Document:

exv10w3

 

Exhibit 10.3

SONICS, INC.

2003 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

     1. Purposes of the Plan. The purposes of this Plan are to attract and retain the best
available personnel, to provide additional incentives to Non-Employee Directors and Consultants and
to promote the success of the Company’s business.

     2. Definitions. As used herein, the following definitions shall apply:

          (a) “Administrator” means the Board or any of the Committees appointed to administer
the Plan.

          (b) “Applicable Laws” means the legal requirements relating to the administration of
stock incentive plans, if any, under applicable provisions of federal securities laws, state
corporate and securities laws, the Code, the rules of any applicable stock exchange or national
market system, and the rules of any foreign jurisdiction applicable to Options granted to residents
therein.

          (c) “Assumed” means that (i) pursuant to a Corporate Transaction defined in Section
2(k)(i), 2(k)(ii) or 2(k)(iii), the contractual obligations represented by the Option are expressly
assumed (and not simply by operation of law) by the successor entity or its Parent in connection
with the Corporate Transaction with appropriate adjustments to the number and type of securities of
the successor entity or its Parent subject to the Option and the exercise or purchase price thereof
which preserves the compensation element of the Option existing at the time of the Corporate
Transaction as determined in accordance with the instruments evidencing the agreement to assume the
Option or (ii) pursuant to a Corporate Transaction defined in Section 2(k)(iv) or 2(k)(v), the
Option is expressly affirmed by the Company.

          (d) “Board” means the Board of Directors of the Company.

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

          (f) “Committee” means any committee composed of Directors of the Board appointed by
the Board to administer the Plan.

          (g) “Common Stock” means the common stock of the Company.

          (h) “Company” means Sonics, Inc., a Delaware corporation.

          (i) “Consultant” means any person or entity who is engaged by the Company or any
Related Entity to render consulting or advisory services to the Company or such Related Entity,
including, but not limited to, a Venture Capital Entity that makes available an individual to serve
as a Director.

          (j) “Continuous Service” means that the provision of services to the Company or a
Related Entity in any capacity of Employee, Director or Consultant, is not interrupted or
terminated. In jurisdictions requiring notice in advance of an effective termination as an

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Employee, Director or Consultant, Continuous Service shall be deemed terminated upon the
actual cessation of providing services to the Company or a Related Entity notwithstanding any
required notice period that must be fulfilled before a termination as an Employee, Director or
Consultant can be effective under Applicable Laws. Continuous Service shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any
Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change in status as long as the individual remains in the service of the Company or a Related
Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the
Award Agreement). An approved leave of absence shall include sick leave, military leave, or any
other authorized personal leave.

          (k) “Corporate Transaction” means any of the following transactions:

               (i) a merger or consolidation in which the Company is not the surviving entity, except for a
transaction the principal purpose of which is to change the state in which the Company is
incorporated;

               (ii) the sale, transfer or other disposition of all or substantially all of the assets of the
Company;

               (iii) the complete liquidation or dissolution of the Company;

               (iv) any reverse merger or series of related transactions culminating in a reverse merger
(including, but not limited to, a tender offer followed by a reverse merger) in which the Company
is the surviving entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company’s outstanding securities are transferred to a person or
persons different from those who held such securities immediately prior to such merger or the
initial transaction culminating in such merger but excluding any such transaction or series of
related transactions that the Administrator determines shall not be a Corporate Transaction; or

               (v) acquisition in a single or series of related transactions by any person or related group
of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but
excluding any such transaction or series of related transactions that the Administrator determines
shall not be a Corporate Transaction.

          (l) “Director” means a member of the Board or the board of directors of any Related
Entity.

          (m) “Disability” means as defined under the long-term disability policy of the Company
or the Related Entity to which the Grantee provides services regardless of whether the Grantee is
covered by such policy. If the Company or the Related Entity to which the Grantee provides service
does not have a long-term disability plan in place, “Disability” means that a Grantee is unable to
carry out the responsibilities and functions of the position held by the

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Grantee by
reason of any medically determinable physical or mental impairment
for a period of not less than ninety (90) consecutive days. A
Grantee will not be considered to have incurred a Disability unless
he or she furnishes proof of such impairment sufficient to satisfy
the Administrator in its discretion.

	Grantee by reason of any medically determinable physical or mental impairment for a period of
not less than ninety (90) consecutive days. A Grantee will not be considered to have incurred a
Disability unless he or she furnishes proof of such impairment sufficient to satisfy the
Administrator in its discretion.

          (n) “Employee” means any person, including an Officer or Director, who is in the
employ of the Company or any Related Entity, subject to the control and direction of the Company or
any Related Entity as to both the work to be performed and the manner and method of performance.
The payment of a director’s fee or grant of a stock option (or similar right) by the Company or a
Related Entity shall not be sufficient to constitute “employment” by the Company.

          (o) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          (p) “Fair Market Value” means, as of any date, the value of Common Stock determined as
follows:

               (i) If the Common Stock is listed on any established stock exchange or a national market
system, including without limitation The Nasdaq National Market or The Nasdaq SmallCap Market of
The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange or system on the date of
determination (or, if no closing sales price or closing bid was reported on that date, as
applicable, on the last trading date such closing sales price or closing bid was reported), as
reported in The Wall Street Journal or such other source as the Administrator deems reliable;

               (ii) If the Common Stock is regularly quoted on an automated quotation system (including the
OTC Bulletin Board) or by a recognized securities dealer, but selling prices are not reported, the
Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of determination (or, if no such prices were reported on
that date, on the last date such prices were reported), as reported in The Wall Street Journal or
such other source as the Administrator deems reliable; or

               (iii) In the absence of an established market for the Common Stock of the type described in
(i) and (ii), above, the Fair Market Value thereof shall be determined by the Administrator in good
faith.

          (q) “Grantee” means a Director or Consultant who receives an Option under the Plan.

          (r) “Immediate Family” means 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, brother-in-law, or sister-in-law, including adoptive relationships, any
person sharing the Grantee’s household (other than a tenant or employee), a trust in which these
persons (or the Grantee) have more than fifty percent (50%) of the beneficial interest, a
foundation in which these persons (or the Grantee) control the management of assets,

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and any other entity in which these persons (or the Grantee) own more than fifty percent (50%)
of the voting interests.

          (s) “Non-Employee” means any person who is not an Employee of the Company or any
Related Entity.

          (t) “Non-Qualified Stock Option” means an Option not intended to qualify as an
“incentive stock option” within the meaning of Section 422 of the Code.

          (u) “Officer” means a person who is an officer of the Company or a Related Entity
within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.

          (v) “Option” means an option to purchase Shares pursuant to an Option Agreement
granted under the Plan.

          (w) “Option Agreement” means the written agreement evidencing the grant of an Option
executed by the Company and the Grantee, including any amendments thereto.

          (x) “Parent” means a “parent corporation”, whether now or hereafter existing, as
defined in Section 424(e) of the Code.

          (y) “Plan” means this 2003 Non-Employee Director Stock Option Plan.

