Document:

exv10w1

 

Exhibit 10.1

 

INDYMAC BANCORP, INC.

SENIOR MANAGER DEFERRED COMPENSATION PLAN

Effective December 5, 2006

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	 	Page #	 
	ARTICLE I — PURPOSE OF PLAN	 	 	1	 
	 
	 	 	 	 	 	 
	ARTICLE II — DEFINITIONS	 	 	1	 
	Section 2.1
	 	Definitions	 	 	1	 
	Section 2.2
	 	Rules of Construction	 	 	3	 
	 
	 	 	 	 	 	 
	ARTICLE III — ELIGIBILITY; AWARDS; ELECTIONS	 	 	3	 
	Section 3.1
	 	Eligibility	 	 	3	 
	Section 3.2
	 	Cash Incentive Awards	 	 	3	 
	Section 3.3
	 	Vesting of Awards	 	 	4	 
	Section 3.4
	 	Deferrals	 	 	4	 
	 
	 	 	 	 	 	 
	ARTICLE IV — ESTABLISHMENT AND MAINTENANCE OF ACCOUNTS	 	 	4	 
	Section 4.1
	 	Establishment of Accounts	 	 	4	 
	Section 4.2
	 	Interest Earning Sub-Account	 	 	5	 
	Section 4.3
	 	Stock Earning Sub-Account	 	 	5	 
	Section 4.4
	 	Cash Incentive Awards which Do Not Vest	 	 	5	 
	Section 4.5
	 	Account Valuation; Participant Statements	 	 	5	 
	 
	 	 	 	 	 	 
	ARTICLE V — DISTRIBUTION OF ACCOUNTS	 	 	6	 
	Section 5.1
	 	Deferral Period and Method of Payment	 	 	6	 
	 
	 	 	 	 	 	 
	ARTICLE VI — ADMINISTRATION	 	 	6	 
	Section 6.1
	 	Authority and Duties of Administrator	 	 	6	 
	Section 6.2
	 	Manner of Taking Action	 	 	6	 
	Section 6.3
	 	Plan Expenses	 	 	7	 
	Section 6.4
	 	Indemnification of Committee	 	 	7	 
	Section 6.5
	 	Claims Procedure	 	 	7	 
	Section 6.6
	 	Performance-Based Awards	 	 	8	 
	 
	 	 	 	 	 	 
	ARTICLE VII — BENEFICIARY DESIGNATION	 	 	8	 
	 
	 	 	 	 	 	 
	ARTICLE VIII — AMENDMENT OR TERMINATION	 	 	8	 
	 
	 	 	 	 	 	 
	ARTICLE IX — GRANTOR TRUST CONTRIBUTIONS	 	 	8	 

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	 	 	 	 	 	Page #	 
	ARTICLE X — MISCELLANEOUS	 	 	9	 
	Section 10.1
	 	Liability of the Plan Sponsor and Company; Nature of Obligation	 	 	9	 
	Section 10.2
	 	Right of Set-Off	 	 	9	 
	Section 10.3
	 	No Guarantee of Employment	 	 	9	 
	Section 10.4
	 	Benefits Not Assignable	 	 	9	 
	Section 10.5
	 	Severability	 	 	9	 
	Section 10.6
	 	Tax Withholding	 	 	9	 
	Section 10.7
	 	Headings	 	 	9	 
	Section 10.8
	 	Governing Law	 	 	10	 

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ARTICLE I

PURPOSE OF PLAN

     The purpose of the IndyMac Bancorp, Inc. Senior Manager Deferred Compensation Plan is to
provide for the deferral of Cash Incentive Awards granted to eligible key employees of IndyMac
Bancorp, Inc. and certain of its affiliates. It is intended that such purposes of the Plan will
(i) assist the Company in attracting and retaining such key employees; (ii) motivate key employees
to achieve long-range goals of the Company; (iii) provide benefits to Participants which are
competitive with the benefits provided by similar companies; and (iv) further identify
Participants’ interests with those of the Company’s other stockholders in those instances in which
awards are credited under the Plan in the form of Stock.

     The Plan has been established primarily for the purpose of providing deferred compensation for
a select group of management or highly compensated employees of the Company and is intended to
qualify under Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Company shall make
contributions to a Trust for purposes of defraying the cost of payments which become due under the
Plan, but the Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.

ARTICLE II

DEFINITIONS

     Section 2.1 Definitions. Whenever used in this instrument the following terms shall
have the following respective meanings set forth in this Section 2.1:

     “Beneficiary” means the person designated, or deemed designated, by the Participant
pursuant to Article VII who will receive payments as provided under the Plan in the event of the
Participant’s death.

     “Cash Incentive Award” means a Cash Incentive Award issued under the IndyMac Bancorp,
Inc. 2002 Incentive Plan, as Amended and Restated, or such other incentive plan as the Plan Sponsor
may maintain from time to time, and designated by the Committee for deferral pursuant to this Plan.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Committee” means the Management Development and Compensation Committee of the Board
of Directors of the Plan Sponsor; provided, however, that the Management Development and
Compensation Committee may delegate some or all of its specified authority and responsibilities
under the Plan to the Employee Benefits Fiduciary Committee of the Plan Sponsor, and following any
such delegation, the term “Committee” when used in the Plan shall include the Employee Benefits
Fiduciary Committee in such capacity. The Committee shall be responsible for administering and
operating the Plan in accordance with Article VI.

     “Company” means IndyMac Bancorp, Inc. and any affiliate which has been designated for
inclusion in the Plan.

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     “Deferral Account” means the deferred compensation account maintained for a
Participant pursuant to Article IV, comprised of the Participant’s Interest Earning Sub-Account and
Stock Earning Sub-Account.

     “Deferral Date” means, with respect to a Cash Incentive Award for a particular Service
Period, a date approved by the Committee on or before March 15th of the calendar year following the
Service Period.

     “Effective Date” means December 5, 2006.

