Document:

exv10w1

 

Exhibit 10.1

SANDISK CORPORATION

2005 STOCK INCENTIVE PLAN

ARTICLE ONE

GENERAL PROVISIONS

     I. PURPOSE OF THE PLAN

          This 2005 Stock 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.

          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 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, or
such shares of Common Stock may be issued 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 and Stock Issuance Programs with respect to Section 16 Insiders. Administration
of the Discretionary Grant and Stock Issuance Programs 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 and
Stock Issuance Programs and to make such determinations under, and issue such interpretations of,
the provisions of those programs and any outstanding options, stock appreciation rights, stock
issuances or other stock-based awards 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 and Stock Issuance
Programs under its jurisdiction or any stock option, stock appreciation right, stock issuance or
other stock-based 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 stock-based award thereunder
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.

2

 

     IV. ELIGIBILITY

          A. The persons eligible to participate in the Discretionary Grant and Stock Issuance Programs
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).

          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 or other stock-based awards under the Stock Issuance Program, which
eligible persons are to receive such issuances or awards, the time or times when the issuances or
awards are to be made, the number of shares subject to each such issuance or award, the vesting and
issuance schedules applicable to the shares which are the subject of such issuance or award and the
consideration for those shares.

          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
and other stock-based awards in accordance with the Stock Issuance Program.

          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.

3

 

     V. STOCK SUBJECT TO THE PLAN

          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 initially reserved for issuance over the term of the Plan shall be limited
to five million seven hundred thousand (5,700,000) 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 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.

          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.

4

 

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 Program,
then the 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 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 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.

5

 

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 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.

6

 

          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

7

 

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

               (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

8

 

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 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.

9

 

     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-

10

 

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.

               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

11

 

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 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.

12

 

          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 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

13

 

those rights shall immediately terminate with respect to any shares held by the Optionee at
the time of such Involuntary 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.

14

 

ARTICLE THREE

STOCK ISSUANCE PROGRAM

     I. STOCK ISSUANCE TERMS

          Shares of Common Stock may be issued under the Stock Issuance 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 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 maximum number of shares of Common Stock which may be issued without cash consideration
under the Stock Issuance 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 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 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.

15

 

          B. Vesting Provisions.

               1. Shares of Common Stock issued under the Stock Issuance 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 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 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 so that the shares of Common Stock subject to those issuances or awards shall vest (or vest
and become issuable) 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.

               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

16

 

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 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 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 or restricted stock units under the Stock Issuance Program
shall automatically terminate, and no shares of Common Stock shall actually be issued 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 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.

17

 

However, no vesting 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.

     II. CHANGE IN CONTROL/HOSTILE TAKE-OVER

          A. All of the Corporation’s outstanding repurchase rights under the Stock Issuance 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 or one or more restricted stock unit or other share right awards under the
Stock Issuance Program so that the shares of Common Stock subject to those issuances or awards
shall automatically vest (or vest and become issuable) 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.

18

 

          E. The Plan Administrator shall also have the discretionary authority to structure one or more
unvested stock issuances or one or more restricted stock unit or other share right awards under the
Stock Issuance Program so that the shares of Common Stock subject to those issuances or awards
shall automatically vest (or vest and become issuable) 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.

          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 or other share right 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).

19

 

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.

20

 

          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.

          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.

21

 

          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.

     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.

22

 

          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.

23

 

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 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 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.

24

 

     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 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.

     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 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

25

 

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 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.

          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.

26

 

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.

A-1.

 

          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.

          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.

A-2.

 

          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.

A-3.

 

          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 under the Stock Issuance 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 and Stock Issuance Programs 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.

A-4.

 

          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 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
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
Program.

          GG. Stock Issuance Program shall mean the stock issuance program in effect under
Article Three of the Plan.

A-5.

 

          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 under
the Plan may become subject in connection with the grant or exercise of those options or stock
appreciation rights or the issuance or vesting of those shares.

A-6.exv10w2

 

Exhibit 10.2

SANDISK CORPORATION

NOTICE OF GRANT OF STOCK OPTION

     Notice is hereby given of the following option grant (the “Option”) to purchase shares of the
Common Stock of SanDisk Corporation (the “Corporation”):

	 	 	 	 	 
	

	 	Optionee:  	 	 
	

	 	 	

	 	 	 	 	 
	

	 	Grant Date:	 	 
	

	 	 	

	 	 	 	 	 
	

	 	Vesting
Commencement Date:  
	 
	

	 	
	 	

	 	 	 	 	 
	

	 	Exercise Price: $	 	 	 	per share
	

	 	 	
	 	 
	

	 	 	 	 	 	 

	 	 	 	 	 
	

	 	Number of
Option Shares:  
	 	 	shares
	

	 	 	 	
	 	 

	 	 	 	 	 
	

	 	Expiration
Date:  
	 
	

	 	 	

	 
	

	 	Type of Option:
	 	                    
        Incentive Stock Option
	
	 
	 	 	 	 	 	 
	

	 	 	 	                            Non-Statutory Stock Option
	 	 

     Exercise Schedule: To be determined by the Plan Administrator.

     Optionee understands and agrees that the Option is granted subject to and in accordance with
the terms of the SanDisk Corporation 2005 Stock Incentive Plan (the “Plan”). Optionee further
agrees to be bound by the terms of the Plan and the terms of the Option as set forth in the Stock
Option Agreement attached hereto as Exhibit A. Optionee hereby acknowledges the receipt of
a copy of the official prospectus for the Plan in the form attached hereto as Exhibit B. A
copy of the Plan is available upon request made to the Corporate Secretary at the Corporation’s
principal offices.

     Employment at Will. Nothing in this Notice or in the attached Stock Option Agreement
or in the Plan shall confer upon Optionee 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 Optionee) or of Optionee,
which rights are hereby expressly reserved by each, to terminate Optionee’s Service at any time for
any reason, with or without cause.

     Definitions. All capitalized terms in this Notice shall have the meaning assigned to
them in this Notice or in the attached Stock Option Agreement.

DATED:                                                            

	 	 	 	 	 
	 	 	SANDISK CORPORATION
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Title:	 	 
	

	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	

	 	 	 	 
	

	 	 	 	, OPTIONEE
	

	 	Address:	 	 
	

	 	 	 	 
	 
	 
	 	 	 	 
	

	 	 	 	 

ATTACHMENTS

Exhibit A — Stock Option Agreement *

Exhibit B — Plan Summary and Prospectus *

     * The Form of Stock Option Agreement is available on
the Company’s intranet website at http://sprocket/IR/ and is labeled “Stock Option Agreement Form 1”. A copy of the Plan Summary and
Prospectus is also available on the Company’s intranet website at
http://sprocket/IR/. You may also request a copy of the Form of Stock Option
Agreement and the Plan Summary and Prospectus by contacting Stock
Administration.

 

 

EXHIBIT A

STOCK OPTION AGREEMENT

 

 

EXHIBIT B

PLAN SUMMARY AND PROSPECTUS

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00085-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00085-of-00352.parquet"}]]