Document:

exv4w1

 

Exhibit 4.1

 

M
— Systems Flash Disk Pioneers Ltd.

 

 

2003 Stock Option and

Restricted Stock Incentive Plan

 

 

Adopted : November 5TH, 2002

 

 

 

Table Of Contents

	 	 	 	 	 	 	 
	1.
	 	PURPOSE; TYPES OF AWARDS; CONSTRUCTION	 	 	1	 
	 
	 	 	 	 	 	 
	2.
	 	DEFINITIONS	 	 	2	 
	 
	 	 	 	 	 	 
	3.
	 	ADMINISTRATION	 	 	3	 
	 
	 	 	 	 	 	 
	4.
	 	ELIGIBILITY	 	 	5	 
	 
	 	 	 	 	 	 
	5.
	 	SHARES	 	 	5	 
	 
	 	 	 	 	 	 
	6.
	 	TERMS AND CONDITIONS OF OPTIONS	 	 	5	 
	 
	 	 	 	 	 	 
	7.
	 	102 STOCK OPTIONS	 	 	8	 
	 
	 	 	 	 	 	 
	8.
	 	3(9) STOCK OPTIONS	 	 	9	 
	 
	 	 	 	 	 	 
	9.
	 	NONQUALIFIED STOCK OPTIONS	 	 	9	 
	 
	 	 	 	 	 	 
	10.
	 	INCENTIVE STOCK OPTIONS	 	 	9	 
	 
	 	 	 	 	 	 
	11.
	 	RESTRICTED STOCK	 	 	10	 
	 
	 	 	 	 	 	 
	12.
	 	OTHER SHARE OR SHARE-BASED AWARDS	 	 	11	 
	 
	 	 	 	 	 	 
	13.
	 	EFFECT OF CERTAIN CHANGES	 	 	11	 
	 
	 	 	 	 	 	 
	14.
	 	NONTRANSFERABILITY OF AWARDS; SURVIVING BENEFICIARY	 	 	13	 
	 
	 	 	 	 	 	 
	15.
	 	AGREEMENT BY GRANTEE REGARDING TAXES	 	 	13	 
	 
	 	 	 	 	 	 
	16.
	 	RIGHTS AS A SHAREHOLDER; VOTING AND DIVIDENDS	 	 	14	 
	 
	 	 	 	 	 	 
	17.
	 	NO RETENTION RIGHTS	 	 	14	 
	 
	 	 	 	 	 	 
	18.
	 	APPROVAL	 	 	14	 
	 
	 	 	 	 	 	 
	19.
	 	PERIOD DURING WHICH AWARDS MAY BE GRANTED	 	 	14	 
	 
	 	 	 	 	 	 
	20.
	 	AMENDMENT AND TERMINATION OF THE PLAN	 	 	15	 
	 
	 	 	 	 	 	 
	21.
	 	GOVERNING LAW	 	 	15	 

 

 

 

M-Systems Flash Disk Pioneers Ltd.

2003 Stock Option And

 Restricted
Stock Incentive Plan

 

	1.	 	PURPOSE; TYPES OF AWARDS; CONSTRUCTION.

	 	1.1.	 	Purpose. The purpose of the M-Systems Flash Disk Pioneers Ltd. 2003 Stock Option
and Restricted Stock Incentive Plan (the “Plan”) is to afford an incentive to
employees, officers, directors, service providers and consultants of M-Systems Flash
Disk Pioneers Ltd. (the “Company”), or any Subsidiary of the Company which now exists
or hereafter is organized or acquired by the Company, to acquire a proprietary interest
in the Company, to continue as employees, officers, directors, service providers or
consultants, to increase their efforts on behalf of the Company and to promote the
success of the Company’s business.
	 
	 	1.2.	 	Types of Awards. The Plan is intended to enable the Company to issue
Awards under varying tax regimes, including without limitation (i) pursuant
and subject to the provisions of Section 102 (“Section 102” and such options,
“102 Stock Options”) of the Israeli Income Tax Ordinance (New Version) 1961,
as amended (the “Ordinance”) and any regulations, rules, orders or procedures
promulgated thereunder; (ii) pursuant to Section 3(9) of the Ordinance (“3(9)
Stock Options”); (iii) as “incentive stock options”

(“Incentive Stock Options”) within the meaning of Section 422 of the United
States Internal Revenue Code of 1986, as amended (the “Code”); (iv)
Nonqualified Stock Options (as defined below) (all 102 Stock Options, 3(9)
Stock Options, Incentive Stock Options and Non-Qualified Stock Options, as
well as options issued under other tax regimes collectively, the “Options”);
(v) shares of restricted stock (“Restricted Stock”) under the Plan; and (vi)
other share-based Awards pursuant to Section 12 hereof. Apart from issuance
under the relevant tax regimes in the State of Israel and the United States
of America, the Plan contemplates issuances to Grantees (as defined below) in
other jurisdictions with respect to which the Committee (as defined below) is
empowered to make the requisite adjustments in the Plan and set forth the
relevant conditions in the Company’s agreement with the Grantee in order to
comply with the requirements of the tax regimes in any such jurisdictions.
	 
	 	1.3.	 	Construction. To the extent any provision herein conflicts with the conditions of
any relevant tax law or regulation which are relied upon for tax relief in respect of a
particular Option or Share granted to a Grantee, the provisions of such law or
regulation shall prevail over those of the Plan, and the Committee (as defined below)
is empowered hereunder to interpret and enforce the said prevailing provisions.

 

 

	2.	 	DEFINITIONS.

As used in this Plan, the following words and phrases shall have the meanings
indicated:

	 	2.1.	 	“Award” shall mean any Share, Option, Restricted Stock or any other Stock-based
award, granted to a Grantee under the Plan.
	 
	 	2.2.	 	“Board” shall mean the Board of Directors of the Company.
	 
	 	2.3.	 	“Committee” shall mean a committee established by the Board to administer the
Plan.
	 
	 	2.4.	 	“Companies Law” shall mean the Israel Companies Law-1999, as amended.
	 
	 	2.5.	 	“Disability” shall mean the inability of a Grantee to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than 12 months, as determined by a medical doctor
satisfactory to the Committee.
	 
	 	2.6.	 	“Exercise Period” shall mean the period in which the Option shall be exercisable.
	 
	 	2.7.	 	“Exercise Price” shall mean the exercise price for each Share covered by an
Option.
	 
	 	2.8.	 	“Fair Market Value” per Share as of a particular date shall mean (i) the closing
sales price per Share on the securities exchange on which the Shares are principally
traded for the last preceding date on which there was a sale of such Shares on such
exchange; or (ii) if the Shares are listed on the Nasdaq National Market, the last
reported price per Share on the Nasdaq National Market on the last preceding date on
which there was a sale of such Shares on the Nasdaq National Market; or (iii) if the
Shares are then traded in an over-the-counter market, the average of the closing bid
and asked prices for the Shares in such over-the-counter market for the last preceding
date on which there was a sale of such Shares in such market; or (iv) if the Shares are
not then listed on a securities exchange or market or traded in an over-the-counter
market, such value as the Committee, in its sole discretion, shall determine, which
determination shall be conclusive and binding on all parties.
	 
	 	2.9.	 	“Grantee” shall mean a person who receives a grant of Options, Restricted Stock,
Shares or other Awards under the Plan, who at the time of grant is an employee,
officer, director, service provider (e.g. suppliers, sub-contractors etc.) or
consultant of the Company or any Subsidiary.
	 
	 	2.10.	 	“Nonqualified Stock Option” shall mean any Option granted to a U.S. resident,
which Option is not designated as, or does not meet the conditions for an Incentive
Stock Option.

-2-

 

	 	2.11.	 	“Parent” shall mean any company (other than the Company), which now exists or is
hereafter organized, in an unbroken chain of companies ending with the Company if, at
the time of granting an Award, each of the companies other than the Company owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other companies in such chain.
	 
	 	2.12.	 	“Retirement” shall mean a Grantee’s retirement pursuant to applicable law or in
accordance with the terms of any tax-qualified retirement plan maintained by the
Company or any of its affiliates in which the Grantee participates.
	 
	 	2.13.	 	“Shareholder(s)” shall mean the shareholder(s) of the Company.
	 
	 	2.14.	 	“Shares” shall mean the Ordinary Shares of the Company, par value of NIS 0.001
each.
	 
	 	2.15.	 	“Subsidiary” shall mean any company (other than the Company), which now exists or
is hereafter organized or acquired by the Company, in an unbroken chain of companies
beginning with the Company if, at the time of granting an Award, each of the companies
other than the last company in the unbroken chain owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one of the
other companies in such chain.
	 
	 	2.16.	 	“Ten Percent Shareholder” shall mean a Grantee who, at the time an Incentive
Stock Option is granted, owns, or is deemed to own pursuant to Section 424(d) of the
Code, shares possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary.
	 
	 	2.17.	 	“Trustee” shall mean the trustee appointed by the Committee or the Board, as the
case may be, to hold the respective Options, Restricted Stock and/or Shares, if so
appointed.

	3.	 	ADMINISTRATION.

To the extent permitted under law, the Plan shall be administered by the Committee.
However, in the event that the Board does not create a committee to administer the
Plan, the Plan shall be administered by the Board in its entirety. Furthermore, in the
event that an action necessary for the administration of the Plan is required under law
to be taken by the Board, then such action shall be so taken by the Board. In any of
the above events, all references herein to the Committee shall be construed as
references to the Board.