          (z) “Registration Date” means the first to occur of (i) the closing of the first sale
to the general public pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as amended, of (A) the Common
Stock or (B) the same class of securities of a successor corporation (or its Parent) issued
pursuant to a Corporate Transaction in exchange for or in substitution of the Common Stock; and
(ii) in the event of a Corporate Transaction, the date of the consummation of the Corporate
Transaction if the same class of securities of the successor corporation (or its Parent) issuable
in such Corporate Transaction shall have been sold to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended, on or prior to the date of consummation of such Corporate
Transaction.

          (aa) “Related Entity” means any Parent or Subsidiary of the Company and any business,
corporation, partnership, limited liability company or other entity in which the Company or a
Parent or a Subsidiary of the Company holds a substantial ownership interest, directly or
indirectly.

          (bb) “Replaced” means that (i) pursuant to a Corporate Transaction defined in Section
2(k)(i), 2(k)(ii) or 2(k)(iii), the Option is replaced with a comparable stock award or a cash
incentive program of the successor entity or Parent thereof which preserves the compensation
element of such Option existing at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same (or a more favorable) vesting schedule applicable to
such Option or (ii) pursuant to a Corporate Transaction defined in Section 2(k)(iv) or 2(k)(v), the
Option is replaced with a comparable stock award or a cash

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incentive program of the Company or Parent thereof which preserves the compensation element of
such Option existing at the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same (or a more favorable) vesting schedule applicable to such Option. The
determination of Option comparability shall be made by the Administrator and its determination
shall be final, binding and conclusive.

          (cc) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor
thereto.

          (dd) “Share” means a share of the Common Stock.

          (ee) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing,
as defined in Section 424(f) of the Code.

          (ff) “Venture Capital Director” means a Non-Employee Director who has been appointed
by a Venture Capital Entity.

          (gg) “Venture Capital Entity” means any of the following entities:

               (i) InveStar Capital;

               (ii) Smart Technology Ventures;

               (iii) Easton Hunt Capital Partners; and

               (iv) TL Ventures.

     3. Stock Subject to the Plan.

          (a) Subject to the provisions of Section 10 below, the maximum aggregate number of Shares
which may be issued pursuant to all Options is 85,769 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.

          (b) Any Shares covered by an Option (or portion of an Option) which is forfeited, canceled or
expires (whether voluntarily or involuntarily) shall be deemed not to have been issued for purposes
of determining the maximum aggregate number of Shares which may be issued under the Plan. Shares
that actually have been issued under the Plan pursuant to an Option shall not be returned to the
Plan and shall not become available for future issuance under the Plan, except that if unvested
Shares are forfeited or repurchased by the Company, such Shares shall become available for future
grant under the Plan.

     4. Administration of the Plan.

          (a) Plan Administrator.

               (i) Administration with Respect to Directors. Prior to the Registration Date, with
respect to grants of Options to Directors of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee

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shall be constituted in such a manner as to satisfy the Applicable Laws. On or after the
Registration Date, with respect to grants of Options to Directors, the Plan shall be administered
by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted
in such a manner as to satisfy the Applicable Laws and to permit such grants and related
transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with
Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board.

               (ii) Administration With Respect to Consultants. With respect to grants of Options to
Consultants, the Plan shall be administered by (A) the Board or (B) a Committee designated by the
Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws.
Once appointed, such Committee shall continue to serve in its designated capacity until otherwise
directed by the Board.

          (b) Powers of the Administrator. Subject to Applicable Laws and the provisions of the
Plan (including any other powers given to the Administrator hereunder), and except as otherwise
provided by the Board, the Administrator shall have the authority, in its discretion:

               (i) to approve forms of Option Agreements for use under the Plan;

               (ii) to determine the terms and conditions of any Option granted hereunder;

               (iii) to establish additional terms, conditions, rules or procedures to accommodate the rules
or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such
rules or laws; provided, however, that no Option shall be granted under any such additional terms,
conditions, rules or procedures with terms or conditions which are inconsistent with the provisions
of the Plan;

               (iv) to amend the terms of any outstanding Option granted under the Plan, provided that any
amendment that would adversely affect the Grantee’s rights under an outstanding Option shall not be
made without the Grantee’s written consent;

               (v) to construe and interpret the terms of the Plan and Options, including without limitation,
any notice of award or Option Agreement, granted pursuant to the Plan; and

               (vi) to take such other action, not inconsistent with the terms of the Plan, as the
Administrator deems appropriate.

     5. Eligibility. Non-Qualified Stock Options may be granted to Non-Employee Directors
and Consultants, including, without limitation, any Venture Capital Entity which has appointed one
or more Venture Capital Directors. A Director who has been granted an Option under the Plan is
not eligible to be receive additional Options under the Plan. A Venture Capital Entity
shall not be eligible to receive a number of Options that exceeds the number of Board
memberships to which it has the authority to appoint a Venture Capital Director.

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     6. Terms and Conditions of Options.

          (a) Designation of Option. Each Option shall be designated as a Non-Qualified Stock
Option.

          (b) Conditions of Option. Subject to the terms of the Plan, the Administrator shall
determine the provisions, terms, and conditions of each Option including, but not limited to,
repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash,
Shares, or other consideration) upon settlement of the Option.

          (c) Time of Granting Options and Number of Shares subject to the Option. A
Non-Qualified Stock Option to purchase one hundred thousand (100,000) shares of Common Stock shall
be granted to each eligible Venture Capital Director (or, in the discretion of the Administrator,
to the Venture Capital Entity that has appointed the Venture Capital Director), such Option grant
to be made (a) to the then-existing Venture Capital Directors upon the adoption of this Plan by the
stockholders of the Company and (b) subject to Section 6(d), to other Venture Capital Directors
elected or appointed to the Board after the adoption of this Plan upon the date each such Venture
Capital Director first becomes a Director of the Company.

          (d) Appointment as a Replacement Director. In the event a Venture Capital Director
ceases to serve as a Director:

               (i) if the Option awarded pursuant to Section 6(c) was granted to the Venture Capital Entity,
the replacement Director appointed by the Venture Capital Entity shall not be eligible for
an Option grant under the Plan; and

               (ii) if the Option awarded pursuant to Section 6(c) was granted to the Venture Capital
Director, the replacement Director appointed by the Venture Capital Entity shall be eligible for an
Option grant under the Plan pursuant to Section 6(c).

          (e) Vesting of the Option. Except as otherwise determined by the Administrator, each
Option grant under the Plan shall vest and become exercisable as to 1/8th of the shares
of Common Stock subject to the Option six months after the grant date and an additional
1/48th of the shares of Common Stock subject to the Option shall vest on each monthly
anniversary of the grant date thereafter, such that the Option will be fully exercisable four years
after its date of grant.

          (f) Early Exercise. The Option Agreement may, but need not, include a provision
whereby the Grantee may elect at any time while a Director or Consultant to exercise any part or
all of the Option prior to full vesting of the Option. Any unvested Shares received pursuant to
such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or
to any other restriction the Administrator determines to be appropriate.

          (g) Term of Option. The term of each Option shall be the term stated in the Option
Agreement.

