SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant X
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Filed by a party other than the registrant
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Check the appropriate box:
Preliminary proxy statement
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Definitive proxy statement
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Definitive additional materials
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Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
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SanDisk Corporation
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(Name of Registrant as Specified in Its Charter)
SanDisk Corporation
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
X No fee required.
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$500 per each party to the controversy pursuant to Exchange Act Rule
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14a-6(i)(3). Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
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(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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Fee paid previously with preliminary materials:
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Check box if any part of the fee is offset as provided by Exchange
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Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid: $
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(2) Form, schedule or registration statement no.: Final Proxy
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(3) Filing party: SanDisk Corporation
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(4) Date filed: March 30, 1999
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<PAGE>
SANDISK CORPORATION
140 Caspian Court
Sunnyvale, California 94089
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of SanDisk Corporation (the "Company") which will be held on
May 12, 1999 at 9:00 a.m., local time, at the Company's headquarters, 140
Caspian Court, Sunnyvale, California 94089.
At the Annual Meeting, you will be asked to consider and vote upon the following
proposals: (i) to elect seven (7) directors of the Company, (ii) to approve an
amendment to the Company's 1995 Stock Option Plan (iii) to approve a series of
amendments to the 1995 Non-Employee Directors Stock Option Plan (iv) to approve
an amendment to the Company's Employee Stock Purchase Plan and (v) to ratify the
appointment of Ernst & Young LLP as independent accountants of the Company for
the fiscal year ending January 2, 2000.
The enclosed Proxy Statement more fully describes the details of the business to
be conducted at the Annual Meeting. After careful consideration, the Company's
Board of Directors has unanimously approved the proposals and recommends that
you vote FOR each such proposal.
After reading the Proxy Statement, please mark, date, sign and return the
enclosed proxy card in the accompanying reply envelope as promptly as possible
but no later than May 12, 1999. If you decide to attend the Annual Meeting and
would prefer to vote in person, please notify the Secretary of the Company that
you wish to vote in person and your proxy will not be voted. YOUR SHARES CANNOT
BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY OR ATTEND THE
ANNUAL MEETING IN PERSON.
A copy of the Company's 1998 Annual Report has been mailed concurrently herewith
to all stockholders entitled to notice of and to vote at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Eli Harari
Eli Harari
President and Chief Executive Officer
Sunnyvale, California
March 30, 1999
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IMPORTANT
Please mark, date and sign the enclosed proxy and return it at your earliest
convenience in the enclosed postage-prepaid return envelope so that if you are
unable to attend the Annual Meeting, your shares may be voted.
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<PAGE>
SANDISK CORPORATION
140 Caspian Court
Sunnyvale, California 94089
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD May 12, 1999
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of SanDisk Corporation, a Delaware corporation (the
"Company"), to be held on May 12, 1999 at 9:00 a.m., local time, at the
Company's headquarters, 140 Caspian Court, Sunnyvale, California 94089, for the
following purposes:
1. To elect directors to serve for the ensuing year or until their
respective successors are duly elected and qualified. The nominees are
Dr. Eli Harari, Irwin Federman, William V. Campbell, Catherine P. Lego,
Dr. James D. Meindl, Thomas F. Mulvaney and Alan F. Shugart.
2. To approve an amendment to the Company's 1995 Stock Option Plan which
would (i) increase the number of shares issuable under such plan by an
additional 3,500,000 shares of the Company's common stock and (ii)
implement an automatic share increase feature pursuant to which the
share reserve under the Option Plan would be increased on the first
trading day in January each calendar year, beginning with calendar year
2002, by an amount equal to four and thirty-six hundredths percent
(4.36%) of the total number of shares of the Company's common stock
outstanding on the last trading day in December in the immediately
preceding calendar year, but not more than a specified maximum number
of shares per annual increase.
3. To approve a series of amendments to the 1995 Non-Employee Directors
Stock Option Plan, including (i) a 200,000-share increase to the number
of shares of the Company's common stock reserved for issuance under
that plan, (ii) the implementation of an automatic share increase
feature pursuant to which the share reserve under the Directors Plan
would be increased on the first trading day in January each calendar
year, beginning with calendar year 2002, by an amount equal to two
tenths of one percent (0.2%) of the total number of shares of the
Company's common stock outstanding on the last trading day in December
in the immediately preceding calendar year, but not more than a
specified maximum number of shares per annual increase, and (iii) an
increase in the number of shares of common stock for which stock
options are to be granted to newly-elected non-employee Board members
at the time of their election to the Board and an increase in the
number of shares of common stock for which continuing non-employee
Board members are to be granted stock options on an annual basis under
the plan.
