii) Each Outside Director shall be automatically granted an Option to purchase 5,000 Shares (a "Subsequent Option") on the day of the annual stockholder meeting at which such Outside Director is reelected to an additional term; provided, however, that for the first grant of a Subsequent Option (the "First Subsequent Option"), each Outside Director shall be automatically granted an Option to purchase the number of Shares equal to 5,000 multiplied by a fraction, the numerator of which equals the number of whole months (rounded up to the next whole month) from the date the Outside Director first became an Outside Director to the date of the annual stockholders' meeting at which the Outside Director was granted the First Subsequent Option and the denominator of which equals twelve.


(iv) The exercise price per Share for all Options granted under the Plan shall be 100% of the Fair Market Value per Share on the date of grant of the Option.


(v) The terms of a First Option granted hereunder shall be as follows:


(A) the term of the First Option shall be ten (10) years.


(B) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof.


(C) subject to Section 10 hereof, the First Option shall become exercisable as to twenty-five percent (25%) of the Shares subject to the First Option on the first anniversary of its date of grant and as


2 3 to 1/48th of the Shares subject to the First Option at the end of each month thereafter, provided that the Optionee continues to serve as a Director on such dates.


(vi) The terms of a Subsequent Option granted hereunder shall be as follows:


(A) the term of the Subsequent Option shall be ten (10) years.


(B) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof.


(C) subject to Section 10 hereof, the Subsequent Option shall vest and become exercisable as to 1/12th of the Shares subject to the Subsequent Option at the end of each month beginning after all prior Option grants under the Plan have vested, provided that the Optionee continues to serve as a Director on such dates. Notwithstanding the prior sentence, the First Subsequent Option shall vest and become exercisable beginning after the Annual Option grant made under the Plan has fully vested as to an amount equal to the number of Shares subject to the First Subsequent Option divided by the number of whole months (rounded up to the nearest whole month) from the date the Outside Director first became an Outside Director to the date of the annual stockholders' meeting at which the Outside Director was granted the First Subsequent Option.


(vii) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder.

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