**Exhibit 10.7****SANDISK CORPORATION****AMENDED AND RESTATED 2005 INCENTIVE PLAN**ARTICLE ONEGENERAL PROVISIONS**I.****PURPOSE OF THE PLAN**     This 2005 Incentive Plan is intended to promote the interests ofSanDisk Corporation, a Delaware corporation, by providingeligible persons in the Corporation’s service with theopportunity to acquire a proprietary interest, or otherwiseincrease their proprietary interest, in the Corporation as anincentive for them to remain in such service. The Amended andRestated Plan reflects amendments adopted in 2006.     Capitalized terms shall have the meanings assigned to such termsin the attached Appendix.**II.****STRUCTURE OF THE PLAN**     A. The Plan shall be divided into three separate equityincentive 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 and Cash Bonus 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, be awarded    cash bonus opportunities which are earned through the attainment    of pre-established performance milestones, or be issued shares    of Common Stock 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 applyto all equity programs under the Plan and shall govern theinterests of all persons under the Plan.**III.****ADMINISTRATION OF THE PLAN**     A. The Compensation Committee shall have sole and exclusiveauthority to administer the Discretionary Grant Program andStock Issuance and Cash Bonus Program with respect toSection 16 Insiders. Administration of the DiscretionaryGrant Program and Stock and Cash Bonus Issuance Program withrespect to all other persons eligible to participate in thoseprograms may, at the Board’s discretion, be vested in theCompensation Committee or a Secondary Board Committee, or theBoard may retain the power to administer those programs withrespect to all such persons. However, any discretionary optiongrants, stock appreciation rights, stock issuances or otherstock-based awards for members of the Compensation Committeemust be authorized by a disinterested majority of the Board.     B. Members of the Compensation Committee or any SecondaryBoard Committee shall serve for such period of time as the Boardmay determine and may be removed by the Board at any time. TheBoard may also at any time terminate the functions of anySecondary Board Committee and reassume all powers and authoritypreviously delegated to such committee.     C. Each Plan Administrator shall, within the scope of itsadministrative functions under the Plan, have full power andauthority (subject to the provisions of the Plan) to establishsuch rules and regulations as it may deem appropriate for properadministration of the Discretionary Grant Program and StockIssuance and Cash Bonus Program and to make such determinationsunder, and issue such interpretations of, the provisions
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of those programs and any outstanding options, stockappreciation rights, stock issuances, other stock-based awardsor cash bonus opportunities thereunder as it may deem necessaryor advisable. Decisions of the Plan Administrator within thescope of its administrative functions under the Plan shall befinal and binding on all parties who have an interest in theDiscretionary Grant Program and Stock Issuance and Cash BonusProgram under its jurisdiction or any stock option, stockappreciation right, stock issuance or other award thereunder.     D. Service as a Plan Administrator by the members of theCompensation Committee or the Secondary Board Committee shallconstitute service as Board members, and the members of eachsuch committee shall accordingly be entitled to fullindemnification and reimbursement as Board members for theirservice on such committee. No member of the CompensationCommittee or the Secondary Board Committee shall be liable forany act or omission made in good faith with respect to the Planor any option grant, stock appreciation right, stock issuance orother award under the Plan.     E. Administration of the Automatic Grant Program shall beself-executing in accordance with the terms of that program, andno Plan Administrator shall exercise any discretionary functionswith respect to any option grants or stock issuances made underthat program, except that the Compensation Committee shall havethe express authority to establish from time to time thespecific number of shares to be subject to the initial andannual grants made to the non-employee Board members under suchprogram.     F. Awards to Employees who are “coveredemployees” under Section 162(m) of the Code of(i) options or stock appreciation rights, or(ii) shares or cash subject to the achievement ofpre-established criteria as described in Section I.B.2 ofArticle Three of the Stock Issuance and Cash Bonus Program,shall be deemed to be intended as performance-based compensationwithin the meaning of Section 162(m) of the Code unless theCompensation Committee provides otherwise at the time such anaward is granted.**IV.****ELIGIBILITY**     A. The persons eligible to participate in the DiscretionaryGrant Program and Stock Issuance and Cash Bonus Program are asfollows:          (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).Notwithstanding the foregoing, only Employees are eligible toreceive awards intended to constitute performance-basedcompensation under Code Section 162(m).     B. The Plan Administrator shall have full authority todetermine, (i) with respect to the grant of options orstock appreciation rights under the Discretionary Grant Program,which eligible persons are to receive such grants, the time ortimes when those grants are to be made, the number of shares tobe covered by each such grant, the time or times when the grantis 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 appreciationright is to remain outstanding and the status of a grantedoption as either an Incentive Option or a Non-Statutory Optionand (ii) with respect to stock issuances, other stock-basedawards or cash bonus opportunities under the Stock Issuance andCash Bonus Program, which eligible persons are to receive suchissuances, awards or opportunities, the time or times when theissuances, awards or opportunities are to be made, the number ofshares subject to each such issuance, award or opportunity, thevesting and issuance schedules applicable to the shares whichare the subject of such issuance or award, the consideration forthose shares and the performance criteria and other terms withrespect to such cash bonus opportunities.     C. The Plan Administrator shall have the absolutediscretion either to grant options or stock appreciation rightsin accordance with the Discretionary Grant Program or to effectstock issuances, other stock-based awards and bonusopportunities in accordance with the Stock Issuance and CashBonus Program.
