Document:

exv10w6

 

Exhibit 10.6

AMENDMENT NO. 2 TO

INDEMNIFICATION AND REIMBURSEMENT AGREEMENT

     THIS AMENDMENT NO. 2 to Indemnification and Reimbursement Agreement (“Amendment”),
dated as of May 29, 2006, is made by and between SanDisk Corporation, a Delaware corporation
(“SanDisk”), and Toshiba Corporation, a Japanese Corporation (“Toshiba”).

WITNESSETH:

          WHEREAS, SanDisk and Toshiba are parties to that certain Indemnification and Reimbursement
Agreement dated as of April 10, 2002, as amended by the Amendment to Indemnification and
Reimbursement Agreement dated as of May 29, 2002 (“Indemnification Agreement”); and

          WHEREAS, SanDisk and Toshiba desire to further amend the Indemnification Agreement to make
certain amendments as set forth below.

          NOW THEREFORE, in consideration of the premises and of the mutual promises herein contained,
the parties hereto agree as follows:

     1. Amendment to Section 1. The definitions of “Guarantor-Triggered Refinancing
Document Default” and “Refinancing Lease Agreement” as set forth in Section 1 of the
Indemnification Agreement are hereby deleted in their entirety and the following definitions are
substituted in lieu thereof.

          “Guarantor-Triggered Refinancing Document Default” means any event, occurrence or circumstance
affecting or effected by Toshiba or any act or omission by Toshiba (including, without limitation,
difficulty in performing any obligation under the Toshiba Guaranty) in any case the occurrence or
existence of which constitutes an event described under Article 25, Paragraph 1(5), 1(6), 1(7),
1(8), or 1(10) of the Refinancing Lease Agreement.

          “Refinancing Lease Agreement” means that certain Lease Agreement dated May 29, 2006 made and
entered into by and among IBJ Leasing Co., Ltd., Sumisho Lease Co., Ltd. and FVC-Japan (as from
time to time amended, restated, supplemented or otherwise modified).

     2. Governing Law. This Amendment shall be deemed to be a contract under the laws of
the State of California and for all purposes shall be governed by and construed in accordance with
such laws.

     3. Effect of this Amendment. Except as specifically amended hereby, the
Indemnification Agreement shall remain in full force and effect as in existence on the date hereof
and is hereby ratified and confirmed in all respects.

 

 

     4. Counterparts. This Amendment may be executed in any number of counterparts which
together shall constitute one and the same instrument.

[Remainder of Page Intentionally Left Blank]

 

 

     IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the date and year
written above.

	 	 	 	 	 
	 	 	SANDISK CORPORATION
	 
	 
	 	/s/ Judy Bruner	 	 
	 	 	 
	 

	 	Name:
	 	Judy Bruner
	 

	 	Title:
	 	Chief Financial Officer
	 
	 	 	 	 
	 	 	TOSHIBA CORPORATION
	 
	 
	 	/s/ Shozo Saito	 	 
	 	 	 
	 

	 	Name:
	 	Shozo Saito
	 

	 	Title:
	 	Executive Vice President
	 

	 	 	 	Memory Division, Semiconductor Companyexv10w7

 

Exhibit 10.7

SANDISK CORPORATION

AMENDED AND RESTATED 2005 INCENTIVE PLAN

ARTICLE ONE

GENERAL PROVISIONS

		
	I.	
    PURPOSE OF THE PLAN

     
This 2005 Incentive Plan is intended to promote the interests of
SanDisk Corporation, a Delaware corporation, by providing
eligible persons in the Corporation’s service with the
opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an
incentive for them to remain in such service. The Amended and
Restated Plan reflects amendments adopted in 2006.

     
Capitalized terms shall have the meanings assigned to such terms
in the attached Appendix.

		
	II.	
    STRUCTURE OF THE PLAN

     
A. The Plan shall be divided into three separate equity
incentive programs:

			
	 	• 	
    the Discretionary Grant Program under which eligible persons
    may, at the discretion of the Plan Administrator, be granted
    options to purchase shares of Common Stock or stock appreciation
    rights tied to the value of such Common Stock,
	 
	 	• 	
    the Stock Issuance and Cash Bonus Program under which eligible
    persons may, at the discretion of the Plan Administrator, be
    issued shares of Common Stock pursuant to restricted stock
    awards, restricted stock units or other stock-based awards which
    vest upon the completion of a designated service period or the
    attainment of pre-established performance milestones, be awarded
    cash bonus opportunities which are earned through the attainment
    of pre-established performance milestones, or be issued shares
    of Common Stock through direct purchase or as a bonus for
    services rendered the Corporation (or any Parent or
    Subsidiary), and
	 
	 	• 	
    the Automatic Grant Program under which eligible non-employee
    Board members will automatically receive grants at designated
    intervals over their period of continued Board service.

     
B. The provisions of Articles One and Five shall apply
to all equity programs under the Plan and shall govern the
interests of all persons under the Plan.

		
	III.	
    ADMINISTRATION OF THE PLAN

     
A. The Compensation Committee shall have sole and exclusive
authority to administer the Discretionary Grant Program and
Stock Issuance and Cash Bonus Program with respect to
Section 16 Insiders. Administration of the Discretionary
Grant Program and Stock and Cash Bonus Issuance Program with
respect to all other persons eligible to participate in those
programs may, at the Board’s discretion, be vested in the
Compensation Committee or a Secondary Board Committee, or the
Board may retain the power to administer those programs with
respect to all such persons. However, any discretionary option
grants, stock appreciation rights, stock issuances or other
stock-based awards for members of the Compensation Committee
must be authorized by a disinterested majority of the Board.

     
B. Members of the Compensation Committee or any Secondary
Board Committee shall serve for such period of time as the Board
may determine and may be removed by the Board at any time. The
Board may also at any time terminate the functions of any
Secondary Board Committee and reassume all powers and authority
previously delegated to such committee.

     
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and
authority (subject to the provisions of the Plan) to establish
such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Grant Program and Stock
Issuance and Cash Bonus Program and to make such determinations
under, and issue such interpretations of, the provisions

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of those programs and any outstanding options, stock
appreciation rights, stock issuances, other stock-based awards
or cash bonus opportunities thereunder as it may deem necessary
or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be
final and binding on all parties who have an interest in the
Discretionary Grant Program and Stock Issuance and Cash Bonus
Program under its jurisdiction or any stock option, stock
appreciation right, stock issuance or other award thereunder.

     
D. Service as a Plan Administrator by the members of the
Compensation Committee or the Secondary Board Committee shall
constitute service as Board members, and the members of each
such committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their
service on such committee. No member of the Compensation
Committee or the Secondary Board Committee shall be liable for
any act or omission made in good faith with respect to the Plan
or any option grant, stock appreciation right, stock issuance or
other award under the Plan.

     
E. Administration of the Automatic Grant Program shall be
self-executing in accordance with the terms of that program, and
no Plan Administrator shall exercise any discretionary functions
with respect to any option grants or stock issuances made under
that program, except that the Compensation Committee shall have
the express authority to establish from time to time the
specific number of shares to be subject to the initial and
annual grants made to the non-employee Board members under such
program.

     
F. Awards to Employees who are “covered
employees” under Section 162(m) of the Code of
(i) options or stock appreciation rights, or
(ii) shares or cash subject to the achievement of
pre-established criteria as described in Section I.B.2 of
Article Three of the Stock Issuance and Cash Bonus Program,
shall be deemed to be intended as performance-based compensation
within the meaning of Section 162(m) of the Code unless the
Compensation Committee provides otherwise at the time such an
award is granted.

		
	IV.	
    ELIGIBILITY

     
A. The persons eligible to participate in the Discretionary
Grant Program and Stock Issuance and Cash Bonus Program are as
follows:

		
	 	     
    (i) Employees,
	 
	 	     
    (ii) non-employee members of the Board or the board of
    directors of any Parent or Subsidiary, and
	 
	 	     
    (iii) consultants and other independent advisors who
    provide services to the Corporation (or any Parent or
    Subsidiary).

Notwithstanding the foregoing, only Employees are eligible to
receive awards intended to constitute performance-based
compensation under Code Section 162(m).

     
B. The Plan Administrator shall have full authority to
determine, (i) with respect to the grant of options or
stock appreciation rights under the Discretionary Grant Program,
which eligible persons are to receive such grants, the time or
times when those grants are to be made, the number of shares to
be covered by each such grant, the time or times when the grant
is to become exercisable, the vesting schedule (if any)
applicable to the granted option or stock appreciation right,
the maximum term for which such option or stock appreciation
right is to remain outstanding and the status of a granted
option as either an Incentive Option or a Non-Statutory Option
and (ii) with respect to stock issuances, other stock-based
awards or cash bonus opportunities under the Stock Issuance and
Cash Bonus Program, which eligible persons are to receive such
issuances, awards or opportunities, the time or times when the
issuances, awards or opportunities are to be made, the number of
shares subject to each such issuance, award or opportunity, the
vesting and issuance schedules applicable to the shares which
are the subject of such issuance or award, the consideration for
those shares and the performance criteria and other terms with
respect to such cash bonus opportunities.

     
C. The Plan Administrator shall have the absolute
discretion either to grant options or stock appreciation rights
in accordance with the Discretionary Grant Program or to effect
stock issuances, other stock-based awards and bonus
opportunities in accordance with the Stock Issuance and Cash
Bonus Program.