     “Election Period” means, with respect to a particular Service Period, a specified
election period determined by the Committee (and communicated to Eligible Individuals and
Participants) that ends no later than December 31 of the calendar year preceding such Service
Period.

     “Eligible Individual” means any employee or officer of the Company who has attained a
position in the Company of senior manager.

     “Interest Earning Sub-Account” means, with respect to a Participant, a sub-account
that is credited, at the Participant’s election, with a specified portion of the Participant’s Cash
Incentive Award and allocable interest calculated pursuant to Section 4.2.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “Investment Election” means an irrevocable election made by a Participant with regard
to the allocation of a Cash Incentive Award into the Interest Earning Sub-Account and/or the Stock
Earning Sub-Account pursuant to Section 3.4.

     “Participant” means an Eligible Individual who has been selected for participation in
the Plan and has made a Payment Election and Investment Election pursuant to Section 3.1.

     “Payment Election” means an irrevocable election made by a Participant with regard to
the deferred payment date of a Cash Incentive Award pursuant to Section 3.4.

     “Plan” means the IndyMac Bancorp, Inc. Senior Manager Deferred Compensation Plan, as
set forth herein and as amended from time to time.

     “Plan Sponsor” means IndyMac Bancorp, Inc. and its successors and assigns.

     “Plan Year” means the calendar year.

     “Separation from Service” means a termination from employment with the Company that
constitutes a “separation from service” within the meaning of Section 409A of the Code and
regulations thereunder.

     “Service Period” means the calendar year or years during which a Participant earns a
Cash Incentive Award by performing services for the Company.

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     “Specified Employee” has the meaning assigned to such term in Code Section
409A(2)(b)(i) and regulations thereunder.

     “Stock” means common stock of the Plan Sponsor.

     “Stock Earning Sub-Account” means, with respect to a Participant, a sub-account which
is credited, at the Participant’s election, with a specified portion of the Participant’s Cash
Incentive Award that is invested in shares of Common Stock pursuant to Section 4.3.

     “Trust” means the grantor trust subject to Subtitle A, Chapter 1, Subchapter J,
Subpart E of the Code, established in order to provide cash and shares of Common Stock for purposes
of paying deferred amounts due from Participants’ Deferral Accounts.

     “Trustee” means the person or entity appointed to act as trustee with respect to the
Trust.

     “Vesting Date” has the meaning assigned to such term in Section 3.3.

     Section 2.2 Rules of Construction.

          (a) Meaning of Terms. Unless the context otherwise requires (i) a term shall have the
meaning assigned to it in Section 2.1; (ii) all references to “Section” and “Article” shall be to
sections and articles of this instrument; (iii) words in the singular shall include the plural, and
vice-versa; and (iv) words in the masculine gender shall include the feminine and neuter, and
vice-versa.

          (b) Compliance with Section 409A. The Plan and its operation are intended to comply
with the requirements of Section 409A of the Code and the regulations and other guidance issued
thereunder, as in effect from time to time. To the extent a provision of the Plan is contrary to
or fails to address the requirements of Section 409A of the Code, the Plan shall be construed and
administered as necessary to comply with such requirements.

ARTICLE III

ELIGIBILITY; AWARDS; ELECTIONS

     Section 3.1 Eligibility. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time from among the Eligible Individuals,
those persons whose Cash Incentive Awards will be deferred pursuant to this Plan. An Eligible
Individual who is so designated shall become a “Participant” in the Plan upon making a Payment
Election and Investment Election. Once an Eligible Individual becomes a Participant, he or she
shall continue to be a Participant until all cash amounts and shares of Stock credited to his or her
Deferral Account have been paid pursuant to the Plan.

     Section 3.2 Cash Incentive Awards. For each Service Period, the Committee shall
calculate the amount of the Cash Incentive Award earned by the Participant. Such calculation shall
be made and the actual amount of the earned Cash Incentive Award allocated to the Plan no later
than the corresponding Deferral Date.

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     Section 3.3 Vesting of Awards. With respect to each separate Cash Incentive Award, a
Participant shall become vested in such award pursuant to satisfaction of the vesting conditions
established by the Committee at the time of grant of the Cash Incentive Award (the date of such
vesting being referred to herein as the “Vesting Date”).

     Section 3.4 Deferrals.

          (a) Automatic Deferrals. The entire amount of any Cash Incentive Award designated for
deferral pursuant to the Plan shall be automatically deferred, and shall be paid on or following
the Vesting Date for such Cash Incentive Award in accordance with the Payment Election and
Investment Election of the Participant which is in effect with respect to such Cash Incentive
Award.

          (b) Effect of Payment and Investment Elections. During the Election Period preceding
a Service Period, a Participant shall be required to make a Payment Election and an Investment
Election with respect to the Cash Incentive Award granted to the Participant for such Service
Period. The Payment Election shall constitute an irrevocable election by a Participant, and an
express authorization to the Company, to defer the receipt of a Cash Incentive Award otherwise
payable to the Participant until a specified date, or until the occurrence of an event which the
Committee has determined is a permitted event upon which payment may be made. The Investment
Election of a Participant shall also be irrevocable and shall specify (in increments of twenty-five
percent (25%)), the amount of the Cash Incentive Award to be allocated to the Participant’s
Interest Earning Sub-Account and Stock Earning Sub-Account.

          (c) Initial Elections. Notwithstanding Section 3.4(b), during 2006 a Participant may
make an initial Payment Election and Investment Election during the thirty (30) day period (or such
shorter period as the Committee shall determine) following the Effective Date, which election shall
apply to Cash Incentive Award granted to the Participant in 2007. In addition, an Eligible
Individual who becomes a Participant during a particular calendar year may make an initial Payment
Election and Investment Election during the thirty (30) day period following the date he or she
becomes an Eligible Individual, which election shall apply to the Cash Incentive Award granted to
the Participant for the calendar year in which the Eligible Individual is selected for
participation.