          (h) Transferability of Options. Non-Qualified Stock Options shall be transferable (i)
by will or by the laws of descent and distribution or (ii) to the extent and in the

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manner authorized by the Administrator. Notwithstanding the foregoing, the Grantee may
designate a member of the Grantee’s Immediate Family as a beneficiary of the Grantee’s
Non-Qualified Stock Option in the event of the Grantee’s death on a beneficiary designation form
provided by the Administrator.

     7. Option Exercise Price, Consideration and Taxes.

          (a) Exercise Price. The per Share exercise price for Non-Qualified Stock Options
shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of
grant.

          (b) Consideration. Subject to Applicable Laws, the consideration to be paid for the
Shares to be issued upon exercise of an Option including the method of payment, shall be determined
by the Administrator. In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares issued under the
Plan the following provided that the portion of the consideration equal to the par value of the
Shares must be paid in cash or other legal consideration permitted by the Delaware General
Corporation Law:

               (i) cash;

               (ii) check;

               (iii) delivery of Grantee’s promissory note with such recourse, interest, security, and
redemption provisions as the Administrator determines as appropriate (but only to the extent that
the acceptance or terms of the promissory note would not violate an Applicable Law and would not
result in an accounting compensation charge with respect to the use of such promissory note to pay
the exercise price unless otherwise determined by the Administrator);

               (iv) if the exercise or purchase occurs on or after the Registration Date, surrender of Shares
or delivery of a properly executed form of attestation of ownership of Shares as the Administrator
may require which have a Fair Market Value on the date of surrender or attestation equal to the
aggregate exercise price of the Shares as to which said Option shall be exercised (but only to the
extent that such exercise of the Option would not result in an accounting compensation charge with
respect to the Shares used to pay the exercise price unless otherwise determined by the
Administrator; generally an accounting charge will result if the Shares used to pay the exercise
price were acquired less than six months before the exercise);

               (v) if the exercise occurs on or after the Registration Date, payment through a broker-dealer
sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions
to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased
Shares and remit to the Company sufficient funds to cover the aggregate exercise price payable for
the purchased Shares and (B) shall provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order to complete the sale
transaction; or

               (vi) any combination of the foregoing methods of payment.

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          (c) Taxes. No Shares shall be delivered under the Plan to any Grantee or other person
until such Grantee or other person has made arrangements acceptable to the Administrator for the
satisfaction of any foreign, federal, state, or local income and employment tax withholding
obligations, including, without limitation, obligations incident to the receipt of Shares. Upon
exercise of an Option the Company shall withhold or collect from Grantee an amount sufficient to
satisfy such tax obligations.

     8. Procedure for Exercise; Rights as a Stockholder.

          (a) Any Option granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator under the terms of the Plan and specified in the Option
Agreement.

          (b) An Option shall be deemed to be exercised when written notice of such exercise has been
given to the Company in accordance with the terms of the Option by the person entitled to exercise
the Option and full payment for the Shares with respect to which the Option is exercised has been
made, including, to the extent selected, use of the broker-dealer sale and remittance procedure to
pay the purchase price as provided in Section 7(b)(v). Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to Shares subject to an Option,
notwithstanding the exercise of an Option or other Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock certificate is
issued, except as provided in the Option Agreement or Section 10 below.

     9. Conditions Upon Issuance of Shares.

          (a) Shares shall not be issued pursuant to the exercise of an Option unless the exercise of
such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all
Applicable Laws, and shall be further subject to the approval of counsel for the Company with
respect to such compliance.

          (b) As a condition to the exercise of an Option, the Company may require the person exercising
such Option to represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required by any Applicable
Laws.

     10. Adjustments Upon Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each outstanding Option, and the
number of Shares which have been authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan, the exercise price of each such
outstanding Option as well as any other terms that the Administrator determines require adjustment
shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares
resulting from a stock split, reverse stock split, stock dividend, combination or reclassification
of the Shares, or similar transaction affecting the Shares, (ii) any other increase

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or decrease in the number of issued Shares effected without receipt of consideration by the
Company, or (iii) as the Administrator may determine in its discretion, any other transaction with
respect to Common Stock including a corporate merger, consolidation, acquisition of property or
stock, separation (including a spin-off or other distribution of stock or property),
reorganization, liquidation (whether partial or complete) or any similar transaction; provided,
however that conversion of any convertible securities of the Company shall not be deemed to have
been “effected without receipt of consideration.” Such adjustment shall be made by the
Administrator and its determination shall be final, binding and conclusive. Except as the
Administrator determines, no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof
shall be made with respect to, the number or price of Shares subject to an Option.

     11. Corporate Transactions.

          (a) Termination of Option to Extent Not Assumed in Corporate Transaction. Effective
upon the consummation of a Corporate Transaction, all outstanding Options under the Plan shall
terminate. However, all such Options shall not terminate to the extent they are Assumed in
connection with the Corporate Transaction.

          (b) Acceleration of Option Upon Corporate Transaction.

               (i) Corporate Transaction. Except as provided otherwise in an individual Option
Agreement, in the event of a Corporate Transaction and:

                    (A) for the portion of each Option that is Assumed or Replaced, then such Option (if Assumed),
the replacement Option (if Replaced), or the cash incentive program (if Replaced) automatically
shall become vested, exercisable and payable and be released from any repurchase or forfeiture
rights (other than repurchase rights exercisable at Fair Market Value) for the lesser of (i) 25% of
the Shares subject to the Assumed or Replaced portion of such Option or (ii) 1/48 of the Shares
subject to the Assumed or Replaced portion of such Option for each full month of Continuous Service
of the Grantee from the date of grant of the Option until the Corporate Transaction, immediately
upon termination of the Grantee’s Continuous Service if such Continuous Service is terminated
voluntarily or involuntarily within six (6) months after the Corporate Transaction; and

                    (B) for the portion of each Option that is neither Assumed nor Replaced, such portion of the
Option shall automatically become vested and exercisable and be released from any repurchase or
forfeiture rights (other than repurchase rights exercisable at Fair Market Value) for the lesser of
(i) 25% of the Shares subject to the portion of such Option that is not Assumed or Replaced or (ii)
1/48 of the Shares subject to the portion of the Option that is not Assumed or Replaced for each
full month of Continuous Service of the Grantee from the date of grant of the Option until the
Corporate Transaction, immediately prior to the specified effective date of such Corporate
Transaction.

     12. Effective Date and Term of Plan. The Plan shall become effective upon its
adoption by the stockholders of the Company. It shall continue in effect for a term of ten (10)

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years unless sooner terminated. Subject to Applicable Laws, Options may be granted under the
Plan upon its becoming effective.

     13. Amendment, Suspension or Termination of the Plan.

          (a) The Board may at any time amend, suspend or terminate the Plan. To the extent necessary to
comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in
such a manner and to such a degree as required.

          (b) No Option may be granted during any suspension of the Plan or after termination of the
Plan.

          (c) No suspension or termination of the Plan (including termination of the Plan under Section
12, above) shall adversely affect any rights under Options already granted to a Grantee.

     14. Reservation of Shares.

          (a) The Company, during the term of the Plan, will at all times reserve and keep available
such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

          (b) The inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of
the failure to issue or sell such Shares as to which such requisite authority shall not have been
obtained.