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D. The individuals who shall be eligible to participate in
the Automatic Grant Program shall be limited to (i) those
individuals who first become non-employee Board members on or
after the Plan Effective Date, whether through appointment by
the Board or election by the Corporation’s stockholders,
and (ii) those individuals who continue to serve as
non-employee Board members on or after the Plan Effective Date.
A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall
not be eligible to receive a grant under the Automatic Grant
Program at the time he or she first becomes a non-employee Board
member, but shall be eligible to receive periodic grants under
the Automatic Grant Program while he or she continues to serve
as a non-employee Board member.

		
	V.	
    STOCK SUBJECT TO THE PLAN; ANNUAL CASH LIMITATION

     
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including
shares repurchased by the Corporation on the open market. The
number of shares of Common Stock reserved for issuance over the
term of the Plan shall be limited to twenty million seven
hundred thousand (20,700,000) shares. The Plan shall serve
as the successor to the two Predecessor Plans, and no further
stock option grants shall be made under those Predecessor Plans
on or after the Plan Effective Date. However, all options
outstanding under the Predecessor Plans on the Plan Effective
Date shall continue in full force and effect in accordance with
their terms, and no provision of this Plan shall be deemed to
affect or otherwise modify the rights or obligations of the
holders of those options with respect to their acquisition of
shares of Common Stock thereunder. To the extent any options
outstanding under the Predecessor Plans on the Plan Effective
Date expire or terminate unexercised, the number of shares of
Common Stock subject to those expired or terminated options at
the time of expiration or termination shall be added to the
share reserve under this Plan and shall accordingly be available
for issuance hereunder, up to a maximum of an additional ten
million (10,000,000) shares.

     
B. Notwithstanding the foregoing, the maximum number of
shares of Common Stock which may be issued without cash
consideration pursuant to the Stock Issuance and Cash Bonus
Program shall not exceed ten percent (10%) of the total number
of shares of Common Stock from time to time authorized for
issuance under the Plan, including (without limitation):
(i) any shares added to the Plan reserve by reason of the
expiration or termination of outstanding options under the
Predecessor Plans prior to exercise, (ii) any increases to
the Plan reserve from time to time approved by the
Corporation’s stockholders and (iii) any adjustments
to the authorized share reserve effected in accordance with
Section V.E. of this Article One.

     
C. No one person participating in the Plan may receive
stock options, stand-alone stock appreciation rights, direct
stock issuances (whether vested or unvested) or other
stock-based awards (whether in the form of restricted stock
units or other share-right awards) for more than one million
(1,000,000) shares of Common Stock in the aggregate per calendar
year. In addition, the aggregate amount of compensation to be
paid to any one participant in respect of all performance-based
awards under the Stock Issuance and Cash Bonus Program payable
only in cash and not related to shares of Common Stock and
granted to that participant in any one calendar year shall not
exceed five million dollars ($5,000,000).

     
D. Shares of Common Stock subject to outstanding options or
other awards made under the Plan shall be available for
subsequent issuance under the Plan to the extent those options
or awards expire or terminate for any reason prior to the
issuance of the shares of Common Stock subject to those options
or awards. Unvested shares issued under the Plan and
subsequently forfeited or repurchased by the Corporation, at a
price per share not greater than the original issue price paid
per share, pursuant to the Corporation’s repurchase rights
under the Plan shall be added back to the number of shares of
Common Stock reserved for issuance under the Plan and shall
accordingly be available for subsequent reissuance. Should the
exercise price of an option under the Plan be paid with shares
of Common Stock, then the authorized reserve of Common Stock
under the Plan shall be reduced by the gross number of shares
for which that option is exercised, and not by the net number of
shares issued under the exercised stock option.

     
If shares of Common Stock otherwise issuable under the Plan are
withheld by the Corporation in satisfaction of the withholding
taxes incurred in connection with the exercise of an option or
stock appreciation right or the issuance of fully-vested shares
under the Stock Issuance and Cash Bonus Program, then the

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number of shares of Common Stock available for issuance under
the Plan shall be reduced by the gross number of shares issuable
under the exercised stock option or stock appreciation right or
the gross number of fully-vested shares issuable under the Stock
Issuance and Cash Bonus Program, calculated in each instance
prior to any such share withholding.

     
E. If any change is made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the
Corporation’s receipt of consideration, appropriate
adjustments shall be made by the Plan Administrator to
(i) the maximum number and/or class of securities issuable
under the Plan, (ii) the maximum number and/or class of
securities by which the share under the Plan may increase by
reason of the expiration or termination of unexercised options
under the Predecessor Plans, (iii) the maximum number
and/or class of securities which may be issued without cash
consideration under the Stock Issuance and Cash Bonus Program,
(iv) the maximum number and/or class of securities for
which any one person may be granted stock options, stand-alone
stock appreciation rights, direct stock issuances and other
stock-based awards under the Plan per calendar year,
(v) the maximum number and/or class of securities for which
grants may subsequently be made under the Automatic Grant
Program to new and continuing non-employee Board members,
(vi) the number and/or class of securities and the exercise
or base price per share in effect under each outstanding option
or stock appreciation right under the Plan and (vii) the
number and/or class of securities subject to each outstanding
restricted stock unit or other stock-based award under the Plan
and the issue price (if any) payable per share. Such adjustments
to the outstanding options, stock appreciation rights or other
stock-based awards are to be effected in a manner which shall
preclude the enlargement or dilution of rights and benefits
under those options, stock appreciation rights or other
stock-based awards. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.

     
F. Outstanding awards granted pursuant to the Plan shall in
no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.

ARTICLE TWO

DISCRETIONARY GRANT PROGRAM

		
	I.	
    OPTION TERMS

     
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms
specified below. Each document evidencing an Incentive Option
shall, in addition, be subject to the provisions of the Plan
applicable to such options.

     
A. Exercise Price.

     
1. The exercise price per share shall be fixed by the Plan
Administrator; provided, however, that such exercise price shall
not be less than one hundred percent (100%) of the Fair Market
Value per share of Common Stock on the grant date.

     
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of
the documents evidencing the option, be payable in one or more
of the forms specified below:

		
	 	     
    (i) cash or check made payable to the Corporation,
	 
	 	     
    (ii) shares of Common Stock held for the requisite period
    (if any) necessary to avoid any resulting charge to the
    Corporation’s earnings for financial reporting purposes and
    valued at Fair Market Value on the Exercise Date, or
	 
	 	     
    (iii) to the extent the option is exercised for vested
    shares, through a special sale and remittance procedure pursuant
    to which the Optionee shall concurrently provide instructions to
    (a) a brokerage firm (reasonably satisfactory to the
    Corporation for purposes of administering such procedure in
    compliance

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    with the Corporation’s pre-clearance/pre-notification
    policies) to effect the immediate sale of the purchased shares
    and remit to the Corporation, out of the sale proceeds available
    on the settlement date, sufficient funds to cover the aggregate
    exercise price payable for the purchased shares plus all
    applicable income and employment taxes required to be withheld
    by the Corporation by reason of such exercise and (b) the
    Corporation to deliver the certificates for the purchased shares
    directly to such brokerage firm on such settlement date in order
    to complete the sale.

     
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.

     
B. Exercise and Term of Options. Each option
shall be exercisable at such time or times, during such period
and for such number of shares as shall be determined by the Plan
Administrator and set forth in the documents evidencing the
option. However, no option shall have a term in excess of seven
(7) years measured from the option grant date.

     
C. Effect of Termination of Service.

     
1. The following provisions shall govern the exercise of
any options granted pursuant to the Discretionary Grant Program
that are outstanding at the time of the Optionee’s
cessation of Service or death:

		
	 	     
    (i) Any option outstanding at the time of the
    Optionee’s cessation of Service for any reason shall remain
    exercisable for such period of time thereafter as shall be
    determined by the Plan Administrator and set forth in the
    documents evidencing the option, but no such option shall be
    exercisable after the expiration of the option term.
	 
	 	     
    (ii) Any option held by the Optionee at the time of the
    Optionee’s death and exercisable in whole or in part at
    that time may be subsequently exercised by the personal
    representative of the Optionee’s estate or by the person or
    persons to whom the option is transferred pursuant to the
    Optionee’s will or the laws of inheritance or by the
    Optionee’s designated beneficiary or beneficiaries of that
    option.
	 
	 	     
    (iii) Should the Optionee’s Service be terminated for
    Misconduct or should the Optionee otherwise engage in Misconduct
    while holding one or more outstanding options granted under this
    Article Two, then all of those options shall terminate
    immediately and cease to be outstanding.
	 
	 	     
    (iv) During the applicable post-Service exercise period,
    the option may not be exercised for more than the number of
    vested shares for which the option is at the time exercisable.
    No additional shares shall vest under the option following the
    Optionee’s cessation of Service, except to the extent (if
    any) specifically authorized by the Plan Administrator in its
    sole discretion pursuant to an express written agreement with
    the Optionee. Upon the expiration of the applicable exercise
    period or (if earlier) upon the expiration of the option term,
    the option shall terminate and cease to be outstanding for any
    shares for which the option has not been exercised.