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     D. The individuals who shall be eligible to participate inthe Automatic Grant Program shall be limited to (i) thoseindividuals who first become non-employee Board members on orafter the Plan Effective Date, whether through appointment bythe Board or election by the Corporation’s stockholders,and (ii) those individuals who continue to serve asnon-employee Board members on or after the Plan Effective Date.A non-employee Board member who has previously been in theemploy of the Corporation (or any Parent or Subsidiary) shallnot be eligible to receive a grant under the Automatic GrantProgram at the time he or she first becomes a non-employee Boardmember, but shall be eligible to receive periodic grants underthe Automatic Grant Program while he or she continues to serveas a non-employee Board member.**V.****STOCK SUBJECT TO THE PLAN; ANNUAL CASH LIMITATION**     A. The stock issuable under the Plan shall be shares ofauthorized but unissued or reacquired Common Stock, includingshares repurchased by the Corporation on the open market. Thenumber of shares of Common Stock reserved for issuance over theterm of the Plan shall be limited to twenty million sevenhundred thousand (20,700,000) shares. The Plan shall serveas the successor to the two Predecessor Plans, and no furtherstock option grants shall be made under those Predecessor Planson or after the Plan Effective Date. However, all optionsoutstanding under the Predecessor Plans on the Plan EffectiveDate shall continue in full force and effect in accordance withtheir terms, and no provision of this Plan shall be deemed toaffect or otherwise modify the rights or obligations of theholders of those options with respect to their acquisition ofshares of Common Stock thereunder. To the extent any optionsoutstanding under the Predecessor Plans on the Plan EffectiveDate expire or terminate unexercised, the number of shares ofCommon Stock subject to those expired or terminated options atthe time of expiration or termination shall be added to theshare reserve under this Plan and shall accordingly be availablefor issuance hereunder, up to a maximum of an additional tenmillion (10,000,000) shares.     B. Notwithstanding the foregoing, the maximum number ofshares of Common Stock which may be issued without cashconsideration pursuant to the Stock Issuance and Cash BonusProgram shall not exceed ten percent (10%) of the total numberof shares of Common Stock from time to time authorized forissuance under the Plan, including (without limitation):(i) any shares added to the Plan reserve by reason of theexpiration or termination of outstanding options under thePredecessor Plans prior to exercise, (ii) any increases tothe Plan reserve from time to time approved by theCorporation’s stockholders and (iii) any adjustmentsto the authorized share reserve effected in accordance withSection V.E. of this Article One.     C. No one person participating in the Plan may receivestock options, stand-alone stock appreciation rights, directstock issuances (whether vested or unvested) or otherstock-based awards (whether in the form of restricted stockunits or other share-right awards) for more than one million(1,000,000) shares of Common Stock in the aggregate per calendaryear. In addition, the aggregate amount of compensation to bepaid to any one participant in respect of all performance-basedawards under the Stock Issuance and Cash Bonus Program payableonly in cash and not related to shares of Common Stock andgranted to that participant in any one calendar year shall notexceed five million dollars ($5,000,000).     D. Shares of Common Stock subject to outstanding options orother awards made under the Plan shall be available forsubsequent issuance under the Plan to the extent those optionsor awards expire or terminate for any reason prior to theissuance of the shares of Common Stock subject to those optionsor awards. Unvested shares issued under the Plan andsubsequently forfeited or repurchased by the Corporation, at aprice per share not greater than the original issue price paidper share, pursuant to the Corporation’s repurchase rightsunder the Plan shall be added back to the number of shares ofCommon Stock reserved for issuance under the Plan and shallaccordingly be available for subsequent reissuance. Should theexercise price of an option under the Plan be paid with sharesof Common Stock, then the authorized reserve of Common Stockunder the Plan shall be reduced by the gross number of sharesfor which that option is exercised, and not by the net number ofshares issued under the exercised stock option.     If shares of Common Stock otherwise issuable under the Plan arewithheld by the Corporation in satisfaction of the withholdingtaxes incurred in connection with the exercise of an option orstock appreciation right or the issuance of fully-vested sharesunder the Stock Issuance and Cash Bonus Program, then the
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number of shares of Common Stock available for issuance underthe Plan shall be reduced by the gross number of shares issuableunder the exercised stock option or stock appreciation right orthe gross number of fully-vested shares issuable under the StockIssuance and Cash Bonus Program, calculated in each instanceprior to any such share withholding.     E. If any change is made to the Common Stock by reason ofany stock split, stock dividend, recapitalization, combinationof shares, exchange of shares or other change affecting theoutstanding Common Stock as a class without theCorporation’s receipt of consideration, appropriateadjustments shall be made by the Plan Administrator to(i) the maximum number and/or class of securities issuableunder the Plan, (ii) the maximum number and/or class ofsecurities by which the share under the Plan may increase byreason of the expiration or termination of unexercised optionsunder the Predecessor Plans, (iii) the maximum numberand/or class of securities which may be issued without cashconsideration under the Stock Issuance and Cash Bonus Program,(iv) the maximum number and/or class of securities forwhich any one person may be granted stock options, stand-alonestock appreciation rights, direct stock issuances and otherstock-based awards under the Plan per calendar year,(v) the maximum number and/or class of securities for whichgrants may subsequently be made under the Automatic GrantProgram to new and continuing non-employee Board members,(vi) the number and/or class of securities and the exerciseor base price per share in effect under each outstanding optionor stock appreciation right under the Plan and (vii) thenumber and/or class of securities subject to each outstandingrestricted stock unit or other stock-based award under the Planand the issue price (if any) payable per share. Such adjustmentsto the outstanding options, stock appreciation rights or otherstock-based awards are to be effected in a manner which shallpreclude the enlargement or dilution of rights and benefitsunder those options, stock appreciation rights or otherstock-based awards. The adjustments determined by the PlanAdministrator shall be final, binding and conclusive.     F. Outstanding awards granted pursuant to the Plan shall inno way affect the right of the Corporation to adjust,reclassify, reorganize or otherwise change its capital orbusiness structure or to merge, consolidate, dissolve, liquidateor sell or transfer all or any part of its business or assets.ARTICLE TWODISCRETIONARY GRANT PROGRAM**I.****OPTION TERMS**     Each option shall be evidenced by one or more documents in theform approved by the Plan Administrator; provided,however, that each such document shall comply with the termsspecified below. Each document evidencing an Incentive Optionshall, in addition, be subject to the provisions of the Planapplicable to such options.     A. *Exercise Price.*     1. The exercise price per share shall be fixed by the PlanAdministrator; provided, however, that such exercise price shallnot be less than one hundred percent (100%) of the Fair MarketValue per share of Common Stock on the grant date.     2. The exercise price shall become immediately due uponexercise of the option and shall, subject to the provisions ofthe documents evidencing the option, be payable in one or moreof 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