     15. No Effect on Terms of Employment/Consulting Relationship. The Plan shall not
confer upon any Grantee any right with respect to the Grantee’s Continuous Service, nor shall it
interfere in any way with his or her right or the right of the Company or any Related Entity to
terminate the Grantee’s Continuous Service at any time, with or without cause, and with or without
notice.

     16. No Effect on Retirement and Other Benefit Plans. Except as specifically provided
in a retirement or other benefit plan of the Company or a Related Entity, Options shall not be
deemed compensation for purposes of computing benefits or contributions under any retirement plan
of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the availability or amount of
benefits is related to level of compensation. The Plan is not a “Retirement Plan” or “Welfare
Plan” under the Employee Retirement Income Security Act of 1974, as amended.

11exv10w4

 

Exhibit 10.4

SONICS, INC. 2003 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

NOTICE OF STOCK OPTION AWARD

	 	 	 	 	 
	     Grantee’s Name and Address:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 

     You (the “Grantee”) have been granted an option to purchase shares of Common Stock, subject to
the terms and conditions of this Notice of Stock Option Award (the “Notice”), the Sonics, Inc. 2003
Non-Employee Director Stock Option Plan, as amended from time to time (the “Plan”) and the
Immediately Exercisable Stock Option Award Agreement (the “Option Agreement”) attached hereto, as
follows. Unless otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Notice.

	 	 	 	 	 	 	 
	     Award Number
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	     Date of Award
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	     Vesting Commencement Date
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	     Exercise Price per Share

	 	$ 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	     Total Number of Shares Subject 

      to the Option (the “Shares”)
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	     Total Exercise Price

	 	$ 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	     Type of Option:	 	Non-Qualified Stock Option	 	 
	 
	 	 	 	 	 	 
	     Expiration Date:
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	     Post-Termination Exercise Period:	 	Thirty (30) Days	 	 

Vesting Schedule:

     This Option is immediately exercisable although the Shares issued upon exercise of the Option
will be subject to the restrictions on transfer and a right of repurchase at the Exercise Price per
Share, in favor of the Company, as described in Section 15 of the Option Agreement (the “Repurchase
Right”). For purposes of this Notice and the Option Agreement, the term “vest” shall mean, with
respect to any Shares, that such Shares (whether subject to the Option or acquired upon exercise of
the Option) are no longer subject to the Repurchase Right, provided, however, that such Shares
shall remain subject to other restrictions on transfer set forth in the Option Agreement or the
Plan. If the Grantee would become vested in a fraction of a Share, such Share shall not vest until
the Grantee becomes vested in the entire Share. Notwithstanding the foregoing, the Shares subject
to this Notice will be released from the Repurchase Right in the event of a Corporate Transaction
in accordance with Section 11 of the Plan. Provided that the Grantee’s Continuous Service is not
terminated and other limitations set forth in this Notice, the

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Plan and the Option Agreement, the Repurchase Right shall lapse in accordance with the
following schedule:

     1/8th of the Shares subject to the Option shall vest six months after the Vesting
Commencement Date, and 1/48th of the Shares subject to the Option shall vest on each
monthly anniversary of the Vesting Commencement Date thereafter until the Option is fully vested.

     IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the
Option is to be governed by the terms and conditions of this Notice, the Plan, and the Option
Agreement.

	 	 	 	 	 	 	 
	 	 	Sonics, Inc.,	 	 
	 	 	a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL VEST, IF AT ALL,
ONLY DURING THE PERIOD OF THE GRANTEE’S CONTINUOUS SERVICE (NOT THROUGH THE ACT OF BEING GRANTED
THE OPTION OR ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY RIGHT
WITH RESPECT TO FUTURE AWARDS.

     The Grantee acknowledges receipt of a copy of the Plan and the Option Agreement, and
represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the
Option subject to all of the terms and provisions hereof and thereof. The Grantee has reviewed
this Notice, the Plan, and the Option Agreement in their entirety, has had an opportunity to obtain
the advice of counsel prior to executing this Notice, and fully understands all provisions of this
Notice, the Plan and the Option Agreement. The Grantee hereby agrees that all disputes arising out
of or relating to this Notice, the Plan and the Option Agreement shall be resolved in accordance
with Section 22 of the Option Agreement. The Grantee further agrees to notify the Company upon any
change in the residence address indicated in this Notice.

	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 
	 	Signed:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Grantee	 	 

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Award Number:                                         

SONICS, INC. 2003 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

IMMEDIATELY EXERCISABLE STOCK OPTION AWARD AGREEMENT

     1. Grant of Option. Sonics, Inc., a Delaware corporation (the “Company”), hereby
grants to the Grantee (the “Grantee”) named in the Notice of Stock Option Award (the “Notice”), an
option (the “Option”) to purchase the Total Number of Shares of Common Stock subject to the Option
(the “Shares”) set forth in the Notice, at the Exercise Price per Share set forth in the Notice
(the “Exercise Price”) subject to the terms and provisions of the Notice, this Immediately
Exercisable Stock Option Award Agreement (the “Option Agreement”) and the Company’s 2003
Non-Employee Director Stock Option Plan, as amended from time to time (the “Plan”), which are
incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Option Agreement.

     2. Exercise of Option.

          (a) Right to Exercise. The Option shall be immediately exercisable during its term in
accordance with the applicable provisions of the Plan and this Option Agreement. The Option shall
be subject to the provisions of Section 11 of the Plan relating to the exercisability or
termination of the Option in the event of a Corporate Transaction. The Grantee shall be subject to
reasonable limitations on the number of requested exercises during any monthly or weekly period as
determined by the Administrator. In no event shall the Company issue fractional Shares.

          (b) Method of Exercise. The Option shall be exercisable by delivery of an exercise
notice (a form of which is attached as Exhibit A) or by such other procedure as specified from time
to time by the Administrator which shall state the election to exercise the Option, the whole
number of Shares in respect of which the Option is being exercised, and such other provisions as
may be required by the Administrator. The exercise notice shall be delivered in person, by
certified mail, or by such other method (including electronic transmission) as determined from time
to time by the Administrator to the Company accompanied by payment of the Exercise Price. The
Option shall be deemed to be exercised upon receipt by the Company of such notice accompanied by
the Exercise Price, which, to the extent selected, shall be deemed to be satisfied by use of the
broker-dealer sale and remittance procedure to pay the Exercise Price provided in Section 4(d),
below.

          (c) Taxes. No Shares will be delivered to the Grantee or other person pursuant to the
exercise of the Option until the Grantee or other person has made arrangements acceptable to the
Administrator for the satisfaction of applicable income tax and employment tax withholding
obligations, including, without limitation, such other tax obligations of the Grantee incident to
the receipt of Shares. Upon exercise of the Option, the Company or the Grantee’s employer may
offset or withhold (from any amount owed by the Company or the Grantee’s employer to the Grantee)
or collect from the Grantee or other person an amount sufficient to satisfy such tax obligations
and/or the employer’s withholding obligations.