     
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any
time while the option remains outstanding, to:

		
	 	     
    (i) extend the period of time for which the option is to
    remain exercisable following the Optionee’s cessation of
    Service from the limited exercise period otherwise in effect for
    that option to such greater period of time as the Plan
    Administrator shall deem appropriate, but in no event beyond the
    expiration of the option term,
	 
	 	     
    (ii) include an automatic extension provision whereby the
    specified post-Service exercise period in effect for any option
    granted under this Article Two shall automatically be
    extended by an additional period of time equal in duration to
    any interval within the specified post-Service exercise period
    during which the exercise of that option or the immediate sale
    of the shares acquired under such option could not be effected
    in compliance with applicable federal and state securities laws,
    but in no event shall such an extension result in the
    continuation of such option beyond the expiration date of the
    term of that option, and/or

5

 

		
	 	     
    (iii) permit the option to be exercised, during the
    applicable post-Service exercise period, not only with respect
    to the number of vested shares of Common Stock for which such
    option is exercisable at the time of the Optionee’s
    cessation of Service but also with respect to one or more
    additional installments in which the Optionee would have vested
    had the Optionee continued in Service.

     
D. Stockholder Rights. The holder of an
option shall have no stockholder rights with respect to the
shares subject to the option until such person shall have
exercised the option, paid the exercise price and become a
holder of record of the purchased shares.

     
E. Repurchase Rights. The Plan Administrator
shall have the discretion to grant options which are exercisable
for unvested shares of Common Stock. Should the Optionee cease
Service while such shares are unvested, the Corporation shall
have the right to repurchase any or all of those unvested shares
at a price per share equal to the lower of
(i) the exercise price paid per share or (ii) the Fair
Market Value per share of Common Stock at the time of
repurchase. The terms upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall
be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.

     
F. Transferability of Options. The
transferability of options granted under the Plan shall be
governed by the following provisions:

		
	 	     
    (i) Incentive Options: During the lifetime of
    the Optionee, Incentive Options shall be exercisable only by the
    Optionee and shall not be assignable or transferable other than
    by will or the laws of inheritance following the Optionee’s
    death.
	 
	 	     
    (ii) Non-Statutory Options. Non-Statutory
    Options shall be subject to the same limitation on transfer as
    Incentive Options, except that the Plan Administrator may
    structure one or more Non-Statutory Options so that the option
    may be assigned in whole or in part during the Optionee’s
    lifetime to one or more Family Members of the Optionee or to a
    trust established exclusively for one or more such Family
    Members, to the extent such assignment is in connection with the
    Optionee’s estate plan or pursuant to a domestic relations
    order. The assigned portion may only be exercised by the person
    or persons who acquire a proprietary interest in the option
    pursuant to the assignment. The terms applicable to the assigned
    portion shall be the same as those in effect for the option
    immediately prior to such assignment and shall be set forth in
    such documents issued to the assignee as the Plan Administrator
    may deem appropriate.
	 
	 	     
    (iii) Beneficiary Designations.
    Notwithstanding the foregoing, the Optionee may designate one or
    more persons as the beneficiary or beneficiaries of his or her
    outstanding options under this Article Two (whether
    Incentive Options or Non-Statutory Options), and those options
    shall, in accordance with such designation, automatically be
    transferred to such beneficiary or beneficiaries upon the
    Optionee’s death while holding those options. Such
    beneficiary or beneficiaries shall take the transferred options
    subject to all the terms and conditions of the applicable
    agreement evidencing each such transferred option, including
    (without limitation) the limited time period during which the
    option may be exercised following the Optionee’s death.

		
	II.	
    INCENTIVE OPTIONS

     
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this
Section II, all the provisions of Articles One, Two
and Five shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options when issued
under the Plan shall not be subject to the terms of this
Section II.

     
A. Eligibility. Incentive Options may only be
granted to Employees.

     
B. Dollar Limitation. The aggregate Fair
Market Value of the shares of Common Stock (determined as of the
respective date or dates of grant) for which one or more options
granted to any Employee under the Plan (or any other option plan
of the Corporation or any Parent or Subsidiary) may for the
first time become

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exercisable as Incentive Options during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars
($100,000).

     
To the extent the Employee holds two (2) or more such
options which become exercisable for the first time in the same
calendar year, then for purposes of the foregoing limitations on
the exercisability of those options as Incentive Options, such
options shall be deemed to become first exercisable in that
calendar year on the basis of the chronological order in which
they were granted, except to the extent otherwise provided under
applicable law or regulation.

     
C. 10% Stockholder. If any Employee to whom
an Incentive Option is granted is a 10% Stockholder, then the
exercise price per share shall not be less than one hundred ten
percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.

		
	III.	
    STOCK APPRECIATION RIGHTS

     
A. Authority. The Plan Administrator shall
have full power and authority, exercisable in its sole
discretion, to grant stock appreciation rights in accordance
with this Section III to selected Optionees or other
individuals eligible to receive option grants under the
Discretionary Grant Program.

     
B. Types. Two types of stock appreciation
rights shall be authorized for issuance under this
Section III: (i) tandem stock appreciation rights
(“Tandem Rights”) and (ii) stand-alone stock
appreciation rights (“Stand-alone Rights”).

     
C. Tandem Rights. The following terms and
conditions shall govern the grant and exercise of Tandem Rights.

     
1. One or more Optionees may be granted a Tandem Right,
exercisable upon such terms and conditions as the Plan
Administrator may establish, to elect between the exercise of
the underlying option for shares of Common Stock or the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (i) the
Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over
(ii) the aggregate exercise price payable for such vested
shares.

     
2. No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the
actual option surrender or at any earlier time. If the surrender
is so approved, then the distribution to which the Optionee
shall accordingly become entitled under this Section III
shall be made in shares of Common Stock valued at Fair Market
Value on the option surrender date.

     
3. If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever
rights the Optionee had under the surrendered option (or
surrendered portion thereof) on the option surrender date and
may exercise such rights at any time prior to the later
of (i) five (5) business days after the receipt of
the rejection notice or (ii) the last day on which the
option is otherwise exercisable in accordance with the terms of
the instrument evidencing such option, but in no event may such
rights be exercised more than seven (7) years after the
date of the option grant.

     
D. Stand-Alone Rights. The following terms
and conditions shall govern the grant and exercise of
Stand-alone Rights:

		
	 	     
    1. One or more individuals eligible to participate in the
    Discretionary Grant Program may be granted a Stand-alone Right
    not tied to any underlying option under this Discretionary Grant
    Program. The Stand-alone Right shall relate to a specified
    number of shares of Common Stock and shall be exercisable upon
    such terms and conditions as the Plan Administrator may
    establish. In no event, however, may the Stand-alone Right have
    a maximum term in excess of seven (7) years measured from
    the grant date. Upon exercise of the Stand-alone Right, the
    holder shall be entitled to receive a distribution from the
    Corporation in an amount equal to the excess of (i) the
    aggregate Fair Market Value (on the exercise date) of the shares
    of Common Stock underlying the exercised right over
    (ii) the aggregate base price in effect for those shares.

7

 

		
	 	     
    2. The number of shares of Common Stock underlying each
    Stand-alone Right and the base price in effect for those shares
    shall be determined by the Plan Administrator in its sole
    discretion at the time the Stand-alone Right is granted. In no
    event, however, may the base price per share be less than the
    Fair Market Value per underlying share of Common Stock on the
    grant date. In the event outstanding Stand-alone Rights are to
    be assumed in connection with a Change in Control transaction or
    otherwise continued in effect, the shares of Common Stock
    underlying each such Stand-alone Right shall be adjusted
    immediately after such Change in Control so as to apply to the
    number and class of securities into which those shares of Common
    Stock would have been converted in consummation of such Change
    in Control had those shares actually been outstanding at that
    time. Appropriate adjustments to reflect such Change in Control
    shall also be made to the base price per share in effect under
    each outstanding Stand-alone Right, provided the
    aggregate base price shall remain the same. To the extent the
    actual holders of the Corporation’s outstanding Common
    Stock receive cash consideration for their Common Stock in
    consummation of the Change in Control, the successor corporation
    may, in connection with the assumption or continuation of the
    outstanding Stand-alone Rights under the Discretionary Grant
    Program, substitute, for the securities underlying those assumed
    rights, one or more shares of its own common stock with a fair
    market value equivalent to the cash consideration paid per share
    of Common Stock in the Change in Control transaction.
	 
	 	     
    3. Stand-alone Rights shall be subject to the same
    transferability restrictions applicable to Non-Statutory Options
    and may not be transferred during the holder’s lifetime,
    except if such assignment is in connection with the
    holder’s estate plan and is to one or more Family Members
    of the holder or to a trust established for the holder and/or
    one or more such Family Members or pursuant to a domestic
    relations order covering the Stand-alone Right as marital
    property. In addition, one or more beneficiaries may be
    designated for an outstanding Stand-alone Right in accordance
    with substantially the same terms and provisions as set forth in
    Section I.F of this Article Two.
	 
	 	     
    4. The distribution with respect to an exercised
    Stand-alone Right shall be made in shares of Common Stock valued
    at Fair Market Value on the exercise date.
	 
	 	     
    5. The holder of a Stand-alone Right shall have no
    stockholder rights with respect to the shares subject to the
    Stand-alone Right unless and until such person shall have
    exercised the Stand-alone Right and become a holder of record of
    the shares of Common Stock issued upon the exercise of such
    Stand-alone Right.

     
E. Post-Service Exercise. The provisions
governing the exercise of Tandem and Stand-alone Rights
following the cessation of the recipient’s Service shall be
substantially the same as those set forth in Section I.C of
this Article Two for the options granted under the
Discretionary Grant Program, and the Plan Administrator’s
discretionary authority under Section I.C.2 of this
Article Two shall also extend to any outstanding Tandem or
Stand-alone Appreciation Rights.