The Committee shall have the authority, in its discretion, to administer the Plan and
to exercise all the powers and authority either specifically granted to it under the
Plan or necessary or advisable in the administration of the Plan, including, without
limitation:

	 	(i)	 	the authority to grant Options, Restricted Stock and Shares and other Stock based
Awards to the Grantees;

-3-

 

	 	(ii)	 	the authority to determine which Options shall constitute 102 Stock Options, 3(9)
Stock Options, Incentive Stock Options, Nonqualified Stock Options or otherwise;
	 
	 	(iii)	 	the authority to determine whether options shall be issued under the “income”
route or the “capital” route under Section 102;
	 
	 	(iii)	 	to determine the Exercise Price of the Shares covered by each Option;
	 
	 	(iv)	 	to determine the Grantees to whom, and the time or times at which Awards shall be
granted;
	 
	 	(v)	 	to determine the number of Shares to be covered by each Award; (vi) to interpret
the Plan; (vii) to prescribe, amend and rescind rules and regulations relating to
the Plan;
	 
	 	(vi)	 	to interpret
the Plan;

	 
	 	(vii)	 	to prescribe, amend and rescind rules and regulations relating to
the Plan;
	 
	 	(viii)	 	to determine the terms and provisions of the Option Agreements as defined in
Section 6 below (which need not be identical), and to cancel or suspend Awards, as
necessary; and
	 
	 	(ix)	 	to make all other determinations deemed necessary or advisable for the
administration of the Plan, including to adjust the terms of the Plan or any Agreement
so as to reflect (i) changes in applicable Israeli, U.S. or other laws, and (ii) the
laws of other jurisdictions within which the Company wishes to grant Awards.

The Committee shall have the authority to grant, in its discretion, to the holder of an
outstanding Option, in exchange for the surrender and cancellation of such Option, a
new Option having an exercise price lower or higher than provided in the Option so
surrendered and canceled and containing such other terms and conditions as the
Committee may prescribe in accordance with the provisions of the Plan or to set a new
exercise price for the same Option lower or higher than that previously provided in the
Option.

All decisions, determination and interpretations of the Committee shall be final and
binding on all Grantees of any Awards under this Plan. No member of the Committee
shall be liable for any action taken or determination made in good faith with respect
to the Plan or any Award granted hereunder.

Each member of the Board and the Committee shall be indemnified and held harmless by
the Company against any cost or expense (including fees of counsel) reasonably incurred
by him/her, or liability (including any sum paid in settlement of a claim with the
approval of the Company) arising out of any act or omission to act in connection with
the Plan unless arising out of such member’s own fraud or bad faith, to the extent
permitted by applicable law. Such indemnification shall be in addition to any rights of
indemnification the member may have as director or otherwise under the charter
documents of the Company, any agreement, any vote of share or disinterested directors,
or otherwise.

No person shall be eligible to be a member of the Committee if such person’s membership
would prevent the Plan from complying with exemptions from Section

-4-

 

16 set forth in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), if applicable.

At such time as any class of equity securities of the Company is registered pursuant to
Section 12 of the Exchange Act, the Committee shall consist of at least two (2)
individuals, each of whom is a Non-Employee Director, as defined in Rule 16b-3 above
mentioned.

	4.	 	ELIGIBILITY.

Options, Restricted Stock and Shares may be granted to employees, officers, directors,
service providers and consultants of the Company and any Subsidiary, provided, however,
that 102 Stock Options and Incentive Stock Options may be granted only to employees of
the Company or a Subsidiary and provided further that any member of the Committee shall
be eligible to receive awards under the Plan while serving on the Committee, unless
otherwise specified herein. A person who has been granted an Option, Restricted Stock
or Share hereunder may be granted additional Options, Restricted Stock or Shares, if
the Committee shall so determine. In determining the
persons to whom Awards shall be granted and the number of Shares to be covered by each
Award, the Committee shall take into account the duties of the respective persons,
their present and potential contributions to the success of the Company and such other
factors as the Committee shall deem relevant in connection with accomplishing the
purpose of the Plan.

	5.	 	SHARES.

The maximum number of Shares reserved for the grant of Awards under the Plan shall be
five million (5,000,000) Shares. The Board may increase or decrease the number of
Shares to be reserved under the Plan. Such Shares may, in whole or in part, be
authorized but unissued Shares or Shares that shall have been or may be reacquired by
the Company (to the extent permitted under applicable law). Any of such Shares which
may remain unsold and which are not subject to outstanding options at the termination
of the Plan shall cease to be reserved for the purpose of the Plan, but until
termination of the Plan, the Company shall at all times reserve a sufficient number of
Shares to meet the requirements of the Plan.

If any outstanding Award under the Plan should, for any reason, expire, be canceled or
be forfeited without having been exercised in full, the Shares allocable to the
unexercised, canceled or terminated portion of such Award shall (unless the Plan shall
have been terminated) become available for subsequent grants of Awards under the Plan.

	6.	 	TERMS AND CONDITIONS OF OPTIONS.

Each Option granted pursuant to the Plan shall be evidenced by a written agreement
between the Company and the Grantee (the “Option Agreement”), in such form and
containing such terms and conditions as the Committee shall from time to time approve,
which Option Agreement shall comply with and be subject to the following terms and
conditions, unless otherwise specifically provided in such Option Agreement. For
purposes of interpreting this Section 6, a director’s service as a member of the Board
shall be deemed to be employment with the Company, provided that for the purpose of
Incentive Stock Options, a director of the Company or Subsidiary shall only be entitled
to such Options in the event that there exists an

-5-

 

employee-employer relationship between such director and the Company or Subsidiary.

	 	6.1.	 	Number of Shares. Each Option Agreement shall state the number of Shares to which
the Option relates.
	 
	 	6.2.	 	Type of Option. Each Option Agreement shall specifically state the type of Option
granted thereunder and whether it constitutes a 102 Stock Option, 3(9) Stock Option,
Incentive Stock Option, Nonqualified Stock Option or otherwise.
	 
	 	6.3.	 	Exercise Price. Each Option Agreement shall state the Exercise Price, which, in
the case of an Incentive Stock Option, shall not be less than one hundred percent
(100%) of the Fair Market Value of the Shares covered by the Option on the date of
grant or such other amount as may be required pursuant to the Code. In the case of a
102 Stock Option, a 3(9) Stock Option or a Nonqualified Stock Option granted to any
Grantee, the per Share exercise price shall be equal to the amount determined by the
Committee or the Board, as the case may be, subject to all applicable law.
In the case of an Incentive Stock Option granted to any Ten-Percent
Shareholder, the Exercise Price shall be no less than 110% of the Fair Market
Value of the Shares covered by the Option on the date of grant. In no event
shall the Exercise Price of an Option be less than the nominal value of the
shares for which such Option is exercisable. Subject to Section 3 and to the
foregoing, the Committee may reduce the Exercise Price of any outstanding 102
Stock Option, 3(9) Stock Option or Nonqualified Stock Option. The Exercise
Price shall also be subject to adjustment as provided in Section 13 hereof.
	 
	 	6.4.	 	Manner of Exercise. An Option may be exercised, as to any or all whole
Shares as to which the Option has become exercisable, by written notice
delivered in person or by mail to the Company or to any person designated by
the Company for such purpose, specifying the number of Shares with respect to
which the Option is being exercised, along with payment of the Exercise Price
for such Shares in the manner specified in the following sentence. The
Exercise Price shall be paid in full with respect to each Share, at the time
of exercise, either in cash or cash equivalents or in such other manner as the
Committee shall determine, including a cashless exercise procedure through a
broker-dealer.
	 
	 	6.5.	 	Term and Vesting of Options. Each Option Agreement shall provide the vesting
schedule for the Option as determined by the Committee, provided that (to the extent
permitted under law) the Committee shall have the authority to accelerate the vesting
of any outstanding Option at such time and under such circumstances as it, in its sole
discretion, deems appropriate. Unless otherwise resolved by the Committee and stated in
the Option Agreement, Options shall vest and become exercisable over a four (4)
year period under the following schedule: fifty percent (50%) of the Shares
covered by the Option on the second (2nd) anniversary of the date
on which such Option is granted and six and one-quarter percent (6.25%) of the
Shares covered by the Option at the end of each subsequent three-month period
thereafter over the course of the following two (2) years; provided, however,
that (to the extent permitted under law) the Committee, in its 

-6-

 

	 	 	 	absolute discretion, may, on such terms and conditions as it may determine to be
appropriate, accelerate or otherwise change the time at which such Option or
any portion thereof may be exercised. The Option Agreement may contain
performance goals and measurements, and the provisions with respect to any
Option need not be the same as the provisions with respect to any other
Option. The Exercise Period of an Option will be ten (10) years from the date
of the grant of the Option unless otherwise determined by the Committee (to
the extent permitted under law); provided, however, that in the case of an
Incentive Stock Option granted to a Ten Percent Shareholder, such Exercise
Period shall not exceed five (5) years from the date of grant of such
Incentive Stock Option. At the end of the Exercise Period, all Awards not
exercised shall be deemed null and void. The Exercise Period shall be subject
to earlier termination as provided in Sections 6.6 and 6.7 hereof.