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     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 isutilized, payment of the exercise price for the purchased sharesmust be made on the Exercise Date.     B. *Exercise and Term of Options.* Each optionshall be exercisable at such time or times, during such periodand for such number of shares as shall be determined by the PlanAdministrator and set forth in the documents evidencing theoption. 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 ofany options granted pursuant to the Discretionary Grant Programthat are outstanding at the time of the Optionee’scessation 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 anytime 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 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
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          (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 anoption shall have no stockholder rights with respect to theshares subject to the option until such person shall haveexercised the option, paid the exercise price and become aholder of record of the purchased shares.     E. *Repurchase Rights.* The Plan Administratorshall have the discretion to grant options which are exercisablefor unvested shares of Common Stock. Should the Optionee ceaseService while such shares are unvested, the Corporation shallhave the right to repurchase any or all of those unvested sharesat a price per share equal to the ***lower***of(i) the exercise price paid per share or (ii) the FairMarket Value per share of Common Stock at the time ofrepurchase. The terms upon which such repurchase right shall beexercisable (including the period and procedure for exercise andthe appropriate vesting schedule for the purchased shares) shallbe established by the Plan Administrator and set forth in thedocument evidencing such repurchase right.     F. *Transferability of Options.* Thetransferability of options granted under the Plan shall begoverned 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 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 IncentiveOptions. Except as modified by the provisions of thisSection II, all the provisions of Articles One, Twoand Five shall be applicable to Incentive Options. Options whichare specifically designated as Non-Statutory Options when issuedunder the Plan shall not be subject to the terms of thisSection II.     A. *Eligibility.* Incentive Options may only begranted to Employees.     B. *Dollar Limitation.* The aggregate FairMarket Value of the shares of Common Stock (determined as of therespective date or dates of grant) for which one or more optionsgranted to any Employee under the Plan (or any other option planof the Corporation or any Parent or Subsidiary) may for thefirst time become
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exercisable as Incentive Options during any one calendar yearshall not exceed the sum of One Hundred Thousand Dollars($100,000).     To the extent the Employee holds two (2) or more suchoptions which become exercisable for the first time in the samecalendar year, then for purposes of the foregoing limitations onthe exercisability of those options as Incentive Options, suchoptions shall be deemed to become first exercisable in thatcalendar year on the basis of the chronological order in whichthey were granted, except to the extent otherwise provided underapplicable law or regulation.     C. *10% Stockholder.* If any Employee to whoman Incentive Option is granted is a 10% Stockholder, then theexercise price per share shall not be less than one hundred tenpercent (110%) of the Fair Market Value per share of CommonStock on the option grant date, and the option term shall notexceed five (5) years measured from the option grant date.**III.****STOCK APPRECIATION RIGHTS**     A. *Authority.* The Plan Administrator shallhave full power and authority, exercisable in its solediscretion, to grant stock appreciation rights in accordancewith this Section III to selected Optionees or otherindividuals eligible to receive option grants under theDiscretionary Grant Program.     B. *Types.* Two types of stock appreciationrights shall be authorized for issuance under thisSection III: (i) tandem stock appreciation rights(“Tandem Rights”) and (ii) stand-alone stockappreciation rights (“Stand-alone Rights”).     C. *Tandem Rights.* The following terms andconditions 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 PlanAdministrator may establish, to elect between the exercise ofthe underlying option for shares of Common Stock or thesurrender of that option in exchange for a distribution from theCorporation in an amount equal to the excess of (i) theFair Market Value (on the option surrender date) of the numberof shares in which the Optionee is at the time vested under thesurrendered option (or surrendered portion thereof) over(ii) the aggregate exercise price payable for such vestedshares.     2. No such option surrender shall be effective unless it isapproved by the Plan Administrator, either at the time of theactual option surrender or at any earlier time. If the surrenderis so approved, then the distribution to which the Optioneeshall accordingly become entitled under this Section IIIshall be made in shares of Common Stock valued at Fair MarketValue on the option surrender date.     3. If the surrender of an option is not approved by thePlan Administrator, then the Optionee shall retain whateverrights the Optionee had under the surrendered option (orsurrendered portion thereof) on the option surrender date andmay exercise such rights at any time prior to the *later*of (i) five (5) business days after the receipt ofthe rejection notice or (ii) the last day on which theoption is otherwise exercisable in accordance with the terms ofthe instrument evidencing such option, but in no event may suchrights be exercised more than seven (7) years after thedate of the option grant.     D. *Stand-Alone Rights.* The following termsand conditions shall govern the grant and exercise ofStand-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-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.
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          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 provisionsgoverning the exercise of Tandem and Stand-alone Rightsfollowing the cessation of the recipient’s Service shall besubstantially the same as those set forth in Section I.C ofthis Article Two for the options granted under theDiscretionary Grant Program, and the Plan Administrator’sdiscretionary authority under Section I.C.2 of thisArticle Two shall also extend to any outstanding Tandem orStand-alone Appreciation Rights.     F. *Gross Counting.* Upon the exercise of anyTandem or Stand-alone Right under this Section III, theshare reserve under Section V of Article One shall bereduced by the gross number of shares as to which such right isexercised, and not by the net number of shares actually issuedby the Corporation upon such exercise.**IV.****CHANGE IN CONTROL/ HOSTILE TAKE-OVER**     A. In the event of a Change in Control, each outstandingoption or stock appreciation right under the Discretionary GrantProgram shall automatically accelerate so that each such optionor stock appreciation right shall, immediately prior to theeffective date of that Change in Control, become exercisable asto all the shares of Common Stock at the time subject to suchoption or stock appreciation right and may be exercised as toany or all of those shares as fully vested shares of CommonStock. However, an outstanding option or stock appreciationright shall ***not***become exercisable on such anaccelerated basis if and to the extent: (i) such option orstock appreciation right is to be assumed by the successorcorporation (or parent thereof) or is otherwise to continue infull force and effect pursuant to the terms of the Change inControl transaction or (ii) such option or stockappreciation right is to be replaced with a cash incentiveprogram of the successor corporation which preserves the spreadexisting at the time of the Change in Control on any shares asto which
