TRIDENT MICROSYSTEMS, INC. EXECUTIVE RETENTION AND SEVERANCE PLAN

Exhibit 10.38

TRIDENT MICROSYSTEMS, INC.

EXECUTIVE RETENTION AND SEVERANCE PLAN

1. Establishment and Purpose

1.1 Establishment. The Trident Microsystems, Inc. Executive Retention and Severance Plan (the “ Plan ” ) is hereby established by the Compensation Committee of the Board of Directors of Trident Microsystems, Inc., effective January 23, 2008 (the “ Effective Date ” ).

1.2 Purpose. The Company draws upon the knowledge, experience and advice of the officers and key employees of the Company and its subsidiaries in order to manage its business for the benefit of the Company’s stockholders. Due to the widespread awareness of the possibility of mergers, acquisitions and other strategic alliances in the Company’s industry, the topic of compensation and other employee benefits in the event of a Change in Control is an issue in competitive recruitment and retention efforts. The Committee recognizes that the possibility or pending occurrence of a Change in Control could lead to uncertainty regarding the consequences of such an event and could adversely affect the Company’s ability to attract, retain and motivate officers and key employees. The Committee has therefore determined that it is in the best interests of the Company and its stockholders to provide for the continued dedication of officers and key employees notwithstanding the possibility or occurrence of a Change in Control by establishing this Plan to provide designated officers and key employees with enhanced financial security in the event of a Change in Control. The purpose of this Plan is to provide its Participants with specified compensation and benefits in the event of termination of employment under circumstances specified herein upon or following a Change in Control. The Company intends that all payments pursuant to the Plan be exempt from or comply with all applicable requirements of Section 409A (as defined below), and the Plan shall be so construed.

2. Definitions and Construction

2.1 Definitions. Whenever used in this Plan, the following terms shall have the meanings set forth below:

(a)  “ Annual Bonus Rate ” means an amount equal to the aggregate of all annual incentive bonuses that would be earned by the Participant at the targeted annual rate (assuming attainment of 100% of all applicable performance goals) under the terms of the programs, plans or agreements providing for such bonuses in which the Participant was participating for the fiscal year of the Company in which the Termination Upon a Change in Control occurs. For this purpose, annual incentive bonuses shall not include signing bonuses or other nonrecurring cash incentive awards.

(b)  “ Base Salary Rate ” means the greater of the Participant’s (i) monthly base salary rate in effect immediately prior to the Participant’s Termination Upon a Change in Control, or (ii) monthly base salary rate in effect immediately prior to the Change in Control, in either case without giving effect to any reduction in the Participant’s base salary rate which constitutes Good Reason. For this purpose, base salary does not include any bonuses, commissions, fringe benefits, car allowances, other irregular payments or any other compensation except base salary.

(c) “ Board ” means the Board of Directors of the Company.

(d)  “ Cause ” means the occurrence of any of the following: (1) the Participant’s theft, dishonesty, misconduct, breach of fiduciary duty for personal profit, or falsification of any documents or records of the Company Group; (2) the Participant’s material failure to abide by the code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct) of any member of the Company Group; (3) misconduct by the Participant within the scope of Section 304 of the Sarbanes-Oxley Act of 2002 as a result of which of the Company is required to prepare an accounting restatement; (4) the Participant’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a member of the Company Group (including, without limitation, the Participant’s improper use or disclosure of the confidential or proprietary information of a member of the Company Group); (5) any intentional act by the Participant which has a material detrimental effect on the reputation or business of a member of the Company Group; (6) the Participant’s repeated failure or inability to perform any reasonable assigned duties after written notice from a member of the Company Group of, and a reasonable opportunity to cure, such failure or inability; (7) any material breach by the Participant of any employment, non-disclosure, non-competition, non-solicitation or other similar agreement between the Participant and a member of the Company Group, which breach is not cured pursuant to the terms of such agreement; or (8) the Participant’s conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the Participant’s ability to perform his or her duties with a member of the Company Group.