          (d) Default Elections. If a Participant fails to make a Payment Election or
Investment Election with respect to a particular Cash Incentive Award, the most recent Payment
Election or Investment Election (as applicable) made by the Participant shall be deemed to remain
in effect for such Cash Incentive Award.

ARTICLE IV

ESTABLISHMENT AND MAINTENANCE OF ACCOUNTS

     Section 4.1 Maintenance of Accounts. The Committee shall cause a separate Deferral
Account to be established and maintained under the Trust for each Participant and, within each such
Deferral Account, a separate Interest Earning Sub-Account and Stock Earning Account. References
herein to a Participant’s “Deferral Account” shall refer to the Participant’s Interest Earning
Sub-Account and Stock Earning Sub-Account in the aggregate. A Participant’s Interest Earning
Sub-Account and Stock Earning Sub-Account shall be charged, as applicable, with any distributions
from the respective sub-accounts on the date such distributions are made.

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     Section 4.2 Interest Earning Sub-Account. A Participant’s Interest Earning
Sub-Account shall be credited with the portion of the Participant’s Cash Incentive Award which he
or she elects to have allocated to such sub-account pursuant to his or her Investment Election.
Such interest shall be credited commencing on the date the sub-account is established and ending on
the date of payment of the full account balance of such sub-account. Interest on a particular Cash
Incentive Award shall be credited commencing with the corresponding Deferral Date. Such interest
shall be credited at a rate that is set annually by the Committee and communicated in writing to
Participants prior to the beginning of the calendar year for which the rate will be in effect, and
such interest shall be compounded annually. Interest shall be credited on the balance in an
Interest Earning Sub-Account until all amounts credited to such sub-account have been paid.

     Section 4.3 Stock Earning Sub-Account. The Trustee shall, as soon as practicable
following the Deferral Date, apply the aggregate amount of cash that is allocated to Participants’
Stock Earning Sub-Accounts for Cash Incentive Awards deferred on such Deferral Date toward the
purchase of a block of shares of Stock. The amount of shares so purchased with respect to any
Deferral Date shall be allocated to a Participant (and credited to the Participant’s Stock Earning
Sub-Account) in the proportion determined by comparing the amount of the Cash Incentive Award that
the Participant elected to allocate to his or her Stock Earning Sub-Account for such Deferral Date
to the aggregate amount of Cash Incentive Awards which all Participants elected to allocate to
their Stock Earning Sub-Accounts for such Deferral Date. For example, if a Participant elects to
defer $1,000 of his or her Cash Incentive Award into his or her Stock Earning Sub-Account and all
other Participants elect to defer an aggregate of $9,000 into their Stock Earning Sub-Accounts, the
Trustee shall purchase shares of Stock having an aggregate value of $10,000, and the Participant’s
Stock Earning Sub-Account shall be allocated one-tenth (1/10) of such shares. Dividends paid with
respect to Stock credited to a Participant’s Stock Earning Sub-Account shall be converted to shares
of Stock as soon as practicable following the payment of the dividend. Other adjustments or
changes to the Stock in general shall be applied to the Stock credited to a Participant’s Stock
Earning Sub-Account. No interest will be credited with respect to any balance in a Participant’s
Stock Earning Sub-Account.

     
Section 4.4 Cash Incentive Awards which Do Not Vest.
Notwithstanding any other provision of the Plan to the contrary, in the event all or a portion of a
 Participant’s Cash Incentive Award does not vest or otherwise lapses pursuant to its terms,
the Participant shall forfeit all cash and interest credited or to be credited to his or her
Deferral Account and sub-accounts, and all Shares credited or to be credited to his or her Deferral
Account and sub-accounts, with respect to such unvested or lapsed portion or award.

     Section 4.5 Account Valuation; Participant Statements. For each Service Period, the
Committee shall provide a written statement to each Participant setting forth (i) the amount
credited to his or her Interest Earning Sub-Account and the number of shares of Stock credited to
his or her Stock Earning Sub-Account (including dividends invested in Stock pursuant to Section
4.3), if any, for the Service Period, (ii) the rate at which interest was credited to his or her
Interest Earning Sub-Account and the aggregate amount of interest credited to such sub-account
since the last such statement, and (iii) his or her total Deferral Account balance (in cash and
Stock) as of a date specified in such statement.

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ARTICLE V

DISTRIBUTION OF ACCOUNTS

     Section 5.1 Deferral Period and Method of Payment.

          (a) Election of Deferred Payment Date and Payment Method.

          The deferred payment date elected by a Participant in a Payment Election shall be a specified
date that is objectively determinable at the time the election is made. Such deferred payment date
shall be no earlier than the Vesting Date of the Cash Incentive Award for the designated Service
Period. A Participant shall be permitted to elect a deferred payment date for his or her vested
Cash Incentive Awards which is a specified payment date or the date the Participant has a
Separation from Service.

          (b) Payment Upon Death. Notwithstanding Section 5.1(a), if a Participant dies before
beginning distributions or dies after beginning distributions but before receiving distribution of
his or her entire Deferral Account, the remaining balance of his or her Deferral Account shall be
distributed in a single lump sum payment to his or her Beneficiary(ies) as soon as practicable but
no later than the 15th day of the third calendar month following the year in which the
Participant dies.

          (c) Special Rule for Specified Employees. Notwithstanding any provision of the Plan
to the contrary, if a Participant who is a Specified Employee experiences a Separation from Service
and a payment is required to be made under Section 5.1(a) upon such Separation from Service, the
payment otherwise due hereunder shall be delayed until the corresponding date which occurs is six
(6) months after the date such Separation from Service occurs.