	 	6.6.	 	Termination. Except as provided in this Section 6.6 and in Section 6.7 hereof, an
Option may not be exercised unless the Grantee is then in the employ of or maintaining
a director, service provider or consultant relationship with the Company
or a Subsidiary thereof or, in the case of an Incentive Stock Option, a company or a
parent or subsidiary company of such company issuing or assuming the Option in a
transaction to which Section 424(a) of the Code applies, and unless the Grantee has
remained continuously so employed or in the director, service provider or consultant
relationship since the date of grant of the Option. In the event that the employment
or director, service provider or consultant relationship of a Grantee shall terminate
(other than by reason of death, Disability or Retirement), all Options of such Grantee
that are vested and exercisable at the time of such termination may, unless earlier
terminated in accordance with their terms, be exercised within ninety (90) days after
the date of such termination (or such different period as the Committee shall
prescribe); provided, however, that if the Company (or the Subsidiary, when applicable)
shall terminate the Grantee’s employment for Cause (as defined below), all Options
theretofore granted to such Grantee (whether vested or not) shall, to the extent not
theretofore exercised, terminate on the date of such termination or cessation unless
otherwise determined by the Committee. In the case of a Grantee whose principal
employer is a
Subsidiary, the Grantee’s employment shall also be deemed to be terminated for
purposes of this Section 6.6 as of the date on which such principal employer
ceases to be a Subsidiary. Notwithstanding anything to the contrary, the
Committee, in its absolute discretion may, on such terms and conditions as it
may determine appropriate, extend the periods for which the Options held by
any individual may continue to vest and be exercisable; provided, that such
Options may lose their status as Incentive Stock Options under applicable law
and be deemed Nonqualified Stock Options in the event that the period of
vesting and/or exercisability of any option is extended beyond the later of:
(i) ninety (90) days after the date of cessation of employment or performance
of services; or (ii) the applicable period under Section 6.7 below.

For purposes of this Plan, the term “Cause” shall have the meaning as ascribed
under the employment agreement between the Grantee and the Company (or its
Subsidiary), if the Grantee is an employee, or the agreement governing the
director, service provider or consultant

-7-

 

relationship with the Company (or
its Subsidiary), and notwithstanding the provisions or in the absence of any
such agreement shall also mean any of the following resulting from an act or
omission of Grantee: (i) fraud or embezzlement or felony or similar act; (ii)
failure to substantially perform duties as an employee/service provider or to
abide by the general policies of the Company (or a Subsidiary, when
applicable) applicable to all employees/service providers (including, without
limitation, policies relating to confidentiality and reasonable workplace
conduct); or (iii) an act of the Grantee which constitutes a breach of trust
between the Grantee and the Company or constitutes a material breach of
discipline; or (iv) any other act or omission which in the reasonable opinion
of the Company or a Subsidiary could be financially injurious to the Company
or a Subsidiary or injurious to the business reputation of the Company or a
Subsidiary.

	 	6.7.	 	Death, Disability or Retirement of Grantee. If a Grantee shall die while employed
by, or maintaining a director, service provider or consultant relationship with, the
Company or a Subsidiary, (or within such different period as the Committee may have
provided pursuant to Section 6.6 hereof), or if the Grantee’s employment or director,
service provider or consultant relationship shall terminate by reason of
Disability, all Options theretofore granted to such Grantee (to the extent vested and
exercisable) may, unless earlier terminated in accordance with their terms, be
exercised by the Grantee or by the Grantee’s estate or by a person who acquired the
right to exercise such Options by bequest or inheritance or otherwise by result of
death or Disability of the Grantee, at any time within one (1) year after the earlier
of the death or Disability of the Grantee or the termination of such Grantee’s
employment (or such different period as the Committee shall prescribe). In the event
that an Option granted hereunder shall be exercised by the legal representatives of a
deceased or former Grantee, written notice of such exercise shall be accompanied by a
certified copy of letters testamentary or equivalent proof of the right of such legal
representative to exercise such Option. In the event that the employment or director,
service provider or consultant relationship of a Grantee shall terminate on account of
such Grantee’s Retirement, all Options of such Grantee that are exercisable at the time
of such Retirement may, unless earlier terminated in accordance with their terms, be
exercised at any time within ninety (90) days after the date of such Retirement (or
such different period as the Committee shall prescribe).
	 
	 	6.8.	 	Other Provisions. The Option Agreements evidencing Awards under the
Plan shall contain such other terms and conditions not inconsistent with the
Plan as the Committee may determine.

	7.	 	102 STOCK OPTIONS.

Options granted pursuant to this Section 7 are intended to constitute 102 Stock Options
and, subject to Section 102 of the Ordinance and the rules and regulations promulgated
thereunder, as amended, the general terms and conditions specified in Section 6 hereof
and other provisions of the Plan, except for said provisions of the Plan applying to
Options under a different tax law or regulation, shall apply.

The Committee shall determine, at its sole discretion and subject to applicable law,
whether 102 Stock Options issued to each Grantee shall be issued either under the

-8-

 

“income” route or under the “capital” route, in accordance with the provisions of the
Ordinance.

To the extent required by the Ordinance or the Income Tax Commissioner of the State of
Israel, the 102 Stock Options which shall be granted pursuant to the Plan shall be
issued to a Trustee nominated by the Committee and approved by the tax authorities in
accordance with the provisions of the Ordinance, and the 102 Stock Options and the
Shares issued upon the exercise of said Option shall be issued in the name of the
Trustee, to be held for the benefit of the Grantee, for such period of time as may be
required by the Ordinance under the terms of a trust agreement and related instruments
as shall be approved by the Committee.

	8.	 	3(9) STOCK OPTIONS.

Options granted pursuant to this Section 8 are intended to constitute 3(9) Stock
Options and shall be subject to the general terms and conditions specified in Section 6
hereof and other provisions of the Plan, except for said provisions of the Plan
applying to Options under a different tax law or regulation.

To the extent required by the Ordinance or the Income Tax Commissioner of the State of
Israel, the 3(9) Stock Options, which shall be granted pursuant to the Plan, may be
issued to a Trustee nominated by the Committee under the terms of a trust agreement and
related instruments as shall be approved by the Committee in accordance with the
provisions of the Ordinance.

	9.	 	NONQUALIFIED STOCK OPTIONS.

Options granted pursuant to this Section 9 are intended to constitute Nonqualified
Stock Options and shall be subject to the general terms and conditions specified in
Section 6 hereof and other provisions of the Plan, except for said provisions of the
Plan applying to Options under a different tax law or regulation.

	10.	 	INCENTIVE STOCK OPTIONS.

Options granted pursuant to this Section 10 are intended to constitute Incentive Stock
Options and shall be granted subject to both the following special terms and conditions
and the general terms and conditions specified in Section 6 hereof and other provisions
of the Plan, except for said provisions of the Plan applying to Options under a
different tax law or regulation:

	 	10.1.	 	Value of Shares. The aggregate Fair Market Value (determined as of the date the
Incentive Stock Option is granted) of the Shares with respect to which Incentive Stock
Options granted under this Plan and all other option plans of any Subsidiary become
exercisable for the first time by each Grantee during any calendar year shall not
exceed one hundred thousand United States dollars ($100,000) with respect to such
Grantee. To the extent that the aggregate Fair Market Value of Shares with respect to
which the Incentive Stock Options are exercisable for the first time by any Grantee
during any calendar years exceeds one hundred thousand United States dollars
($100,000), such Options shall be treated as Non-Qualified Stock Options. The foregoing
shall be applied by taking options into account in the order in which they were
granted, with the Fair Market Value of any Share to be determined at the time of the
grant of the Option. In the event

-9-

 

	 	 	 	the foregoing results in the portion of an Incentive Stock Option exceeding
the one hundred thousand United States dollars ($100,000) limitation, only
such excess shall be treated as a Non-Qualified Stock Option.

	11.	 	Restricted Stock.

The Committee may award shares of Restricted Stock to any eligible employee, director,
service provider or consultant, including under Section 102 of the Ordinance. Each
Award of Restricted Stock under the Plan shall be evidenced by a written agreement
between the Company and the Grantee (the “Restricted Stock Agreement”), in such form as
the Committee shall from time to time approve, which Restricted Stock Agreement shall
comply with and be subject to the following terms and conditions, unless otherwise
specifically provided in such Agreement:

	 	11.1.	 	Number of Shares. Each Restricted Stock Agreement shall state the number of
shares of Restricted Stock to be subject to an Award.
	 