4. To approve an amendment to the Company's Employee Stock Purchase Plan
which would (i) increase the number of shares issuable under such plan
by an additional 300,000 shares of the Company's common stock and (ii)
implement an automatic share increase feature pursuant to which the
share reserve under the Purchase Plan would be increased on the first
trading day in January each calendar year, beginning with calendar year
2002, by an amount equal to forty-three hundredths percent (0.43%) of
the total number of shares of the Company's common stock outstanding on
the last trading day in December in the immediately preceding calendar
year, but not more than a specified maximum number of shares per annual
increase.
5. To ratify the appointment of Ernst & Young LLP as independent
accountants of the Company for the fiscal year ending January 2, 2000.
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy Statement
that accompanies this Notice.
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Only stockholders of record at the close of business on March 15, 1999 are
entitled to notice of and to vote at the Annual Meeting and at any continuation
or adjournment thereof. A list of stockholders entitled to vote at the Annual
Meeting will be available for inspection at the executive offices of the
Company.
All stockholders are cordially invited and encouraged to attend the Annual
Meeting. In any event, to assure your representation at the meeting, please
carefully read the accompanying Proxy Statement which describes the matters to
be voted on at the Annual Meeting and sign, date and return the enclosed proxy
card in the reply envelope provided. Should you receive more than one proxy
because your shares are registered in different names and addresses, each proxy
should be returned to assure that all your shares will be voted. If you attend
the Annual Meeting and vote by ballot, your proxy will be revoked automatically
and only your vote at the Annual Meeting will be counted. The prompt return of
your proxy card will assist us in preparing for the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
CINDY BURGDORF
Chief Financial Officer, Senior Vice President,
Finance and Administration and Secretary
Sunnyvale, California
March 30, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
IN ANY EVENT, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE URGED
TO VOTE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE
POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
<PAGE>
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
SANDISK CORPORATION
TO BE HELD May 12, 1999
GENERAL
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of SanDisk Corporation, a Delaware corporation (the "Company"
or "SanDisk"), of proxies to be voted at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held on May 12, 1999, or at any adjournment or
postponement thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders. Stockholders of record on March 15, 1999 will be
entitled to vote at the Annual Meeting. The Annual Meeting will be held at 9:00
a.m., local time, at the Company's headquarters, 140 Caspian Court, Sunnyvale,
California 94089.
It is anticipated that this Proxy Statement and the enclosed proxy card will be
first mailed to stockholders on or about April 9, 1999.
VOTING RIGHTS
The close of business on March 15, 1999 was the record date for stockholders
entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof. At the record date, the Company had approximately 26,819,100 shares of
its Common Stock outstanding and entitled to vote at the Annual Meeting, held by
approximately 212 stockholders of record. Holders of Common Stock are entitled
to one vote for each share of Common Stock so held. In the election of
Directors, however, cumulative voting is authorized for all stockholders if any
stockholder gives notice at the meeting, prior to voting for the election of
Directors, of his or her intention to cumulate votes. Under cumulative voting, a
stockholder may cumulate votes and give to one nominee a number of votes equal
to the number of Directors to be elected (seven at this meeting) multiplied by
the number of votes to which such stockholder is entitled, or may distribute
such number among any or all of the nominees. The seven candidates receiving the
highest number of votes will be elected. The Board of Directors is soliciting
discretionary authority to vote proxies cumulatively. A majority of the shares
of Common Stock entitled to vote will constitute a quorum for the transaction of
business at the Annual Meeting.
If any stockholder is unable to attend the Annual Meeting, such stockholder may
vote by proxy. The enclosed proxy is solicited by the Company's Board of
Directors, (the "Board of Directors" or the "Board") and, when the proxy card is
returned properly completed, it will be voted as directed by the stockholder on
the proxy card. Stockholders are urged to specify their choices on the enclosed
proxy card. If a proxy card is signed and returned without choices specified, in
the absence of contrary instructions, the shares of Common Stock represented by
such proxy will be voted FOR Proposals 1, 2, 3, 4, and 5 and will be voted in
the proxy holders' discretion as to other matters that may properly come before
the Annual Meeting.