ARTICLE VI

ADMINISTRATION

     Section 6.1 Authority and Duties of Administrator. The Committee shall be responsible
for administering the Plan and shall have sole and absolute discretion to (i) determine the
eligibility of employees to participate in the Plan, (ii) interpret, construe and make
determinations under the Plan, (iii) establish such rules as may be necessary or appropriate for
the administration of the Plan, (iv) maintain or cause the Trustee to maintain Accounts, books and
records with respect to the Plan, (v) calculate the amount of Cash Incentive Awards deferred and
interest or Stock credited under the Plan, and (vi) take such other action in the administration of
the Plan as the Committee deems necessary or appropriate in furtherance hereof. The Committee
shall, in good faith, interpret the Plan in such a way as to meet the requirements of Code Section
409A and any regulations and guidance issued thereunder. Any such interpretation, construction or
determination made or action taken by the Committee with respect to the Plan shall be conclusive
and binding on all persons interested therein.

     Section 6.2 Manner of Taking Action. All actions permitted or required to be taken
hereunder by a person who is an Eligible Individual under Section 3.1 or a Participant shall be
effective only if such action is taken at the time and in the manner prescribed by the Committee
and in accordance with the terms of the Plan. All actions permitted or required to be taken

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hereunder by the Committee may be taken by a majority of its members at a meeting in person or by
telephone, or by unanimous written consent of such members. The Committee may delegate to any one
or more of its members authority to individually take any action the Committee is authorized to
take hereunder.

     Section 6.3 Plan Expenses. All expenses of administering the Plan shall be borne by
the Plan Sponsor.

     Section 6.4 Indemnification of Committee. The Plan Sponsor shall indemnify and save
harmless any person serving as a member of the Committee from claims for liability, loss or damage
(including payment of expenses in connection with defense against any such claim) which result from
such person’s good faith exercise or failure to exercise any responsibilities with respect to the
Plan.

     Section 6.5 Claims Procedure.

          (a) Benefit Claims. A Participant (or his or her Beneficiary in the event of the
Participant’s death) may file a claim with respect to amounts asserted to be due hereunder by
filing a written claim with the Committee specifying the nature of such claim in detail. The
Committee shall notify the claimant within sixty (60) days as to whether the claim is allowed or
denied, unless the claimant receives written notice from the Committee prior to the end of the
sixty (60) day period stating that special circumstances require an extension of time for a
decision on the claim, in which case the period shall be extended by an additional sixty (60) days.
Notice of the Committee’s decision shall be in writing, sent by mail to the Participant’s or
Beneficiary’s last known address and, if the claim is denied, such notice shall (i) state the
specific reasons for denial, (ii) refer to the specific provisions of the Plan upon which such
denial is based, and (iii) describe any additional
information or material necessary to perfect the claim, an explanation of why such information
or material is necessary, and an explanation of the review procedure in Section 6.5(b), including a
statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following
an adverse determination on review.

          (b) Review Procedure. A claimant is entitled to request a review of any denial of his
or her claim under Section 6.5(a). The request for review must be submitted to the Committee in
writing within sixty (60) days of mailing by the Committee of notice of the denial. Absent a
request for review within the sixty (60) day period, the claim shall be extinguished in its
entirety. The claimant or his or her representative shall be entitled to submit issues and
comments orally and in writing, as well as other written documents, to the Committee. The claimant
shall also be entitled to receive from the Committee, upon request and free of charge, reasonable
access to and copies of all documents, records and other information relating to his or her claim.
The review shall be conducted by the Committee, which shall afford the claimant a hearing and which
shall render a decision in writing within sixty (60) days of a request for a review, provided that,
if the Committee determines prior to the end of such sixty (60) day review period that special
circumstances require an extension of time for the review and decision of the denial, the period
for review and decision on the denial shall be extended by an additional sixty (60) days. The
review shall take account of all comments, documents, records and other information submitted by
the claimant relating to the

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claim, without regard to whether such information was submitted or
considered in the initial benefit determination under Section 6.5(a). The claimant shall receive
written notice of the Committee’s review decision, together with specific reasons for the decision
and reference to the pertinent provisions of the Plan. The claimant shall also be notified that,
upon request and free of charge, the claimant can have reasonable access to and copies of all
documents, records and other information relevant to his or her claim.

          Section 6.6 Performance-Based Awards.

          In the event that the Committee has designated a Cash Incentive Award to be
“performance-based” compensation for purposes of Code Section 162(m), such award will be
conditioned on the achievement of one or more performance measures included in the IndyMac Bancorp,
Inc. 2002 Incentive Plan, as Amended and Restated, or such other incentive plan under which the
award is issued. The grant of such award and the establishment of the relevant performance goals
shall be made during the period required under Code Section 162(m). The Committee shall certify in
writing prior to the vesting of such award that the performance goals applicable to such award, as
well as any other material terms applicable to such award, were satisfied.

ARTICLE VII

BENEFICIARY DESIGNATION

     A Participant may, in the manner prescribed by the Committee, designate one or more
Beneficiaries to receive the balance credited to the Participant’s Account, if any, in the event of
the Participant’s death prior to full payment thereof. Such beneficiary designation may be changed
by the Participant at any time without the consent of any prior Beneficiary by making a
new designation in the same manner; provided, however, that no such designation shall be
effective unless received by the Committee or its agent for such purpose prior to the Participant’s
death. If a Participant fails to designate a Beneficiary hereunder, or if no Beneficiary survives
the Participant, the Participant’s estate shall be deemed to be the Beneficiary.

ARTICLE VIII

AMENDMENT OR TERMINATION

     The Committee may amend or terminate the Plan at any time, in whole or in part, and for any
reason, provided, however, that no amendment or termination shall reduce a
Participant’s accumulated Deferral Account nor shall any amendment detrimentally change the terms
and conditions of the Plan with respect to any deferrals made prior to such amendment unless the
Committee determines that such amendment is required by law to preserve the tax deferral of such
Deferral Account or otherwise to comply with Section 409A of the Code.

