Exhibit 10.1

SANDISK CORPORATION

2005 STOCK INCENTIVE PLAN

ARTICLE ONE

GENERAL PROVISIONS

     I. PURPOSE OF THE PLAN

          This 2005 Stock Incentive Plan is intended to promote the interests of
SanDisk Corporation, a Delaware 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.

     II. STRUCTURE OF THE PLAN

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

               - the Discretionary Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock or stock appreciation rights tied to the value of such
Common Stock,

               - the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common Stock
pursuant to restricted stock awards, restricted stock units or other stock-based
awards which vest upon the completion of a designated service period or the
attainment of pre-established performance milestones, or such shares of Common
Stock may be issued through direct purchase or as a bonus for services rendered
the Corporation (or any Parent or Subsidiary), and

               - the Automatic Grant Program under which eligible non-employee
Board members will automatically receive grants at designated intervals over
their period of continued Board service.

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

 

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     III. ADMINISTRATION OF THE PLAN

          A. The Compensation Committee shall have sole and exclusive authority
to administer the Discretionary Grant and Stock Issuance Programs with respect
to Section 16 Insiders. Administration of the Discretionary 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 Compensation
Committee or a Secondary Board Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants, stock appreciation rights, stock issuances or other
stock-based awards for members of the Compensation Committee must be authorized
by a disinterested majority of the Board.

          B. Members of the Compensation Committee or any Secondary Board
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 Board 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 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, stock appreciation rights, stock issuances or other stock-based awards
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 Grant and Stock Issuance Programs under its jurisdiction or any
stock option, stock appreciation right, stock issuance or other stock-based
award thereunder.

          D. Service as a Plan Administrator by the members of the Compensation
Committee or the Secondary Board Committee shall constitute service as Board
members, and the 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 Compensation Committee or the Secondary Board
Committee shall be liable for any act or omission made in good faith with
respect to the Plan or any option grant, stock appreciation right, stock
issuance or other stock-based award thereunder under the Plan.

          E. Administration of the Automatic Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants or stock issuances made under that program, except that the
Compensation Committee shall have the express authority to establish from time
to time the specific number of shares to be subject to the initial and annual
grants made to the non-employee Board members under such program.

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     IV. ELIGIBILITY

          A. The persons eligible to participate in the Discretionary 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. The Plan Administrator shall have full authority to determine,
(i) with respect to the grant of options or stock appreciation rights under the
Discretionary 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 time or times when the grant is to become
exercisable, the vesting schedule (if any) applicable to the granted option or
stock appreciation right, the maximum term for which such option or stock
appreciation right is to remain outstanding and the status of a granted option
as either an Incentive Option or a Non-Statutory Option and (ii) with respect to
stock issuances or other stock-based awards under the Stock Issuance Program,
which eligible persons are to receive such issuances or awards, the time or
times when the issuances or awards are to be made, the number of shares subject
to each such issuance or award, the vesting and issuance schedules applicable to
the shares which are the subject of such issuance or award and the consideration
for those shares.

          C. The Plan Administrator shall have the absolute discretion either to
grant options or stock appreciation rights in accordance with the Discretionary
Grant Program or to effect stock issuances and other stock-based awards in
accordance with the Stock Issuance Program.

          D. The individuals who shall be eligible to participate in the
Automatic Grant Program shall be limited to (i) those individuals who first
become non-employee Board members on or after the Plan Effective Date, whether
through appointment by the Board or election by the Corporation’s stockholders,
and (ii) those individuals who continue to serve as non-employee Board members
on or after the Plan Effective 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 a grant under the Automatic Grant Program at
the time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic grants under the Automatic Grant Program while he
or she continues to serve as a non-employee Board member.

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     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 be limited to five million
seven hundred thousand (5,700,000) shares. The Plan shall serve as the successor
to the two Predecessor Plans, and no further stock option grants shall be made
under those Predecessor Plans on or after the Plan Effective Date. However, all
options outstanding under the Predecessor Plans on the Plan Effective Date shall
continue in full force and effect in accordance with their terms, and no
provision of this Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of those options with respect to their acquisition
of shares of Common Stock thereunder. To the extent any options outstanding
under the Predecessor Plans on the Plan Effective Date expire or terminate
unexercised, the number of shares of Common Stock subject to those expired or
terminated options at the time of expiration or termination shall be added to
the share reserve under this Plan and shall accordingly be available for
issuance hereunder, up to a maximum of an additional ten million (10,000,000)
shares.

          B. Notwithstanding the foregoing, the maximum number of shares of
Common Stock which may be issued without cash consideration pursuant to the
Stock Issuance Program shall not exceed ten percent (10%) of the total number of
shares of Common Stock from time to time authorized for issuance under the Plan,
including (without limitation): (i) any shares added to the Plan reserve by
reason of the expiration or termination of outstanding options under the
Predecessor Plans prior to exercise, (ii) any increases to the Plan reserve from
time to time approved by the Corporation’s stockholders and (iii) any
adjustments to the authorized share reserve effected in accordance with
Section V.E. of this Article One.

