Exhibit 10.3
SONICWALL, INC.
STOCK OPTION AGREEMENT
     Unless otherwise defined herein, the terms defined in the SonicWALL, Inc.
1998 Stock Option Plan (the “Plan”) shall have the same defined meanings in this
Stock Option Agreement (the “Option Agreement”).
     Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.

I.   NOTICE OF GRANT

Matthew Medeiros
     You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:

     
Grant Date
  May 2, 2005

Vesting Commencement Date
  May 2, 2005

Exercise Price per Share
  $5.19

Total Number of Shares Granted
  250,000

Total Exercise Price
  $1,297,500

Type of Option:
  Incentive Stock Option & Nonstatutory Stock Option

Term/Expiration Date:
  May 1, 2015

     Normal Vesting Schedule:
     Subject to accelerated vesting as set forth in duly authorized written
agreements by and between Optionee and the Company and as set forth below, this
Option may be exercised, in whole or in part, in accordance with the following
schedule:
     1/48 of the Shares subject to the Option shall vest each month after the
Vesting Commencement Date, subject to the Optionee remaining in Continuous
Employment on such dates.

 

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     Accelerated Vesting Schedule:
     For each full $5 million dollars in GAAP revenue achieved over the
Company’s fiscal year 2005 business plan, the Option Shares shall accelerate
vesting as to 25% of the Shares originally subject thereto. There shall be no
partial acceleration for revenue achieved above the 2005 business plan in
amounts less than full $5 million increments. Such acceleration, if any, will
occur upon the later of the Company’s public reporting of its financial results
for the 2005 fiscal year or the one year anniversary of the grant date. To the
extent the Option Shares are only partially accelerated, they shall continue to
vest at the rate of 1/48th of the Shares subject to the Option each month,
subject to the Optionee remaining in Continuous Employment on such dates.
II. AGREEMENT
     1. Grant of Option.
          The Board hereby grants to the Optionee (the “Optionee”) named in the
Notice of Grant section of this Agreement (the “Notice of Grant”), an option
(the “Option”) to purchase the number of Shares set forth in the Notice of
Grant, at the exercise price per share set forth in the Notice of Grant (the
“Exercise Price”), subject to the terms and conditions of the Plan (which is
incorporated herein by reference) and this Option Agreement. In the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Option Agreement, the terms and conditions of the Plan shall
prevail.
          If designated in the Grant Notice as an Incentive Stock Option
(“ISO”), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option (“NSO”).
     2. Exercise of Option.
          (a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement, subject to
Optionee’s Continuous Employment on each vesting date.
          (b) Post-Termination Exercise Period. Subject to any extended
post-termination exercise period set forth in duly authorized written agreements
by and between Optionee and the Company, this Option’s post-termination exercise
period is as follows:
               (i) Normal Termination. If Optionee’s service as a Consultant
ceases, or, except as specified in Sections 2(b)(i) and (ii) below, if
Optionee’s Continuous Employment ceases, this Option may be exercised, but only
to the extent vested on the date of such cessation of Continuous Employment or
service as a Consultant, until the earlier of (i) ninety days after the date
upon which Optionee ceases his or her Continuous Employment or service as a
Consultant, or (ii) the original ten-year Option term.

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               (ii) Death. If Optionee’s Continuous Employment ceases upon
Optionee’s death or within the 90-day period preceding Employee’s death, this
Option may be exercised, but only to the extent vested on the date of such
cessation of Continuous Employment, by the Optionee’s estate or by a person who
acquired the right to exercise this Option by bequest or inheritance, until the
end of the original ten-year Option term.
               (iii) Disability. If Optionee’s Continuous Employment ceases upon
Optionee’s Disability (as defined in the next sentence) or within the 90-day
period preceding Employee’s Disability, this Option may be exercised, but only
to the extent vested on the date of such cessation of Continuous Employment,
until the earlier of (i) one year after the date upon which Optionee ceases his
or her Continuous Employment, or (ii) the original ten-year Option term. For the
purposes of this Agreement, “Disability” means the Optionee has been unable to
perform with reasonable accommodation his or her duties with the Company as the
result of Optionee’s incapacity due to physical or mental illness, and such
inability, at least 26 weeks after its commencement, is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Optionee or the Optionee’s legal representative (such
agreement as to acceptability not to be unreasonably withheld).
          (c) Leave of Absence. If you are granted a leave of absence, you shall
be deemed to be in the employ of the Company, except that you may not exercise
an option during such leave of absence, unless otherwise required by applicable
laws or as permitted by the Committee.
          (d) Method of Exercise. This option may be exercised with respect to
all or any part of any vested Shares by giving the Company, Smith Barney, or any
successor third-party stock option plan administrator designated by the Company
written or electronic notice of such exercise, in the form designated by the
Company or the Company’s designated third-party stock option plan administrator,
specifying the number of shares as to which this option is exercised and
accompanied by payment of the aggregate Exercise Price as to all exercised
shares.
     This Option shall be deemed to be exercised upon receipt by the Company,
Smith Barney, or any successor third-party stock option plan administrator
designated by the Company of such fully executed exercise notice accompanied by
such aggregate Exercise Price.
     No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with applicable laws. Assuming such
compliance, for income tax purposes the exercised shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such exercised shares.
          (e) Payment of Exercise Price. Payment of the aggregate exercise price
shall be by any of the following, or a combination thereof, at the election of
the Optionee:
             (i) cash; or
             (ii) check; or
             (iii) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan.

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     3. Non-Transferability of Option.
          This Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
     4. Term of Option.
          This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
     5. Tax Consequences.
          Some of the federal tax consequences relating to this Option, as of
the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
               (a) Exercising the Option.
                    (i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax liability upon exercise of a Nonstatutory Stock
Option. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the fair
market value of the exercised shares on the date of exercise over their
aggregate Exercise Price. If the Optionee is an Employee or a former Employee,
the Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
                    (ii) Incentive Stock Option. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the fair market value of the exercised
shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee and
immediately thereafter becomes a Consultant, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the date three (3) months and one (1) day following such change of status.
               (b) Disposition of Shares.

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                    (i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
                    (ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the fair market value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
                    (iii) Notice of Disqualifying Disposition of ISO Shares. If
the Optionee sells or otherwise disposes of any of the Shares acquired pursuant
to an ISO on or before the later of (i) two years after the grant date, or
(ii) one year after the exercise date, the Optionee shall immediately notify the
Company in writing of such disposition.
     6. Entire Agreement; Governing Law.
          The Plan is incorporated herein by reference. The Plan and this Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee’s interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
          By your signature and the signature of the Company’s representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of the Plan and this Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.

     
OPTIONEE:
  SONICWALL, INC.
 
         
Signature
  By
 
         
Print Name
  Title
 
         
Residence Address
   

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