     
F. Gross Counting. Upon the exercise of any
Tandem or Stand-alone Right under this Section III, the
share reserve under Section V of Article One shall be
reduced by the gross number of shares as to which such right is
exercised, and not by the net number of shares actually issued
by the Corporation upon such exercise.

		
	IV.	
    CHANGE IN CONTROL/ HOSTILE TAKE-OVER

     
A. In the event of a Change in Control, each outstanding
option or stock appreciation right under the Discretionary Grant
Program shall automatically accelerate so that each such option
or stock appreciation right shall, immediately prior to the
effective date of that Change in Control, become exercisable as
to all the shares of Common Stock at the time subject to such
option or stock appreciation right and may be exercised as to
any or all of those shares as fully vested shares of Common
Stock. However, an outstanding option or stock appreciation
right shall not become exercisable on such an
accelerated basis if and to the extent: (i) such option or
stock appreciation right is to be assumed by the successor
corporation (or parent thereof) or is otherwise to continue in
full force and effect pursuant to the terms of the Change in
Control transaction or (ii) such option or stock
appreciation right is to be replaced with a cash incentive
program of the successor corporation which preserves the spread
existing at the time of the Change in Control on any shares as
to which

8

 

the option or stock appreciation right is not otherwise at that
time exercisable and provides for subsequent payout of that
spread in accordance with the same exercise/vesting schedule
applicable to those shares or (iii) the acceleration of
such option or stock appreciation right is subject to other
limitations imposed by the Plan Administrator.

     
B. All outstanding repurchase rights under the
Discretionary Grant Program shall automatically terminate, and
the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of a Change in
Control, except to the extent: (i) those repurchase rights
are to be assigned to the successor corporation (or parent
thereof) or are otherwise to continue in full force and effect
pursuant to the terms of the Change in Control transaction or
(ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator.

     
C. Immediately following the consummation of the Change in
Control, all outstanding options or stock appreciation rights
under the Discretionary Grant Program shall terminate and cease
to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof) or otherwise continued in full
force and effect pursuant to the terms of the Change in Control
transaction.

     
D. Each option which is assumed in connection with a Change
in Control or otherwise continued in effect shall be
appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such
Change in Control had the option been exercised immediately
prior to such Change in Control. Appropriate adjustments to
reflect such Change in Control shall also be made to
(i) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same, (ii) the
maximum number and/or class of securities available for issuance
over the remaining term of the Plan (iii) the maximum
number and/or class of securities by which the share reserve
under this Plan may be increased by reason of the expiration or
termination of unexercised options under the Predecessor Plans,
(iv) the maximum number and/or class of securities which
may be issued without cash consideration under the Stock
Issuance and Cash Bonus Program and (v) the maximum number
and/or class of securities for which any one person may be
granted stock options, stand-alone stock appreciation rights,
direct stock issuances and other stock-based awards under the
Plan per calendar year. To the extent the actual holders of the
Corporation’s outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the
Change in Control, the successor corporation may, in connection
with the assumption or continuation of the outstanding options
under the Discretionary Grant Program, substitute one or more
shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common
Stock in such Change in Control transaction.

     
E. The Plan Administrator shall have the discretionary
authority to structure one or more outstanding options or stock
appreciation rights under the Discretionary Grant Program so
that those options or stock appreciation rights shall,
immediately prior to the effective date of a Change in Control,
become exercisable as to all the shares of Common Stock at the
time subject to those options or stock appreciation rights and
may be exercised as to any or all of those shares as fully
vested shares of Common Stock, whether or not those options or
stock appreciation rights are to be assumed in the Change in
Control transaction or otherwise continued in effect. In
addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation’s
repurchase rights under the Discretionary Grant Program so that
those rights shall immediately terminate upon the consummation
of the Change in Control transaction, and the shares subject to
those terminated rights shall thereupon vest in full.

     
F. The Plan Administrator shall have full power and
authority to structure one or more outstanding options or stock
appreciation rights under the Discretionary Grant Program so
that those options or stock appreciation rights shall become
exercisable as to all the shares of Common Stock at the time
subject to those options or stock appreciation rights in the
event the Optionee’s Service is subsequently terminated by
reason of an Involuntary Termination within a designated period
following the effective date of any Change in Control
transaction in which those options or stock appreciation rights
do not otherwise fully accelerate. In addition, the Plan
Administrator may structure one or more of the
Corporation’s repurchase rights so that those rights shall
immediately terminate with respect to any shares held by the
Optionee at the time of such Involuntary

9

 

Termination, and the shares subject to those terminated
repurchase rights shall accordingly vest in full at that time.

     
G. The Plan Administrator shall have the discretionary
authority to structure one or more outstanding options or stock
appreciation rights under the Discretionary Grant Program so
that those options or stock appreciation rights shall,
immediately prior to the effective date of a Hostile Take-Over,
become exercisable as to all the shares of Common Stock at the
time subject to those options or stock appreciation rights and
may be exercised as to any or all of those shares as fully
vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to
structure one or more of the Corporation’s repurchase
rights under the Discretionary Grant Program so that those
rights shall terminate automatically upon the consummation of
such Hostile Take-Over, and the shares subject to those
terminated rights shall thereupon vest in full. Alternatively,
the Plan Administrator may condition the automatic acceleration
of one or more outstanding options or stock appreciation rights
under the Discretionary Grant Program and the termination of one
or more of the Corporation’s outstanding repurchase rights
under such program upon the subsequent termination of the
Optionee’s Service by reason of an Involuntary Termination
within a designated period following the effective date of such
Hostile Take-Over.

     
H. The portion of any Incentive Option accelerated in
connection with a Change in Control or Hostile Take-Over shall
remain exercisable as an Incentive Option only to the extent the
applicable One Hundred Thousand Dollar ($100,000) limitation is
not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a
Non-statutory Option under the Federal tax laws.

		
	V.	
    PROHIBITION ON REPRICING PROGRAMS

     
The Plan Administrator shall not (i) implement any
cancellation/regrant program pursuant to which outstanding
options or stock appreciation rights under the Plan are
cancelled and new options or stock appreciation rights are
granted in replacement with a lower exercise price per share,
(ii) cancel outstanding options or stock appreciation
rights under the Plan with exercise prices per share in excess
of the then current Fair Market Value per share of Common Stock
for consideration payable in equity securities of the
Corporation or (iii) otherwise directly reduce the exercise
price in effect for outstanding options or stock appreciation
rights under the Plan, without in each such instance obtaining
stockholder approval.

ARTICLE THREE

STOCK ISSUANCE AND CASH BONUS PROGRAM

		
	I.	
    STOCK ISSUANCE AND CASH BONUS TERMS

     
Shares of Common Stock may be issued under the Stock Issuance
and Cash Bonus Program, either as vested or unvested shares,
through direct and immediate issuances without any intervening
option grants. Each such stock issuance shall be evidenced by a
Stock Issuance Agreement which complies with the terms specified
below. Shares of Common Stock may also be issued under the Stock
Issuance and Cash Bonus Program pursuant to share right awards
or restricted stock units which entitle the recipients to
receive the shares underlying those awards or units upon the
attainment of designated performance goals or the satisfaction
of specified Service requirements or upon the expiration of a
designated time period following the vesting of those awards or
units.

     
The grant, vesting or payment of cash awards under the Stock
Issuance and Cash Bonus Program may depend on the degree of
achievement of one or more performance goals relative to a
pre-established targeted level or levels using one or more of
the criteria set forth in Section I.B.2. of this
Article Three.

     
The maximum number of shares of Common Stock which may be issued
without cash consideration under the Stock Issuance and Cash
Bonus Program (whether as direct stock issuances or pursuant to
restricted stock units or other share-right awards) may not
exceed ten percent (10%) of the total number of shares of Common
Stock from time to time authorized for issuance under the Plan,
including (without limitation): (i) any shares added to the
Plan reserve by reason of the expiration or termination of
outstanding

10

 

options under the Predecessor Plans prior to exercise,
(ii) any increases to the Plan reserve from time to time
approved by the Corporation’s stockholders and
(iii) any adjustments to the authorized share reserve
effected in accordance with Section V.E. of
Article One.

			
	 	A. 	
    Issue Price.

		
	 	     
    1. The issue price per share shall be fixed by the Plan
    Administrator, but shall not be less than one hundred percent
    (100%) of the Fair Market Value per share of Common Stock on the
    issuance date.
	 
	 	     
    2. Shares of Common Stock may be issued under the Stock
    Issuance and Cash Bonus Program for any of the following items
    of consideration which the Plan Administrator may deem
    appropriate in each individual instance:
	 
	 	     
    (i) cash or check made payable to the Corporation,
	 
	 	     
    (ii) past services rendered to the Corporation (or any
    Parent or Subsidiary); or
	 
	 	     
    (iii) any other valid consideration under the Delaware
    General Corporation Law.

     
B. Vesting Provisions.

     
1. Shares of Common Stock issued under the Stock Issuance
and Cash Bonus Program may, in the discretion of the Plan
Administrator, be fully and immediately vested upon issuance or
may vest in one or more installments over the Participant’s
period of Service or upon the attainment of specified
performance objectives. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under
the Stock Issuance and Cash Bonus Program shall be determined by
the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the
Stock Issuance and Cash Bonus Program pursuant to share right
awards or restricted stock units which entitle the recipients to
receive the shares underlying those awards or units upon the
attainment of designated performance goals or the satisfaction
of specified Service requirements or upon the expiration of a
designated time period following the vesting of those awards or
units, including (without limitation) a deferred distribution
date following the termination of the Participant’s Service.