          C. No one person participating in the Plan may receive stock options,
stand-alone stock appreciation rights, direct stock issuances (whether vested or
unvested) or other stock-based awards (whether in the form of restricted stock
units or other share-right awards) for more than one million (1,000,000) shares
of Common Stock in the aggregate per calendar year.

          D. Shares of Common Stock subject to outstanding options or other
awards made under the Plan shall be available for subsequent issuance under the
Plan to the extent those options or awards expire or terminate for any reason
prior to the issuance of the shares of Common Stock subject to those options or
awards. Unvested shares issued under the Plan and subsequently forfeited or
repurchased by the Corporation, at a price per share not greater than the
original 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 subsequent reissuance. Should the exercise price of an option under the Plan
be paid with shares of Common Stock, then the authorized reserve of Common Stock
under the Plan shall be reduced by the gross number of shares for which that
option is exercised, and not by the net number of shares issued under the
exercised stock option.

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If shares of Common Stock otherwise issuable under the Plan are withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an option or stock appreciation right or the issuance of
fully-vested shares under the Stock Issuance Program, then the number of shares
of Common Stock available for issuance under the Plan shall be reduced by the
gross number of shares issuable under the exercised stock option or stock
appreciation right or the gross number of fully-vested shares issuable under the
Stock Issuance Program, calculated in each instance prior to any such share
withholding.

          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 by which the share under the Plan may increase by reason of the
expiration or termination of unexercised options under the Predecessor Plans,
(iii) the maximum number and/or class of securities which may be issued without
cash consideration under the Stock Issuance Program, (iv) the maximum number
and/or class of securities for which any one person may be granted stock
options, stand-alone stock appreciation rights, direct stock issuances and other
stock-based awards under the Plan per calendar year, (v) the maximum number
and/or class of securities for which grants may subsequently be made under the
Automatic Grant Program to new and continuing non-employee Board members, (vi)
the number and/or class of securities and the exercise or base price per share
in effect under each outstanding option or stock appreciation right under the
Plan and (vii) the number and/or class of securities subject to each outstanding
restricted stock unit or other stock-based award under the Plan and the issue
price (if any) payable per share. Such adjustments to the outstanding options,
stock appreciation rights or other stock-based awards are to be effected in a
manner which shall preclude the enlargement or dilution of rights and benefits
under those options, stock appreciation rights or other stock-based awards. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.

          F. Outstanding awards granted pursuant to the Plan 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.

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ARTICLE TWO

DISCRETIONARY 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; provided, however, that such exercise price shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the grant date.

               2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of 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 (if
any) necessary to avoid any resulting 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 instructions to (a) a brokerage firm (reasonably
satisfactory to the Corporation for purposes of administering such procedure in
compliance with the Corporation’s pre-clearance/pre-notification policies) 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 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 on such
settlement date 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.

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          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 seven (7) years
measured from the option grant date.

          C. Effect of Termination of Service.

               1. The following provisions shall govern the exercise of any
options granted pursuant to the Discretionary Grant Program that are outstanding
at the time of the Optionee’s 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 the
Optionee’s 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 granted under this Article Two, then all of those options
shall terminate immediately and cease to be outstanding.

               (iv) During the applicable post-Service exercise period, the
option may not be exercised for more than the number of vested shares for which
the option is at the time exercisable. No additional shares shall vest under the
option following the Optionee’s cessation of Service, except to the extent (if
any) specifically authorized by the Plan Administrator in its sole discretion
pursuant to an express written agreement with the Optionee. 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
shares for which the option has not been exercised.

               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

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the Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term,

               (ii) include an automatic extension provision whereby the
specified post-Service exercise period in effect for any option granted under
this Article Two shall automatically be extended by an additional period of time
equal in duration to any interval within the specified post-Service exercise
period during which the exercise of that option or the immediate sale of the
shares acquired under such option could not be effected in compliance with
applicable federal and state securities laws, but in no event shall such an
extension result in the continuation of such option beyond the expiration date
of the term of that option, and/or

               (iii) 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.

          D. Stockholder Rights. The holder of an option shall have no
stockholder 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 such shares are unvested, the
Corporation shall have the right to repurchase any or all of those unvested
shares at a price per share equal to the lower of (i) the exercise price paid
per share or (ii) the Fair Market Value per share of Common Stock at the time of
repurchase. 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. Transferability of Options. The transferability of options granted
under the Plan shall be governed by the following provisions:

               (i) Incentive 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.

               (ii) Non-Statutory Options. Non-Statutory Options shall be
subject to the same limitation on transfer as Incentive Options, except that the
Plan Administrator may structure one or more Non-Statutory Options so that the
option may be assigned in whole or in part during the Optionee’s lifetime to one
or more Family Members of the Optionee or to a trust

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established exclusively for one or more such Family Members, 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.

               (iii) Beneficiary Designations. Notwithstanding the foregoing,
the Optionee may designate one or more persons as the beneficiary or
beneficiaries of his or her outstanding options under this Article Two (whether
Incentive Options or Non-Statutory Options), 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 Five 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. 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, then for
purposes of the foregoing limitations on the exercisability of those options as
Incentive Options, such options shall be deemed to become first exercisable in
that calendar year on the basis of the chronological order in which they were
granted, except to the extent otherwise provided under applicable law or
regulation.

