exv10w3



 






Exhibit 10.3




SONICWALL, INC.




STOCK OPTION AGREEMENT




     Unless otherwise defined herein, the terms defined in the SonicWALL, Inc. 1998 Stock Option
Plan (the “Plan”) shall have the same defined meanings in this Stock Option Agreement (the “Option
Agreement”).



     Unless otherwise defined herein, the terms defined in the Plan shall have the same defined
meanings in this Option Agreement.




	I.	 	NOTICE OF GRANT






Matthew Medeiros



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



	 	 	 
	Grant Date

	 	May 2, 2005

	Vesting Commencement Date

	 	May 2, 2005

	Exercise Price per Share

	 	$5.19

	Total Number of Shares Granted

	 	250,000

	Total Exercise Price

	 	$1,297,500

	Type of Option:

	 	Incentive Stock Option & Nonstatutory Stock Option

	Term/Expiration Date:

	 	May 1, 2015







     Normal Vesting Schedule:



     Subject to accelerated vesting as set forth in duly authorized written agreements by and
between Optionee and the Company and as set forth below, this Option may be exercised, in whole or
in part, in accordance with the following schedule:



     1/48 of the Shares subject to the Option shall vest each month after the Vesting Commencement
Date, subject to the Optionee remaining in Continuous Employment on such dates.



 









 





     Accelerated Vesting Schedule:



     For each full $5 million dollars in GAAP revenue achieved over the Company’s fiscal year 2005
business plan, the Option Shares shall accelerate vesting as to 25% of the Shares originally
subject thereto. There shall be no partial acceleration for revenue achieved above the 2005
business plan in amounts less than full $5 million increments. Such acceleration, if any, will
occur upon the later of the Company’s public reporting of its financial results for the 2005 fiscal
year or the one year anniversary of the grant date. To the extent the Option Shares are only
partially accelerated, they shall continue to vest at the rate of 1/48th of the Shares
subject to the Option each month, subject to the Optionee remaining in Continuous Employment on
such dates.



II. AGREEMENT




     1. Grant of Option.



          The Board hereby grants to the Optionee (the “Optionee”) named in the Notice of Grant section
of this Agreement (the “Notice of Grant”), an option (the “Option”) to purchase the number of
Shares set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of
Grant (the “Exercise Price”), subject to the terms and conditions of the Plan (which is
incorporated herein by reference) and this Option Agreement. In the event of a conflict between
the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the
terms and conditions of the Plan shall prevail.




          If designated in the Grant Notice as an Incentive Stock Option (“ISO”), this Option is
intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this
Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule
of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option (“NSO”).




     2. Exercise of Option.



          (a) Right to Exercise. This Option is exercisable during its term in accordance with
the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and
this Option Agreement, subject to Optionee’s Continuous Employment on each vesting date.




          (b) Post-Termination Exercise Period. Subject to any extended post-termination
exercise period set forth in duly authorized written agreements by and between Optionee and the
Company, this Option’s post-termination exercise period is as follows:




               (i) Normal Termination. If Optionee’s service as a Consultant ceases, or, except as
specified in Sections 2(b)(i) and (ii) below, if Optionee’s Continuous Employment ceases, this
Option may be exercised, but only to the extent vested on the date of such cessation of Continuous
Employment or service as a Consultant, until the earlier of (i) ninety days after the date upon
which Optionee ceases his or her Continuous Employment or service as a Consultant, or (ii) the
original ten-year Option term.



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               (ii) Death. If Optionee’s Continuous Employment ceases upon Optionee’s death or
within the 90-day period preceding Employee’s death, this Option may be exercised, but only to the
extent vested on the date of such cessation of Continuous Employment, by the Optionee’s estate or
by a person who acquired the right to exercise this Option by bequest or inheritance, until the end
of the original ten-year Option term.



               (iii) Disability. If Optionee’s Continuous Employment ceases upon Optionee’s
Disability (as defined in the next sentence) or within the 90-day period preceding Employee’s
Disability, this Option may be exercised, but only to the extent vested on the date of such
cessation of Continuous Employment, until the earlier of (i) one year after the date upon which
Optionee ceases his or her Continuous Employment, or (ii) the original ten-year Option term. For
the purposes of this Agreement, “Disability” means the Optionee has been unable to perform with
reasonable accommodation his or her duties with the Company as the result of Optionee’s incapacity
due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is
determined to be total and permanent by a physician selected by the Company or its insurers and
acceptable to the Optionee or the Optionee’s legal representative (such agreement as to
acceptability not to be unreasonably withheld).