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the option or stock appreciation right is not otherwise at thattime exercisable and provides for subsequent payout of thatspread in accordance with the same exercise/vesting scheduleapplicable to those shares or (iii) the acceleration ofsuch option or stock appreciation right is subject to otherlimitations imposed by the Plan Administrator.     B. All outstanding repurchase rights under theDiscretionary Grant Program shall automatically terminate, andthe shares of Common Stock subject to those terminated rightsshall immediately vest in full, in the event of a Change inControl, except to the extent: (i) those repurchase rightsare to be assigned to the successor corporation (or parentthereof) or are otherwise to continue in full force and effectpursuant to the terms of the Change in Control transaction or(ii) such accelerated vesting is precluded by otherlimitations imposed by the Plan Administrator.     C. Immediately following the consummation of the Change inControl, all outstanding options or stock appreciation rightsunder the Discretionary Grant Program shall terminate and ceaseto be outstanding, except to the extent assumed by the successorcorporation (or parent thereof) or otherwise continued in fullforce and effect pursuant to the terms of the Change in Controltransaction.     D. Each option which is assumed in connection with a Changein Control or otherwise continued in effect shall beappropriately adjusted, immediately after such Change inControl, to apply to the number and class of securities whichwould have been issuable to the Optionee in consummation of suchChange in Control had the option been exercised immediatelyprior to such Change in Control. Appropriate adjustments toreflect such Change in Control shall also be made to(i) the exercise price payable per share under eachoutstanding option, provided the aggregate exercise pricepayable for such securities shall remain the same, (ii) themaximum number and/or class of securities available for issuanceover the remaining term of the Plan (iii) the maximumnumber and/or class of securities by which the share reserveunder this Plan may be increased by reason of the expiration ortermination of unexercised options under the Predecessor Plans,(iv) the maximum number and/or class of securities whichmay be issued without cash consideration under the StockIssuance and Cash Bonus Program and (v) the maximum numberand/or class of securities for which any one person may begranted stock options, stand-alone stock appreciation rights,direct stock issuances and other stock-based awards under thePlan per calendar year. To the extent the actual holders of theCorporation’s outstanding Common Stock receive cashconsideration for their Common Stock in consummation of theChange in Control, the successor corporation may, in connectionwith the assumption or continuation of the outstanding optionsunder the Discretionary Grant Program, substitute one or moreshares of its own common stock with a fair market valueequivalent to the cash consideration paid per share of CommonStock in such Change in Control transaction.     E. The Plan Administrator shall have the discretionaryauthority to structure one or more outstanding options or stockappreciation rights under the Discretionary Grant Program sothat 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 thetime subject to those options or stock appreciation rights andmay be exercised as to any or all of those shares as fullyvested shares of Common Stock, whether or not those options orstock appreciation rights are to be assumed in the Change inControl transaction or otherwise continued in effect. Inaddition, the Plan Administrator shall have the discretionaryauthority to structure one or more of the Corporation’srepurchase rights under the Discretionary Grant Program so thatthose rights shall immediately terminate upon the consummationof the Change in Control transaction, and the shares subject tothose terminated rights shall thereupon vest in full.     F. The Plan Administrator shall have full power andauthority to structure one or more outstanding options or stockappreciation rights under the Discretionary Grant Program sothat those options or stock appreciation rights shall becomeexercisable as to all the shares of Common Stock at the timesubject to those options or stock appreciation rights in theevent the Optionee’s Service is subsequently terminated byreason of an Involuntary Termination within a designated periodfollowing the effective date of any Change in Controltransaction in which those options or stock appreciation rightsdo not otherwise fully accelerate. In addition, the PlanAdministrator may structure one or more of theCorporation’s repurchase rights so that those rights shallimmediately terminate with respect to any shares held by theOptionee at the time of such Involuntary
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Termination, and the shares subject to those terminatedrepurchase rights shall accordingly vest in full at that time.     G. The Plan Administrator shall have the discretionaryauthority to structure one or more outstanding options or stockappreciation rights under the Discretionary Grant Program sothat 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 thetime subject to those options or stock appreciation rights andmay be exercised as to any or all of those shares as fullyvested shares of Common Stock. In addition, the PlanAdministrator shall have the discretionary authority tostructure one or more of the Corporation’s repurchaserights under the Discretionary Grant Program so that thoserights shall terminate automatically upon the consummation ofsuch Hostile Take-Over, and the shares subject to thoseterminated rights shall thereupon vest in full. Alternatively,the Plan Administrator may condition the automatic accelerationof one or more outstanding options or stock appreciation rightsunder the Discretionary Grant Program and the termination of oneor more of the Corporation’s outstanding repurchase rightsunder such program upon the subsequent termination of theOptionee’s Service by reason of an Involuntary Terminationwithin a designated period following the effective date of suchHostile Take-Over.     H. The portion of any Incentive Option accelerated inconnection with a Change in Control or Hostile Take-Over shallremain exercisable as an Incentive Option only to the extent theapplicable One Hundred Thousand Dollar ($100,000) limitation isnot exceeded. To the extent such dollar limitation is exceeded,the accelerated portion of such option shall be exercisable as aNon-statutory Option under the Federal tax laws.**V.****PROHIBITION ON REPRICING PROGRAMS**     The Plan Administrator shall not (i) implement anycancellation/regrant program pursuant to which outstandingoptions or stock appreciation rights under the Plan arecancelled and new options or stock appreciation rights aregranted in replacement with a lower exercise price per share,(ii) cancel outstanding options or stock appreciationrights under the Plan with exercise prices per share in excessof the then current Fair Market Value per share of Common Stockfor consideration payable in equity securities of theCorporation or (iii) otherwise directly reduce the exerciseprice in effect for outstanding options or stock appreciationrights under the Plan, without in each such instance obtainingstockholder approval.ARTICLE THREESTOCK ISSUANCE AND CASH BONUS PROGRAM**I.****STOCK ISSUANCE AND CASH BONUS TERMS**     Shares of Common Stock may be issued under the Stock Issuanceand Cash Bonus Program, either as vested or unvested shares,through direct and immediate issuances without any interveningoption grants. Each such stock issuance shall be evidenced by aStock Issuance Agreement which complies with the terms specifiedbelow. Shares of Common Stock may also be issued under the StockIssuance and Cash Bonus Program pursuant to share right awardsor restricted stock units which entitle the recipients toreceive the shares underlying those awards or units upon theattainment of designated performance goals or the satisfactionof specified Service requirements or upon the expiration of adesignated time period following the vesting of those awards orunits.     The grant, vesting or payment of cash awards under the StockIssuance and Cash Bonus Program may depend on the degree ofachievement of one or more performance goals relative to apre-established targeted level or levels using one or more ofthe criteria set forth in Section I.B.2. of thisArticle Three.     The maximum number of shares of Common Stock which may be issuedwithout cash consideration under the Stock Issuance and CashBonus Program (whether as direct stock issuances or pursuant torestricted stock units or other share-right awards) may notexceed ten percent (10%) of the total number of shares of CommonStock from time to time authorized for issuance under the Plan,including (without limitation): (i) any shares added to thePlan reserve by reason of the expiration or termination ofoutstanding