(e)  “ Change in Control ” means, except as otherwise provided in the Participation Agreement applicable to a given Participant, the occurrence of any of the following:

(1) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ” )), other than a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person) “beneficial ownership” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of stock of the Company representing more than percent (50%) of the total combined voting power of the Company’s then-outstanding stock entitled to vote generally in the election of directors;

(2) the Company is party to a merger or consolidation which results in the holders of the voting stock of the Company outstanding immediately prior thereto failing to retain immediately after such merger or consolidation direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the stock entitled to vote generally in the election of directors of the Company or the surviving entity outstanding immediately after such merger or consolidation;

(3) the sale or disposition of all or substantially all of the Company’s assets or consummation of any transaction having similar effect (other than a sale or disposition to one or more subsidiaries of the Company); or

(4) a change in the composition of the Board within any consecutive 12-month period as a result of which fewer than a majority of the directors are Incumbent Directors;

provided, however , that a Change in Control shall be deemed not to include a transaction described in subsections (1) or (2) of this Section in which a majority of the members of the board of directors of the continuing, surviving or successor entity, or parent thereof, immediately after such transaction is comprised of directors who were members of the Board immediately prior to consummation of such transaction. Notwithstanding the foregoing, to the extent that any amount constituting Section 409A Deferred Compensation would become payable under this Plan by reason of a Change in Control, such amount shall become payable only if the event constituting a Change in Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A.

(f)  “ Change in Control Period ” means a period commencing upon the consummation of a Change in Control and ending on the date occurring eighteen (18) months thereafter.

(g)  “ Chief Executive Officer ” means the individual who, immediately prior to the consummation of a Change in Control, serves as the Company’s Chief Executive Officer appointed by the Board.

(h)  “ Code ” means the Internal Revenue Code of 1986, as amended, or any successor thereto and any applicable regulations promulgated thereunder.

(i) “ Committee ” means the Compensation Committee of the Board.

(j)  “ Company ” means Trident Microsystems, Inc., a Delaware corporation, and, following a Change in Control, a Successor that agrees to assume all of the terms and provisions of this Plan or a Successor which otherwise becomes bound by operation of law to this Plan.

(k)  “ Company Group ” means the group consisting of the Company and each present or future parent and subsidiary corporation or other business entity thereof.

(l)  “ Disability ” means a Participant’s permanent and total disability within the meaning of Section 22(e)(3) of the Code.

(m)  “ Equity Award ” means any Option, Restricted Stock, Restricted Stock Units, performance shares, performance units or other stock-based compensation award granted by the Company or any other Company Group member to a Participant, including any such award which is assumed by, or for which a replacement award is substituted by, the Successor or any other member of the Company Group in connection with a Change in Control.

(n)  “ Executive Officer ” means an individual, other than the Chief Executive Officer, who immediately prior to the consummation of a Change in Control serves as an executive officer of the Company appointed by the Committee or the Board.

(o)  “ Good Reason ” means the occurrence during a Change in Control Period of any of the following conditions without the Participant’s informed written consent, which condition(s) remain(s) in effect thirty (30) days after written notice to the Company from the Participant of such condition(s) and which notice must have been given within ninety (90) days following the initial occurrence of such condition(s):

(1) a material diminution in the Participant’s authority, duties or responsibilities, causing the Participant’s position to be of materially lesser rank or responsibility within the Company or an equivalent business unit of its parent, as measured against the Participant’s authority, duties or responsibilities immediately prior to the Change in Control;

(2) a material diminution in the authority, duties or responsibilities of the officer to whom the Participant is required to report, causing such officer’s position to be of materially lesser rank or responsibility within the Company or an equivalent business unit of its parent, as measured against the authority, duties and responsibilities of the officer to whom the Participant was required to report immediately prior to the Change in Control, including a requirement that the Participant report to a corporate officer or employee instead of reporting directly to the board of directors of the Company Group or the Successor;

(3) a material decrease in the Participant’s Base Salary Rate or Annual Bonus Rate (subject to applicable performance requirements with respect to the actual amount of the Annual Bonus Rate earned and paid);

(4) a material decrease in the size of the budget within the Company Group over which the Participant has responsibility, measured against the budget within the Company group over which the Participant had responsibility immediately prior to the Change in Control;

(5) the relocation of the Participant’s work place for the Company Group to a location that increases the regular commute distance between the Participant’s residence and work place by more than thirty (30) miles (one-way); or

(6) any material breach of this Plan by the Company or its Successor with respect to the Participant.