     
2. The Plan Administrator shall also have the discretionary
authority, consistent with Code Section 162(m), to
structure one or more stock issuances, or restricted stock unit
or share right awards or cash bonus awards so that the shares of
Common Stock or cash subject to those issuances or awards shall
vest (or vest and become issuable or payable) upon the
achievement of certain pre-established corporate performance
goals based on one or more of the following criteria:
(1) return on total stockholder equity; (2) earnings
per share of Common Stock; (3) net income or operating
income (before or after taxes); (4) earnings before
interest, taxes, depreciation and amortization;
(5) earnings before interest, taxes, depreciation,
amortization and charges for stock-based compensation,
(6) sales or revenue targets; (7) return on assets,
capital or investment; (8) cash flow; (9) market
share; (10) cost reduction goals; (11) budget
comparisons; (12) measures of customer satisfaction;
(13) any combination of, or a specified increase in, any of
the foregoing; (14) new product development or successful
completion of research and development projects; and
(15) the formation of joint ventures, research or
development collaborations, or the completion of other corporate
transactions intended to enhance the Corporation’s revenue
or profitability or enhance its customer base. In addition, such
performance goals may be based upon the attainment of specified
levels of the Corporation’s performance under one or more
of the measures described above relative to the performance of
other entities and may also be based on the performance of any
of the Corporation’s business units or divisions or any
Parent or Subsidiary. Performance goals may include a minimum
threshold level of performance below which no award will be
earned, levels of performance at which specified portions of an
award will be earned and a maximum level of performance at which
an award will be fully earned. To qualify awards as
performance-based under Section 162(m), the applicable
criterion (or criteria, as the case may be) and specific
performance goal or goals (“targets”) must be
established and approved by the Plan Administrator during the
first 90 days of the performance period (and, in the case
of performance periods of less than one year, in no event after
25% or more of the performance period has elapsed) and while
performance relating to such target(s) remains substantially
uncertain within the meaning of Section 162(m) of the Code.

11

 

Performance targets shall be adjusted to mitigate the unbudgeted
impact of material, unusual or nonrecurring gains and losses,
accounting changes or other extraordinary events not foreseen at
the time the targets were set unless the Plan Administrator
provides otherwise at the time of establishing the targets. The
applicable performance measurement period may not be less than
three months nor more than 10 years.

     
3. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive
with respect to the Participant’s unvested shares of Common
Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class
without the Corporation’s receipt of consideration shall be
issued subject to (i) the same vesting requirements
applicable to the Participant’s unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.

     
4. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant
under the Stock Issuance and Cash Bonus Program, whether or not
the Participant’s interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such
shares and to receive any dividends paid on such shares, subject
to any applicable vesting requirements. The Participant shall
not have any stockholder rights with respect to the shares of
Common Stock subject to a restricted stock unit or share right
award until that award vests and the shares of Common Stock are
actually issued thereunder. However, dividend-equivalent units
may be paid or credited, either in cash or in actual or phantom
shares of Common Stock, on outstanding restricted stock unit or
share right awards, subject to such terms and conditions as the
Plan Administrator may deem appropriate.

     
5. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under
the Stock Issuance and Cash Bonus Program or should the
performance objectives not be attained with respect to one or
more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further
stockholder rights with respect to those shares. To the extent
the surrendered shares were previously issued to the Participant
for consideration paid in cash or cash equivalent, the
Corporation shall repay to the Participant the lower
of (i) the cash consideration paid for the
surrendered shares or (ii) the Fair Market Value of those
shares at the time of cancellation.

     
6. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of
Common Stock which would otherwise occur upon the cessation of
the Participant’s Service or the non-attainment of the
performance objectives applicable to those shares. Any such
waiver shall result in the immediate vesting of the
Participant’s interest in the shares of Common Stock as to
which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant’s cessation
of Service or the attainment or non-attainment of the applicable
performance objectives. However, no vesting requirements tied to
the attainment of performance objectives may be waived with
respect to shares which were intended at the time of issuance to
qualify as performance-based compensation under Code
Section 162(m), except in the event of the
Participant’s Involuntary Termination or as otherwise
provided in Section II of this Article Three.

     
7. Outstanding share right awards, restricted stock units
or cash bonus awards under the Stock Issuance and Cash Bonus
Program shall automatically terminate, and no shares of Common
Stock or cash shall actually be issued or paid in satisfaction
of those awards or units, if the performance goals or Service
requirements established for such awards or units are not
attained or satisfied. The Plan Administrator, however, shall
have the discretionary authority to (i) issue vested shares
of Common Stock under one or more outstanding share right awards
or restricted stock units as to which the designated performance
goals or Service requirements have not been attained or
satisfied, and (ii) award cash bonus payments that are not
intended to qualify as performance-based compensation under
Section 162(m) of the Code.

     
However, no vesting or payment requirements tied to the
attainment of performance goals may be waived with respect to
awards or units which were intended, at the time those awards or
units were granted, to qualify as performance-based compensation
under Code Section 162(m), except in the event of the
Participant’s Involuntary Termination or as otherwise
provided in Section II of this Article Three.

12

 

     
8. Before any performance-based award under the Stock
Issuance and Cash Bonus Program is paid and to the extent
required to qualify the award as performance-based compensation
within the meaning of Section 162(m) of the Code, the Plan
Administrator must certify in writing that the performance
target(s) and any other material terms of the performance-based
award were in fact timely satisfied.

     
9. The Plan Administrator will have the discretion to
determine the restrictions or other limitations of the
individual awards granted under the Stock Issuance and Cash
Bonus Program including the authority to reduce awards, payouts
or vesting or to pay no awards, in its sole discretion, if the
Plan Administrator preserves such authority at the time of grant
by language to this effect in its authorizing resolutions or
otherwise.

		
	II.	
    CHANGE IN CONTROL/ HOSTILE TAKE-OVER

     
A. All of the Corporation’s outstanding repurchase
rights under the Stock Issuance and Cash Bonus Program shall
terminate automatically, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in
full, in the event of any Change in Control, except to the
extent (i) those repurchase rights are to be assigned to
the successor corporation (or parent thereof) or are otherwise
to continue in full force and effect pursuant to the terms of
the Change in Control transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.

     
B. Each outstanding restricted stock unit or share right
award assumed in connection with a Change in Control or
otherwise continued in effect shall be adjusted immediately
after the consummation of that Change in Control so as to apply
to the number and class of securities into which the shares of
Common Stock subject to the award immediately prior to the
Change in Control would have been converted in consummation of
such Change in Control had those shares actually been
outstanding at that time, and appropriate adjustments shall also
be made to the consideration (if any) payable per share
thereunder, provided the aggregate amount of such consideration
shall remain the same. To the extent the actual holders of the
Corporation’s outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the
Change in Control, the successor corporation may, in connection
with the assumption or continuation of the outstanding
restricted stock units or share right awards, substitute one or
more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common
Stock in such Change in Control transaction.

     
C. If any such restricted stock unit or share right award
is not assumed or otherwise continued in effect or replaced with
a cash incentive program of the successor corporation which
preserves the Fair Market Value of the underlying shares of
Common Stock at the time of the Change in Control and provides
for the subsequent payout of that value in accordance with the
same vesting schedule applicable to those shares, then such unit
or award shall vest, and the shares of Common Stock subject to
that unit or award shall be issued as fully-vested shares,
immediately prior to the consummation of the Change in Control.

     
D. The Plan Administrator shall have the discretionary
authority to structure one or more unvested stock issuances, one
or more restricted stock unit or other share right awards or one
or more cash bonus awards under the Stock Issuance and Cash
Bonus Program so that the shares of Common Stock or cash subject
to those issuances or awards shall automatically vest (or vest
and become issuable or payable) in whole or in part immediately
upon the occurrence of a Change in Control or upon the
subsequent termination of the Participant’s Service by
reason of an Involuntary Termination within a designated period
following the effective date of that Change in Control
transaction.

     
E. The Plan Administrator shall also have the discretionary
authority to structure one or more unvested stock issuances, one
or more restricted stock unit or other share right awards or one
or more cash bonus awards under the Stock Issuance and Cash
Bonus Program so that the shares of Common Stock or cash subject
to those issuances or awards shall automatically vest (or vest
and become issuable or payable) in whole or in part immediately
upon the occurrence of a Hostile Take-Over or upon the
subsequent termination of the Participant’s Service by
reason of an Involuntary Termination within a designated period
following the effective date of that Hostile Take-Over.

13

 

     
F. The Plan Administrator’s authority under
Paragraphs D and E of this Section II shall also
extend to any stock issuances, restricted stock units, other
share right awards or cash awards intended to qualify as
performance-based compensation under Code Section 162(m),
even though the automatic vesting of those issuances, units or
awards pursuant to Paragraph D or E of this Section II
may result in their loss of performance-based status under Code
Section 162(m).

ARTICLE FOUR

AUTOMATIC GRANT PROGRAM

		
	I.	
    OPTION TERMS

     
A. Automatic Grants. The Automatic Grant
Program under this Article Four shall supersede and replace
the Corporation’s 1995 Non-Employee Director Stock Option
Plan, and no further stock option grants shall be made under
that plan on or after the Plan Effective Date. However, all
options outstanding under that plan on the Plan Effective Date
shall continue in full force and effect in accordance with their
terms, and no provision of this Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of
those options with respect to their acquisition of shares of
Common Stock thereunder.