	 	11.2.	 	Restrictions. Shares of Restricted Stock may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of, except by will or the laws of descent
and distribution, for such period as the Committee shall determine from the date on
which the Award is granted (the “Restricted Period”). The Committee may also
impose such additional or alternative restrictions and conditions on the shares of
Restricted Stock as it deems appropriate including the satisfaction of performance
criteria. Such performance criteria may include, but are not limited to, sales,
earnings before interest and taxes, return on investment, earnings per share, any
combination of the foregoing or rate of growth of any of the foregoing, as determined
by the Committee. Certificates for Shares issued pursuant to Restricted Stock Awards
shall bear an appropriate legend referring to such restrictions, and any attempt to
dispose of any such shares in contravention of such restrictions shall be null and void
and without effect. During the
Restricted Period, such certificates shall be held in escrow by an escrow
agent appointed by the Committee, or, if a Restricted Stock Award is made
pursuant to Section 102, by the Trustee. In determining the Restricted
Period of an Award the Committee may provide that the foregoing restrictions
shall lapse with respect to specified percentages of the awarded shares on
successive anniversaries of the date of such Award. To the extent required by
the Ordinance or the Income Tax Commissioner of the State of Israel, the
Restricted Stock issued pursuant to Section 102 of the Ordinance shall be
issued to the Trustee in accordance with the provisions of the Ordinance and
the Restricted Stock shall be held for the benefit of the Grantee for a
period of not less than twenty-four (24) months from the date of grant (or
such other period of time as may be required by the Ordinance).
	 
	 	11.3.	 	Adjustment of Performance Goals. The Committee may adjust performance goals to
take into account changes in law and accounting and tax rules and to make such
adjustments, as the Committee deems necessary or appropriate to reflect the inclusion
or the exclusion of the impact of extraordinary or unusual items, events or
circumstances. The Committee also may adjust the performance goals by reducing the
amount to be received by any Grantee pursuant to an Award if and to the extent that the
Committee deems it appropriate.

-10-

 

	 	11.4.	 	Forfeiture. Subject to such exceptions as may be determined by the Committee, if
the Grantee’s continuous employment or director, service provider or consultant
relationship with the Company or any Subsidiary shall terminate for any reason prior to
the expiration of the Restricted Period of an Award, any shares remaining subject to
restrictions (after taking into account the provisions of Section 11.6) shall thereupon
be forfeited by the Grantee and transferred to, and reacquired by, the Company or a
Subsidiary at no cost to the Company or Subsidiary, subject to all applicable law.
	 
	 	11.5.	 	Ownership. During the Restricted Period the Grantee shall possess all incidents
of ownership of such Shares, subject to Section 11.2, including the right to receive
dividends with respect to such Shares and to vote such Shares.
	 
	 	11.6.	 	Accelerated Lapse of Restrictions. Upon the occurrence of any of the events
listed in Section 13.2 and subject to Section 13.3, all restrictions then outstanding
with respect to Restricted Stock awarded hereunder shall automatically expire and be of
no further force and effect. The Committee shall have the authority (and the Agreement
may so provide) to cancel all or any portion of any outstanding restrictions prior to
the expiration of the Restricted Period with respect to any or all of the shares of
Restricted Stock awarded on such terms and conditions as the Committee shall deem
appropriate.
	 
	 	11.7.	 	83(b) Election. In connection with the grant of Restricted Stock Awards, the
Company shall allow the Grantee to make an 83(b) election within the time period
prescribed by the Code.

	12.	 	OTHER SHARE OR SHARE-BASED AWARDS.

The Committee may grant other Awards under the Plan pursuant to which Shares (which
may, but need not, be shares of Restricted Stock pursuant to Section 10.1 hereof), cash
or a combination thereof, are or may in the future be acquired or received, or Awards
denominated in stock units, including units valued on the basis of measures other than
market value. The Committee may also grant stock appreciation rights without the grant
of an accompanying option, which rights shall permit the Grantees to receive, at the
time of any exercise of such rights, cash equal to the amount by which the Fair Market
Value of all Shares in respect to which the right was granted exceeds the exercise
price thereof. The Committee may, and it is hereby deemed to be an Award under the
terms of the Plan, grant to Grantees (including employees) the opportunity to purchase
Shares of the Company in connection with any public offerings of the Company’s
securities. Such other share based Awards may be granted alone, in addition to, or in
tandem with any Award of any type granted under the plan and must be consistent with
the purposes of the Plan.

	13.	 	EFFECT OF CERTAIN CHANGES.

	 	13.1.	 	General. In the event of a subdivision of the outstanding share capital of the
Company, any payment of a stock dividend (distribution of bonus shares), a
recapitalization, a reorganization (which may include a combination or exchange of
shares), a consolidation, a stock split, a spin-off or other corporate divestiture or
division, a reclassification or other similar 

-11-

 

	 	 	 	occurrence, the Committee shall, at its
sole discretion make appropriate adjustments in one or more of (i) the number of Shares
available for Awards, (ii) the number of such Shares covered by outstanding Awards, and
(iii) the exercise price per share covered by the Option Awards (as defined below);
provided, however, that any fractional shares resulting from such adjustment shall be
rounded down to the nearest whole share and provided further that any adjustment to
Awards granted shall be so adjusted as to maintain the proportionate number of Shares
without changing the aggregate Exercise Price.

	 	13.2.	 	Merger and Sale of Company. In the event of (i) a sale of all or substantially
all of the assets of the Company; or (ii) a sale (including an exchange) of all or
substantially all of the shares of capital stock of the Company; or (iii) a merger,
consolidation, amalgamation or like transaction of the Company with or into another
corporation; or (iv) a scheme of arrangement for the purpose of effecting such sale,
merger or amalgamation (all such transactions being herein referred to as a
“Merger/Sale”), then, without the Grantee’s consent and action -

	 	13.2.1.	 	the Committee in its sole discretion will use its efforts to cause
that any Award then outstanding be assumed or an equivalent Award shall be
substituted by such successor corporation or, in such event that such
transaction is effected through a subsidiary, the parent of such successor
corporation, under substantially the same terms as the Award, all of such
terms as determined by the Committee to be, in its discretion, fair in the
circumstances; and
	 
	 	13.2.2.	 	in such case that such successor corporation or other entity does not
agree to assume the Award or to substitute an equivalent Award and, if the
Award is an Option (“Option Award”), then the Committee shall, in lieu of
such assumption or substitution of the Option Award and in its sole
discretion, either (i) provide for the Grantee to have the right to exercise
the Option Award as to all of the Shares or any part thereof, including Shares
covered by the Option Award which would not otherwise be exercisable, under
such terms and conditions as the Committee shall determine; or (ii) provide
for the cancellation of each outstanding Option Award at the closing of such
Merger/Sale, against payment to the Grantee of an amount in cash, securities
or other assets equal to the amount, if any, by which (a) the fair market
value of each Share covered by the Option Award as reflected under the terms
of the Merger/Sale, as determined by the Committee, exceeds (b) the Exercise
Price of each Share covered by the Option Award.
	 
	 	13.2.3.	 	Notwithstanding the foregoing, in the event of a Merger/Sale, the
Committee may determine in its sole discretion that upon completion of such
Merger/Sale, the terms of any Award be otherwise amended and modified, as the
Committee shall deem in good faith to be appropriate, and if an Option Award,
that the Option Award shall confer the right to purchase any other security or
asset, or any combination thereof, or that its terms be otherwise amended or
modified, as the Committee shall deem in good faith to be appropriate.

-12-

 

	 	13.3.	 	Reservation of Rights. Except as expressly provided in this Section 13, the
Grantee of an Award hereunder shall have no rights by reason of any subdivision or
consolidation of stock of any class or the payment of any stock dividend (bonus shares)
or any other increase or decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, Merger/Sale, or consolidation, divestiture or
spin-off of assets or stock of another company; and any issue by the Company of stock
of any class, or securities convertible into shares of stock of any class, shall not
effect, and no adjustment by reason thereof shall be made with respect to, the number
or price of Shares subject to an Award. The grant of an Award pursuant to the Plan
shall not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business structures or
to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part
of its business or assets or engage in any similar transactions.

	14.	 	NONTRANSFERABILITY OF AWARDS; SURVIVING BENEFICIARY.

Unless otherwise approved by the Committee, all Awards granted under the Plan shall not
be transferable otherwise than by will or by the laws of descent and distribution, and
Awards may be exercised or otherwise realized, during the lifetime of the Grantee, only
by the Grantee or by his guardian or legal representative, to the extent provided for
herein. A Grantee may file with the Committee a written designation of a beneficiary
on such form as may be prescribed by the Committee and may, from time to time, amend or
revoke such designation. If no designated beneficiary survives the Grantee, the
executor or administrator of the Grantee’s estate shall be deemed to be the Grantee’s
beneficiary.

	15.	 	AGREEMENT BY GRANTEE REGARDING TAXES.

If the Committee shall so require, as a condition of exercise of an Option, the release
of Shares by the Trustee or the expiration of the Restricted Period (each a “Tax
Event”), each Grantee shall agree that, no later than the date of the Tax Event, he/she
will pay to the Company or make arrangements satisfactory to the Committee and the
Trustee (if applicable) regarding payment of any applicable taxes of any kind required
by law to be withheld or paid upon the Tax Event. To the extent approved by the
Committee and permitted by law, a withholding obligation may be satisfied by the
withholding or delivery of Shares.