The existence of Good Reason shall not be affected by the Participant’s temporary incapacity due to physical or mental illness not constituting a Disability. The Participant’s continued employment for a period not exceeding one hundred eighty (180) days following the occurrence of any condition constituting Good Reason shall not constitute consent to, or a waiver of rights with respect to, such condition. For the purposes of any determination regarding the existence of Good Reason hereunder, any claim by the Participant that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board that Good Reason does not exist, and the Board, acting in good faith, affirms such determination by a vote of not less than two-thirds of its entire membership (excluding the Participant if the Participant is a member of the Board).

(p)  “ Incumbent Director ” means a director who either (1) is a member of the Board as of the Effective Date, or (2) is elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination, but (3) was not elected or nominated in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

(q)  “ Key Employee ” means an individual, other than the Chief Executive Officer or an Executive Officer, who immediately prior to the consummation of a Change in Control is employed by the Company Group and has been designated by the Board or Committee as eligible to participate in the Plan.

(r)  “ Option ” means any option to purchase shares of the capital stock of the Company or of any other member of the Company Group granted to a Participant by the Company or any other Company Group member, whether granted before or after a Change in Control, including any such option which is assumed by, or for which a replacement option is substituted by, the Successor or any other member of the Company Group in connection with a Change in Control.

(s)  “ Participant ” means each Executive Officer and each Key Employee designated by the Committee to participate in the Plan, provided such individual has executed a Participation Agreement.

(t)  “ Participation Agreement ” means an Agreement to Participate in the Plan in the form attached hereto as Exhibit A or in such other form as the Committee may approve from time to time; provided, however, that, after a Participation Agreement has been entered into between a Participant and the Company, it may be modified only by a supplemental written agreement executed by both the Participant and the Company. The terms of such forms of Participation Agreement need not be identical with respect to each Participant. For example, a Participation Agreement may limit the duration of a Participant’s participation in the Plan or may modify the definitions of “Change in Control,” “Cause,” or “Good Reason” with respect to a Participant.

(u)  “ Performance-Based Equity Award ” means an Equity Award granted to a Participant prior to a Change in Control, the vesting or earning of which is conditioned in whole or in part upon the achievement of one or more performance goals (e.g., the attainment of a target stock price or achievement of a corporate financial goal), notwithstanding that the vesting or earning of such Equity Award may also be conditioned upon the continued performance of services by the Participant for the Company Group.

(v)  “ Release ” means a general release of all known and unknown claims against the Company and its affiliates and their stockholders, directors, officers, employees, agents, successors and assigns substantially in the form attached hereto as Exhibit B (“General Release of Claims [Age 40 and over]”) or Exhibit C (“General Release of Claims [Under age 40]”), whichever is applicable, with any modifications thereto determined by legal counsel to the Company to be necessary or advisable to comply with applicable law or to accomplish the intent of Section 8 (Exclusive Remedy) hereof.

(w)  “ Restricted Stock ” means any compensatory award of shares of the capital stock of the Company or of any other member of the Company Group granted to a Participant by the Company or any other Company Group member, whether such shares are granted or acquired before or after a Change in Control, including any shares issued in exchange for any such shares by the Successor or any other member of the Company Group in connection with a Change in Control.

(x)  “ Restricted Stock Units ” mean any compensatory award of rights to receive shares of the capital stock or cash in an amount measured by the value of shares of the capital stock of the Company or of any other member of the Company Group granted to a Participant by the Company or any other Company Group member, whether such rights are granted before or after a Change in Control, including any such rights assumed by, or issued in exchange for any such rights by, the Successor or any other member of the Company Group in connection with a Change in Control.

(y)  “ Section 409A ” means Section 409A of the Code and any applicable regulations and other administrative guidance promulgated thereunder.

(z)  “ Section 409A Deferred Compensation ” means compensation and benefits provided by the Plan that constitute deferred compensation subject to and not exempted from the requirements of Section 409A.

(aa)  “ Separation from Service ” means a separation from service within the meaning of Section 409A.

(bb)  “ Service-Based Equity Award ” means an Equity Award granted to a Participant prior to a Change in Control, the vesting or earning of which is conditioned solely upon the continued performance of services by the Participant for the Company Group.