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options under the Predecessor Plans prior to exercise,(ii) any increases to the Plan reserve from time to timeapproved by the Corporation’s stockholders and(iii) any adjustments to the authorized share reserveeffected in accordance with Section V.E. ofArticle 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 and Cash Bonus 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.     B. *Vesting Provisions.*     1. Shares of Common Stock issued under the Stock Issuanceand Cash Bonus Program may, in the discretion of the PlanAdministrator, be fully and immediately vested upon issuance ormay vest in one or more installments over the Participant’speriod of Service or upon the attainment of specifiedperformance objectives. The elements of the vesting scheduleapplicable to any unvested shares of Common Stock issued underthe Stock Issuance and Cash Bonus Program shall be determined bythe Plan Administrator and incorporated into the Stock IssuanceAgreement. Shares of Common Stock may also be issued under theStock Issuance and Cash Bonus Program pursuant to share rightawards or restricted stock units which entitle the recipients toreceive the shares underlying those awards or units upon theattainment of designated performance goals or the satisfactionof specified Service requirements or upon the expiration of adesignated time period following the vesting of those awards orunits, including (without limitation) a deferred distributiondate following the termination of the Participant’s Service.     2. The Plan Administrator shall also have the discretionaryauthority, consistent with Code Section 162(m), tostructure one or more stock issuances, or restricted stock unitor share right awards or cash bonus awards so that the shares ofCommon Stock or cash subject to those issuances or awards shallvest (or vest and become issuable or payable) upon theachievement of certain pre-established corporate performancegoals based on one or more of the following criteria:(1) return on total stockholder equity; (2) earningsper share of Common Stock; (3) net income or operatingincome (before or after taxes); (4) earnings beforeinterest, 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) marketshare; (10) cost reduction goals; (11) budgetcomparisons; (12) measures of customer satisfaction;(13) any combination of, or a specified increase in, any ofthe foregoing; (14) new product development or successfulcompletion of research and development projects; and(15) the formation of joint ventures, research ordevelopment collaborations, or the completion of other corporatetransactions intended to enhance the Corporation’s revenueor profitability or enhance its customer base. In addition, suchperformance goals may be based upon the attainment of specifiedlevels of the Corporation’s performance under one or moreof the measures described above relative to the performance ofother entities and may also be based on the performance of anyof the Corporation’s business units or divisions or anyParent or Subsidiary. Performance goals may include a minimumthreshold level of performance below which no award will beearned, levels of performance at which specified portions of anaward will be earned and a maximum level of performance at whichan award will be fully earned. To qualify awards asperformance-based under Section 162(m), the applicablecriterion (or criteria, as the case may be) and specificperformance goal or goals (“targets”) must beestablished and approved by the Plan Administrator during thefirst 90 days of the performance period (and, in the caseof performance periods of less than one year, in no event after25% or more of the performance period has elapsed) and whileperformance relating to such target(s) remains substantiallyuncertain within the meaning of Section 162(m) of the Code.
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Performance targets shall be adjusted to mitigate the unbudgetedimpact of material, unusual or nonrecurring gains and losses,accounting changes or other extraordinary events not foreseen atthe time the targets were set unless the Plan Administratorprovides otherwise at the time of establishing the targets. Theapplicable performance measurement period may not be less thanthree months nor more than 10 years.     3. Any new, substituted or additional securities or otherproperty (including money paid other than as a regular cashdividend) which the Participant may have the right to receivewith respect to the Participant’s unvested shares of CommonStock by reason of any stock dividend, stock split,recapitalization, combination of shares, exchange of shares orother change affecting the outstanding Common Stock as a classwithout the Corporation’s receipt of consideration shall beissued subject to (i) the same vesting requirementsapplicable to the Participant’s unvested shares of CommonStock and (ii) such escrow arrangements as the PlanAdministrator shall deem appropriate.     4. The Participant shall have full stockholder rights withrespect to any shares of Common Stock issued to the Participantunder the Stock Issuance and Cash Bonus Program, whether or notthe Participant’s interest in those shares is vested.Accordingly, the Participant shall have the right to vote suchshares and to receive any dividends paid on such shares, subjectto any applicable vesting requirements. The Participant shallnot have any stockholder rights with respect to the shares ofCommon Stock subject to a restricted stock unit or share rightaward until that award vests and the shares of Common Stock areactually issued thereunder. However, dividend-equivalent unitsmay be paid or credited, either in cash or in actual or phantomshares of Common Stock, on outstanding restricted stock unit orshare right awards, subject to such terms and conditions as thePlan Administrator may deem appropriate.     5. Should the Participant cease to remain in Service whileholding one or more unvested shares of Common Stock issued underthe Stock Issuance and Cash Bonus Program or should theperformance objectives not be attained with respect to one ormore such unvested shares of Common Stock, then those sharesshall be immediately surrendered to the Corporation forcancellation, and the Participant shall have no furtherstockholder rights with respect to those shares. To the extentthe surrendered shares were previously issued to the Participantfor consideration paid in cash or cash equivalent, theCorporation shall repay to the Participant the ***lower***of (i) the cash consideration paid for thesurrendered shares or (ii) the Fair Market Value of thoseshares at the time of cancellation.     6. The Plan Administrator may in its discretion waive thesurrender and cancellation of one or more unvested shares ofCommon Stock which would otherwise occur upon the cessation ofthe Participant’s Service or the non-attainment of theperformance objectives applicable to those shares. Any suchwaiver shall result in the immediate vesting of theParticipant’s interest in the shares of Common Stock as towhich the waiver applies. Such waiver may be effected at anytime, whether before or after the Participant’s cessationof Service or the attainment or non-attainment of the applicableperformance objectives. However, no vesting requirements tied tothe attainment of performance objectives may be waived withrespect to shares which were intended at the time of issuance toqualify as performance-based compensation under CodeSection 162(m), except in the event of theParticipant’s Involuntary Termination or as otherwiseprovided in Section II of this Article Three.     7. Outstanding share right awards, restricted stock unitsor cash bonus awards under the Stock Issuance and Cash BonusProgram shall automatically terminate, and no shares of CommonStock or cash shall actually be issued or paid in satisfactionof those awards or units, if the performance goals or Servicerequirements established for such awards or units are notattained or satisfied. The Plan Administrator, however, shallhave the discretionary authority to (i) issue vested sharesof Common Stock under one or more outstanding share right awardsor restricted stock units as to which the designated performancegoals or Service requirements have not been attained orsatisfied, and (ii) award cash bonus payments that are notintended to qualify as performance-based compensation underSection 162(m) of the Code.     However, no vesting or payment requirements tied to theattainment of performance goals may be waived with respect toawards or units which were intended, at the time those awards orunits were granted, to qualify as performance-based compensationunder Code Section 162(m), except in the event of theParticipant’s Involuntary Termination or as otherwiseprovided in Section II of this Article Three.