          (c) Leave of Absence. If you are granted a leave of absence, you shall be deemed to
be in the employ of the Company, except that you may not exercise an option during such leave of
absence, unless otherwise required by applicable laws or as permitted by the Committee.




          (d) Method of Exercise. This option may be exercised with respect to all or any part
of any vested Shares by giving the Company, Smith Barney, or any successor third-party stock option
plan administrator designated by the Company written or electronic notice of such exercise, in the
form designated by the Company or the Company’s designated third-party stock option plan
administrator, specifying the number of shares as to which this option is exercised and accompanied
by payment of the aggregate Exercise Price as to all exercised shares.




     This Option shall be deemed to be exercised upon receipt by the Company, Smith Barney, or any
successor third-party stock option plan administrator designated by the Company of such fully
executed exercise notice accompanied by such aggregate Exercise Price.



     No Shares shall be issued pursuant to the exercise of this Option unless such issuance and
exercise complies with applicable laws. Assuming such compliance, for income tax purposes the
exercised shares shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such exercised shares.



          (e) Payment of Exercise Price. Payment of the aggregate exercise price shall be by
any of the following, or a combination thereof, at the election of the Optionee:




             (i) cash; or



             (ii) check; or



             (iii) consideration received by the Company under a cashless exercise program implemented by
the Company in connection with the Plan.



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     3. Non-Transferability of Option.



          This Option may not be transferred in any manner otherwise than by will or by the laws of
descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee.
The terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.




     4. Term of Option.



          This Option may be exercised only within the term set out in the Notice of Grant, and may be
exercised during such term only in accordance with the Plan and the terms of this Option Agreement.




     5. Tax Consequences.



          Some of the federal tax consequences relating to this Option, as of the date of this Option,
are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.




               (a) Exercising the Option.



                    (i) Nonstatutory Stock Option. The Optionee may incur regular federal income tax
liability upon exercise of a Nonstatutory Stock Option. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of
the fair market value of the exercised shares on the date of exercise over their aggregate Exercise
Price. If the Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income at the time of
exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.



                    (ii) Incentive Stock Option. If this Option qualifies as an ISO, the Optionee will
have no regular federal income tax liability upon its exercise, although the excess, if any, of the
fair market value of the exercised shares on the date of exercise over their aggregate Exercise
Price will be treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the
event that the Optionee ceases to be an Employee and immediately thereafter becomes a Consultant,
any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an
Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the
date three (3) months and one (1) day following such change of status.



               (b) Disposition of Shares.



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                    (i) NSO. If the Optionee holds NSO Shares for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal income tax
purposes.



                    (ii) ISO. If the Optionee holds ISO Shares for at least one year after exercise and
two years after the grant date, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares
within one year after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the lesser of (A) the difference between the fair market value of the
Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference
between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will
be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were
held.



                    (iii) Notice of Disqualifying Disposition of ISO Shares. If the Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i)
two years after the grant date, or (ii) one year after the exercise date, the Optionee shall
immediately notify the Company in writing of such disposition.



     6. Entire Agreement; Governing Law.



          The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute
the entire agreement of the parties with respect to the subject matter hereof and supersede in
their entirety all prior undertakings and agreements of the Company and Optionee with respect to
the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by
means of a writing signed by the Company and Optionee. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.




          By your signature and the signature of the Company’s representative below, you and the Company
agree that this Option is granted under and governed by the terms and conditions of the Plan and
this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of the Plan and this Option Agreement. Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Administrator upon any
questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company
upon any change in the residence address indicated below.




	 	 	 
	OPTIONEE:

	 	SONICWALL, INC.
	 
	 	 
	 	 	 
	Signature

	 	By
	 
	 	 
	 	 	 
	Print Name

	 	Title
	 
	 	 
	 	 	 
	Residence Address
	 	 







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