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     3. Grantee’s Representations. The Grantee understands that neither the Option nor the
Shares exercisable pursuant to the Option have been registered under the Securities Act of 1933, as
amended or any United States securities laws. In the event the Shares purchasable pursuant to the
exercise of the Option have not been registered under the Securities Act of 1933, as amended, at
the time the Option is exercised, the Grantee shall, if requested by the Company, concurrently with
the exercise of all or any portion of the Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B.

     4. Method of Payment. Payment of the Exercise Price shall be made by any of the
following, or a combination thereof, at the election of the Grantee; provided, however, that such
exercise method does not then violate any Applicable Law and, provided further, that the portion of
the Exercise Price equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:

          (a) cash;

          (b) check;

          (c) if the exercise occurs on or after the Registration Date, surrender of Shares or delivery
of a properly executed form of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the Option) which have a
Fair Market Value on the date of surrender or attestation equal to the aggregate Exercise Price of
the Shares as to which the Option is being exercised (but only to the extent that such exercise of
the Option would not result in an accounting compensation charge with respect to the Shares used to
pay the exercise price); or

          (d) if the exercise occurs on or after the Registration Date, payment through a broker-dealer
sale and remittance procedure pursuant to which the Grantee (i) shall provide written instructions
to a Company-designated brokerage firm to effect the immediate sale of some or all of the purchased
Shares and remit to the Company sufficient funds to cover the aggregate exercise price payable for
the purchased Shares and (ii) shall provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order to complete the sale
transaction.

     5. Restrictions on Exercise. The Option may not be exercised if the issuance of the
Shares subject to the Option upon such exercise would constitute a violation of any Applicable
Laws.

     6. Termination or Change of Continuous Service. In the event the Grantee’s Continuous
Service terminates, the Grantee may, but only during the Post-Termination Exercise Period, exercise
the portion of the Option that was vested at the date of such termination (the “Termination Date”).
In the event of the Grantee’s change in status from Director, Employee or Consultant to any other
status of Director, Employee or Consultant, the Option shall remain in effect and vesting of the
Option shall continue only to the extent determined by the Administrator as of such change in
status. In no event shall the Option be exercised later than the Expiration Date set forth in the
Notice. Except as provided in Sections 7 and 8 below, to the extent that the Option was unvested
on the Termination Date, or if the Grantee does not exercise

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the vested portion of the Option within the Post-Termination Exercise Period, the Option shall
terminate.

     7. Disability of Grantee. In the event the Grantee’s Continuous Service terminates as
a result of his or her Disability, the Grantee may, but only within twelve (12) months from the
Termination Date (and in no event later than the Expiration Date), exercise the portion of the
Option that was vested on the Termination Date. To the extent that the Option was unvested on the
Termination Date, or if the Grantee does not exercise the vested portion of the Option within the
time specified herein, the Option shall terminate.

     8. Death of Grantee. In the event of the termination of the Grantee’s Continuous
Service as a result of his or her death, or in the event of the Grantee’s death during the
Post-Termination Exercise Period or during the twelve (12) month period following the Grantee’s
termination of Continuous Service as a result of his or her Disability, the Grantee’s estate, or a
person who acquired the right to exercise the Option by bequest or inheritance, may exercise the
portion of the Option that was vested at the date of termination within twelve (12) months from the
date of death (but in no event later than the Expiration Date). To the extent that the Option was
unvested on the date of death, or if the vested portion of the Option is not exercised within the
time specified herein, the Option shall terminate.

     9. Transferability of Option. The Option may not be transferred in any manner other
than by will or by the laws of descent and distribution, provided, however, that the Option may be
transferred during the lifetime of the Grantee by gift to members of the Grantee’s Immediate Family
to the extent and in the manner determined by the Administrator. Notwithstanding the foregoing,
the Grantee may designate a member of the Grantee’s Immediate Family as a beneficiary of the
Grantee’s Option in the event of the Grantee’s death on a beneficiary designation form provided by
the Administrator. The terms of the Option shall be binding upon the executors, administrators,
heirs, successors and transferees of the Grantee.

     10. Term of Option. The Option must be exercised no later than the Expiration Date
set forth in the Notice or such earlier date as otherwise provided herein. After the Expiration
Date or such earlier date, the Option shall be of no further force or effect and may not be
exercised.

     11. Transfer Restrictions for Unvested Shares. The Shares sold to the Grantee
hereunder may not be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or
disposed of by the Grantee prior to the date that the Shares become vested pursuant to the Vesting
Schedule set forth in the Notice. Any attempt to transfer Shares in violation of this Section 11
will be null and void and will be disregarded.

     12. Escrow of Stock. For purposes of facilitating the enforcement of the provisions
of the Repurchase Right, the Grantee agrees, immediately upon receipt of the certificate(s) for the
Shares, to deliver such certificate(s), together with an Assignment Separate from Certificate in
the form attached hereto as Exhibit C, executed in blank by the Grantee and the Grantee’s spouse
(if required for transfer) with respect to each such stock certificate, to the Secretary or
Assistant Secretary of the Company, or their designee, to hold in escrow for so long as such Shares
have not vested pursuant to the Vesting Schedule set forth in the Notice and are subject to
Company’s

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Repurchase Right, with the authority to take all such actions and to effectuate all such
transfers and/or releases as may be necessary or appropriate to accomplish the objectives of this
Option Agreement in accordance with the terms hereof. The Grantee hereby acknowledges that the
appointment of the Secretary or Assistant Secretary of the Company (or their designee) as the
escrow holder hereunder with the stated authorities is a material inducement to the Company to make
this Option Agreement and that such appointment is coupled with an interest and is accordingly
irrevocable. The Grantee agrees that such escrow holder shall not be liable to any party hereto
(or to any other party) for any actions or omissions unless such escrow holder is grossly negligent
relative thereto. The escrow holder may rely upon any letter, notice or other document executed by
any signature purported to be genuine and may resign at any time. Subject to the provisions of any
security agreement relating to Grantee’s purchase of the Shares, upon the vesting of Shares and
termination of the Company’s Repurchase Right as set forth in Section 15, the escrow holder will,
upon request, transmit to the Grantee the certificate evidencing such Shares.

     13. Additional Securities. Any securities or cash received (other than a regular cash
dividend) as the result of ownership of the Shares (the “Additional Securities”), including, but
not by way of limitation, warrants, options and securities received as a stock dividend or stock
split, or as a result of any transaction described in Section 10 or 11 of the Plan, shall be
subject to the same conditions and restrictions as the Shares with respect to which they were
issued, including, without limitation, the Vesting Schedule set forth in the Notice and the
Repurchase Right and retained in escrow in the same manner as the Shares with respect to which they
relate. The Grantee shall be entitled to direct the Company to exercise any warrant or option
received as Additional Securities upon supplying the funds necessary to do so, in which event the
securities so purchased shall constitute Additional Securities, but the Grantee may not direct the
Company to sell any such warrant or option. If Additional Securities consist of a convertible
security, the Grantee may exercise any conversion right, and any securities so acquired shall
constitute Additional Securities. Appropriate adjustments to reflect the distribution of
Additional Securities shall be made to the price per share to be paid upon the exercise of the
Repurchase Right in order to reflect the effect of any such transaction upon the Company’s capital
structure. In the event of any change in certificates evidencing the Shares or the Additional
Securities by reason of any recapitalization, reorganization or other transaction that results in
the creation of Additional Securities, the escrow holder is authorized to deliver to the issuer the
certificates evidencing the Shares or the Additional Securities in exchange for the certificates of
the replacement securities.