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     8. Before any performance-based award under the StockIssuance and Cash Bonus Program is paid and to the extentrequired to qualify the award as performance-based compensationwithin the meaning of Section 162(m) of the Code, the PlanAdministrator must certify in writing that the performancetarget(s) and any other material terms of the performance-basedaward were in fact timely satisfied.     9. The Plan Administrator will have the discretion todetermine the restrictions or other limitations of theindividual awards granted under the Stock Issuance and CashBonus Program including the authority to reduce awards, payoutsor vesting or to pay no awards, in its sole discretion, if thePlan Administrator preserves such authority at the time of grantby language to this effect in its authorizing resolutions orotherwise.**II.****CHANGE IN CONTROL/ HOSTILE TAKE-OVER**     A. All of the Corporation’s outstanding repurchaserights under the Stock Issuance and Cash Bonus Program shallterminate automatically, and all the shares of Common Stocksubject to those terminated rights shall immediately vest infull, in the event of any Change in Control, except to theextent (i) those repurchase rights are to be assigned tothe successor corporation (or parent thereof) or are otherwiseto continue in full force and effect pursuant to the terms ofthe Change in Control transaction or (ii) such acceleratedvesting is precluded by other limitations imposed in the StockIssuance Agreement.     B. Each outstanding restricted stock unit or share rightaward assumed in connection with a Change in Control orotherwise continued in effect shall be adjusted immediatelyafter the consummation of that Change in Control so as to applyto the number and class of securities into which the shares ofCommon Stock subject to the award immediately prior to theChange in Control would have been converted in consummation ofsuch Change in Control had those shares actually beenoutstanding at that time, and appropriate adjustments shall alsobe made to the consideration (if any) payable per sharethereunder, provided the aggregate amount of such considerationshall remain the same. To the extent the actual holders of theCorporation’s outstanding Common Stock receive cashconsideration for their Common Stock in consummation of theChange in Control, the successor corporation may, in connectionwith the assumption or continuation of the outstandingrestricted stock units or share right awards, substitute one ormore shares of its own common stock with a fair market valueequivalent to the cash consideration paid per share of CommonStock in such Change in Control transaction.     C. If any such restricted stock unit or share right awardis not assumed or otherwise continued in effect or replaced witha cash incentive program of the successor corporation whichpreserves the Fair Market Value of the underlying shares ofCommon Stock at the time of the Change in Control and providesfor the subsequent payout of that value in accordance with thesame vesting schedule applicable to those shares, then such unitor award shall vest, and the shares of Common Stock subject tothat 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 discretionaryauthority to structure one or more unvested stock issuances, oneor more restricted stock unit or other share right awards or oneor more cash bonus awards under the Stock Issuance and CashBonus Program so that the shares of Common Stock or cash subjectto those issuances or awards shall automatically vest (or vestand become issuable or payable) in whole or in part immediatelyupon the occurrence of a Change in Control or upon thesubsequent termination of the Participant’s Service byreason of an Involuntary Termination within a designated periodfollowing the effective date of that Change in Controltransaction.     E. The Plan Administrator shall also have the discretionaryauthority to structure one or more unvested stock issuances, oneor more restricted stock unit or other share right awards or oneor more cash bonus awards under the Stock Issuance and CashBonus Program so that the shares of Common Stock or cash subjectto those issuances or awards shall automatically vest (or vestand become issuable or payable) in whole or in part immediatelyupon the occurrence of a Hostile Take-Over or upon thesubsequent termination of the Participant’s Service byreason of an Involuntary Termination within a designated periodfollowing the effective date of that Hostile Take-Over.
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     F. The Plan Administrator’s authority underParagraphs D and E of this Section II shall alsoextend to any stock issuances, restricted stock units, othershare right awards or cash awards intended to qualify asperformance-based compensation under Code Section 162(m),even though the automatic vesting of those issuances, units orawards pursuant to Paragraph D or E of this Section IImay result in their loss of performance-based status under CodeSection 162(m).ARTICLE FOURAUTOMATIC GRANT PROGRAM**I.****OPTION TERMS**     A. *Automatic Grants.* The Automatic GrantProgram under this Article Four shall supersede and replacethe Corporation’s 1995 Non-Employee Director Stock OptionPlan, and no further stock option grants shall be made underthat plan on or after the Plan Effective Date. However, alloptions outstanding under that plan on the Plan Effective Dateshall continue in full force and effect in accordance with theirterms, and no provision of this Plan shall be deemed to affector otherwise modify the rights or obligations of the holders ofthose options with respect to their acquisition of shares ofCommon Stock thereunder.     Option grants shall be made pursuant to the Automatic GrantProgram 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.     B. *Exercise Price.*     1. The exercise price per share shall be equal to onehundred percent (100%) of the Fair Market Value per share ofCommon Stock on the option grant date.     2. The exercise price shall be payable in one or more ofthe alternative forms authorized under the Discretionary GrantProgram. Except to the extent the sale and remittance procedurespecified thereunder is utilized, payment of the exercise pricefor the purchased shares must be made on the Exercise Date.     C. *Option Term.* Each option shall have amaximum term of seven (7) years measured from the optiongrant date, subject to earlier termination following theOptionee’s cessation of Service.