          C. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, 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.

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     III. STOCK APPRECIATION RIGHTS

          A. Authority. The Plan Administrator shall have full power and
authority, exercisable in its sole discretion, to grant stock appreciation
rights in accordance with this Section III to selected Optionees or other
individuals eligible to receive option grants under the Discretionary Grant
Program.

          B. Types. Two types of stock appreciation rights shall be authorized
for issuance under this Section III: (i) tandem stock appreciation rights
(“Tandem Rights”) and (ii) stand-alone stock appreciation rights (“Stand-alone
Rights”).

          C. Tandem Rights. The following terms and conditions shall govern the
grant and exercise of Tandem Rights.

               1. One or more Optionees may be granted a Tandem Right,
exercisable upon such terms and conditions as the Plan Administrator may
establish, to elect between the exercise of the underlying option for shares of
Common Stock or the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (i) 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 (ii) the aggregate exercise price payable for such vested shares.

               2. 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 accordingly become entitled under this
Section III shall be made in shares of Common Stock valued at Fair Market Value
on the option surrender date.

               3. 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
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than seven (7) years after the date of the option grant.

          D. Stand-Alone Rights. The following terms and conditions shall govern
the grant and exercise of Stand-alone Rights:

               1. One or more individuals eligible to participate in the
Discretionary Grant Program may be granted a Stand-alone Right not tied to any
underlying option under this Discretionary Grant Program. The Stand-alone Right
shall relate to a specified number of shares of Common Stock and shall be
exercisable upon such terms and conditions as the Plan Administrator may
establish. In no event, however, may the Stand-alone Right have a maximum term
in excess of seven (7) years measured from the grant date. Upon exercise of the
Stand-

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alone Right, the holder shall be entitled to receive a distribution from the
Corporation in an amount equal to the excess of (i) the aggregate Fair Market
Value (on the exercise date) of the shares of Common Stock underlying the
exercised right over (ii) the aggregate base price in effect for those shares.

               2. The number of shares of Common Stock underlying each
Stand-alone Right and the base price in effect for those shares shall be
determined by the Plan Administrator in its sole discretion at the time the
Stand-alone Right is granted. In no event, however, may the base price per share
be less than the Fair Market Value per underlying share of Common Stock on the
grant date. In the event outstanding Stand-alone Rights are to be assumed in
connection with a Change in Control transaction or otherwise continued in
effect, the shares of Common Stock underlying each such Stand-alone Right shall
be adjusted immediately after such Change in Control so as to apply to the
number and class of securities into which those shares of Common Stock would
have been converted in consummation of such Change in Control had those shares
actually been outstanding at that time. Appropriate adjustments to reflect such
Change in Control shall also be made to the base price per share in effect under
each outstanding Stand-alone Right, provided the aggregate base price 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, the successor corporation may, in
connection with the assumption or continuation of the outstanding Stand-alone
Rights under the Discretionary Grant Program, substitute, for the securities
underlying those assumed rights, 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 the Change in Control transaction.

               3. Stand-alone Rights shall be subject to the same
transferability restrictions applicable to Non-Statutory Options and may not be
transferred during the holder’s lifetime, except if such assignment is in
connection with the holder’s estate plan and is to one or more Family Members of
the holder or to a trust established for the holder and/or one or more such
Family Members or pursuant to a domestic relations order covering the
Stand-alone Right as marital property. In addition, one or more beneficiaries
may be designated for an outstanding Stand-alone Right in accordance with
substantially the same terms and provisions as set forth in Section I.F of this
Article Two.

               4. The distribution with respect to an exercised Stand-alone
Right shall be made in shares of Common Stock valued at Fair Market Value on the
exercise date.

               5. The holder of a Stand-alone Right shall have no stockholder
rights with respect to the shares subject to the Stand-alone Right unless and
until such person shall have exercised the Stand-alone Right and become a holder
of record of the shares of Common Stock issued upon the exercise of such
Stand-alone Right.

          E. Post-Service Exercise. The provisions governing the exercise of
Tandem and Stand-alone Rights following the cessation of the recipient’s Service
shall be substantially the same as those set forth in Section I.C of this
Article Two for the options granted under the

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Discretionary Grant Program, and the Plan Administrator’s discretionary
authority under Section I.C.2 of this Article Two shall also extend to any
outstanding Tandem or Stand-alone Appreciation Rights.

F. Gross Counting. Upon the exercise of any Tandem or Stand-alone Right under
this Section III, the share reserve under Section V of Article One shall be
reduced by the gross number of shares as to which such right is exercised, and
not by the net number of shares actually issued by the Corporation upon such
exercise.

     IV. CHANGE IN CONTROL/HOSTILE TAKE-OVER

          A. In the event of a Change in Control, each outstanding option or
stock appreciation right under the Discretionary Grant Program shall
automatically accelerate so that each such option or stock appreciation right
shall, immediately prior to the effective date of that Change in Control, become
exercisable as to all the shares of Common Stock at the time subject to such
option or stock appreciation right and may be exercised as to any or all of
those shares as fully vested shares of Common Stock. However, an outstanding
option or stock appreciation right shall not become exercisable on such an
accelerated basis if and to the extent: (i) such option or stock appreciation
right is to be assumed by the successor corporation (or parent thereof) or is
otherwise to continue in full force and effect pursuant to the terms of the
Change in Control transaction or (ii) such option or stock appreciation right is
to be replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Change in Control on any shares
as to which the option or stock appreciation right is not otherwise at that time
exercisable and provides for subsequent payout of that spread in accordance with
the same exercise/vesting schedule applicable to those shares or (iii) the
acceleration of such option or stock appreciation right is subject to other
limitations imposed by the Plan Administrator.