ARTICLE IX

GRANTOR TRUST CONTRIBUTIONS

     The Company shall make payments to the Trust in the form of cash. Any payment distribution
made to a Participant or Beneficiary from the Trust shall relieve the Company and the Plan Sponsor
from any further obligations under the Plan only to the extent of such payment

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or distribution.
Notwithstanding any other provisions of the Plan, the assets of the Trust shall remain the property
of the Plan Sponsor, and shall be subject to the claims of creditors in the event of bankruptcy or
insolvency, as provided in the Trust agreement.

ARTICLE X

MISCELLANEOUS

     Section 10.1 Liability of the Plan Sponsor and Company; Nature of Obligation. Nothing
herein shall be deemed to constitute the creation of a trust or other fiduciary relationship
between the Company and any of its employees, between the Company and any other person, or between
the Plan Sponsor and the Company’s employees or any other person. The Plan Sponsor and the Company
shall not be considered a trustee by reason of this Plan. Participants, Beneficiaries and any
other person who may have rights hereunder shall be mere unsecured general creditors of the Company
and the Plan Sponsor with respect to a Participant’s Deferral Account and any Cash Incentive Award
deferred or interest or shares of Stock credited hereunder, and all amounts credited to a Deferral
Account shall be payable from the general assets of the Plan Sponsor or the Company, as the case
may be.

     Section 10.2 Right of Set-Off. Notwithstanding any provision of the Plan to the
contrary, the Plan Sponsor and the Company, as the case may be, shall have the right to reduce and
offset any payment to which a Participant or Beneficiary is entitled to receive hereunder by the
amount of any debt or other amount owed to the Plan Sponsor or Company, respectively, by the
Participant at the time of such payment.

     Section 10.3 No Guarantee of Employment. Nothing contained herein shall require the
Company or any of its affiliates to continue any person in its employ, and the Company and its
affiliates shall have the right to terminate the employment of any person at any time
notwithstanding the terms of the Plan.

     Section 10.4 Benefits Not Assignable. The Deferral Account of a Participant and any
right or interest in any Cash Incentive Award granted or deferred hereunder, and any interest or
shares of Stock credited hereunder, shall not be subject to alienation, transfer, assignment,
garnishment, execution or levy of any kind or nature, or claim for alimony or support pursuant to a
divorce decree or other court order, and any attempt to accomplish the foregoing shall be null and
void.

     Section 10.5 Severability. If any particular provision of the Plan shall be found by
final judgment of a court or administrative tribunal of competent jurisdiction to be illegal,
invalid or unenforceable, such illegal, invalid or unenforceable provision shall not affect any
other provision of the Plan and the other provisions of the Plan shall remain in full force and
effect.

     Section 10.6 Tax Withholding. Any cash amounts and shares of Stock payable hereunder
shall be subject to all applicable federal, state and local tax withholding.

     Section 10.7 Headings. The headings of the several Articles and Sections of this
Plan have been inserted for convenience of reference only and shall in no way restrict or
modify any of the terms of the provisions hereof.

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     Section 10.8 Governing Law. To the extent not subject to ERISA, the Plan shall be
governed by and construed and enforced in accordance with the laws of the State of California,
without regard to conflicts of laws principles thereof.

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EXHIBIT 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE OF CLAIMS

     In consideration of the terms, conditions, releases, and covenants contained in this
Separation Agreement and General Release of Claims (“Agreement”), you, Nelson Chan (“you”), and
SanDisk Corporation (the “Company”) agree as follows:

     1. Effective Date. This Agreement shall become effective on the eighth day after you deliver
to the Company a fully-executed version of this Agreement without modification or revocation (the
“Effective Date”).

     2. Separation of Employment. You acknowledge that your employment with the Company and any of
its affiliates will end effective December 8, 2006 (the “Separation Date”). You further
acknowledge that you will cease serving as Executive Vice President of Consumer Products Business
and Corporate Marketing, and as an officer or employee of the Company and any of its affiliates as
of the Separation Date, and that you are to perform no duties, functions or services for the
Company after the Separation Date.

     3. Payment of Moneys Owed. You acknowledge that the Company has paid you for all wages or
salary earned, and any accrued but unused Paid Time Off (“PTO”), through your Separation Date. You
are entitled to this payment regardless of whether you sign this Agreement. Group health benefits
for which you currently are eligible will continue through the end of the month in which the
Separation Date occurs, but your accrual of, and eligibility for, PTO, holiday pay, and any other
employee benefits and privileges will cease on the Separation Date.

     4. Consideration. In exchange for your promises in this Agreement, including your general
release of claims, if you sign and do not revoke this Agreement, the Company will provide you the
severance pay and severance benefits listed on Schedule A, in connection with the
separation of your employment with the Company (the severance pay and benefits being referred to
collectively as the “Severance Payment”), on such dates as identified in Schedule A.

     5. Acknowledgment of Consideration. You acknowledge that the payment and benefits described
in Paragraph 4, above, represent amounts above and beyond those to which you would be entitled if
you did not enter into this Agreement.

     6. Proprietary Information and Inventions Agreement. You agree that you will comply in all
respects with the Proprietary Information and Inventions Agreement (“PIIA”) that you entered into
with the Company. You further agree that if you breach the PIIA, then (a) the Company shall be
entitled to apply for and receive an injunction to restrain such breach; (b) the Company shall not
be obligated to pay you the Severance Payment or continue the availability of the Severance
Payment benefits to you; (c) you shall be obligated to pay the Company its costs and expenses
incurred in enforcing the PIIA (including court costs, expenses, and reasonable attorneys’ fees);
and (d) the Company shall be entitled to seek any and all damages and other remedies available to
it at law or equity.

     7. Confidential Information/Company Property. You acknowledge that all tangible information,
including all files, records, summaries, bills, invoices, copies, excerpts, data, memoranda,
letters, notes, written policies and procedures manuals and other information or material
pertaining to your work at the Company or containing Confidential Information which came into your
custody, possession or knowledge or were compiled prepared, developed or used by you at any time in
the course

 

 

of or in connection with your work at the Company, and all tangible property put in your
custody or possession by the Company in connection with your work at the Company is solely the
property of the Company, and you agree that you will immediately return to the Company all such
tangible information in your possession or control. You also agree to immediately return to the
Company all other Company property and equipment.