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     D. *Exercise and Vesting of Options.* Eachoption shall be immediately exercisable for any or all of theoption shares. However, any unvested shares purchased under theoption shall be subject to repurchase by the Corporation, at the***lower***of (i) the exercise price paid pershare or (ii) the Fair Market Value per share of CommonStock at the time of repurchase, upon the Optionee’scessation of Service prior to vesting in those shares. Theshares subject to each initial150,000-share-or-lessgrant shall vest, and the Corporation’s repurchase rightshall lapse, in four (4) successive equal annualinstallments upon the Optionee’s completion of each year ofService (whether as a non-employee Board member, Employee orconsultant) over the four (4)-year period measured from theoption grant date. The shares subject to each annual40,000-share-or-lessgrant made to a non-employee Board member for his or hercontinued Board service shall vest, and the Corporation’srepurchase right shall lapse, in one installment upon the***earlier***of (i) the Optionee’s completionof the one (1)-year period of Service (whether as a non-employeeBoard member, Employee or consultant) measured from the grantdate or (ii) the Optionee’s continuation in suchService capacity through the day immediately preceding the nextannual stockholders meeting following such grant date.     E. *Limited Transferability of Options.* Eachoption under this Article Four may be assigned in whole orin part during the Optionee’s lifetime to one or more ofhis or her Family Members or to a trust established exclusivelyfor the Optionee and/or one or more such Family Members, to theextent such assignment is in connection with the Optionee’sestate plan or pursuant to a domestic relations order. Theassigned portion may only be exercised by the person or personswho acquire a proprietary interest in the option pursuant to theassignment. The terms applicable to the assigned portion shallbe the same as those in effect for the option immediately priorto such assignment and shall be set forth in such documentsissued to the assignee as the Plan Administrator may deemappropriate. The Optionee may also designate one or more personsas the beneficiary or beneficiaries of his or her outstandingoptions under this Article Four, and the options shall, inaccordance with such designation, automatically be transferredto such beneficiary or beneficiaries upon the Optionee’sdeath while holding those options. Such beneficiary orbeneficiaries shall take the transferred options subject to allthe terms and conditions of the applicable agreement evidencingeach such transferred option, including (without limitation) thelimited time period during which the option may be exercisedfollowing the Optionee’s death.     F. *Termination of Board Service.* Thefollowing provisions shall govern the exercise of any optionsheld 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.
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**II.****CHANGE IN CONTROL/ HOSTILE TAKE-OVER**     A. Should a Change in Control occur prior to theOptionee’s cessation of Service, then the shares of CommonStock at the time subject to each outstanding option held bysuch Optionee under this Automatic Grant Program but nototherwise vested shall automatically vest in full so that eachsuch option shall, immediately prior to the effective date ofthe Change in Control, become exercisable for all the optionshares as fully vested shares of Common Stock and may beexercised for any or all of those vested shares. Immediatelyfollowing the consummation of the Change in Control, eachautomatic option grant shall terminate and cease to beoutstanding, except to the extent assumed by the successorcorporation (or parent thereof) or otherwise continued in effectpursuant to the terms of the Change in Control transaction.     B. Should a Hostile Take-Over occur prior to theOptionee’s cessation of Service, then the shares of CommonStock at the time subject to each outstanding option held bysuch Optionee under this Automatic Grant Program but nototherwise vested shall automatically vest in full so that eachsuch option shall, immediately prior to the effective date ofthe Hostile Take-Over, become exercisable for all the optionshares as fully vested shares of Common Stock and may beexercised for any or all of those vested shares. Each suchoption shall remain exercisable for such fully vested optionshares until the expiration or sooner termination of the optionterm.     C. All outstanding repurchase rights under this under thisAutomatic Grant Program shall automatically terminate, and theshares of Common Stock subject to those terminated rights shallimmediately vest in full, in the event of any Change in Controlor Hostile Take-Over.     D. Each option which is assumed in connection with a Changein Control or otherwise continued in effect shall beappropriately adjusted, immediately after such Change inControl, to apply to the number and class of securities whichwould have been issuable to the Optionee in consummation of suchChange in Control had the option been exercised immediatelyprior to such Change in Control. Appropriate adjustments shallalso be made to the exercise price payable per share under eachoutstanding option, provided the aggregate exercise pricepayable for such securities shall remain the same. To the extentthe actual holders of the Corporation’s outstanding CommonStock receive cash consideration for their Common Stock inconsummation of the Change in Control, the successor corporationmay, in connection with the assumption or continuation of theoutstanding options under the Automatic Grant Program,substitute one or more shares of its own common stock with afair market value equivalent to the cash consideration paid pershare of Common Stock in such Change in Control transaction.**III.****REMAINING TERMS**     The remaining terms of each grant shall be the same as the termsin effect for option grants made under the Discretionary GrantProgram.**IV.****ALTERNATIVE AWARDS**     The Compensation Committee shall have full power and authorityto award, in lieu of one or more initial or annual automaticoption grants under this Article Four, unvested shares ofCommon Stock or restricted stock units which in each instancehave an aggregate Fair Market Value substantially equal to thefair value (as determined for financial reporting purposes inaccordance with Financial Accounting Standard 123R or anysuccessor standard) of the automatic option grant which suchaward replaces. Any such alternative award shall be made at thesame time the automatic option grant which it replaces wouldhave been made, and the vesting provisions (including vestingacceleration) applicable to such award shall be substantiallythe same as in effect for the automatic option grant so replaced.