     14. Distributions. Subject to Section 13 and Section 15(e), the Company shall
disburse to the Grantee all regular cash dividends with respect to the Shares and Additional
Securities (whether vested or not), less any applicable withholding obligations.

     15. Company’s Repurchase Right.

          (a) Grant of Repurchase Right. The Company is hereby granted the right (the
“Repurchase Right”), exercisable at any time during the ninety (90) day period following the
Termination Date, to repurchase all or any portion of the Shares that have not vested pursuant to
the terms of the Vesting Schedule purchased upon exercise of the Option (the “Share Repurchase
Period”).

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          (b) Exercise of the Repurchase Right. The Repurchase Right shall be exercisable by
written notice delivered to the Grantee prior to the expiration of the Share Repurchase Period.
The notice shall indicate the number of Shares to be repurchased and the date on which the
repurchase is to be effected, such date to be not later than the last day of the Share Repurchase
Period. On the date on which the repurchase is to be effected, the Company and/or its assigns
shall pay to the Grantee in cash or cash equivalents (including the cancellation of any
purchase-money indebtedness) an amount equal to the Exercise Price per Share for unvested Shares
which are to be repurchased from the Grantee. Upon such payment or deposit into escrow for the
benefit of the Grantee, the Company and/or its assigns shall become the legal and beneficial owner
of the Shares being repurchased and all rights and interest thereon or related thereto, and the
Company shall have the right to transfer to its own name or its assigns the number of Shares being
repurchased, without further action by the Grantee.

          (c) Assignment. Whenever the Company shall have the right to purchase Shares under
this Repurchase Right, the Company may designate and assign one or more employees, officers,
directors or stockholders of the Company or other persons or organizations, to exercise all or a
part of the Company’s Repurchase Right.

          (d) Termination of the Repurchase Right. The Repurchase Right shall terminate with
respect to any Shares for which it is not timely exercised.

          (e) Additional Shares or Substituted Securities. In the event of any transaction
described in Sections 10 or 11 of the Plan, the Repurchase Right shall apply to the new capital
stock or other property (including cash paid other than as a regular cash dividend) received in
exchange for the Shares in consummation of the Corporate Transaction and such stock or property
shall be deemed Additional Securities for purposes of this Agreement, but only to the extent the
Shares are at the time covered by such Repurchase Right. Appropriate adjustments shall be made to
the price per share payable upon exercise of the Repurchase Right to reflect the effect of the
Corporate Transaction.

     16. Stop-Transfer Notices. In order to ensure compliance with the restrictions on
transfer set forth in this Option Agreement, the Notice or the Plan, the Company may issue
appropriate “stop transfer” instructions to its transfer agent, if any, and, if the Company
transfers its own securities, it may make appropriate notations to the same effect in its own
records.

     17. Refusal to Transfer. The Company shall not be required (i) to transfer on its
books any Shares that have been sold or otherwise transferred in violation of any of the provisions
of this Option Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or
pay dividends to any purchaser or other transferee to whom such Shares shall have been so
transferred.

     18. Special Tax Election for Exercise of Option Subject to Forfeiture/Tax
Consequences. Set forth below is a brief summary as of the date of this Option Agreement of
some of the federal tax consequences of exercise of the Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE
GRANTEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

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          (a) Section 83(b) Election For Exercise of Non-Qualified Stock Option Subject to
Vesting. If the Shares are acquired hereunder pursuant to the exercise of a Non-Qualified
Stock Option that has not vested pursuant to the Vesting Schedule set forth in the Notice, then the
Grantee understands that under Code Section 83, the excess of the Fair Market Value of the Shares
on the date any forfeiture restrictions applicable to the Shares lapse over the Exercise Price paid
for the Shares will be reportable as ordinary income on the lapse date and subject to applicable
income tax and employment tax withholding. For this purpose, the term “forfeiture restrictions”
includes the right of the Company to repurchase the Shares pursuant to the Repurchase Right
provided under Section 15. The Grantee understands that he/she may elect under Code Section 83(b)
to be taxed at the time the Shares are acquired hereunder, rather than when and as the Shares cease
to be subject to the forfeiture restrictions. Such election (the “83(b) Election”) must be filed
with the Internal Revenue Service within thirty (30) days after the date Shares are acquired upon
exercise of the Option. If the 83(b) Election is made, the excess of the Fair Market Value of the
Shares on the date the Option is exercised over the Exercise Price paid for the Shares will be
reportable as ordinary income and subject to applicable income tax and employment tax withholding.
Even if the Fair Market Value of the Shares on the date the Option is exercised equals the Exercise
Price paid (and thus no tax is payable), the 83(b) Election must be made to avoid adverse tax
consequences in the future. THE FORM FOR MAKING THIS 83(b) ELECTION IS ATTACHED AS EXHIBIT D
HERETO. THE GRANTEE UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY
(30)-DAY PERIOD MAY RESULT IN THE RECOGNITION OF ORDINARY INCOME BY THE GRANTEE AS THE FORFEITURE
RESTRICTIONS LAPSE.

          (b) Exercise of Vested Non-Qualified Stock Option. If pursuant to the Vesting
Schedule set forth in the Notice, the Shares acquired upon exercise of the Option are not subject
to any forfeiture restrictions, the Grantee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the
Shares on the date of exercise over the Exercise Price. If the Grantee is an Employee or a former
Employee, the Company will be required to withhold from the Grantee’s compensation or collect from
the Grantee and pay to the applicable taxing authorities an amount in cash equal to a percentage of
this compensation income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of exercise.

          (c) Disposition of Shares. In the case of a Non-Qualified Stock Option, if Shares are
held for more than one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.

     19. Lock-Up Agreement.

          (a) Agreement. The Grantee, if requested by the Company and the lead underwriter of
any public offering of the Common Stock (the “Lead Underwriter”), hereby irrevocably agrees not to
sell, contract to sell, grant any option to purchase, transfer the economic risk of ownership in,
make any short sale of, pledge or otherwise transfer or dispose of any interest in any Common Stock
or any securities convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire Common Stock (except Common Stock included in

6

 

such public offering or acquired on the public market after such offering) during the 180-day
period following the effective date of a registration statement of the Company filed under the
Securities Act of 1933, as amended, or such shorter period of time as the Lead Underwriter shall
specify. The Grantee further agrees to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agrees that the Company may impose stop-transfer
instructions with respect to such Common Stock subject to the lock-up period until the end of such
period. The Company and the Grantee acknowledge that each Lead Underwriter of a public offering of
the Company’s stock, during the period of such offering and for the 180-day period thereafter, is
an intended beneficiary of this Section 19.