          B. All outstanding repurchase rights under the Discretionary 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 a Change
in Control, except to the extent: (i) those repurchase rights are to be assigned
to the successor corporation (or parent thereof) or are otherwise to 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.

          C. Immediately following the consummation of the Change in Control,
all outstanding options or stock appreciation rights under the Discretionary
Grant Program 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 terms of the Change in Control
transaction.

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          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 under this Plan may be increased
by reason of the expiration or termination of unexercised options under the
Predecessor Plans, (iv) the maximum number and/or class of securities which may
be issued without cash consideration under the Stock Issuance Program and
(v) the maximum number and/or class of securities for which any one person may
be granted stock options, stand-alone stock appreciation rights, direct stock
issuances and other stock-based awards under the Plan per calendar year. 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, the successor corporation may, in connection with the assumption or
continuation of the outstanding options under the Discretionary 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 or stock appreciation rights under the
Discretionary Grant Program so that those options or stock appreciation rights
shall, immediately prior to the effective date of a Change in Control, become
exercisable as to all the shares of Common Stock at the time subject to those
options or stock appreciation rights and may be exercised as to any or all of
those shares as fully vested shares of Common Stock, whether or not those
options or stock appreciation rights are to be assumed in the Change in Control
transaction or otherwise continued in effect. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation’s repurchase rights under the Discretionary Grant Program so
that those rights shall immediately terminate upon the consummation of the
Change in Control transaction, and the shares subject to those terminated rights
shall thereupon vest in full.

          F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options or stock appreciation rights under the
Discretionary Grant Program so that those options or stock appreciation rights
shall become exercisable as to all the shares of Common Stock at the time
subject to those options or stock appreciation rights in the event the
Optionee’s Service is subsequently terminated by reason of an Involuntary
Termination within a designated period following the effective date of any
Change in Control transaction in which those options or stock appreciation
rights do not otherwise fully accelerate. In addition, the Plan Administrator
may structure one or more of the Corporation’s repurchase rights so that

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those rights shall immediately terminate with respect to any shares held by the
Optionee at the time of such Involuntary Termination, and the shares subject to
those terminated repurchase rights shall accordingly vest in full at that time.

          G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options or stock appreciation rights under the
Discretionary Grant Program so that those options or stock appreciation rights
shall, immediately prior to the effective date of a Hostile Take-Over, become
exercisable as to all the shares of Common Stock at the time subject to those
options or stock appreciation rights and may be exercised as to any or all of
those 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 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 or stock appreciation
rights under the Discretionary Grant Program and the termination of one or more
of the Corporation’s outstanding repurchase rights under such program upon the
subsequent termination of the Optionee’s Service by reason of an Involuntary
Termination within a designated period following the effective date of such
Hostile Take-Over.

          H. The portion of any Incentive Option accelerated in connection with
a Change in Control or Hostile Take-Over 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
Non-statutory Option under the Federal tax laws.

     V. PROHIBITION ON REPRICING PROGRAMS

          The Plan Administrator shall not (i) implement any
cancellation/regrant program pursuant to which outstanding options or stock
appreciation rights under the Plan are cancelled and new options or stock
appreciation rights are granted in replacement with a lower exercise price per
share, (ii) cancel outstanding options or stock appreciation rights under the
Plan with exercise prices per share in excess of the then current Fair Market
Value per share of Common Stock for consideration payable in equity securities
of the Corporation or (iii) otherwise directly reduce the exercise price in
effect for outstanding options or stock appreciation rights under the Plan,
without in each such instance obtaining stockholder approval.

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ARTICLE THREE

STOCK ISSUANCE PROGRAM

     I. STOCK ISSUANCE TERMS

          Shares of Common Stock may be issued under the Stock Issuance Program,
either as vested or unvested shares, 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 or restricted stock units which entitle
the recipients to receive the shares underlying those awards or units upon the
attainment of designated performance goals or the satisfaction of specified
Service requirements or upon the expiration of a designated time period
following the vesting of those awards or units.

          The maximum number of shares of Common Stock which may be issued
without cash consideration under the Stock Issuance Program (whether as direct
stock issuances or pursuant to restricted stock units or other share-right
awards) may not exceed ten percent (10%) of the total number of shares of Common
Stock from time to time authorized for issuance under the Plan, including
(without limitation): (i) any shares added to the Plan reserve by reason of the
expiration or termination of outstanding options under the Predecessor Plans
prior to exercise, (ii) any increases to the Plan reserve from time to time
approved by the Corporation’s stockholders and (iii) any adjustments to the
authorized share reserve effected in accordance with Section V.E. of
Article One.