     8. Nondisparagement. You agree on behalf of yourself and your representatives and agents,
that neither you nor any of them will make any disparaging or defamatory comments to any third
party concerning the Company, concerning its or their officers, directors, partners, employees or
agents, or concerning its or their methods of doing business, clients, or employment practices.

     9. Full and General Release. In consideration for the payments and benefits provided for in
Paragraph 4, and notwithstanding the provisions of Section 1542 of the Civil Code of the State of
California, on behalf of yourself and your heirs, assigns, successors, administrators and
representatives, you unconditionally release and forever discharge the Company, and its affiliates,
parents, subsidiaries, related companies, successors, predecessors, and assigns, and all of its and
their officers, directors, partners, shareholders, employees, consultants, agents, representatives,
and attorneys, past and present, and each of them (collectively referred to herein as “Releasees”),
from any and all claims, demands, actions, suits, causes of action, obligations, damages and
liabilities of whatever kind or nature, based on any act, omission, event, occurrence, or
nonoccurrence from the beginning of time to the date of execution of this Agreement, including, but
not limited to, claims that arise out of or in any way relate to your employment or separation from
employment with the Company. You acknowledge and agree that this general release includes, but is
not limited to, any claims for salary, bonuses, compensation (except as specified in this
Agreement), wages, vesting, equity, penalties, premiums, severance pay, vacation pay or any
benefits under the Employee Retirement Income Security Act of 1974, as amended. You acknowledge and
agree that this general release includes, but is not limited to, claims of breach of implied or
express employment contracts or covenants, defamation, wrongful termination, public policy
violations, emotional distress and related matters, claims of discrimination or harassment under
federal, state or local laws, and claims based on any federal, state or other governmental statute,
regulation or ordinance, including, but not limited to, Title VII of the Civil Rights Act of 1964,
as amended, the Civil Rights Act of 1991, the Americans With Disabilities Act, the Family and
Medical Leave Act, the Sarbanes-Oxley Act, the California Fair Employment & Housing Act, the
California Labor Code, the California Family Rights Act, the California Constitution, the
California Industrial Welfare Commission Wage Orders, and the California Government Code. You
expressly understand that among the various rights and claims being waived by you in this Agreement
are those arising under the Age Discrimination in Employment Act of 1967 (“ADEA”), as amended, and
in that regard you specifically acknowledge that you have read and understand the provisions of
Paragraph 13 below before signing this Agreement. This release, however, does not apply to any
claims that cannot be released as a matter of applicable law.

     10. Covenant Not to Sue. A “covenant not to sue” is a legal term which means you promise not
to file a lawsuit in court. It is different from the General Release of claims contained in
Paragraph 9 above. Besides waiving and releasing the claims covered by Paragraph 9 above, you
represent and warrant that you have not filed, and agree that you will not file, or cause to be
filed, any judicial complaint or lawsuit involving any claims you have released in Paragraph 9,
and you agree to withdraw any judicial complaints or lawsuits you have filed, or that were filed on
your behalf, prior to the effective date of this Agreement. Notwithstanding this Covenant Not To
Sue, you may bring a claim against the Company to enforce this Agreement or to challenge the
validity of this Agreement under the ADEA. You agree and acknowledge that if you sue the Company
or any other Releasee in violation of this Agreement,

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then you shall pay all legal expenses, including reasonable attorneys’ fees, incurred by any
Releasee in defending against your suit. Alternatively, if you sue the Company in violation of
this Agreement, you may, at the Company’s option, be required to return all monies and other
benefits paid to you pursuant to this Agreement, except for $1,000.00. In that event, the Company
shall be excused from making any further payments or continuing any other benefits otherwise owed
to you under Paragraph 4 of this Agreement.

     11. Release of Unknown Claims. For the purpose of implementing a full and complete release,
you expressly acknowledge and agree that this Agreement resolves all legal claims you may have
against the Company and the Releasees as of the date of this Agreement, including but not limited
to claims that you did not know or suspect to exist in your favor at the time of the effective date
of this Agreement, despite the fact that California Civil Code Section 1542 or other applicable law
may provide otherwise. You expressly waive any and all rights which you may have under the
provisions of Section 1542 of the California Civil Code or any similar law. Section 1542 provides:

“A general release does not extend to claims which the creditor does
not know or suspect to exist in his or her favor at the time of
executing the release, which if known by him or her must have
materially affected his or her settlement with the debtor.”

     12. Exclusions. Excluded from this Agreement are any claims or rights which cannot be waived
by law, including the right to file a charge of discrimination with, or participate in an
investigation conducted by, an administrative agency. You are waiving, however, your right to any
monetary recovery or other relief in connection with such a charge.

     13. ADEA Waiver. You expressly acknowledge and agree that, by entering into this Agreement,
you are waiving any and all rights or claims that you may have arising under the ADEA, which have
arisen on or before the date of execution of this Agreement. You acknowledge that you hereby have
been advised in writing to consult with an attorney before you sign this Agreement. You understand
that this Agreement is not part of a group incentive plan and that you have twenty-one (21) days
within which to decide whether to sign this Agreement, although you may sign this Agreement at any
time within the twenty-one (21) day period. If you do sign it, you also understand that you will
have an additional seven (7) days after you sign to change your mind and revoke the Agreement, in
which case a written notice of revocation must be delivered to Tom Baker, VP Human Resources, 601
McCarthy Blvd, Milpitas, CA 95035, on or before the seventh (7th) day after your execution of the
Agreement. You understand that the Agreement will not become effective until after that seven (7)
day revocation period has passed. You acknowledge that you are signing this Agreement knowingly
and voluntarily and intend to be bound legally by its terms.