     
Option grants shall be made pursuant to the Automatic Grant
Program in effect under this Article Four as follows:

		
	 	     
    1. Initial Grant: Each individual who is first
    elected or appointed as a non-employee Board member at any time
    on or after the Plan Effective Date shall automatically be
    granted, on the date of such initial election or appointment, a
    Non-Statutory Option to purchase not more than one hundred fifty
    thousand (150,000) shares of Common Stock, provided that
    individual has not been in the employ of the Corporation or any
    Parent or Subsidiary during the immediately preceding twelve
    (12) months. The actual number of shares for which such
    initial option grant shall be made shall (subject to the
    150,000-share limit) be
    determined by the Plan Administrator at the time of each such
    grant.
	 
	 	     
    2. Annual Grants: On the date of each annual
    stockholders meeting, beginning with the 2005 Annual Meeting,
    each individual who is to continue to serve as a non-employee
    Board member, whether or not that individual is standing for
    re-election to the Board at that particular annual meeting,
    shall automatically be granted a Non-Statutory Option to
    purchase not more than forty thousand (40,000) shares of Common
    Stock, provided that such individual has served as a
    non-employee Board member for a period of at least six
    (6) months. There shall be no limit on the number of such
    annual share option grants any one continuing non-employee Board
    member may receive over his or her period of Board service, and
    non-employee Board members who have previously been in the
    employ of the Corporation (or any Parent or Subsidiary) shall be
    eligible to receive one or more such annual option grants over
    their period of continued Board service. The actual number of
    shares for which such annual option grants are made to each
    continuing non-employee Board member shall (subject to the
    40,000-share limit) be
    determined by the Plan Administrator on or before the date of
    the annual stockholders meeting on which those grants are to be
    made.

     
B. Exercise Price.

     
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.

     
2. The exercise price shall be payable in one or more of
the alternative forms authorized under the Discretionary Grant
Program. Except to the extent the sale and remittance procedure
specified thereunder is utilized, payment of the exercise price
for the purchased shares must be made on the Exercise Date.

     
C. Option Term. Each option shall have a
maximum term of seven (7) years measured from the option
grant date, subject to earlier termination following the
Optionee’s cessation of Service.

14

 

     
D. Exercise and Vesting of Options. Each
option shall be immediately exercisable for any or all of the
option shares. However, any unvested shares purchased under the
option shall be subject to repurchase by the Corporation, at the
lower of (i) the exercise price paid per
share or (ii) the Fair Market Value per share of Common
Stock at the time of repurchase, upon the Optionee’s
cessation of Service prior to vesting in those shares. The
shares subject to each initial
150,000-share-or-less
grant shall vest, and the Corporation’s repurchase right
shall lapse, in four (4) successive equal annual
installments upon the Optionee’s completion of each year of
Service (whether as a non-employee Board member, Employee or
consultant) over the four (4)-year period measured from the
option grant date. The shares subject to each annual
40,000-share-or-less
grant made to a non-employee Board member for his or her
continued Board service shall vest, and the Corporation’s
repurchase right shall lapse, in one installment upon the
earlier of (i) the Optionee’s completion
of the one (1)-year period of Service (whether as a non-employee
Board member, Employee or consultant) measured from the grant
date or (ii) the Optionee’s continuation in such
Service capacity through the day immediately preceding the next
annual stockholders meeting following such grant date.

     
E. Limited Transferability of Options. Each
option under this Article Four may be assigned in whole or
in part during the Optionee’s lifetime to one or more of
his or her Family Members or to a trust established exclusively
for the Optionee and/or one or more such Family Members, to the
extent such assignment is in connection with the Optionee’s
estate plan or pursuant to a domestic relations order. The
assigned portion may only be exercised by the person or persons
who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem
appropriate. The Optionee may also designate one or more persons
as the beneficiary or beneficiaries of his or her outstanding
options under this Article Four, and the options shall, in
accordance with such designation, automatically be transferred
to such beneficiary or beneficiaries upon the Optionee’s
death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the
limited time period during which the option may be exercised
following the Optionee’s death.

     
F. Termination of Board Service. The
following provisions shall govern the exercise of any options
held by the Optionee at the time the Optionee ceases Service:

		
	 	     
    (i) The Optionee (or, in the event of Optionee’s death
    while holding the option, the personal representative of the
    Optionee’s estate or the person or persons to whom the
    option is transferred pursuant to the Optionee’s will or
    the laws of inheritance or the designated beneficiary or
    beneficiaries of such option) shall have a twelve (12)-month
    period following the date of such cessation of Service in which
    to exercise such option.
	 
	 	     
    (ii) During the twelve (12)-month exercise period, the
    option may not be exercised in the aggregate for more than the
    number of vested shares of Common Stock for which the option is
    exercisable at the time of the Optionee’s cessation of
    Service. However, should the Optionee cease to serve as a Board
    member by reason of death or Permanent Disability, then all
    shares at the time subject to the option shall immediately vest
    so that such option may, during the twelve (12)-month exercise
    period following such cessation of Board service, be exercised
    for any or all of those shares as fully vested shares of Common
    Stock.
	 
	 	     
    (iii) In no event shall the option remain exercisable after
    the expiration of the option term. Upon the expiration of the
    twelve (12)-month exercise period or (if earlier) upon the
    expiration of the option term, the option shall terminate and
    cease to be outstanding for any vested shares for which the
    option has not been exercised. However, the option shall,
    immediately upon the Optionee’s cessation of Service for
    any reason (other than cessation of Board service by reason of
    death or Permanent Disability), terminate and cease to be
    outstanding to the extent the option is not otherwise at that
    time exercisable for vested shares.

15

 

		
	II.	
    CHANGE IN CONTROL/ HOSTILE TAKE-OVER

     
A. Should a Change in Control occur prior to the
Optionee’s cessation of Service, then the shares of Common
Stock at the time subject to each outstanding option held by
such Optionee under this Automatic Grant Program but not
otherwise vested shall automatically vest in full so that each
such option shall, immediately prior to the effective date of
the Change in Control, become exercisable for all the option
shares as fully vested shares of Common Stock and may be
exercised for any or all of those vested shares. Immediately
following the consummation of the Change in Control, each
automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor
corporation (or parent thereof) or otherwise continued in effect
pursuant to the terms of the Change in Control transaction.

     
B. Should a Hostile Take-Over occur prior to the
Optionee’s cessation of Service, then the shares of Common
Stock at the time subject to each outstanding option held by
such Optionee under this Automatic Grant Program but not
otherwise vested shall automatically vest in full so that each
such option shall, immediately prior to the effective date of
the Hostile Take-Over, become exercisable for all the option
shares as fully vested shares of Common Stock and may be
exercised for any or all of those vested shares. Each such
option shall remain exercisable for such fully vested option
shares until the expiration or sooner termination of the option
term.

     
C. All outstanding repurchase rights under this under this
Automatic Grant Program shall automatically terminate, and the
shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Change in Control
or Hostile Take-Over.

     
D. Each option which is assumed in connection with a Change
in Control or otherwise continued in effect shall be
appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such
Change in Control had the option been exercised immediately
prior to such Change in Control. Appropriate adjustments shall
also be made to the exercise price payable per share under each
outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent
the actual holders of the Corporation’s outstanding Common
Stock receive cash consideration for their Common Stock in
consummation of the Change in Control, the successor corporation
may, in connection with the assumption or continuation of the
outstanding options under the Automatic Grant Program,
substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per
share of Common Stock in such Change in Control transaction.

		
	III.	
    REMAINING TERMS

     
The remaining terms of each grant shall be the same as the terms
in effect for option grants made under the Discretionary Grant
Program.

		
	IV.	
    ALTERNATIVE AWARDS

     
The Compensation Committee shall have full power and authority
to award, in lieu of one or more initial or annual automatic
option grants under this Article Four, unvested shares of
Common Stock or restricted stock units which in each instance
have an aggregate Fair Market Value substantially equal to the
fair value (as determined for financial reporting purposes in
accordance with Financial Accounting Standard 123R or any
successor standard) of the automatic option grant which such
award replaces. Any such alternative award shall be made at the
same time the automatic option grant which it replaces would
have been made, and the vesting provisions (including vesting
acceleration) applicable to such award shall be substantially
the same as in effect for the automatic option grant so replaced.

16

 

ARTICLE FIVE

MISCELLANEOUS

		
	I.	
    TAX WITHHOLDING

     
A. The Corporation’s obligation to deliver shares of
Common Stock upon the exercise of options or stock appreciation
rights or the issuance or vesting of such shares under the Plan,
or to make any other payment in respect of any award granted
under the Plan, shall be subject to the satisfaction of all
applicable income and employment tax withholding requirements.

     
B. The Plan Administrator may, in its discretion, provide
any or all holders of Non-Statutory Options, stock appreciation
rights, restricted stock units or any other share right awards
pursuant to which vested shares of Common Stock are to be issued
under the Plan (other than the option grants and other
stock-based awards made under the Automatic Grant Program) and
any or all Participants to whom vested or unvested shares of
Common Stock are issued in a direct issuance under the Stock
Issuance and Cash Bonus Program with the right to use shares of
Common Stock in satisfaction of all or part of the Withholding
Taxes to which such holders may become subject in connection
with the exercise of their options or stock appreciation rights,
the issuance to them of vested shares or the subsequent vesting
of unvested shares issued to them. Such right may be provided to
any such holder in either or both of the following formats:

     
Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such Non-Statutory Option or stock
appreciation right or upon the issuance of fully-vested shares,
a portion of those shares with an aggregate Fair Market Value
equal to the percentage of the Withholding Taxes (not to exceed
one hundred percent (100%)) designated by the holder. The shares
of Common Stock so withheld shall reduce the number of shares of
Common Stock authorized for issuance under the Plan.