          A. Issue Price.

               1. The issue 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. 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,

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

               (iii) any other valid consideration under the Delaware General
Corporation Law.

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          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 the 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 or restricted stock units which entitle
the recipients to receive the shares underlying those awards or units upon the
attainment of designated performance goals or the satisfaction of specified
Service requirements or upon the expiration of a designated time period
following the vesting of those awards or units, including (without limitation) a
deferred distribution date following the termination of the Participant’s
Service.

               2. The Plan Administrator shall also have the discretionary
authority, consistent with Code Section 162(m), to structure one or more stock
issuances or restricted stock unit or share right awards so that the shares of
Common Stock subject to those issuances or awards shall vest (or vest and become
issuable) upon the achievement of certain pre-established corporate performance
goals based on one or more of the following criteria: (1) return on total
stockholder equity; (2) earnings per share of Common Stock; (3) net income or
operating income (before or after taxes); (4) earnings before interest, taxes,
depreciation and amortization; (5) earnings before interest, taxes,
depreciation, amortization and charges for stock-based compensation, (6) sales
or revenue targets; (7) return on assets, capital or investment; (8) cash flow;
(9) market share; (10) cost reduction goals; (11) budget comparisons;
(12) measures of customer satisfaction; (13) any combination of, or a specified
increase in, any of the foregoing; (14) new product development or successful
completion of research and development projects; and (15) the formation of joint
ventures, research or development collaborations, or the completion of other
corporate transactions intended to enhance the Corporation’s revenue or
profitability or enhance its customer base. In addition, such performance goals
may be based upon the attainment of specified levels of the Corporation’s
performance under one or more of the measures described above relative to the
performance of other entities and may also be based on the performance of any of
the Corporation’s business units or divisions or any Parent or Subsidiary.
Performance goals may include a minimum threshold level of performance below
which no award will be earned, levels of performance at which specified portions
of an award will be earned and a maximum level of performance at which an award
will be fully earned.

               3. 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

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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.

               4. The Participant shall have full stockholder 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 dividends paid on such shares, subject to any applicable
vesting requirements. The Participant shall not have any stockholder rights with
respect to the shares of Common Stock subject to a restricted stock unit or
share right award until that award vests and the shares of Common Stock are
actually issued thereunder. However, dividend-equivalent units may be paid or
credited, either in cash or in actual or phantom shares of Common Stock, on
outstanding restricted stock unit or share right awards, subject to such terms
and conditions as the Plan Administrator may deem appropriate.

               5. 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 stockholder 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, the Corporation
shall repay to the Participant the lower of (i) the cash consideration paid for
the surrendered shares or (ii) the Fair Market Value of those shares at the time
of cancellation.

               6. 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. Any
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. However, no vesting requirements tied to the attainment of
performance objectives may be waived with respect to shares which were intended
at the time of issuance to qualify as performance-based compensation under Code
Section 162(m), except in the event of the Participant’s Involuntary Termination
or as otherwise provided in Section II of this Article Three.

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

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However, no vesting requirements tied to the attainment of performance goals may
be waived with respect to awards or units which were intended, at the time those
awards or units were granted, to qualify as performance-based compensation under
Code Section 162(m), except in the event of the Participant’s Involuntary
Termination or as otherwise provided in Section II of this Article Three.

     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, except to the extent (i) those repurchase
rights are to be assigned to the successor corporation (or parent thereof) or
are otherwise to 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 in the Stock Issuance Agreement.

          B. Each outstanding restricted stock unit or share right award assumed
in connection with a Change in Control or otherwise continued in effect shall be
adjusted immediately after the consummation of that Change in Control so as to
apply to the number and class of securities into which the shares of Common
Stock subject to the award immediately prior to the Change in Control would have
been converted in consummation of such Change in Control had those shares
actually been outstanding at that time, and appropriate adjustments shall also
be made to the consideration (if any) payable per share thereunder, provided the
aggregate amount of such consideration 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,
the successor corporation may, in connection with the assumption or continuation
of the outstanding restricted stock units or share right awards, 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.

          C. If any such restricted stock unit or share right award is not
assumed or otherwise continued in effect or replaced with a cash incentive
program of the successor corporation which preserves the Fair Market Value of
the underlying shares of Common Stock at the time of the Change in Control and
provides for the subsequent payout of that value in accordance with the same
vesting schedule applicable to those shares, then such unit or award shall vest,
and the shares of Common Stock subject to that unit or award shall be issued as
fully-vested shares, immediately prior to the consummation of the Change in
Control.

          D. The Plan Administrator shall have the discretionary authority to
structure one or more unvested stock issuances or one or more restricted stock
unit or other share right awards under the Stock Issuance Program so that the
shares of Common Stock subject to those issuances or awards shall automatically
vest (or vest and become issuable) in whole or in part immediately upon the
occurrence of a Change in Control or upon the subsequent termination of the
Participant’s Service by reason of an Involuntary Termination within a
designated period following the effective date of that Change in Control
transaction.