(cc)  “ Severance Benefit Period ” means (1) with respect to a Participant who is the Chief Executive Officer, a period of twenty-four (24) months, (2) with respect to a Participant who is an Executive Officer, a period of twelve (12) months, and (3) with respect to a Participant who is a Key Employee, a period as determined by the Committee and set forth in such Participant’s Participation Agreement.

(dd) “ Specified Employee ” means a specified employee within the meaning of Section 409A.

(ee)  “ Successor ” means any successor in interest to substantially all of the business and/or assets of the Company.

(ff)  “ Termination Upon a Change in Control ” means the occurrence of any of the following events during the Change in Control Period:

(1) termination by the Company Group of the Participant’s employment for any reason other than Cause; or

(2) the Participant’s resignation for Good Reason from all capacities in which the Participant is then rendering service to the Company Group, provided that such resignation occurs no later than one hundred eighty (180) days following the initial occurrence of the condition constituting Good Reason;

provided, further, however, that Termination Upon a Change in Control shall not include any termination of the Participant’s employment which is (i) for Cause, (ii) a result of the Participant’s death or Disability, or (iii) a result of the Participant’s voluntary termination of employment other than for Good Reason.

2.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

3. Eligibility

The Committee shall designate those officers and key employees of the Company or any other member of the Company Group who shall be eligible to become Participants in the Plan. To become a Participant, the designated officer or key employee must execute a Participation Agreement.

4. Treatment of Equity Awards Upon a Change in Control

4.1 Acceleration of Vesting Upon Non-Assumption of Service-Based Equity Awards. Notwithstanding any provision to the contrary contained in any plan or agreement evidencing a Service-Based Equity Award, in the event of a Change in Control in which the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “ Acquiring Corporation ” ), does not assume or continue the Company’s rights and obligations under the then-outstanding Service-Based Equity Award or substitute for such Service-Based Equity Award a substantially equivalent equity award for the Acquiring Corporation’s stock, then the vesting and exercisability of such Service-Based Equity Award which is not assumed, continued or substituted for shall be accelerated in full effective immediately prior to but conditioned upon the consummation of the Change in Control, provided that the Participant remains an employee or other service provider with the Company Group immediately prior to the Change in Control.

4.2 Acceleration of Vesting of Performance-Based Equity Awards. Notwithstanding any provision to the contrary contained in any plan or agreement evidencing a Performance-Based Equity Award, in the event of a Change in Control the vesting and exercisability of such Performance-Based Equity Awards shall be accelerated in full immediately prior to but conditioned upon the consummation of the Change in Control (assuming for the purpose of determining the extent of such acceleration, if applicable, that one hundred percent (100%) of the target level of performance has been achieved), provided that the Participant remains an employee or other service provider with the Company Group immediately prior to the Change in Control.

The provisions of this Section 4 with respect to all amounts that constitute Section 409A Deferred Compensation shall be subject to, limited by and construed in accordance with the requirements of Section 409A and Section 6.2 below.

5. Termination Upon a Change in Control

In the event of a Participant’s Termination Upon a Change in Control:

5.1 Accrued Obligations. The Participant shall be entitled to receive:

(a) all salary, commissions, bonuses and accrued but unused vacation earned through the date of the Participant’s termination of employment;

(b) reimbursement within ten (10) business days of submission, within thirty (30) days following the Participant’s termination of employment, of proper expense reports of all expenses reasonably and necessarily incurred by the Participant in connection with the business of the Company Group prior to his or her termination of employment; and

(c) the benefits, if any, under any Company Group retirement plan, nonqualified deferred compensation plan or stock-based compensation plan or agreement (other than any such plan or agreement pertaining to an Equity Award whose treatment is prescribed by Section 4 or Section 5.2(c)), health benefits plan or other Company Group benefit plan to which the Participant may be entitled pursuant to the terms of such plans or agreements.