     
Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option or stock
appreciation right is exercised, the vested shares are issued or
the unvested shares subsequently vest, one or more shares of
Common Stock previously acquired by such holder (other than in
connection with the exercise, share issuance or share vesting
triggering the Withholding Taxes) with an aggregate Fair Market
Value equal to the percentage of the Withholding Taxes (not to
exceed one hundred percent (100%)) designated by the holder. The
shares of Common Stock so delivered shall not be added to the
shares of Common Stock authorized for issuance under the Plan.

		
	II.	
    SHARE ESCROW/ LEGENDS

     
Unvested shares may, in the Plan Administrator’s
discretion, be held in escrow by the Corporation until the
Participant’s interest in such shares vests or may be
issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.

		
	III.	
    EFFECTIVE DATE AND TERM OF THE PLAN

     
A. The Plan shall become effective on the Plan Effective
Date.

     
B. The Plan shall serve as the successor to the Predecessor
Plans, and no further option grants shall be made under the
Predecessor Plans if this Plan is approved by the stockholders
at the 2005 Annual Meeting. Such stockholder approval shall not
affect the options outstanding under the Predecessor Plans at
the time of the 2005 Annual Meeting, and those options shall
continue in full force and effect in accordance with their
terms. However, should any of those options expire or terminate
unexercised, the shares of Common Stock subject to those options
at the time of expiration or termination shall be added to the
share reserve of this Plan, up to the maximum number of
additional shares permissible hereunder.

     
C. The Plan shall terminate upon the earliest to
occur of (i) March 15, 2015, (ii) the date on
which all shares available for issuance under the Plan shall
have been issued as fully vested shares or (iii) the
termination of all outstanding options, stock appreciation
rights, restricted stock units and other share right

17

 

awards in connection with a Change in Control. Should the Plan
terminate on March 15, 2015, then all option grants, stock
appreciation rights, unvested stock issuances, restricted stock
units and other share right awards outstanding at that time
shall continue to have force and effect in accordance with the
provisions of the documents evidencing such grants, issuances or
awards.

     
D. As required pursuant to Section 162(m) of the Code
and the regulations promulgated thereunder, the Plan
Administrator’s authority to grant new awards under the
Stock Issuance and Cash Bonus Program that are intended to
qualify as performance-based compensation within the meaning of
Section 162(m) of the Code shall terminate upon the first
meeting of the Corporation’s stockholders that occurs in
the fifth year following the year in which the
Corporation’s stockholders approved the Stock Issuance and
Cash Bonus Program.

IV.     AMENDMENT OF THE PLAN

     
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects.
However, no such amendment or modification shall adversely
affect the rights and obligations with respect to stock options,
stock appreciation rights, unvested stock issuances or other
stock-based awards at the time outstanding under the Plan unless
the Optionee or the Participant consents to such amendment or
modification. In addition, amendments to the Plan will be
subject to stockholder approval to the extent required under
applicable law or regulation or pursuant to the listing
standards of the stock exchange (or the Nasdaq National Market)
on which the Common Stock is at the time primarily traded.

     
B. The Compensation Committee of the Board shall have the
discretionary authority to adopt and implement from time to time
such addenda or subplans to the Plan as it may deem necessary in
order to bring the Plan into compliance with applicable laws and
regulations of any foreign jurisdictions in which grants or
awards are to be made under the Plan and/or to obtain favorable
tax treatment in those foreign jurisdictions for the individuals
to whom the grants or awards are made.

     
C. Options and stock appreciation rights may be granted
under the Discretionary Grant Program and stock-based awards may
be made under the Stock Issuance and Cash Bonus Program that in
each instance involve shares of Common Stock in excess of the
number of shares then available for issuance under the Plan,
provided no shares shall actually be issued pursuant to those
grants or awards until the number of shares of Common Stock
available for issuance under the Plan is sufficiently increased
by stockholder approval of an amendment of the Plan authorizing
such increase. If stockholder approval is required and is not
obtained within twelve (12) months after the date the first
excess grant or award made against such contingent increase,
then any options, stock appreciation rights or other stock-based
awards granted on the basis of such excess shares shall
terminate and cease to be outstanding.

		
	V.	
    USE OF PROCEEDS

     
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general
corporate purposes.

		
	VI.	
    REGULATORY APPROVALS

     
A. The implementation of the Plan, the granting of any
stock option, stock appreciation right or other stock-based
award under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise or vesting of any granted
option, stock appreciation right or other stock-based award or
(ii) under the Stock Issuance and Cash Bonus Program shall
be subject to the Corporation’s procurement of all
approvals and permits required by regulatory authorities having
jurisdiction over the Plan, the stock options granted under it
and the shares of Common Stock issued pursuant to it.

18

 

     
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall
have been compliance with all applicable requirements of
applicable securities laws, including the filing and
effectiveness of the
Form S-8
registration statement for the shares of Common Stock issuable
under the Plan, and all applicable listing requirements of any
Stock Exchange (or the Nasdaq National Market, if applicable) on
which Common Stock is then listed for trading.

		
	VII.	
    NO EMPLOYMENT/ SERVICE RIGHTS

     
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any
way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining such person) or of the Optionee or the
Participant, which rights are hereby expressly reserved by each,
to terminate such person’s Service at any time for any
reason, with or without cause.

19

 

APPENDIX 

     
The following definitions shall be in effect under the Plan:

		
	 	     
    A. Annual Meeting shall mean the annual
    meeting of the Corporation’s stockholders.
	 
	 	     
    B. Automatic Grant Program shall mean the
    automatic option grant program in effect under Article Four
    of the Plan.
	 
	 	     
    C. Board shall mean the Corporation’s
    Board of Directors.
	 
	 	     
    D. Change in Control shall mean a change in
    ownership or control of the Corporation effected through any of
    the following transactions:

		
	 	     
    (i) a merger, consolidation or other reorganization
    approved by the Corporation’s stockholders, unless
    securities representing more than fifty percent (50%) of the
    total combined voting power of the voting securities of the
    successor corporation are immediately thereafter beneficially
    owned, directly or indirectly and in substantially the same
    proportion, by the persons who beneficially owned the
    Corporation’s outstanding voting securities immediately
    prior to such transaction,
	 
	 	     
    (ii) a stockholder-approved sale, transfer or other
    disposition (including in whole or in part through one or more
    licensing arrangements) of all or substantially all of the
    Corporation’s assets, or
	 
	 	     
    (iii) the closing of any transaction or series of related
    transactions pursuant to which any person or any group of
    persons comprising a “group” within the meaning of
    Rule 13d-5(b)(1)
    of the 1934 Act (other than the Corporation or a person
    that, prior to such transaction or series of related
    transactions, directly or indirectly controls, is controlled by
    or is under common control with, the Corporation) becomes
    directly or indirectly the beneficial owner (within the meaning
    of Rule 13d-3 of
    the 1934 Act) of securities possessing (or convertible into
    or exercisable for securities possessing) more than fifty
    percent (50%) of the total combined voting power of the
    Corporation’s securities (as measured in terms of the power
    to vote with respect to the election of Board members)
    outstanding immediately after the consummation of such
    transaction or series of related transactions, whether such
    transaction involves a direct issuance from the Corporation or
    the acquisition of outstanding securities held by one or more of
    the Corporation’s existing stockholders.

		
	 	     
    E. Code shall mean the Internal Revenue Code
    of 1986, as amended.
	 
	 	     
    F. Common Stock shall mean the
    Corporation’s common stock.
	 
	 	     
    G. Compensation Committee shall mean the
    Compensation Committee of the Board comprised of two (2) or
    more non-employee Board members.
	 
	 	     
    H. Corporation shall mean SanDisk
    Corporation, a Delaware corporation, and any corporate successor
    to all or substantially all of the assets or voting stock of
    SanDisk Corporation which has by appropriate action assumed the
    Plan.
	 
	 	     
    I. Discretionary Grant Program shall mean the
    discretionary grant program in effect under Article Two of
    the Plan pursuant to which stock options and stock appreciation
    rights may be granted to one or more eligible individuals.
	 
	 	     
    J. Employee shall mean an individual who is
    in the employ of the Corporation (or any Parent or Subsidiary,
    whether now existing or subsequently established), subject to
    the control and direction of the employer entity as to both the
    work to be performed and the manner and method of performance.
	 
	 	     
    K. Exercise Date shall mean the date on which
    the Corporation shall have received written notice of the option
    exercise.

20

 

		
	 	     
    L. Fair Market Value per share of Common
    Stock on any relevant date shall be determined in accordance
    with the following provisions:

		
	 	     
    (i) If the Common Stock is at the time traded on the NASDAQ
    National Market, then the Fair Market Value shall be the closing
    selling price per share of Common Stock at the close of regular
    hours trading (i.e., before after- hours trading begins) on the
    NASDAQ National Market on the date in question, as such price is
    reported by the National Association of Securities Dealers. If
    there is no closing selling price for the Common Stock on the
    date in question, then the Fair Market Value shall be the
    closing selling price on the last preceding date for which such
    quotation exists.
	 