     14. Equity. You acknowledge and agree that, except as set forth in Paragraphs 3 and 4 of
Schedule A to this Agreement, you have no further right or benefits under any agreement to receive
or acquire any security or derivative security in or with respect to the Company or any Releasee.

     15. Covenant Not to Solicit. For a period of twelve (12) months following the Separation
Date, you agree that you will not, without the prior written consent of the Company, directly or
indirectly (including through your assistance or encouragement to any entity or person for whom you
serve as an employee, partner, member, director, officer, volunteer, advisor, or consultant)
solicit, encourage or induce any employee, sales representative, agent or consultant of the Company
to terminate such person’s

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employment or engagement with the Company or to become employed or engaged by you or any
entity or other person who competes with the Company’s business or is otherwise affiliated with
you. This Paragraph 15 shall not shall prevent generalized employment searches, including placing
bona fide public advertisements, that are not specifically targeted at the Company’s employees,
sales representatives, agents or consultants.

     16. No Reemployment. You agree not to seek employment or reinstatement with any Releasee.
You acknowledge and agree that none of the Releasees has any obligation to employ you or offer you
employment in the future and that you shall have no recourse against the Releasees, or any of them,
if they refuse to employ you or offer you employment.

     17. On-The-Job Injury. You certify that you have not experienced a job-related illness or
injury for which you have not already filed a claim.

     18. Taxes. Subject to the Company’s right to satisfy any tax withholding obligations it may
have with respect to any payments made under this Agreement, you shall be solely responsible for
any and all tax liabilities (including interest and/or penalties) that you may incur with respect
to any payment or benefit hereunder or otherwise with respect to your employment with the Company,
including (without limitation) (i) any tax liabilities imposed pursuant to Section 409A of the U.S.
Internal Revenue Code of 1986, as amended, (ii) any tax liabilities with respect to stock options
(whether ISO or nonqualified), and (iii) any liability for the alternative minimum tax.. You
acknowledge and agree that neither the Company nor any of its directors, officers, or advisors has
provided any tax advice to you or otherwise made any representations or guarantees to you with
respect to the tax treatment of any such payment. You acknowledge and agree that you have relied
entirely on your own professional tax advisors as to these matters.

     19. Binding Agreement. This Agreement shall be binding upon you and your heirs,
administrators, representatives, executors, successors and assigns, and shall inure to the benefit
of Releasees and each of them, and to their heirs, administrators, representatives, executors,
successors, and assigns.

     20. Severability. Should any provision of this Agreement be declared or be determined by any
court to be illegal or invalid, the validity of the remaining parts, terms, or provisions shall not
be affected, and said illegal or invalid part, term, or provision shall be deemed not to be part of
this Agreement.

     21. Non-Admission of Liability. This Agreement does not constitute an admission that the
Company or any other Releasee has violated any law, rule, regulation, contractual right or any
other duty or obligation.

     22. Governing Law. This Agreement is made and entered into in the State of California and
shall in all respects be interpreted, enforced, and governed under the law of that state. The
language of all parts in this Agreement shall be construed as a whole, according to fair meaning,
and not strictly for or against any party.

     23. Entire Agreement. Except with respect to the PIIA, and the stock option and restricted
stock purchase agreements underlying your equity rights in Paragraphs 3 and 4 of Schedule A to this
Agreement, this Agreement sets forth the entire agreement between the Company and you regarding the
subject matter addressed herein. The parties intend it as a complete and exclusive statement of
the terms

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of their agreement. It supersedes and replaces all prior negotiations and agreements,
proposed or otherwise, whether written or oral, between the parties concerning the subject matters
addressed herein. This Agreement also expressly supersedes, and eliminates your rights under, the
Change in Control Agreement, dated May 20, 2004, as amended as of August 11, 2005. This Agreement
may not be amended, modified or superseded except by a written agreement signed by both you and the
Company. No oral statement by any employee of the Company shall modify or otherwise affect the
terms and provisions of this Agreement.

PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES THE RELEASE OF ALL KNOWN AND UNKNOWN
CLAIMS.

	 	 	 	 	 
	Dated: December 8, 2006

	 	NELSON CHAN	 	 
	 
	 

	 	/s/ Nelson Chan
 

	 	 

	 	 	 	 	 	 	 
	Dated: December 8, 2006	 	SANDISK CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Tom Baker
 

	 	 
	 

	 	Its:
	 	Vice President Human Resources	 	 

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Schedule A: Severance Benefits

For Nelson Chan

     In consideration for signing, returning, and complying with the terms of the Separation
Agreement and General Release of Claims (the “Agreement”), SanDisk Corporation (the “Company”) will
provide you, Nelson Chan (“you”) with the following severance pay and severance benefits:

     1. Severance Payment: On the first business day following the Effective Date, the Company
will pay you a lump sum amount equal to $700,000.00 less applicable withholdings and deductions,
which represents (a) one year of your base salary as of the Separation Date and (b) your target
bonus for fiscal year 2006, which is equal to seventy-five per cent (75%) of your base salary as of
the Separation Date.

     2. COBRA Reimbursement. Following the Separation Date, you will have the option to convert
your health and dental insurance coverage pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”). Provided that you timely elect such COBRA coverage, the
Company shall reimburse you for the COBRA premiums you incur to extend coverage for you, and to the
extent your wife ceases to be an employee of the Company, your wife, for the period commencing on
the Separation Date and ending on the earlier of: (a) the date you or your wife becomes eligible
to receive health and dental insurance benefits with comparable coverage from a subsequent employer
or (b) the eighteen (18) month anniversary of the Separation Date (the “COBRA Reimbursement
Period”). Subject to the terms of the preceding sentence, the Company will reimburse you for all
COBRA premiums paid by you during the COBRA Reimbursement Period within ten (10) days of you
submitting an invoice or proof of payment for any such COBRA premium.