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          E. The Plan Administrator shall also have the discretionary authority
to structure one or more unvested stock issuances or one or more restricted
stock unit or other share right awards under the Stock Issuance Program so that
the shares of Common Stock subject to those issuances or awards shall
automatically vest (or vest and become issuable) in whole or in part immediately
upon the occurrence of a Hostile Take-Over or upon the subsequent termination of
the Participant’s Service by reason of an Involuntary Termination within a
designated period following the effective date of that Hostile Take-Over.

          F. The Plan Administrator’s authority under Paragraphs D and E of this
Section II shall also extend to any stock issuances, restricted stock units or
other share right awards intended to qualify as performance-based compensation
under Code Section 162(m), even though the automatic vesting of those issuances,
units or awards pursuant to Paragraph D or E of this Section II may result in
their loss of performance-based status under Code Section 162(m).

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ARTICLE FOUR

AUTOMATIC GRANT PROGRAM

I. OPTION TERMS

          A. Automatic Grants. The Automatic Grant Program under this
Article Four shall supersede and replace the Corporation’s 1995 Non-Employee
Director Stock Option Plan, and no further stock option grants shall be made
under that plan on or after the Plan Effective Date. However, all options
outstanding under that plan on the Plan Effective Date shall continue in full
force and effect in accordance with their terms, and no provision of this Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of those options with respect to their acquisition of shares of Common
Stock thereunder.

               Option grants shall be made pursuant to the Automatic Grant
Program in effect under this Article Four as follows:

               1. Initial Grant: Each individual who is first elected or
appointed as a non-employee Board member at any time on or after the Plan
Effective Date shall automatically be granted, on the date of such initial
election or appointment, a Non-Statutory Option to purchase not more than one
hundred fifty thousand (150,000) shares of Common Stock, provided that
individual has not been in the employ of the Corporation or any Parent or
Subsidiary during the immediately preceding twelve (12) months. The actual
number of shares for which such initial option grant shall be made shall
(subject to the 150,000-share limit) be determined by the Plan Administrator at
the time of each such grant.

               2. Annual Grants: On the date of each annual stockholders
meeting, beginning with the 2005 Annual Meeting, each individual who is to
continue to serve as a non-employee Board member, 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 not more than
forty thousand (40,000) shares of Common Stock, provided that such individual
has served as a non-employee Board member for a period of at least six
(6) months. There shall be no limit on the number of such annual share option
grants any one continuing non-employee Board member 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) shall be eligible
to receive one or more such annual option grants over their period of continued
Board service. The actual number of shares for which such annual option grants
are made to each continuing non-employee Board member shall (subject to the
40,000-share limit) be determined by the Plan Administrator on or before the
date of the annual stockholders meeting on which those grants are to be made.

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          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 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 maximum term of seven
(7) years measured from the option grant date, subject to earlier termination
following the Optionee’s cessation of Service.

          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 lower of (i) the exercise price paid per share or (ii) the Fair Market Value
per share of Common Stock at the time of repurchase, upon the Optionee’s
cessation of Service prior to vesting in those shares. The shares subject to
each initial 150,000-share-or-less grant shall vest, and the Corporation’s
repurchase right shall lapse, in four (4) successive equal annual installments
upon the Optionee’s completion of each year of Service (whether as a
non-employee Board member, Employee or consultant) over the four (4)-year period
measured from the option grant date. The shares subject to each annual
40,000-share-or-less grant made to a non-employee Board member for his or her
continued Board service shall vest, and the Corporation’s repurchase right shall
lapse, in one installment upon the earlier of (i) the Optionee’s completion of
the one (1)-year period of Service (whether as a non-employee Board member,
Employee or consultant) measured from the grant date or (ii) the Optionee’s
continuation in such Service capacity through the day immediately preceding the
next annual stockholders meeting following such grant date.

          E. Limited Transferability of Options. Each option under this
Article Four may be assigned in whole or in part during the Optionee’s lifetime
to one or more of his or her Family Members or to a trust established
exclusively for the Optionee and/or one or more such Family Members, 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. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Four, and the 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.

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          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
Service:

               (i) The Optionee (or, in the event of Optionee’s death while
holding the option, 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 Service in which to exercise 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 Service. However, 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 any or all of those shares as fully vested shares of Common Stock.

               (iii) 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 Service for any reason (other than cessation of
Board service by reason of 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. Should a Change in Control occur prior to the Optionee’s cessation
of Service, then the shares of Common Stock at the time subject to each
outstanding option held by such Optionee under this Automatic 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 effect
pursuant to the terms of the Change in Control transaction.

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          B. Should a Hostile Take-Over occur prior to the Optionee’s cessation
of Service, then the shares of Common Stock at the time subject to each
outstanding option held by such Optionee under this Automatic 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.

          C. All outstanding repurchase rights under this under this Automatic
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. 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 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,
the successor corporation may, in connection with the assumption or continuation
of the outstanding options under the Automatic 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.

     III. REMAINING TERMS

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

     IV. ALTERNATIVE AWARDS

          The Compensation Committee shall have full power and authority to
award, in lieu of one or more initial or annual automatic option grants under
this Article Four, unvested shares of Common Stock or restricted stock units
which in each instance have an aggregate Fair Market Value substantially equal
to the fair value (as determined for financial reporting purposes in accordance
with Financial Accounting Standard 123R or any successor standard) of the
automatic option grant which such award replaces. Any such alternative award
shall be made at the same time the automatic option grant which it replaces
would have been made, and the vesting provisions (including vesting
acceleration) applicable to such award shall be substantially the same as in
effect for the automatic option grant so replaced.