An affirmative vote of a plurality of the shares present or represented at the
meeting and voting is required for the election of directors. An affirmative
vote of a majority of the shares present or represented at the meeting and
entitled to vote is required for the approval of each of the other proposals. An
automated system administered by the Company's transfer agent tabulates
stockholder votes. Abstentions and broker non-votes each are included in
determining the number of shares present and voting at the Annual Meeting for
purposes of determining the presence or absence of a quorum, and each is
tabulated separately. Abstentions are counted as negative votes, whereas broker
non-votes are not counted for purposes of determining whether Proposals 2, 3, 4
and 5 presented to stockholders have been approved.
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REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time before its
exercise. A proxy may be revoked by filing with the Secretary of the Company an
instrument of revocation or a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
SOLICITATION OF PROXIES
The Company will bear the cost of soliciting proxies. Copies of solicitation
material will be furnished to brokerage houses, fiduciaries, and custodians
holding shares in their names that are beneficially owned by others to forward
to such beneficial owners. The Company may reimburse such persons for their
costs of forwarding the solicitation material to such beneficial owners. The
original solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, or other means by directors, officers, employees or agents
of the Company. No additional compensation will be paid to these individuals for
any such services.
Except as described above, the Company does not intend to solicit proxies other
than by mail.
THE ANNUAL REPORT OF THE COMPANY FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998 HAS
BEEN MAILED CONCURRENTLY WITH THE MAILING OF THE NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT TO ALL STOCKHOLDERS ENTITLED TO NOTICE OF AND TO VOTE AT THE
ANNUAL MEETING. THE ANNUAL REPORT IS NOT INCORPORATED INTO THIS PROXY STATEMENT
AND IS NOT CONSIDERED PROXY SOLICITING MATERIAL.
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-----------------------------------
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
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At the Annual Meeting, seven directors (constituting the entire board) are to be
elected to serve until the next Annual Meeting of Stockholders and until a
successor for such director is elected and qualified, or until the death,
resignation, or removal of such director. It is intended that the proxies will
be voted for the seven nominees named below for election to the Company's Board
of Directors unless authority to vote for any such nominee is withheld. There
are seven nominees, each of whom is currently a director of the Company. All of
the current directors, other than Mr. Mulvaney, were elected to the Board by the
stockholders at the last annual meeting. Each person nominated for election has
agreed to serve if elected, and the Board of Directors has no reason to believe
that any nominee will be unavailable or will decline to serve. In the event,
however, that any nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who is
designated by the current Board of Directors to fill the vacancy. Unless
otherwise instructed, the proxyholders will vote the proxies received by them
FOR the nominees named below. The seven candidates receiving the highest number
of the affirmative votes of the shares entitled to vote at the Annual Meeting
will be elected directors of the Company. The proxies solicited by this Proxy
Statement may not be voted for more than seven nominees.
NOMINEES
Set forth below is information regarding the nominees to the Board of
Directors.
Position(s) with the First Elected
Name Company Age Director
- ------------------------------ -------------------------- --- --------------
Dr. Eli Harari ............... President, Chief Executive 53 1988
Officer and Director
Irwin Federman (1)............ Chairman of the Board 63 1988
William V. Campbell (2)....... Director 58 1993
Catherine P. Lego (1)......... Director 42 1989
Dr. James D. Meindl........... Director 65 1989
Thomas Mulvaney (3)........... Director 50 1998
Alan F. Shugart (2)........... Director 68 1993
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee as of October 1998
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BUSINESS EXPERIENCE OF NOMINEES FOR ELECTION AS DIRECTORS
Dr. Harari, the founder of the Company, has served as the President and
Chief Executive Officer and as a director of the Company since June 1988. Dr.
Harari founded Wafer Scale Integration, a privately held semiconductor company,
in 1983 and was its President and Chief Executive Officer from 1983 to 1986, and
Chairman and Chief Technical Officer from 1986 to 1988. From 1973 to 1983, Dr.
Harari held various management positions with Honeywell Inc., Intel and Hughes
Aircraft Microelectronics. Dr. Harari also serves on the boards of Artisan
Components and USIC. Dr. Harari holds a Ph.D. degree in Solid State Sciences
from Princeton University.