5.2 Severance Benefits. Provided that the Participant executes the Release applicable to such Participant and such Release becomes effective in accordance with its terms prior to the applicable date on which payment is to be made, the Participant shall be entitled to receive the following severance payments and benefits:

(a)  Salary and Bonus. Subject to Section 6.2, the Company shall pay to the Participant in a lump sum cash payment on the sixtieth (60th) day following the Participant’s Termination Upon a Change in Control an amount equal to the sum of:

(1) the product of the Participant’s Severance Benefit Period and the Participant’s Base Salary Rate;

(2) (i) for a Participant who is the Chief Executive Officer, two hundred percent (200%) of the Participant’s Annual Bonus Rate, (ii) for a Participant who is an Executive Officer, one hundred percent (100%) of the Participant’s Annual Bonus Rate and (iii) for a Participant who is a Key Employee, such portion of the Participant’s Annual Bonus Rate as is determined by the Committee and set forth in such Participant’s Participation Agreement; and

(3) all annual incentive bonuses earned by the Participant for the fiscal year of the Company prior to the year of the Participant’s Termination Upon a Change in Control which remain unpaid as of the date of such termination of employment.

(b)  Health and Life Insurance Benefits. Subject to Section 6.2, for the period commencing immediately following the Participant’s Termination Upon a Change in Control and continuing for the duration of the Severance Benefit Period applicable to the Participant, the Company shall arrange to provide the Participant and his or her dependents with health benefits (including medical and dental) and life insurance substantially similar to that provided to the Participant and his or her dependents immediately prior to the date of such termination of employment, including the continuation of Exec-U-Care or any similar policy in force for the benefit of the Participant immediately prior to the Termination Upon a Change in Control or shall reimburse the Participant for the cost of obtaining such benefits to the extent described below. Such benefits shall be provided to the Participant at the same premium cost to the Participant and at the same coverage level as in effect as of the Participant’s Termination Upon a Change in Control; provided, however, that the Participant shall be subject to any change in the premium cost and/or level of coverage applicable generally to all employees holding the position or comparable position with the Company Group which the Participant held immediately prior to the Termination Upon a Change in Control. The Company may satisfy its obligation to provide a continuation of health benefits, other than continuation of the Exec-U-Care or similar policy, by paying that portion of the Participant’s premiums required under the Consolidated Omnibus Reconciliation Act of 1985 ( “ COBRA ” ) that exceeds the amount of premiums that the Participant would have been required to pay for continuing coverage had he or she continued in employment. If the Company is not reasonably able to continue such coverage under the Company’s health benefit plans, the Company shall provide substantially equivalent coverage under other sources or will reimburse (without a tax gross-up) the Participant for premiums (in excess of the Participant’s premium cost described above) incurred by the Participant to obtain his or her own such coverage. If the Participant and/or the Participant’s dependents become eligible to receive such coverage under another employer’s health benefit plans during the applicable Severance Benefit Period, the Participant shall report such eligibility to the Company, and the Company’s obligations under this subsection shall be secondary to the coverage provided by such other employer’s plans. For the balance of any period in excess of the applicable Severance Benefit Period during which the Participant is entitled to continuation coverage under COBRA, the Participant shall be entitled to maintain coverage for himself or herself and the Participant’s eligible dependents at the Participant’s own expense.

(c)  Acceleration of Vesting of Equity Awards. Notwithstanding any provision to the contrary contained in any plan or agreement evidencing an Equity Award granted to a Participant but, subject to Section 6.2, the vesting, exercisability and settlement of each of the Participant’s outstanding Equity Awards which were not otherwise accelerated pursuant to Section 4 shall be accelerated in full effective as of the date of the Participant’s Termination Upon a Change in Control so that each Equity Award held by the Participant shall be immediately exercisable and fully vested (and, in the case of Restricted Stock Units, performance shares, performance units and similar stock-based compensation, shall be settled in full), as of the date of the Participant’s Termination Upon a Change in Control.

5.3 Indemnification; Insurance.

(a) In addition to any rights a Participant may have under any indemnification agreement previously entered into between the Company and such Participant (a “ Prior Indemnity Agreement ” ), from and after the date of the Participant’s Termination Upon a Change in Control, the Company shall indemnify and hold harmless the Participant against any costs or expenses (including attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, by reason of the fact that the Participant is or was a director, officer, employee or agent of the Company Group, or is or was serving at the request of the Company Group as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether asserted or claimed prior to, at or after the date of the Participant’s