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ARTICLE FIVE

MISCELLANEOUS

     I. TAX WITHHOLDING

          A. The Corporation’s obligation to deliver shares of Common Stock upon
the exercise of options or stock appreciation rights or the issuance or vesting
of such shares under the Plan shall be subject to the satisfaction of all
applicable income and employment tax withholding requirements.

          B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options, stock appreciation rights, restricted stock
units or any other share right awards pursuant to which vested shares of Common
Stock are to be issued under the Plan (other than the option grants and other
stock-based awards made under the Automatic Grant Program) and any or all
Participants to whom vested or unvested shares of Common Stock are issued in a
direct issuance under the Stock Issuance 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 stock appreciation rights, the issuance to them of vested shares or the
subsequent vesting of unvested shares issued to them. 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 stock appreciation right or upon the issuance of
fully-vested 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. The shares of Common Stock so
withheld shall reduce the number of shares of Common Stock authorized for
issuance under the Plan.

               Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option or stock appreciation right is exercised, the
vested shares are issued or the unvested shares subsequently vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the exercise, share issuance 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. The shares of Common Stock so delivered shall not be added to the
shares of Common Stock authorized for issuance under the Plan.

     II. 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.

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     III. EFFECTIVE DATE AND TERM OF THE PLAN

          A. The Plan shall become effective on the Plan Effective Date.

          B. The Plan shall serve as the successor to the Predecessor Plans, and
no further option grants shall be made under the Predecessor Plans if this Plan
is approved by the stockholders at the 2005 Annual Meeting. Such stockholder
approval shall not affect the options outstanding under the Predecessor Plans at
the time of the 2005 Annual Meeting, and those options shall continue in full
force and effect in accordance with their terms. However, should any of those
options expire or terminate unexercised, the shares of Common Stock subject to
those options at the time of expiration or termination shall be added to the
share reserve of this Plan, up to the maximum number of additional shares
permissible hereunder.

          C. The Plan shall terminate upon the earliest to occur of
(i) March 15, 2015, (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, stock appreciation rights, restricted
stock units and other share right awards in connection with a Change in Control.
Should the Plan terminate on March 15, 2015, then all option grants, stock
appreciation rights, unvested stock issuances, restricted stock units and other
share right awards outstanding at that time shall continue to have force and
effect in accordance with the provisions of the documents evidencing such
grants, issuances or awards.

     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, stock appreciation rights, unvested stock issuances or other
stock-based awards at the time outstanding under the Plan unless the Optionee or
the Participant consents to such amendment or modification. In addition,
amendments to the Plan will be subject to stockholder approval to the extent
required under applicable law or regulation or pursuant to the listing standards
of the stock exchange (or the Nasdaq National Market) on which the Common Stock
is at the time primarily traded.

          B. The Compensation Committee of the Board shall have the
discretionary authority to adopt and implement from time to time such addenda or
subplans to the Plan as it may deem necessary in order to bring the Plan into
compliance with applicable laws and regulations of any foreign jurisdictions in
which grants or awards are to be made under the Plan and/or to obtain favorable
tax treatment in those foreign jurisdictions for the individuals to whom the
grants or awards are made.

          C. Options and stock appreciation rights may be granted under the
Discretionary Grant Program and stock-based awards may be made under the Stock
Issuance Program that in each instance involve shares of Common Stock in excess
of the number of shares then available for issuance under the Plan, provided no
shares shall actually be issued pursuant to those grants or awards until the
number of shares of Common Stock available for issuance under

25

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the Plan is sufficiently increased by stockholder approval of an amendment of
the Plan authorizing such increase. If stockholder approval is required and is
not obtained within twelve (12) months after the date the first excess grant or
award made against such contingent increase, then any options, stock
appreciation rights or other stock-based awards granted on the basis of such
excess shares shall terminate 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,
stock appreciation right or other stock-based award under the Plan and the
issuance of any shares of Common Stock (i) upon the exercise or vesting of any
granted option, stock appreciation right or other stock-based award 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 applicable 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.

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APPENDIX

          The following definitions shall be in effect under the Plan:

          A. Annual Meeting shall mean the annual meeting of the Corporation’s
stockholders.

          B. Automatic Grant Program shall mean the automatic option grant
program in effect under Article Four of the Plan.

          C. Board shall mean the Corporation’s Board of Directors.

          D. Change in Control shall mean a change in ownership or control of
the Corporation effected through any of the following transactions:

          (i) a merger, consolidation or other reorganization approved by the
Corporation’s stockholders, unless securities representing more than fifty
percent (50%) of the total combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially owned, directly or
indirectly and in substantially the same proportion, by the persons who
beneficially owned the Corporation’s outstanding voting securities immediately
prior to such transaction,

          (ii) a stockholder-approved sale, transfer or other disposition
(including in whole or in part through one or more licensing arrangements) of
all or substantially all of the Corporation’s assets, or

          (iii) the closing of any transaction or series of related transactions
pursuant to which any person or any group of persons comprising a “group” within
the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Corporation or a
person that, prior to such transaction or series of related transactions,
directly or indirectly controls, is controlled by or is under common control
with, the Corporation) becomes directly or indirectly the beneficial owner
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing (or
convertible into or exercisable for securities possessing) more than fifty
percent (50%) of the total combined voting power of the Corporation’s securities
(as measured in terms of the power to vote with respect to the election of Board
members) outstanding immediately after the consummation of such transaction or
series of related transactions, whether such transaction involves a direct
issuance from the Corporation or the acquisition of outstanding securities held
by one or more of the Corporation’s existing stockholders.