Mr. Federman has served as Chairman of the Board of Directors since
September 1988. Since April 1990, Mr. Federman has been a general partner in
U.S. Venture Partners, a venture capital firm. From 1988 to 1990, he was a
Managing Director of Dillon Read & Co., an investment banking firm, and a
general partner in its venture capital affiliate, Concord Partners. From August
1987 to December 1987, Mr. Federman was Vice Chairman of AMD, which acquired
Monolithic Memories, a corporation engaged in the production of integrated
circuits, with which he was affiliated for 16 years. From 1979 to 1987, Mr.
Federman was President of Monolithic Memories. Mr. Federman served as Chairman
of the Semiconductor Industry Association from 1986 to 1988. He is also a
director of Komag Incorporated, Western Digital Corporation, NeoMagic, Inc.,
Checkpoint Software Technologies, Inc., MMC Networks, Inc. and various private
corporations. Mr. Federman holds a B.S. degree from Brooklyn College.
Mr. Campbell has served as a director of the Company since October
1993. Mr. Campbell is Chairman of the Board of Directors of Intuit, Inc. and was
President and Chief Executive Officer and a director of Intuit Inc. from 1994 to
1998. From 1991 to 1993, Mr. Campbell was President and Chief Executive Officer
of GO Corporation, a pen-based computing software company. From 1987 to 1991,
Mr. Campbell was President and Chief Executive Officer of Claris Corporation, a
software subsidiary of Apple Computer Inc. Mr. Campbell holds both B.A. and M.A.
degrees in Economics from Columbia University.
Ms. Lego has served as a director of the Company since March 1989. Ms.
Lego has been self-employed with her consulting firm, Lego Ventures, since 1992.
From 1981 to 1992, Ms. Lego held various positions with Oak Investment Partners,
a venture capital firm and was general partner of several of the venture capital
partnerships affiliated with Oak Investment Partners. Ms. Lego also serves as a
director of Uniphase Corporation, Zitel Corporation and various private
corporations. Ms. Lego is a Certified Public Accountant and holds a B.A. degree
in Economics and Biology from Williams College and an M.S. degree in Accounting
from the New York University Graduate School of Business.
Dr. Meindl has served as a director of the Company since March 1989.
Dr. Meindl has been the Joseph M. Pettit Chair Professor of Microelectronics at
the Georgia Institute of Technology in Atlanta, Georgia since 1993. From 1986 to
1993, Dr. Meindl served as Senior Vice President for Academic Affairs and
Provost of Rensselaer Polytechnic Institute. From 1967 to 1986, he was the John
M. Fluke Professor of Electrical Engineering at Stanford University. Dr. Meindl
serves as a director of Zoran, Inc. and Digital Microwave. Dr. Meindl holds
B.S., M.S. and Ph.D. degrees in Electrical Engineering from Carnegie-Mellon
University.
Mr. Mulvaney has served as a director of the Company since October
1998. He has been Senior Vice President, General Counsel and Secretary at
Seagate Technology, Inc., since 1996. Mr. Mulvaney was Vice President, General
Counsel and Secretary at Conner Peripherals from May 1995 until February 1996.
Prior to joining Conner Peripherals, he was with VLSI Technology, Inc., a
semiconductor company, from 1990 to 1995, where he served as Vice President,
General Counsel and Secretary, and held departmental responsibility for legal,
human resources, corporate communications and facilities. Mr. Mulvaney holds a
B.A. degree from Santa Clara University and a J.D. degree from University of San
Diego.
Mr. Shugart has served as a director of the Company since January 1993.
Mr. Shugart founded Seagate Technology, Inc. in 1979, building the company into
the world's largest independent manufacturer of disk drives and related
components. In 1998, he left Seagate to establish Al Shugart International, a
management/consultant company focused on helping entrepreneurs launch new
enterprises. Mr. Shugart also serves as a director of Cypress Semiconductor
Corp., Valence Technology, Inktomi, and Sarnoff Digital Communications. Mr.
Shugart holds a B.S. degree in Engineering/Physics from the University of
Redlands.
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BOARD MEETINGS AND COMMITTEES
The Board of Directors held five meetings during fiscal 1998. Each member of the
Board of Directors during fiscal 1998 attended or participated in at least
seventy-five percent (75%) or more of the aggregate of (i) the total number of
meetings of the Board of Directors held during the fiscal year and (ii) the
total number of meetings held by all committees on which such director served
during the past fiscal year. There are no family relationships among executive
officers or directors of the Company. The Board of Directors has an Audit
Committee and a Compensation Committee.