     3. Stock Option Acceleration: The parties agree that you have been granted options to
purchase 539,376 shares of the Company’s Common Stock (the “Options”) that have not yet fully
vested as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Unexercised and	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Vested as of	 	 	Unvested as of	 	 	 	 	 	 	Unvested Shares	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Separation Date	 	 	Separation Date	 	 	Accelerated	 	 	Upon Separation	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(before giving	 	 	(before giving	 	 	Vesting	 	 	Date (after giving	 
	 	 	Date of	 	 	# of	 	 	 	 	 	 	effect to	 	 	effect to	 	 	Upon	 	 	effect to	 
	Grant	 	100%	 	 	Shares	 	 	 	 	 	 	accelerated	 	 	accelerated	 	 	Separation	 	 	accelerated	 
	Date	 	Vest	 	 	Granted	 	 	Price	 	 	vesting)	 	 	vesting)	 	 	Date	 	 	vesting)	 
	1/21/03
	 	 	1/21/07	 	 	 	9,376	 	 	$	8.8650	 	 	 	0	 	 	 	9,376	 	 	 	9,376	 	 	 	0	 
	1/16/04
	 	 	1/16/08	 	 	 	3,378	 	 	$	34.5850	 	 	 	0	 	 	 	3,378	 	 	 	488	 	 	 	2,890	 
	1/16/04
	 	 	1/16/08	 	 	 	246,622	 	 	$	34.5850	 	 	 	141,874	 	 	 	74,748	 	 	 	62,012	 	 	 	12,736	 

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	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Unexercised and	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Vested as of	 	 	Unvested as of	 	 	 	 	 	 	Unvested Shares	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Separation Date	 	 	Separation Date	 	 	Accelerated	 	 	Upon Separation	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(before giving	 	 	(before giving	 	 	Vesting	 	 	Date (after giving	 
	 	 	Date of	 	 	# of	 	 	 	 	 	 	effect to	 	 	effect to	 	 	Upon	 	 	effect to	 
	Grant	 	100%	 	 	Shares	 	 	 	 	 	 	accelerated	 	 	accelerated	 	 	Separation	 	 	accelerated	 
	Date	 	Vest	 	 	Granted	 	 	Price	 	 	vesting)	 	 	vesting)	 	 	Date	 	 	vesting)	 
	8/12/04
	 	 	8/12/08	 	 	 	2	 	 	$	21.1900	 	 	 	0	 	 	 	2	 	 	 	0	 	 	 	2	 
	8/12/04
	 	 	8/12/08	 	 	 	49,998	 	 	$	21.1900	 	 	 	28,125	 	 	 	21,873	 	 	 	12,500	 	 	 	9,373	 
	1/3/05
	 	 	1/3/09	 	 	 	4,135	 	 	$	24.1800	 	 	 	0	 	 	 	4,135	 	 	 	0	 	 	 	4,135	 
	1/3/05
	 	 	1/3/09	 	 	 	145,865	 	 	$	24.1800	 	 	 	65,625	 	 	 	80,240	 	 	 	37,500	 	 	 	42,740	 
	2/16/06
	 	 	2/16/10	 	 	 	80,000	 	 	$	59.0400	 	 	 	0	 	 	 	80,000	 	 	 	35,000	 	 	 	45,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	TOTAL
	 	 	 	 	 	 	539,376	 	 	 	 	 	 	 	235,624	 	 	 	273,752	 	 	 	156,876	 	 	 	116,876	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

     As set forth above, as of the Separation Date, of the 539,376 shares of Common Stock subject
to the Options, you currently have a vested right to acquire 235,624 shares of the Company’s Common
Stock, and the remaining 273,752 shares are unvested. As further consideration for this Agreement
and provided that you sign and do not revoke the Agreement, you shall be entitled to an
acceleration of vesting of 156,876 stock options in the increments with respect to each grant as
set forth above, which represents the stock options that would have vested had you remained in
service to the Company through the one-year anniversary of the Separation Date. As of the
Separation Date, the remaining 116,876 unvested stock options shall terminate, and you will have no
further rights with respect thereto.

     You further acknowledge and agree that Exhibit 1 to this Schedule A accurately reflects all
outstanding option grants received by you. The shares set out in Exhibit 1 that are vested as of
the Separation Date or were scheduled to vest on or before the one-year anniversary of the
Separation Date and are subject to accelerated vesting pursuant to this Paragraph 3 (collectively,
the “Unexercised and Vested Shares”) will be exercisable by you according to the terms of your
existing stock option agreements and the plan. The Unexercised and Vested Shares will remain
exercisable only through the end of the applicable exercise period following your Separation Date,
and no additional shares under your options will vest following your Separation Date. The
applicable exercise period following your Separation Date will be two (2) months for any options
granted to you before June 20, 2001 and will be three (3) months for any options granted to you on
or after June 20, 2001 (subject, in each case, to the original ten-year expiration period of the
applicable grant).

     4. Restricted Stock Unit Acceleration. The parties agree that, on May 26, 2006, you were
granted 50,000 Restricted Stock Units (the “RSUs”) pursuant to the Company’s Amended and Restated
2005 Incentive Plan (the “2005 Incentive Plan”). Of these 50,000 RSUs, as of the Separation Date,
you do not have a vested right to payment with respect to any RSUs. As further consideration for
this Agreement and provided that you sign and do not revoke the Agreement, you shall be entitled to
an acceleration of vesting of 12,500 RSUs, which represents the RSUs that would have vested had you
remained in service to the Company through February 16, 2007. Accordingly, upon the Separation
Date and subject to this Agreement becoming effective, you shall have a vested right to payment
with respect to 12,500 RSUs in accordance with the terms of the 2005 Incentive Plan and the
applicable award agreement, and the remaining 37,500 RSUs will remain unvested and terminate as of
the Separation Date in accordance with the terms of the 2005 Incentive Plan and the award
agreement. The payment under this Paragraph 4 shall be subject to applicable tax withholdings and
standard deductions.

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