ALL TAX CONSEQUENCES UNDER ANY APPLICABLE LAW WHICH MAY ARISE FROM THE GRANT OF ANY
OPTIONS, RESTRICTED STOCK OR SHARES, OR IN THE CASE OF AN OPTION, FROM ITS EXERCISE,
FROM THE SALE OR DISPOSITION OF THE SHARES OR RESTRICTED STOCK OR FROM ANY OTHER ACT OF
THE GRANTEE IN CONNECTION WITH THE FOREGOING, INCLUDING, WITHOUT LIMITATION, ANY TAX
CONSEQUENCES RESULTING FROM THE ELECTION BY THE COMPANY OF EITHER THE “INCOME” ROUTE OR
THE “CAPITAL” ROUTE IN ACCORDANCE WITH THE PROVISIONS OF THE ORDINANCE, SHALL BE BORNE
SOLELY BY THE GRANTEE, AND THE GRANTEE SHALL INDEMNIFY THE COMPANY, ANY SUBSIDIARY AND
THE TRUSTEE, AND SHALL HOLD THEM HARMLESS AGAINST AND FROM ANY LIABILITY FOR ANY SUCH
TAX OR PENALTY, INTEREST OR INDEXATION THEREON OR THEREUPON.

-13-

 

	16.	 	RIGHTS AS A SHAREHOLDER; VOTING AND DIVIDENDS.

A Grantee or a transferee of an Award shall have no rights as a Shareholder with
respect to any Shares covered by the Award until the date of the issuance of a Share
certificate to him/her for such Shares, or, in the case of 102 Stock Options or 3(9)
Stock Options (if such 3(9) Stock Options are being held by a Trustee), until the date
of the issuance of a Share certificate to the Trustee. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other property) or
distribution of other rights for which the record date is prior to the date such Share
Certificate is issued, except as provided in Section 13.1 hereof. In the event that a
Trustee holds Shares issued upon the exercise of 102 Stock Options, any cash dividends
paid by the Company on such Shares shall be paid directly to the Grantee, subject to
any applicable taxation on distribution of dividends, and any stock dividends (bonus shares)
shall be paid to the Trustee.

	17.	 	NO RETENTION RIGHTS.

Nothing in the Plan or in any Award granted or agreement entered into pursuant hereto
shall confer upon any Grantee the right to continue in the employ of, or in a director,
service provider or consultant relationship with, the Company or any Subsidiary or to
be entitled to any remuneration or benefits not set forth in the Plan or such agreement
or to interfere with or limit in any way the right of the Company or any such
Subsidiary to terminate such Grantee’s employment or service. Awards granted under the
Plan shall not be affected by any change in duties or position of a Grantee as long as
such Grantee continues to be employed by, or in a director, service provider or
consultant with, the Company or any Subsidiary.

	18.	 	APPROVAL.

The Plan shall take effect upon its adoption by the Board and shall terminate on the
tenth anniversary of such date or such later date on which Awards granted under the
Plan during such 10-year period are still outstanding. Notwithstanding the foregoing,
in the event that approval of the Plan by the Shareholders is required under applicable
law, in connection with the application of certain tax treatment or pursuant to
applicable stock exchange rules or regulations or otherwise, such approval shall be
obtained within the time required under the applicable law.

19.  PERIOD DURING WHICH AWARDS MAY BE GRANTED.

Awards may be granted pursuant to the Plan from time to time within a period of ten
(10) years from the date the Plan is adopted by the Board. No Incentive Stock Option
shall be exercised unless and until the Plan has been approved by the Shareholders,
which approval shall be within twelve (12) months before or after the date the Plan was
adopted by the Board.

-14-

 

	20.	 	AMENDMENT AND TERMINATION OF THE PLAN.

The Board at any time and from time to time may suspend, terminate, modify or amend the
Plan, including with respect to Awards made prior thereto; provided, however, that,
unless otherwise determined by the Board, an amendment which requires Shareholder
approval in order for the Plan to continue to comply with any law, regulation or stock
exchange requirement, shall not be effective unless approved by the requisite vote of
Shareholders.

21.  GOVERNING LAW.

The Plan and all determinations made and actions taken pursuant hereto shall be
governed by the laws of the State of Israel. Certain definitions, which refer to laws
other than the laws of the State of Israel shall be construed in accordance with such
other laws.

*********

-15-exv4w2

 

Exhibit 4.2

M-SYSTEMS FLASH DISK PIONEERS LTD.

SECTION 102 STOCK OPTION /STOCK PURCHASE PLAN

1. Purpose. The M-Systems Flash Disk Pioneers Ltd. Section 102 Stock Option Plan (the
“Plan”) is intended to (i) provide a method whereby employees (including officers and directors who
are employees) of M-Systems Flash Disk Pioneers Ltd. (the “Company”) who are making and are
expected to continue making substantial contributions to the successful management and growth of
the Company may be offered an opportunity to acquire Ordinary Shares, par value NIS.001 (“Ordinary
Shares” or “Shares”) of the Company, in order to increase their proprietary interests in the
Company and their incentive to remain in and advance in the employ of the Company and, (ii) attract
and retain personnel of experience and ability by granting such persons an opportunity to acquire
Ordinary Shares in order to obtain a proprietary interest in the Company. Accordingly, the Company
may, from time to time, grant restricted employee stock options (“Employee Stock Options”) to
purchase Ordinary shares of the Company on the terms and conditions hereinafter established, to
such employees as may be selected in the manner hereinafter provided. Employee Stock options and
the Shares issuable thereunder shall be held in escrow for the benefit of such employees by or in
the name of an escrow agent approved for such purposes by the Israel Tax Authority (the “Escrow
Agent”). Employee Stock Options are referred to herein as “Option(s)”.

2. Application of Section 102 of the Income Tax Ordinance

     (a) The provisions governing the exemption of tax for options granted to employees as embodied in
Section 102 of the Israel Income Tax Ordinance (New Version) (the “Ordinance”) and its regulations,
Income Tax Rules (Tax Benefits in Stock Issuance to Workers) 5349-1989 (the “Rules”) shall be
applied to the Plan and the Options. The Escrow Agent and each employee participating in this Plan
shall comply with the Ordinance and Rules and with the Escrow Agreement entered into between the
Company and the Escrow Agent.

     (b) No employee participating in this Plan shall claim an exemption from Israeli tax pursuant to
Sections 95 or 97(a) of the Income Tax Ordinance (New Version) or pursuant to the Law for the
Encouragement of Industry (Taxes) 5729-1960 in connection with a transfer by such employee of an
Option or the underlying Shares prior to the end of the “Holding
Period” as defined in Rule 1(i) of
the Rules.

     (c) Each participating employee shall be obligated to immediately notify the Company and the Escrow
Agent of his request, if any, to the Income Tax Authority pursuant to Rule 6(b) of the Rules in the
event the Shares underlying the Options are registered on any stock exchange. Nothing herein shall
obligate the Company to register its shares or any portion of its shares on a stock exchange.

 

-2-

     (d) The Option, or the Shares issued upon exercise of the Option, as the case may be, shall be held
by the Escrow Agent for two years from the date of the grant of the Option. After the two year
holding period and subject to any further period under Sections 7(f), the Escrow Agent may release
the Options or Shares to the employee only after (i) the receipt by the Escrow Agent of an
acknowledgement from the Income Tax Authority that the employee has paid any applicable tax due
pursuant to the Ordinance and the Rules, or (ii) the Escrow Agent withholds any applicable tax due
pursuant to the Ordinance and Rules.

     (e) In the event a share dividend (bonus shares) is declared on Shares acquired pursuant to an
Option, such dividend shares shall be subject to the provisions of Sections 2 and 7 and the holding
period for such dividend shares shall be measured from the commencement of the holding period for
the Option from which the dividend was declared.

     (f) The exemption under Section 102 of the Ordinance shall be forfeited and the employee shall be
required to pay any applicable tax promptly at such time as: (i) the employee’s employment is
terminated during the two year holding period (other than because of death or some other reason
acceptable to the Income Tax Authority); (ii) the Company or the employee fails to comply with one
or more other conditions for the exemption as required by the Ordinance, Rules or Income Tax
Authority; or (iii) the Income Tax Authority withdraws or cancels the exemption for the Plan or the
particular employee. Notwithstanding the loss of an exemption, the Escrow Agent shall continue to
hold the Option (to the extent the Option remains exercisable following termination of employment)
or Shares issued upon exercise of the Option for the remainder of the applicable holding period
under Section 102 of the Ordinance.

3. Administration. The Plan shall be administered by the Board of Directors or a Stock
Option Committee (the “Committee”) appointed by the Board of Directors of the Company. The
Committee shall consist of no fewer than three members who may also be members of the Board of
Directors of the Company and participate in the Plan. Subject to the terms and conditions of the
Plan and relevant commitments of the Company, the Board of Directors, or if the Board of Directors
so directs, the Committee, shall have full authority in its discretion, from time to time, and at
any time, to select the employees to whom Options shall be granted, to determine the number of
shares to be covered by each Option, the time at which the Option shall be granted, the terms and
conditions of Option Agreements and, except as hereinafter provided, the

 

-3-

Option exercise price and the term during which the Options may be exercised.

The Board of Directors may at any time appoint or remove members of the Committee and may fill
vacancies, however caused, in the Committee. The Committee shall select one of its members as its
Chairman, and shall hold its meetings at such time and place as it shall deem advisable. All
actions of the Committee shall be taken by a majority of its members and can be taken by written
consent in lieu of a meeting. The Committee shall make such rules and regulations for the conduct of
its business as it shall deem advisable.

The initial Committee shall be comprised of Dov Moran, Arie Mergui, and Gideon Tolkowsky.

4. Interpretation and Amendment. The interpretation, construction or determination of any
provisions of the Plan by the Board of Directors or the Committee if so empowered by the Board,
shall be final and conclusive. No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan.