	 	     
    (ii) If the Common Stock is at the time listed on any Stock
    Exchange, then the Fair Market Value shall be the closing
    selling price per share of Common Stock at the close of regular
    hours trading (i.e., before after-hours trading begins) on the
    date in question on the Stock Exchange determined by the Plan
    Administrator to be the primary market for the Common Stock, as
    such price is officially quoted in the composite tape of
    transactions on such exchange. If there is no closing selling
    price for the Common Stock on the date in question, then the
    Fair Market Value shall be the closing selling price on the last
    preceding date for which such quotation exists.

		
	 	     
    M. Family Member means, with respect to a
    particular Optionee or Participant, any child, stepchild,
    grandchild, parent, stepparent, grandparent, spouse, former
    spouse, sibling, niece, nephew,
    mother-in-law,
    father-in-law,
    son-in-law,
    daughter-in-law,
    bother-in-law or
    sister-in-law.
	 
	 	     
    N. Hostile Take-Over shall mean a change in
    ownership or control of the Corporation effected through either
    of the following transactions:

		
	 	     
    (i) a change in the composition of the Board over a period
    of thirty-six (36) consecutive months or less such that a
    majority of the Board members ceases, by reason of one or more
    contested elections for Board membership, to be comprised of
    individuals who either (A) have been Board members
    continuously since the beginning of such period or (B) have
    been elected or nominated for election as Board members during
    such period by at least a majority of the Board members
    described in clause (A) who were still in office at
    the time the Board approved such election or nomination, or
	 
	 	     
    (ii) the acquisition, directly or indirectly, by any person
    or related group of persons (other than the Corporation or a
    person that directly or indirectly controls, is controlled by,
    or is under common control with, the Corporation) of beneficial
    ownership (within the meaning of
    Rule 13d-3 of the
    1934 Act) of securities possessing more than fifty percent
    (50%) of the total combined voting power of the
    Corporation’s outstanding securities pursuant to a tender
    or exchange offer made directly to the Corporation’s
    stockholders which the Board does not recommend such
    stockholders to accept.

		
	 	     
    O. Incentive Option shall mean an option
    which satisfies the requirements of Code Section 422.
	 
	 	     
    P. Involuntary Termination shall mean the
    termination of the Service of any individual which occurs by
    reason of:

		
	 	     
    (i) such individual’s involuntary dismissal or
    discharge by the Corporation (or any Parent or Subsidiary) for
    reasons other than Misconduct, or
	 
	 	     
    (ii) such individual’s voluntary resignation following
    (A) a change in his or her position with the Corporation
    (or any Parent or Subsidiary) which materially reduces his or
    her duties and responsibilities or the level of management to
    which he or she reports, (B) a reduction in his or her
    level of compensation (including base salary, fringe benefits
    and target bonus under any corporate-performance based bonus or
    incentive programs) by more than fifteen percent (15%) or
    (C) a relocation of such individual’s place of
    employment by more than fifty (50) miles, provided and only
    if such change, reduction or relocation is effected by the
    Corporation (or any Parent or Subsidiary) without the
    individual’s consent.

21

 

		
	 	     
    Q. Misconduct shall mean the commission of
    any act of fraud, embezzlement or dishonesty by the Optionee or
    Participant, any unauthorized use or disclosure by such person
    of confidential information or trade secrets of the Corporation
    (or any Parent or Subsidiary), or any other intentional
    misconduct by such person adversely affecting the business or
    affairs of the Corporation (or any Parent or Subsidiary) in a
    material manner. The foregoing definition shall not in any way
    preclude or restrict the right of the Corporation (or any Parent
    or Subsidiary) to discharge or dismiss any Optionee, Participant
    or other person in the Service of the Corporation (or any Parent
    or Subsidiary) for any other acts or omissions, but such other
    acts or omissions shall not be deemed, for purposes of the Plan,
    to constitute grounds for termination for Misconduct.
	 
	 	     
    R. 1934 Act shall mean the Securities
    Exchange Act of 1934, as amended.
	 
	 	     
    S. Non-Statutory Option shall mean an option
    not intended to satisfy the requirements of Code
    Section 422.
	 
	 	     
    T. Optionee shall mean any person to whom an
    option is granted under the Discretionary Grant or Automatic
    Grant Program.
	 
	 	     
    U. Parent shall mean any corporation (other
    than the Corporation) in an unbroken chain of corporations
    ending with the Corporation, provided each corporation in the
    unbroken chain (other than the Corporation) owns, at the time of
    the determination, stock possessing fifty percent (50%) or more
    of the total combined voting power of all classes of stock in
    one of the other corporations in such chain.
	 
	 	     
    V. Participant shall mean any person who is
    issued shares of Common Stock or restricted stock units or other
    stock-based awards or cash bonus awards under the Stock Issuance
    and Cash Bonus Program.
	 
	 	     
    W. Permanent Disability or Permanently Disabled
    shall mean the inability of the Optionee or the Participant
    to engage in any substantial gainful activity by reason of any
    medically determinable physical or mental impairment expected to
    result in death or to be of continuous duration of twelve
    (12) months or more. However, solely for purposes of the
    Automatic Grant Program, Permanent Disability or Permanently
    Disabled shall mean the inability of the non-employee Board
    member to perform his or her usual duties as a Board member by
    reason of any medically determinable physical or mental
    impairment expected to result in death or to be of continuous
    duration of twelve (12) months or more.
	 
	 	     
    X. Plan shall mean the Corporation’s
    2005 Stock Incentive Plan, as set forth in this document.
	 
	 	     
    Y. Plan Administrator shall mean the
    particular entity, whether the Compensation Committee, the Board
    or the Secondary Board Committee, which is authorized to
    administer the Discretionary Grant Program and Stock Issuance
    and Cash Award Program with respect to one or more classes of
    eligible persons, to the extent such entity is carrying out its
    administrative functions under those programs with respect to
    the persons under its jurisdiction.
	 
	 	     
    Z. Plan Effective Date shall mean the
    May 27, 2005 date on which the Plan is approved by the
    stockholders at the 2005 Annual Meeting.
	 
	 	     
    AA. Predecessor Plans shall mean (i) the
    Corporation’s 1995 Stock Option Plan and (ii) the
    Corporation’s 1995 Non-Employee Directors Stock Option
    Plan, as each such Plan is in effect immediately prior to the
    2005 Annual Stockholders Meeting.
	 
	 	     
    BB. Secondary Board Committee shall mean a
    committee of one or more Board members appointed by the Board to
    administer the Discretionary Grant and Stock Issuance and Cash
    Bonus Programs with respect to eligible persons other than
    Section 16 Insiders.
	 
	 	     
    CC. Section 16 Insider shall mean an
    officer or director of the Corporation subject to the
    short-swing profit liabilities of Section 16 of the
    1934 Act.
	 
	 	     
    DD. Service shall mean the performance of
    services for the Corporation (or any Parent or Subsidiary,
    whether now existing or subsequently established) by a person in
    the capacity of an

22

 

		
	 	
    Employee, a non-employee member of the board of directors or a
    consultant or independent advisor, except to the extent
    otherwise specifically provided in the documents evidencing the
    option grant or stock issuance. For purposes of the Plan, an
    Optionee or Participant shall be deemed to cease Service
    immediately upon the occurrence of the either of the following
    events: (i) the Optionee or Participant no longer performs
    services in any of the foregoing capacities for the Corporation
    or any Parent or Subsidiary or (ii) the entity for which
    the Optionee or Participant is performing such services ceases
    to remain a Parent or Subsidiary of the Corporation, even though
    the Optionee or Participant may subsequently continue to perform
    services for that entity. Service shall not be deemed to cease
    during a period of military leave, sick leave or other personal
    leave approved by the Corporation; provided, however,
    that should such leave of absence exceed three (3) months,
    then for purposes of determining the period within which an
    Incentive Option may be exercised as such under the federal tax
    laws, the Optionee’s Service shall be deemed to cease on
    the first day immediately following the expiration of such three
    (3)-month period, unless Optionee is provided with the right to
    return to Service following such leave either by statute or by
    written contract. Except to the extent otherwise required by law
    or expressly authorized by the Plan Administrator or by the
    Corporation’s written policy on leaves of absence, no
    Service credit shall be given for vesting purposes for any
    period the Optionee or Participant is on a leave of absence.
	 
	 	     
    EE. Stock Exchange shall mean either the
    American Stock Exchange or the New York Stock Exchange.
	 
	 	     
    FF. Stock Issuance Agreement shall mean the
    agreement entered into by the Corporation and the Participant at
    the time of issuance of shares of Common Stock under the Stock
    Issuance and Cash Bonus Program.
	 
	 	     
    GG. Stock Issuance and Cash Bonus Program
    shall mean the stock issuance and cash bonus program in
    effect under Article Three of the Plan.
	 
	 	     
    HH. Subsidiary shall mean any corporation
    (other than the Corporation) in an unbroken chain of
    corporations beginning with the Corporation, provided each
    corporation (other than the last corporation) in the unbroken
    chain owns, at the time of the determination, stock possessing
    fifty percent (50%) or more of the total combined voting power
    of all classes of stock in one of the other corporations in such
    chain.
	 
	 	     
    II. 10% Stockholder shall mean the owner of
    stock (as determined under Code Section 424(d)) possessing
    more than ten percent (10%) of the total combined voting power
    of all classes of stock of the Corporation (or any Parent or
    Subsidiary).
	 
	 	     
    JJ. Withholding Taxes shall mean the
    applicable income and employment withholding taxes to which the
    holder of an option or stock appreciation right or shares of
    Common Stock or a cash bonus under the Plan may become subject
    in connection with the grant or exercise of those options or
    stock appreciation rights the issuance or vesting of those
    shares or the payment of such cash bonus.

23

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