          (b) No Amendment Without Consent of Underwriter. During the period from
identification of a Lead Underwriter in connection with any public offering of the Company’s Common
Stock until the earlier of (i) the expiration of the lock-up period specified in Section 19(a) in
connection with such offering or (ii) the abandonment of such offering by the Company and the Lead
Underwriter, the provisions of this Section 19 may not be amended or waived except with the consent
of the Lead Underwriter.

     20. Entire Agreement: Governing Law. The Notice, the Plan and this Option Agreement
constitute the entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company and the Grantee
with respect to the subject matter hereof, and may not be modified adversely to the Grantee’s
interest except by means of a writing signed by the Company and the Grantee. Nothing in the
Notice, the Plan and this Option Agreement (except as expressly provided therein) is intended to
confer any rights or remedies on any persons other than the parties. The Notice, the Plan and this
Option Agreement are to be construed in accordance with and governed by the internal laws of the
State of California without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the State of California
to the rights and duties of the parties. Should any provision of the Notice, the Plan or this
Option Agreement be determined by a court of law to be illegal or unenforceable, such provision
shall be enforced to the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.

     21. Headings. The captions used in the Notice and this Option Agreement are inserted
for convenience and shall not be deemed a part of the Option for construction or interpretation.

     22. Dispute Resolution The provisions of this Section 22 shall be the exclusive means
of resolving disputes arising out of or relating to the Notice, the Plan and this Option Agreement.
The Company, the Grantee, and the Grantee’s assignees pursuant to Section 11 (the “parties”) shall
attempt in good faith to resolve any disputes arising out of or relating to the Notice, the Plan
and this Option Agreement by negotiation between individuals who have authority to settle the
controversy. Negotiations shall be commenced by either party by notice of a written statement of
the party’s position and the name and title of the individual who will represent the party. Within
thirty (30) days of the written notification, the parties shall meet at a mutually acceptable time
and place, and thereafter as often as they reasonably deem necessary, to resolve the dispute. If
the dispute has not been resolved by negotiation, the parties agree that any suit, action, or
proceeding arising out of or relating to the Notice, the Plan or this Option

7

 

Agreement shall be brought in the United States District Court for the Northern District of
California (or should such court lack jurisdiction to hear such action, suit or proceeding, in a
California state court in the County of San Francisco) and that the parties shall submit to the
jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law,
any objection the party may have to the laying of venue for any such suit, action or proceeding
brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY
TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 22
shall for any reason be held invalid or unenforceable, it is the specific intent of the parties
that such provisions shall be modified to the minimum extent necessary to make it or its
application valid and enforceable.

     23. Notices. Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery, upon deposit for delivery by an
internationally recognized express mail courier service or upon deposit in the United States mail
by certified mail (if the parties are within the United States), with postage and fees prepaid,
addressed to the other party at its address as shown in these instruments, or to such other address
as such party may designate in writing from time to time to the other party.

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EXHIBIT A

SONICS, INC. 2003 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

EXERCISE NOTICE

Sonics, Inc.

2440 W. El Camino Real, Suite 620

Mountain View, CA 94040

Attention: Secretary

     1. Effective as of today,                     , ___the undersigned (the “Grantee”) hereby elects to
exercise the Grantee’s option to purchase
                     shares of the Common Stock (the “Shares”) of
Sonics, Inc. (the “Company”) under and pursuant to the Company’s 2003 Non-Employee Director Stock
Option Plan, as amended from time to time (the “Plan”) and the Immediately Exercisable Stock Option
Award Agreement (the “Option Agreement”) and Notice of Stock Option Award (the “Notice”) dated
                    ,                     . Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Exercise Notice.

     2. Representations of the Grantee. The Grantee acknowledges that the Grantee has
received, read and understood the Notice, the Plan and the Option Agreement and agrees to abide by
and be bound by their terms and conditions.

     3. Rights as Stockholder. Until the stock certificate evidencing such Shares is
issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which the record date is
prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan.

     The Grantee shall enjoy rights as a stockholder until such time as the Grantee disposes of the
Shares or the Company and/or its assignee(s) exercises the Repurchase Right as to unvested Shares.
Upon such exercise, the Grantee shall have no further rights as a holder of the Shares so purchased
except the right to receive payment for the Shares so purchased in accordance with the provisions
of the Option Agreement, and the Grantee shall forthwith cause the certificate(s) evidencing the
Shares so purchased to be surrendered to the Company for transfer or cancellation.

     4. Delivery of Payment. The Grantee herewith delivers to the Company the full
Exercise Price for the Shares, which, to the extent selected, shall be deemed to be satisfied by
use of the broker-dealer sale and remittance procedure to pay the Exercise Price provided in
Section 4(d) of the Option Agreement.

     5. Tax Consultation. The Grantee understands that the Grantee may suffer adverse tax
consequences as a result of the Grantee’s purchase or disposition of the Shares. The Grantee

1

 

represents that the Grantee has consulted with any tax consultants the Grantee deems advisable
in connection with the purchase or disposition of the Shares and that the Grantee is not relying on
the Company for any tax advice.

     6. Tax Election; Taxes. The Grantee shall provide the Company with a copy of any
timely filed 83(b) Election relating to the purchase of the Shares. If the Grantee makes a timely
83(b) Election, the Grantee shall immediately pay the Company (or the Related Entity that employs
the Grantee) the amount necessary to satisfy any applicable federal, state, and local income and
employment tax withholding obligations. If the Grantee does not make a timely 83(b) Election, the
Grantee shall, either at the time that the restrictions lapse under the Option Agreement and the
Plan or at the time withholding is otherwise required by Applicable Law, pay the Company (or the
Related Entity that employs the Grantee) the amount necessary to satisfy any applicable federal,
state, and local income and employment tax withholding obligations. In addition, the Grantee
agrees to satisfy all other applicable federal, state and local income and employment tax
withholding obligations and herewith delivers to the Company the full amount of such obligations or
has made arrangements acceptable to the Company to satisfy such obligations.

     7. Restrictive Legends. The Grantee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto, to be placed upon
any certificate(s) evidencing ownership of the Shares together with any other legends that may be
required by the Company or by state or federal securities laws:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “ACT”) OR ANY STATE SECURITIES LAWS AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A REPURCHASE RIGHT HELD BY THE ISSUER
OR ITS ASSIGNEE(S) AS SET FORTH IN THE OPTION AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND REPURCHASE RIGHT ARE BINDING ON TRANSFEREES OF
THESE SHARES.

     8. Successors and Assigns. The Company may assign any of its rights under this
Exercise Notice to single or multiple assignees, and this agreement shall inure to the benefit of

2

 

the successors and assigns of the Company. Subject to the restrictions on transfer herein set
forth, this Exercise Notice shall be binding upon the Grantee and his or her heirs, executors,
administrators, successors and assigns.

     9. Headings. The captions used in this Exercise Notice are inserted for convenience
and shall not be deemed a part of this agreement for construction or interpretation.

     10. Dispute Resolution. The provisions of Section 22 of the Option Agreement shall be
the exclusive means of resolving disputes arising out of or relating to this Exercise Notice.