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

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          F. Common Stock shall mean the Corporation’s common stock.

          G. Compensation Committee shall mean the Compensation Committee of the
Board comprised of two (2) or more non-employee Board members.

          H. Corporation shall mean SanDisk Corporation, a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of SanDisk Corporation which has by appropriate action assumed the Plan.

          I. Discretionary Grant Program shall mean the discretionary grant
program in effect under Article Two of the Plan pursuant to which stock options
and stock appreciation rights may be granted to one or more eligible
individuals.

          J. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary, whether now existing or subsequently
established), 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 at the close of regular hours trading (i.e., before after- hours
trading begins) on the NASDAQ National Market on the date in question, as such
price is reported by the National Association of Securities Dealers. 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 at the close of regular hours trading (i.e., before after-hours
trading begins) 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.

A-2.

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          M. Family Member means, with respect to a particular Optionee or
Participant, any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, bother-in-law or sister-in-law.

          N. Hostile Take-Over shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:

          (i) 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, or

          (ii) 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 stockholders which
the Board does not recommend such stockholders to accept.

          O. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.

          P. 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 (or any Parent or Subsidiary) for reasons other than Misconduct, or

          (ii) such individual’s voluntary resignation following (A) a change in
his or her position with the Corporation (or any Parent or Subsidiary) 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 (or any Parent or Subsidiary) without
the individual’s consent.

A-3.

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          Q. 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 in any way preclude or restrict the right of the Corporation (or any
Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other
person in the Service of the Corporation (or any Parent or Subsidiary) for any
other acts or omissions, but such other acts or omissions shall not be deemed,
for purposes of the Plan, to constitute grounds for termination for Misconduct.

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

          S. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.

          T. Optionee shall mean any person to whom an option is granted under
the Discretionary Grant or Automatic Grant Program.

          U. 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.

          V. Participant shall mean any person who is issued shares of Common
Stock or restricted stock units or other stock-based awards under the Stock
Issuance Program.

          W. 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 Grant
Program, 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.

          X. Plan shall mean the Corporation’s 2005 Stock Incentive Plan, as set
forth in this document.

          Y. Plan Administrator shall mean the particular entity, whether the
Compensation Committee, the Board or the Secondary Board Committee, which is
authorized to administer the Discretionary 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.

A-4.

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          Z. Plan Effective Date shall mean the May 27, 2005 date on which the
Plan is approved by the stockholders at the 2005 Annual Meeting.

          AA. Predecessor Plans shall mean (i) the Corporation’s 1995 Stock
Option Plan and (ii) the Corporation’s 1995 Non-Employee Directors Stock Option
Plan, as each such Plan is in effect immediately prior to the 2005 Annual
Stockholders Meeting.

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

          CC. 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.

          DD. Service shall mean the performance of services for the Corporation
(or any Parent or Subsidiary, whether now existing or subsequently established)
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. For purposes of the Plan, an Optionee or Participant shall be
deemed to cease Service immediately upon the occurrence of the either of the
following events: (i) the Optionee or Participant no longer performs services in
any of the foregoing capacities for the Corporation or any Parent or Subsidiary
or (ii) the entity for which the Optionee or Participant is performing such
services ceases to remain a Parent or Subsidiary of the Corporation, even though
the Optionee or Participant may subsequently continue to perform services for
that entity. Service shall not be deemed to cease during a period of military
leave, sick leave or other personal leave approved by the Corporation; provided,
however, that should such leave of absence exceed three (3) months, then for
purposes of determining the period within which an Incentive Option may be
exercised as such under the federal tax laws, the Optionee’s Service shall be
deemed to cease on the first day immediately following the expiration of such
three (3)-month period, unless Optionee is provided with the right to return to
Service following such leave either by statute or by written contract. Except to
the extent otherwise required by law or expressly authorized by the Plan
Administrator or by the Corporation’s written policy on leaves of absence, no
Service credit shall be given for vesting purposes for any period the Optionee
or Participant is on a leave of absence.

          EE. Stock Exchange shall mean either the American Stock Exchange or
the New York Stock Exchange.

          FF. 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.

          GG. Stock Issuance Program shall mean the stock issuance program in
effect under Article Three of the Plan.

A-5.

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          HH. 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.

          II. 10% Stockholder 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).

          JJ. Withholding Taxes shall mean the applicable income and employment
withholding taxes to which the holder of an option or stock appreciation right
or shares of Common Stock under the Plan may become subject in connection with
the grant or exercise of those options or stock appreciation rights or the
issuance or vesting of those shares.

A-6.