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ARTICLE FIVEMISCELLANEOUS**I.****TAX WITHHOLDING**     A. The Corporation’s obligation to deliver shares ofCommon Stock upon the exercise of options or stock appreciationrights or the issuance or vesting of such shares under the Plan,or to make any other payment in respect of any award grantedunder the Plan, shall be subject to the satisfaction of allapplicable income and employment tax withholding requirements.     B. The Plan Administrator may, in its discretion, provideany or all holders of Non-Statutory Options, stock appreciationrights, restricted stock units or any other share right awardspursuant to which vested shares of Common Stock are to be issuedunder the Plan (other than the option grants and otherstock-based awards made under the Automatic Grant Program) andany or all Participants to whom vested or unvested shares ofCommon Stock are issued in a direct issuance under the StockIssuance and Cash Bonus Program with the right to use shares ofCommon Stock in satisfaction of all or part of the WithholdingTaxes to which such holders may become subject in connectionwith the exercise of their options or stock appreciation rights,the issuance to them of vested shares or the subsequent vestingof unvested shares issued to them. Such right may be provided toany such holder in either or both of the following formats:     *Stock Withholding:* The election to have theCorporation withhold, from the shares of Common Stock otherwiseissuable upon the exercise of such Non-Statutory Option or stockappreciation right or upon the issuance of fully-vested shares,a portion of those shares with an aggregate Fair Market Valueequal to the percentage of the Withholding Taxes (not to exceedone hundred percent (100%)) designated by the holder. The sharesof Common Stock so withheld shall reduce the number of shares ofCommon Stock authorized for issuance under the Plan.     *Stock Delivery:* The election to deliver to theCorporation, at the time the Non-Statutory Option or stockappreciation right is exercised, the vested shares are issued orthe unvested shares subsequently vest, one or more shares ofCommon Stock previously acquired by such holder (other than inconnection with the exercise, share issuance or share vestingtriggering the Withholding Taxes) with an aggregate Fair MarketValue equal to the percentage of the Withholding Taxes (not toexceed one hundred percent (100%)) designated by the holder. Theshares of Common Stock so delivered shall not be added to theshares of Common Stock authorized for issuance under the Plan.**II.****SHARE ESCROW/ LEGENDS**     Unvested shares may, in the Plan Administrator’sdiscretion, be held in escrow by the Corporation until theParticipant’s interest in such shares vests or may beissued directly to the Participant with restrictive legends onthe certificates evidencing those unvested shares.**III.****EFFECTIVE DATE AND TERM OF THE PLAN**     A. The Plan shall become effective on the Plan EffectiveDate.     B. The Plan shall serve as the successor to the PredecessorPlans, and no further option grants shall be made under thePredecessor Plans if this Plan is approved by the stockholdersat the 2005 Annual Meeting. Such stockholder approval shall notaffect the options outstanding under the Predecessor Plans atthe time of the 2005 Annual Meeting, and those options shallcontinue in full force and effect in accordance with theirterms. However, should any of those options expire or terminateunexercised, the shares of Common Stock subject to those optionsat the time of expiration or termination shall be added to theshare reserve of this Plan, up to the maximum number ofadditional shares permissible hereunder.     C. The Plan shall terminate upon the earliest tooccur of (i) March 15, 2015, (ii) the date onwhich all shares available for issuance under the Plan shallhave been issued as fully vested shares or (iii) thetermination of all outstanding options, stock appreciationrights, restricted stock units and other share right
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awards in connection with a Change in Control. Should the Planterminate on March 15, 2015, then all option grants, stockappreciation rights, unvested stock issuances, restricted stockunits and other share right awards outstanding at that timeshall continue to have force and effect in accordance with theprovisions of the documents evidencing such grants, issuances orawards.     D. As required pursuant to Section 162(m) of the Codeand the regulations promulgated thereunder, the PlanAdministrator’s authority to grant new awards under theStock Issuance and Cash Bonus Program that are intended toqualify as performance-based compensation within the meaning ofSection 162(m) of the Code shall terminate upon the firstmeeting of the Corporation’s stockholders that occurs inthe fifth year following the year in which theCorporation’s stockholders approved the Stock Issuance andCash Bonus Program.**IV.     AMENDMENT OF THE PLAN**     A. The Board shall have complete and exclusive power andauthority to amend or modify the Plan in any or all respects.However, no such amendment or modification shall adverselyaffect the rights and obligations with respect to stock options,stock appreciation rights, unvested stock issuances or otherstock-based awards at the time outstanding under the Plan unlessthe Optionee or the Participant consents to such amendment ormodification. In addition, amendments to the Plan will besubject to stockholder approval to the extent required underapplicable law or regulation or pursuant to the listingstandards 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 thediscretionary authority to adopt and implement from time to timesuch addenda or subplans to the Plan as it may deem necessary inorder to bring the Plan into compliance with applicable laws andregulations of any foreign jurisdictions in which grants orawards are to be made under the Plan and/or to obtain favorabletax treatment in those foreign jurisdictions for the individualsto whom the grants or awards are made.     C. Options and stock appreciation rights may be grantedunder the Discretionary Grant Program and stock-based awards maybe made under the Stock Issuance and Cash Bonus Program that ineach instance involve shares of Common Stock in excess of thenumber of shares then available for issuance under the Plan,provided no shares shall actually be issued pursuant to thosegrants or awards until the number of shares of Common Stockavailable for issuance under the Plan is sufficiently increasedby stockholder approval of an amendment of the Plan authorizingsuch increase. If stockholder approval is required and is notobtained within twelve (12) months after the date the firstexcess grant or award made against such contingent increase,then any options, stock appreciation rights or other stock-basedawards granted on the basis of such excess shares shallterminate and cease to be outstanding.**V.****USE OF PROCEEDS**     Any cash proceeds received by the Corporation from the sale ofshares of Common Stock under the Plan shall be used for generalcorporate purposes.**VI.****REGULATORY APPROVALS**     A. The implementation of the Plan, the granting of anystock option, stock appreciation right or other stock-basedaward under the Plan and the issuance of any shares of CommonStock (i) upon the exercise or vesting of any grantedoption, stock appreciation right or other stock-based award or(ii) under the Stock Issuance and Cash Bonus Program shallbe subject to the Corporation’s procurement of allapprovals and permits required by regulatory authorities havingjurisdiction over the Plan, the stock options granted under itand the shares of Common Stock issued pursuant to it.
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     B. No shares of Common Stock or other assets shall beissued or delivered under the Plan unless and until there shallhave been compliance with all applicable requirements ofapplicable securities laws, including the filing andeffectiveness of theForm S-8registration statement for the shares of Common Stock issuableunder the Plan, and all applicable listing requirements of anyStock Exchange (or the Nasdaq National Market, if applicable) onwhich Common Stock is then listed for trading.**VII.****NO EMPLOYMENT/ SERVICE RIGHTS**     Nothing in the Plan shall confer upon the Optionee or theParticipant any right to continue in Service for any period ofspecific duration or interfere with or otherwise restrict in anyway the rights of the Corporation (or any Parent or Subsidiaryemploying or retaining such person) or of the Optionee or theParticipant, which rights are hereby expressly reserved by each,to terminate such person’s Service at any time for anyreason, 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.           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.
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          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.          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.
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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 or cash bonus awards under the Stock Issuance    and Cash Bonus 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 Program and Stock Issuance    and Cash Award Program 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.           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 and Cash    Bonus 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
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     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 and Cash Bonus Program.           GG. **Stock Issuance and Cash Bonus Program**shall mean the stock issuance and cash bonus program in    effect under Article Three of the Plan.           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 or a cash bonus under the Plan may become subject    in connection with the grant or exercise of those options or    stock appreciation rights the issuance or vesting of those    shares or the payment of such cash bonus.
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