The Board of Directors may, at any time, amend, alter, suspend or terminate the Plan; provided,
however, that any such action shall not impair any Options theretofore granted under the Plan.

5. Participants. Options may be granted under the Plan for the benefit of key employees of
the Company (including employees who are also directors or officers of the Company).

Receipt of stock options under any other stock option plan maintained by the Company shall not, for
that reason, preclude an employee from receiving Options under the Plan, provided however, that no
employee shall be granted an Option if prior to the grant or as a result of the exercise of the
Option, such employee would hold, directly or indirectly in his name or with a relative as defined
in the Ordinance (i) 10% of the outstanding shares of the Company, (ii) 10% of the voting power of
the Company, (iii) the right to hold or purchase 10% of the outstanding equity or voting power, or
(iv) the right to obtain 10% of the “profit” of the Company as defined in the Ordinance.

6. Ordinary Shares. (a) The Ordinary Shares which may be
issued and sold pursuant to Options granted under the Plan from time to time shall not exceed in
the aggregate 245,000 Ordinary Shares of the Company.

 

 

 -4- 

     (b) Shares issued under Options within two years from the date of the grant will be issued to
the Escrow Agent for the benefit of the employee who shall have such rights of a shareholder as are
set forth in the Option Agreement therefor.

     (c) In the event the employee’s rights do not vest in the Shares issued under Options and are
reacquired by the Escrow Agent as trustee on behalf of the Company, such shares may be reissued
under the Plan and, pending reissuance, the Escrow Agent shall vote the shares in accordance with
the directions of the Board of Directors.

     (d) The Escrow Agent shall vote Shares held by the Escrow Agent in accordance with the directions
of the Board of Directors until such time as the employee’s interest in such shares vests pursuant
to the Plan. The Escrow Agent will have no rights to equity participation as to Ordinary Shares
held in escrow except as otherwise specified by the Board of Directors or Committee.

7. Terms and Conditions of Options. Options granted
pursuant to the Plan shall be in such form and on such terms as the Board of Directors or the
Committee, as the case may be, shall, from time to time, approve, but subject, nevertheless, to the
following terms and conditions:

     (a) The Option shall state the total number of shares of Ordinary Shares to which it relates and no
fractional shares of Ordinary Shares shall be issued.

     (b) The option exercise price per Ordinary Share issuable upon the exercise of an Option, shall be
such amount as may be determined by the Board of Directors or the Committee, as the case may be,
and such price shall be set forth in the Option Agreement between the Company and the employee.

     (c) Notwithstanding any other provision of the Plan, the term of an Option shall be for a period of
not more than ten (10) years and one (1) day from the date such Option is granted.

     (d) An Option must be granted within ten (10) years of the date the Plan is adopted.

     (e) Notwithstanding any other provisions of the Plan, the Escrow Agent shall hold the Option in
favor of an employee or his successors or hiers for at least two years after the grant of the
Option or purchase of Purchased Shares or such longer period as may be required for the full
exercise of the Option or vesting of rights in the Purchased Shares as provided under the Option
Agreement.

 

-5-

     (f) Subject to subparagraph (e), the Option shall state the time or times at which it may be exercised in whole or in part (but in no event earlier
than two years from the date of the grant) and such terms shall be incorporated into and be made a
part of the Option Agreement between the Company and the employee.

     (g) The provisions of this Paragraph 7 and the
provisions of any Option Agreement between the Company and an employee relating to the time of
exercise, the restrictions against disposition and the vesting of the employee’s interest shall be
applied according to their terms or according to such other terms and conditions, or at such other
time and dates, as the Board of Directors or the Committee, as the case may be, may from time to
time establish.

8. Termination of Employment. (a) Subject to paragraph 2(f)
of the Plan and Section 102 of the Ordinance, the Option Agreement may provide that

          (i) if the employee to whom an Option has been granted (the “holder”) ceases to be employed by the
Company as a result of his disability or his retirement with the consent of the Company, then any
Options that are exercisable by him at the time he ceases to be employed by the Company, and only
to the extent such Options are exercisable as of such time, may be exercised by him within two (2)
years after the date of disability or one (1) year after the date of retirement with the consent of
the Company (as determined by the Board of Directors or the Committee), respectively;

          (ii) if the holder of an Option ceases to be employed by the Company as a result of his dismissal
without cause, then any Options that are exercisable by him at the time he ceases to be employed by
the Company, and only to the extent such Options are exercisable as of such time, may be exercised
by him within sixty (60) days after the date he ceases to be employed by the Company;

          (iii) if the holder of an Option ceases to be employed by the Company as a result of his dismissal
for cause (as determined by the Board of Directors of the Company in its sole discretion), the
Option Agreement may provide for the

 

-6-

termination of any Options granted to such employee or allow him to exercise any Options that are
exercisable by him at the time he ceases to be employed by the Company, and only to the extent such
Options are exercisable as of such time, within thirty (30) days after the date he ceases to be
employed by the Company.

     (b) Notwithstanding the foregoing, any termination of employment prior to the expiration of the 2
year period required under Section 102 of the Ordinance and Rules may subject the employee to
forefeiture of the tax benefits available under Section 102 of the Ordinance.

9. Death. Subject to the provisions of Section 102 of the Ordinance, the Option Agreement
may provide that if a holder of an Option shall die while in the employ of the Company, his estate,
personal representative or beneficiary shall have the right to exercise the entire Option granted
to the optionholder pursuant to the Plan at any time within two (2) years from the date of his
death (or within such shorter period as may be specified by the Company in the Option Agreement),
in respect of the total number of shares as to which he would have been entitled to exercise an
Option at the date of his death.

10. Stock Splits, Mergers, etc. In case of any stock split, stock dividend or similar
transaction applicable to all the outstanding Ordinary Shares of the Company, appropriate
adjustment shall be made by the Board of Directors, whose determination shall be final, to the
number of Ordinary Shares which may be purchased under the Plan and the number and option exercise
price per Ordinary Share which may be purchased under outstanding Options. In the case of a merger,
sale of assets or similar transaction which results in a replacement of the Company’s Ordinary
Shares with stock of another corporation, the Company will be required to replace any outstanding
Options granted under the Plan with comparable options to purchase the stock of such other
corporation. The Company may provide for immediate maturity of all outstanding Options, with all
Options not being exercised within the time period specified by the Board of Directors being
terminated.

11. Transferability. Options are not assignable or transferable, except by will or
the laws of descent and distribution to the extent set forth in Paragraph 9 and, Options, during an
optionholder’s lifetime, may be exercised only by him.

12. Exercise of Options. An optionholder electing to exercise an Option
shall give written notice to the Company of such election and of the number of Ordinary Shares that
he has

 

-7-

elected to acquire. An optionholder shall have no rights of a stockholder with respect to
Ordinary Shares covered by the Option until after the date of issuance of a stock certificate to
him upon partial or complete exercise of his Option and as may be otherwise set forth in the Option
Agreement therefor.

13. Written Option. Agreements granting Options under the Plan (“Option Agreements”) shall
be in writing, duly executed and delivered by or on behalf of the Company and the employee, and
shall contain such terms and conditions as the Board of Directors or the Committee, as the case may
be, deems advisable. If there is any conflict between the terms and conditions of any Option
Agreement and of the Plan, the terms and conditions of the Plan shall control.

14. Payment. a. The employee shall waive a portion of his salary payment in consideration
for the Option.

          b. The option exercise price shall be payable in cash, by certified check or by the tender of
Ordinary Shares or, at the discretion of the Board of Directors, by paying in cash, at the minimum,
the par value of the Ordinary Shares being acquired and executing a promissory note for the balance
of the purchase or option exercise price. If the Ordinary Shares are tendered as payment of the
option exercise price, the value of such shares shall be their fair market value as of the date of
exercise. If such tender would result in the issuance of fractional Ordinary Shares, the Company
shall instead return the difference in cash or by check to the employee.

15.
Restrictions on Issuing Shares. The exercise of each Option shall be subject to the
condition that if at any time the Company shall determine in its discretion that the satisfaction
of withholding tax or other withholding liabilities, or that the listing, registration, or
qualification of any shares otherwise deliverable upon such exercise upon any securities exchange
or under any national, state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such exercise in the
delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be
effective unless such withholding, listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the Company.

16.
Term of Plan. The Plan shall terminate ten (10) years after the Plan is adopted by the
Board of Directors, and no Option shall be granted pursuant to the Plan after that date.

 

-8-

17. Application of Funds. The proceeds received by the Company from the sale of Ordinary
Shares pursuant the exercise of Options granted under the Plan will be used for general corporate
purposes.

18. Obligation to Exercise Option. The granting of an Option shall impose no obligation on
the optionholder to exercise such option.

19. Continuance of Employment. Neither the Plan nor any Option Agreement shall impose any
obligation on the Company to continue the employment of any optionholder, and nothing in the Plan
or in any Option shall confer upon any holder any right to continue in the employ of the Company or
conflict with the right of either to terminate such employment at any time.

20. Effectiveness of the Plan. The Plan shall become effective on the date of its adoption
by the Board of Directors, but subject, nevertheless, to such approvals as may be required by any
public authorities, including but not limited to the Income Tax Authority.