The Audit Committee of the Board of Directors held two meetings during fiscal
1998. The Audit Committee, which is currently comprised of Directors Federman,
Lego and Mulvaney, recommends engagement of the Company's independent
accountants, approves services performed by such accountants and reviews and
evaluates the Company's accounting system and its system of internal controls.
The Compensation Committee of the Board of Directors held four meetings during
fiscal 1998 and approved grants of options by written consent on a monthly
basis. The Compensation Committee, which is comprised of Directors Campbell and
Shugart, has overall responsibility for the Company's compensation policies and
determines the compensation payable to the Company's executive officers,
including their participation in certain of the Company's employee benefit and
stock option plans.
DIRECTOR COMPENSATION
Board members do not receive any cash compensation for their services as a
director. Board members are also not compensated for their service on Board
committees or their performance of special assignments. However, the
non-employee Board members are eligible to receive periodic option grants under
the 1995 Non-Employee Directors Stock Option Plan (the "Directors Plan"). In
addition, Dr. Meindl is paid $10,000 per annum in his capacities as Senior
Technical advisor to the Company, and Ms. Lego is paid $10,000 per annum in her
capacity as Financial Advisor to the Company.
Under the Directors Plan, as in effect during the 1998 fiscal year, Mr. Mulvaney
received an option grant for 16,000 shares of Common Stock at an exercise price
of $9.50 per share on October 22, 1998 in connection with his appointment to the
Board as a non-employee director. In addition, each individual who was
re-elected as a non-employee Board member at the 1998 Annual Meeting received at
that time an option grant under the Directors Plan to purchase 4,000 shares of
Common Stock, provided such individual had served as a non-employee Board member
for at least six months. Accordingly, each of the following non-employee Board
members re-elected to the Board at the 1998 Annual Meeting received an option
grant for 4,000 shares on April 30, 1998, the date of that meeting, at an
exercise price of $20.875 per share: Messrs. Federman, Campbell, Meindl, Rizzi
and Shugart and Ms. Lego.
Each automatic grant has an exercise price per share equal to the fair market
value per share of Common Stock on the grant date and has a maximum term of 10
years, subject to earlier termination following the optionee's cessation of
Board service. Each automatic option is immediately exercisable for any or all
of the option shares; however, any shares purchased under the option will be
subject to repurchase by the Company, at the option exercise price paid per
share, should the optionee cease service as a Board member prior to vesting in
those shares. The shares subject to the 16,000 share grant made to Mr. Mulvaney
will vest in four successive equal annual installments over his period of Board
service, with the first installment to vest upon his completion of one year of
Board service measured from the grant date. The shares subject to the 4,000
share grant made to each non-employee Board member re-elected at the 1998 Annual
Meeting will vest upon the optionee's completion of one year of Board service
measured from the grant date. However, the shares subject to each outstanding
option will immediately vest upon (i) certain changes in the ownership or
control of the Company or (ii) the death or disability of the optionee while
serving as a Board member. In addition, each automatic option grant may, upon
the successful completion of a hostile tender offer for more than fifty percent
(50%) of the Company's outstanding common stock, be surrendered to the Company
for a cash distribution per surrendered option share equal to the excess of (i)
the highest price per share of common stock paid in connection with such tender
offer ver (ii) the exercise price payable per share.
A number of substantial revisions will be made to the Directors Plan if Proposal
No. 3 is approved by the stockholders at the Annual Meeting. Please review that
proposal for further information concerning those changes.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE ELECTION OF ALL OF THE ABOVE NOMINEES.
<PAGE>
---------------------------------------
PROPOSAL NO. 2:
APPROVAL OF AMENDMENT
TO THE 1995 STOCK OPTION PLAN
---------------------------------------
The Company's stockholders are being asked to approve an amendment to the
Company's 1995 Stock Option Plan (the "Option Plan") that will (i) increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the Option Plan by an additional 3,500,000 shares and (ii) implement an
automatic share increase feature pursuant to which the number of shares
available for issuance under the Option Plan will automatically increase on the
first trading day in January each calendar year, beginning with calendar year
2002 and continuing over the remaining term of the Option Plan, by an amount
equal to four and thirty-six hundredths percent (4.36%) of the total number of
shares outstanding on the last trading day in December in the immediately
preceding calendar year, but in no event will any such annual increase exceed
2,000,000 shares.