     11. Governing Law; Severability. This Exercise Notice is to be construed in
accordance with and governed by the internal laws of the State of California without giving effect
to any choice of law rule that would cause the application of the laws of any jurisdiction other
than the internal laws of the State of California to the rights and duties of the parties. Should
any provision of this Exercise Notice be determined by a court of law to be illegal or
unenforceable, such provision shall be enforced to the fullest extent allowed by law and the other
provisions shall nevertheless remain effective and shall remain enforceable.

     12. Notices. Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery, upon deposit for delivery by an
internationally recognized express mail courier service or upon deposit in the United States mail
by certified mail (if the parties are within the United States), with postage and fees prepaid,
addressed to the other party at its address as shown below beneath its signature, or to such other
address as such party may designate in writing from time to time to the other party.

     13. Further Instruments. The parties agree to execute such further instruments and to
take such further action as may be reasonably necessary to carry out the purposes and intent of
this agreement.

     14. Entire Agreement. The Notice, the Plan and the Option Agreement are incorporated
herein by reference and together with this Exercise Notice constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee’s interest except by means of a writing
signed by the Company and the Grantee. Nothing in the Notice, the Plan, the Option Agreement and
this Exercise Notice (except as expressly provided therein) is intended to confer any rights or
remedies on any persons other than the parties.

3

 

	 	 	 	 	 	 	 
	Submitted by:	 	Accepted by:	 	 
	 
	 	 	 	 	 	 
	GRANTEE:	 	SONICS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	(Signature)

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

	 
	Address:

	 	Address:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	2440 W. El Camino Real, Suite 620	 	 
	 

	 	 
	 	 	 	 
	 	 	Mountain View, CA 94040	 	 
	 

	 	 
	 	 	 	 

4

 

EXHIBIT B

SONICS, INC. 2003 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

INVESTMENT REPRESENTATION STATEMENT

	 	 	 	 	 
	GRANTEE:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	COMPANY:

	 	SONICS, INC.	 	 
	 
	 	 	 	 
	SECURITY:

	 	COMMON STOCK	 	 
	 
	 	 	 	 
	AMOUNT:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	DATE:
	 	 	 	 
	 

	 	 	 	 

In connection with the purchase of the above-listed Securities, the undersigned Grantee represents
to the Company the following:

     (a) Grantee is aware of the Company’s business affairs and financial condition and has
acquired sufficient information about the Company to reach an informed and knowledgeable decision
to acquire the Securities. Grantee is acquiring these Securities for investment for Grantee’s own
account only and not with a view to, or for resale in connection with, any “distribution” thereof
within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).

     (b) Grantee acknowledges and understands that the Securities constitute “restricted
securities” under the Securities Act and have not been registered under the Securities Act in
reliance upon a specific exemption therefrom, which exemption depends upon among other things, the
bona fide nature of Grantee’s investment intent as expressed herein. Grantee further understands
that the Securities must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Grantee further acknowledges
and understands that the Company is under no obligation to register the Securities. Grantee
understands that the certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such registration is not
required in the opinion of counsel satisfactory to the Company.

     (c) Grantee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under
the Securities Act, which, in substance, permit limited public resale of “restricted securities”
acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701
at the time of the grant of the Option to the Grantee, the exercise will be exempt from
registration under the Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days
thereafter (or such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited
“broker’s transaction” or in transactions directly with a market maker (as said term is defined
under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the

1

 

availability of certain public information about the Company, (3) the amount of Securities
being sold during any three month period not exceeding the limitations specified in Rule 144(e),
and (4) the timely filing of a Form 144, if applicable.

     In the event that the Company does not qualify under Rule 701 at the time of grant of the
Option, then the Securities may be resold in certain limited circumstances subject to the
provisions of Rule 144, which requires the resale to occur not less than one year after the later
of the date the Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than
two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the
paragraph immediately above.

     (d) Grantee further understands that in the event all of the applicable requirements of Rule
701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A,
or some other registration exemption will be required; and that, notwithstanding the fact that
Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has
expressed its opinion that persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden
of proof in establishing that an exemption from registration is available for such offers or sales,
and that such persons and their respective brokers who participate in such transactions do so at
their own risk. Grantee understands that no assurances can be given that any such other
registration exemption will be available in such event.

     (e) Grantee represents that he is a resident of the state of                     .

	 	 	 	 	 
	 

	 	Signature of Grantee:	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Date:                                         , ___	 	 

2

 

EXHIBIT C

STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE

[Please sign this document but do not date it. The date and information of the transferee
will be completed if and when the shares are assigned.]

     FOR VALUE RECEIVED,                                          hereby sells, assigns and transfers
unto                     ,                      (___) shares of the Common Stock of
Sonics, Inc., a Delaware corporation (the “Company”), standing in his name on the books of,
represented by Certificate No.
___  herewith, and does hereby irrevocably constitute and
appoint the Secretary of the Company attorney to transfer the said stock in the books of
the Company with full power of substitution.

     DATED:                                         

 

     The undersigned spouse of                                          joins in this assignment.

	 	 	 	 	 	 	 	 	 
	Dated:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	(Spouse of                     )	 	 

3

 

EXHIBIT D

ELECTION UNDER SECTION 83(b)

OF THE INTERNAL REVENUE CODE OF 1986

     The undersigned taxpayer hereby elects, pursuant to the Internal Revenue Code, to include
in gross income for                      the amount of any compensation taxable in connection with the
taxpayer’s receipt of the property described below:

          1. The name, address, taxpayer identification number and taxable year of the
undersigned are:

	 	 	 	 	 
	TAXPAYER’S NAME
	 	 	 	 
	 

	 	 	 	 
	SPOUSE’S NAME
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	TAXPAYER’S SOCIAL SECURITY NO.:
	 	 	 	 
	 

	 	 	 	 
	SPOUSE’S SOCIAL SECURITY NO.:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	TAXABLE YEAR:

	 	Calendar Year                     	 	 
	 
	 	 	 	 
	ADDRESS:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 

          2.
The property which is the subject of this election is                      shares of common
stock of Sonics, Inc.

          3. The property was transferred to the undersigned on                     , ___.

          4. The property is subject to the following restrictions: The property is subject to a
repurchase right pursuant to which the issuer has the right to acquire the property at the
original purchase price if for any reason taxpayer’s service with the issuer is terminated.
The issuer’s repurchase right lapses in a series of periodic installments.

          5. The fair market value of the property at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms will never lapse) is:
$                    
per share x
                     shares = $                    .

          6.
The undersigned paid $  per share x                      shares for the property
transferred or a total of $                    .

The undersigned has submitted a copy of this statement to the person for whom the services were
performed in connection with the undersigned’s receipt of the above-described property. The
undersigned taxpayer is the person performing the services in connection with the transfer of said
property.

          The undersigned will file this election with the Internal Revenue Service office to which he
or she files his annual income tax return not later than 30 days after the date of transfer of the
property. Additionally, the undersigned will include a copy of the election with his income tax
return for the taxable year in which the property is transferred.

	 	 	 	 	 	 	 	 	 
	Dated:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 
	 	Taxpayer	 	 
	 
	 	 	 	 	 	 	 	 
	The undersigned spouse of taxpayer joins in this election.	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Dated:
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Spouse of Taxpayer	 	 

1

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