 

 

M-SYSTEMS FLASH DISK PIONEERS LTD.

STOCK OPTION PLAN

(Incentive and Restricted Stock Options)

1. Purpose. The M-Systems Flash Disk Pioneers Ltd. (the “Plan”) is intended to provide a
method whereby employees (including officers and directors) of M-Systems Flash Disk Pioneers Ltd.
(the “Company”) and its subsidiaries who are making and are expected to continue making substantial
contributions to the successful management and growth of the Company and its subsidiaries may be
offered an opportunity to acquire Ordinary Shares, par value NIS 0.001 per share (the “Ordinary
Shares”), of the Company, in order to increase their proprietary interests in the Company and their
incentive to remain in and advance in the employ of the Company and its subsidiaries and to attract
and retain personnel of experience and ability by granting such persons an opportunity to acquire a
proprietary interest in the Company. Accordingly, the Company may, from time to time, grant to such
employees as may be selected in the manner hereinafter provided, incentive stock options, as
defined in Section 422 of the Internal Revenue Code of 1986 (the “Code”) (“Incentive Stock
Options”), and restricted stock options (“Restricted Stock Options”) to purchase Ordinary Shares of
the Company on the terms and conditions hereinafter established. The Incentive Stock Options and
Restricted Stock Options sometimes are referred to herein individually as an “Option” and
collectively as the “Options”.

2. Administration. The Plan shall be administered by the Board of Directors or a Stock
Option Committee (the “Committee”) appointed by the Board of Directors of the Company. The
Committee shall consist of no fewer than three members who may also be members of the Board of
Directors of the Company and participate in the Plan. Should the Company become subject to the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) the Committee shall consist of not
fewer than three (3) “disinterested persons”, as that term is defined in subparagraph (d)(3) of
Rule 16b-3 (“Rule 16b-3”) under the Exchange Act. Members of the Committee then will not be able to
participate in the Plan or become members if one year prior to an occurrence whereby the Company
becomes subject to Rule 16b-3 they received an option under any plan of the Company. Subject to the
terms and conditions of the Plan and relevant commitments of the Company, the Board of Directors,
or, if the Board of Directors so directs, the Committee, shall have full authority in its
discretion, from time to time, and at any time, to select the employees to whom Options shall be
granted, to determine the number of shares to be covered by each Option, the time at which the
Option shall be granted, the terms and conditions of Option Agreements (as hereinafter defined),
and, except as hereinafter provided, the option exercise price and the term during which the
Options may be exercised.

 

 

-2-

The Board of Directors may at any time appoint or remove members of the Committee and may fill
vacancies, however caused, in the Committee. The Committee shall
select one of its members as its
Chairman, and shall hold its meetings at such time and place as it shall deem advisable. A majority
of its members shall constitute a quorum. All actions of the Committee shall be taken by a majority
of its members and can be taken by unanimous written consent in lieu of a meeting. The Committee
shall make such rules and regulations for the conduct of its business as it shall deem advisable.

The members of the initial Committee shall be Dov Moran, Arie Mergui and Gideon Tolkowsky.

3. Interpretation and Amendment. The interpretation, construction or determination of any
provisions of the Plan by the Board of Directors or the Committee if so empowered by the Board,
shall be final and conclusive. No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan.

The Board of Directors may, at any time, amend, alter, suspend or terminate the Plan; provided,
however, that any such action shall not impair any Options theretofore granted under the Plan, and
provided further that without the approval of the holders of at least the majority of the voting
stock of the Company voting at a duly held meeting: (i) the total number of Ordinary Shares that
may be purchased under the Plan shall not be increased (except as permitted by Paragraph 12); (ii)
the minimum option exercise price shall not be decreased (except as permitted by Paragraph 12);
(iii) the option period during which outstanding Options granted under the Plan may be exercised
shall not be extended; and (iv) the class of individuals eligible to receive options under the Plan
shall not be altered.

4. Participants. Options may be granted under the Plan to key employees of the Company and
its subsidiaries (including employees who are also directors or officers of the Company or its
subsidiaries). Solely for the purposes of granting Restricted Stock Options under the Plan, the
term “employees” shall also include directors and officers of and consultants to the Company or any
subsidiary. The status of the option as either Incentive Stock Options or Restricted Stock Options
will be clearly set forth in the Option Agreements. The term “subsidiary” shall mean “subsidiary
corporation” as defined in Section 425 of the Code. No Incentive Stock Option shall be granted to
an employee who, at the time the Incentive Stock Option is granted, owns stock possessing more than
ten percent

 

-3-

(10%) of the total combined voting power of all classes of capital stock of the Company or any
subsidiary of the Company; provided, however, that an Incentive Stock Option may be granted to such
an employee if, at the time such Incentive Stock Option is granted, the option exercise price is at
least 110 percent (110%) of the fair market value of the Ordinary Shares subject to the Incentive
Stock Option, and such Incentive Stock Option is by its terms not exercisable after the expiration
of five (5) years from the date such Incentive Stock Option is granted.

Subject to the preceding paragraph, receipt of stock options under any other stock option plan
maintained by the Company or any subsidiary shall not, for that reason, preclude an employee from
receiving Options under the Plan.

5. Ordinary Shares. The Ordinary Shares which may be issued and sold pursuant to Options
granted under the Plan from time to time shall not exceed in the aggregate 100,000 Ordinary Shares
of the Company to be issued and sold pursuant to Incentive Stock Options and Restricted Stock
Options, as the Board of Directors or Committee, as the case may be, in its sole discretion, may
determine. The Ordinary Shares issued and sold under the Plan may be the Company’s authorized but
unissued shares or shares held by a trustee for later issuance as optioned shares as a result of
the grant and exercise of an option. Shares issued to the trustee under the Plan may be voted by
the Board of Directors until such shares are optioned shares as a result of the exercise of an
option but such shares shall not be entitled to dividend or distribution in liquidation unless and
until an option therefor is granted and exercised.

Should any Option expire or terminate for any reason without having been exercised in full, the
unsold shares covered thereby shall be added to the shares otherwise available for option
hereunder.

6. Terms and Conditions of Options. Options granted pursuant to the Plan shall be in such form and on such terms as the Board of Directors or
Committee, as the case may be, shall, from time to time, approve, but subject, nevertheless, to the
following terms and conditions:

     (a) The Option shall state (i) the total number of Ordinary Shares to which it relates and no
fractional Ordinary Shares shall be issued, and (ii) the time or times at which it may be exercised
in whole or in part.

     (b) The option exercise price per Ordinary Share

 

-4-

issuable upon the exercise of an Incentive Stock Option shall be not less than one hundred percent
(100%) of the fair market value of the Ordinary Shares covered by such option at the date such
option is granted, or, in the case of an employee who at the time the Incentive Stock Option is
granted owns stock possessing more than ten percent (10%) of the total combined voting power of all
classes of capital stock of the Company any subsidiary of the Company, the option exercise price
shall be not less than one hundred and ten percent (110%) of the fair market value of Ordinary
Shares covered by such Option.

     (c) The option exercise price per share of Ordinary Shares issuable upon the exercise of a
Restricted Stock Option shall be determined by the Board of Directors or the Committee, as the case
may be, but shall be not less than the lower of (i) seventy-five (75%) of the book value per share
of Ordinary Shares as of the end of the fiscal year immediately preceding the date of such grant,
or (ii) seventy-five (75%) of the fair market value per share of Ordinary Shares on the date of
such grant.

     (d) Notwithstanding any other provision of the Plan, the term of an Incentive Stock Option and the
term of a Restricted Stock Option shall be for a period of not more than ten (10) years from the
date such option is granted.

     (e) An Option must be granted within ten (10) years of the date the Plan is adopted by the Board of
Directors in accordance with Sections 17 and 21.

     (f) No individual shall be given the opportunity, under this Plan, to exercise Incentive Stock
Options for the purchase of Ordinary Shares valued (at the time of
grant of the Incentive Stock
options) in excess of $100,000, in any calendar year, unless and to the extent that said Options
shall have first become exercisable in the preceding year. No Incentive Stock Option shall be
granted hereunder in such a manner as would cause the foregoing restrictions to be violated.

7. Restrictions on Disposition and Vesting of Interest in Employee. Shares of
Ordinary Shares acquired by an employee pursuant to the exercise of a Restricted Stock Option under
the Plan shall not be sold, transferred, or otherwise disposed of and shall not be pledged or
otherwise hypothecated, except as provided in Section 12 and in this Section 7. (Any such sale,
transfer or other disposition, or any pledge or other hypothecation shall hereinafter be referred
to as a “disposition”). The Board of Directors or the Committee, as the case may be, shall provide
for the issuance of restricted shares subject to this Section to a trustee (the “Trustee”)
for

 

 

-5-

the benefit of the employee until such time as the employee acquires a vested interest in
accordance with the provisions of this Section 7. In the event of the termination of employment
under conditions disallowing the vesting of rights in the employee partially or wholly, shares
issued and subject to restrictions hereunder shall, except as provided below, be held by the
Trustee free of any rights of the employee and the Trustee shall make payment to the employee of
the original exercise price of the Restricted Stock Option the exercise of which resulted in the
subject shares. Shares as to which the restrictions against disposition have lapsed and the
employee’s interest has vested in accordance with the provisions set forth below shall be referred
to as “free shares”. Shares as to which the restrictions against dispositon have not lapsed and the
employee’s interest has not vested as provided below shall be referred to as “restricted shares”.
Holders of restricted shares may but need not be permitted by the terms of the Option Agreement to
vote their shares in any meeting of holders of Ordinary Shares.

     (a) The restrictions against disposition of shares acquired pursuant to the Plan shall lapse and
the employee’s interest therein shall vest as determined by the Board of Directors or Committee, as
the case may be, and such terms shall be incorporated into and be made a part of the Option
Agreement between the Company and the employee. Any provision for the lapse of the restrictions
against disposition and the vesting of the employee’s interest shall apply with respect to shares
subject to an Option whether or not the Option has been exercised in whole or part on the date of
lapse or vesting.

     (b) In the event of the termination of employment for any reason, shares issued to the employee
pursuant to the exercise of a Restricted Stock Option under the Plan, which shares have not as of
the date of termination of employment, become free shares as defined above, shall not be subject to
any further right or interest of the employee. Within sixty (60) days following the lapse of the
employee’s right to acquire a vested interest, the Company shall direct the Trustee to compensate
the employee (at the original acquisition price) for such number of shares as the Company
determines and shall direct the Trustee to release to the employee any shares for which no such
payment has been directed. Nothing in this Paragraph 7 shall require the Company or the Trustee to
make payment for shares issued to employees under the Plan.

     (c) Notwithstanding any of the foregoing restrictions, any restricted shares acquired under the
Plan may at any time be pledged or otherwise hypothecated to secure borrowing by the employee to
obtain the acquisition price to be

 

-6-

paid by the employee for such shares, provided, however, that the amount of such borrowing may not
exceed the acquisition price of such shares.

     (d) The provisions of this Paragraph 7 and the provisions of any Option Agreement between the
Company and an employee relating to the restrictions against disposition and the vesting of the
employee’s interest shall be applied according to their terms or according to such other terms and
conditions, or at such other time and dates, as the Board of Directors or the Committee, as the
case may be, may from time to time establish.

8. Notice of Election under Section 83(b). With respect to the exercise of Restricted Stock
Options, each employee making an election under Section 83(b) of the Code and the Regulations and
Rulings promulgated thereunder will provide a copy thereof to the Company within thirty (30) days
of the filing of such election with the Internal Revenue Service. Any insider acquiring Options
after the Company becomes subject to
Rule 16b-3 who elects the election under Section 83(b) of the Code and the Regulations promulgated
thereunder, shall notify the Company within thirty (30) days of filing such election.

9. Termination of Employment. The Option Agreement may provide that if the holder of an
Option ceases to be employed by the Company or any subsidiary as a result of his disability or his
retirement with the consent of the Company, then any Options that are exercisable by him at the
time he ceases to be employed by the Company or its subsidiaries, and only to the extent such
Options are exercisable as of such time, may
be exercised by him within two (2) years after the date of disability or one (1) year after the
date of retirement with the consent of the Company (as determined by the Board of Directors or the
Committee), respectively. If the holder of an Option ceases to be employed by the Company or any
subsidiary as a result of his dismissal without cause, then any Options that are exercisable by him
at the time he ceases to be employed by the Company or its subsidiaries, and only to the extent
such Options are exercisable as of such time, may be exercised by him within sixty (60) days after
the date he ceases to be employed by the Company or its subsidiaries. If the holder of an Option
ceases to be employed by the Company or any subsidiary as a result of his dismissal for cause (as
determined by the Board of Directors in its sole discretion), the Option Agreement may provide for
the termination of any options granted to such employee or allow him to exercise any Options that
are exercisable by him at the time he ceases to be employed by the Company or its subsidiaries, and
only to the extent such Options are exercisable as of such time, within

 

-7-

thirty (30) days after the date he ceases to be employed by the Company or its subsidiaries.

Solely for purposes of the Plan, the transfer of an employee from the employ of the Company to a
subsidiary of the Company, or vice-versa, shall not be deemed a termination of employment.

10. Death. The Option Agreement may provide that if a holder of an Option shall die while
in the employ of the Company or any subsidiary of the Company, his estate, personal representative
or beneficiary shall have the right to exercise the entire Option granted to the optionholder
pursuant to the Plan at any time within two (2) years from the date of his death (or within such
shorter period as may be specified by the Company in the Option Agreement), in respect of the total
number of shares as to which he would have been entitled to exercise an Option at the date of his
death.

11. Stock Splits, Mergers, etc. In case of any stock split, stock dividend or similar
transaction applicable to all the outstanding shares of the Company equally which increases or
decreases the number of outstanding Ordinary Shares, appropriate adjustment shall be made by the
Board of Directors, whose determination shall be final, to the number of Ordinary Shares which may
be purchased under the Plan, and the number of Ordinary Shares and option exercise price per
Ordinary Share which may be purchased under outstanding options. In the case of a merger, sale of
assets or similar transaction which results in a replacement of the Company’s Ordinary Shares with
stock of another corporation, the Company will be required to replace any outstanding Options
granted under the Plan with comparable options to purchase the stock of such other corporation. The
Company may provide for immediate maturity of all outstanding Options prior to the effectiveness of
such merger, sale of assets or similar transaction, with all Options not being exercised within the
time period specified by the Board of Directors being terminated.

12. Transferability. Options are not assignable or transferable, except by will or the laws
of descent and distribution to the extent set forth in Paragraph 10 and, during an optionholder’s
lifetime, may be exercised only by him.

13. Exercise of Options. An optionholder electing to exercise an Option shall give written
notice to the Company of such election and of the number of Ordinary Shares that he has elected to
acquire. An optionholder of a Restricted Stock Option shall have no rights of a stockholder with
respect to

 

 

-8-

Ordinary Shares covered by this Option until after the date of issuance of a stock certificate
to him upon partial or complete exercise of his Option except in the case restricted option shares
are delivered to a Trustee whereby a proxy is delivered to the former optionholder. A holder of
Incentive Stock Options shall have rights of a stockholder with respect to Ordinary Shares upon
exercise of the Option.

14. Written Option Agreement. Agreements granting Options under the Plan (“Option
Agreements”) shall be in writing, duly executed and delivered by or on behalf of the Company and the
optionholder, shall contain such terms and conditions as the Board of Directors or Committee, as
the case may be, deems advisable, and shall specify its application to a Restricted Stock Option or
Incentive Stock Option. If there is any conflict between the terms and conditions of any Option
Agreement and of the Plan, the terms and conditions of the Plan shall control.

15. Payment. The option exercise price shall be payable upon the exercise of the Option in
cash, by certified check or by the tender of Ordinary Shares or, at the discretion of the Board of
Directors, by paying in cash, at the minimum, the par value of the Ordinary Shares being acquired
and executing a promissory note for the balance of the option exercise price, provided that said
note shall bear interest in the case of Incentive Stock Options, at a rate which is no less than
the lowest applicable U.S. federal rate required to be charged to preclude the recharacterization
of any amount of stated principal as interest for U.S. federal tax purposes. In the case of
Restricted Stock Options, the interest rate will be determined by the Board of Directors or the
Committee, as the case may be. If the Ordinary Shares are tendered as payment of the option
exercise price, the value of such shares shall be their fair market value as of the date of
exercise. If such tender would result in the issuance of fractional Ordinary Shares, the Company
shall instead return the difference in cash or by check to the employee.

16. Restrictions on Issuing Shares. The exercise of each option shall be subject to the
condition that if at any time the Company shall determine in its discretion that the satisfaction
of withholding tax or other withholding liabilities, or that the listing, registration, or
qualification of any shares otherwise deliverable upon such exercise upon any securities exchange
or under any state or federal law, or that the consent or approval of
any regulatory body, is
necessary or desirable as a condition of, or in connection with, such exercise in the delivery or
purchase of shares pursuant thereto, then in any such event, such exercise

 

-9-

shall not be effective unless such withholding, listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not acceptable to the Company.

17. Term of Plan. The Plan shall terminate ten (10) years after the Plan is adopted by the
Board of Directors, and no Option shall be granted pursuant to the Plan after that date.

18. Application of Funds. The proceeds received by the Company from the sale of Ordinary
Shares pursuant to the exercise of Options granted under the Plan will be used for general
corporate purposes.

19. Obligation to Exercise Option. The granting of an Option shall impose no obligation on
the optionholder to exercise such option.

20. Continuance of Employment. Neither the Plan nor any Option Agreement shall impose any
obligation on the Company or on any subsidiary of the Company to continue the employment of any
optionholder, and nothing in the Plan or in any Option Agreement shall confer upon any optionholder
any right to continue in the employ of the Company or the subsidiary of the Company or conflict
with the right of either to terminate such employment at any time.

21. Effectiveness of the Plan. The Plan shall become effective on the date of its adoption
by the Board of Directors, but subject, nevertheless, to (1) approval, within twelve (12) months
thereof, by the stockholders representing at least a majority of the voting stock of the Company or
by such greater percentage as may from time to time be required under the laws of the State of
Israel, and (2) such approvals as may be required by any other public authorities. Options under
this Plan may be granted but not exercised until it is approved by the Company’s shareholders. In
the event the Plan is not approved, the Plan shall terminate and all Options granted shall be void
and have no force or effect.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}]]