The amendment will assure that a sufficient reserve of Common Stock will
continue to be available under the Option Plan to attract and retain the
services of key individuals essential to the Company's long-term growth and
success. The amendment was adopted by the Board in December, 1998, subject to
stockholder approval at the 1999 Annual Meeting.
The following is a summary of the principal features of the Option Plan,
together with the applicable tax and accounting implications, which will be in
effect if the amendment to the Option Plan is approved by the stockholders.
However, the summary does not purport to be a complete description of all the
provisions of the Option Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Secretary at the Company's principal executive offices in Sunnyvale, California.
Administration
The Option Plan is administered by the Compensation Committee of the Board. The
Compensation Committee acting in such administrative capacity (the "Plan
Administrator") has complete discretion (subject to the provisions of the Option
Plan) to authorize option grants under the Option Plan.
Share Reserve
A total of 9,498,711 shares of Common Stock has been reserved for issuance over
the ten (10)-year term of the Option Plan including the 3,500,000-share increase
for which stockholder approval is sought as part of this Proposal No 2. In
addition, upon stockholder approval of this Proposal, the number of shares
available for issuance under the Option Plan will automatically increase on the
first trading day in January each calendar year, beginning with calendar year
2002 and continuing over the remaining term of the Option Plan, by an amount
equal to four and thirty-six hundredths percent (4.36%) of the total number of
shares of Common Stock outstanding on the last trading day in December in the
immediately preceding calendar year, but in no event will any such annual
increase exceed 2,000,000 shares.
No participant in the Option Plan may be granted stock options and separately
exercisable stock appreciation rights for more than 1,000,000 shares in the
aggregate under the Option Plan, and stockholder approval of this Proposal will
also constitute re-approval of that limitation.
Should an option expire or terminate for any reason prior to exercise in full,
the shares subject to the portion of the option not so exercised will be
available for subsequent issuance under the Option Plan. Unvested shares issued
under the Option Plan and subsequently repurchased by the Company at the
original option or issue price paid per share will be added back to the share
reserve and will accordingly be available for subsequent issuance under the
Plan. However, should the exercise price of an option under the Option Plan be
paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Option Plan be withheld by the Company in satisfaction of the
withholding taxes incurred in connection with the exercise of an
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option, then the number of shares of Common Stock available for issuance under
the Plan will be reduced by the gross number of shares for which the option is
exercised and not by the net number of shares issued to the holder of the
option.
Changes in Capitalization
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and class of securities issuable under the Option
Plan, (ii) the maximum number and class of securities by which the share reserve
may increase in any calendar year by reason of the automatic share increase
provisions of the Option Plan, (iii) the maximum number and class of securities
for which any one participant may be granted stock options and separately
exercisable stock appreciation rights over the term of the Option Plan, and (iv)
the number and class of securities and the exercise price per share in effect
under each outstanding option.
Eligibility
Employees of the Company and its parent and subsidiaries (whether now existing
or subsequently established), non-employee members of the Board or the board of
directors of any parent or subsidiary, and consultants and other independent
advisors who provide services to the Company and its parent and subsidiaries
(whether now existing or subsequently established) will be eligible to
participate in the Option Plan.
As of March 15, 1999, six (6) executive officers, four hundred seventy-seven
(477) other employees, and six (6) non-employee Board members were eligible to
participate in the Option Plan.
Valuation
The fair market value per share of Common Stock on any relevant date under the
Option Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On March 15, 1999, the closing selling price per share
was $36.00.
Option Grants
Price and Exercisability
Options may be granted under the Option Plan at an exercise price per share not
less than eighty-five percent (85%) of the fair market value per share of Common
Stock on the option grant date. No granted option will have a term in excess of
ten (10) years. The options will generally become exercisable in a series of
installments over the optionee's period of service with the Company.
The exercise price may be paid in cash or in shares of the Common Stock. Vested
options may also be exercised through a same-day sale program pursuant to which
a designated brokerage firm will effect an immediate sale of the shares
purchased under the option and pay over to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the exercise price
for the purchased shares plus all applicable withholding taxes.
The shares of Common Stock acquired upon the exercise of one or more options may
be unvested and subject to repurchase by the Company, at the original exercise
price paid per share, if the optionee ceases service with the Company prior to
vesting in those shares. The Plan Administrator will have complete discretion to
establish the vesting schedule to be in effect for any such unvested shares and
may at any time cancel the Company's outstanding repurchase rights with respect
to those shares and thereby accelerate the vesting of those shares.
No optionee will have any stockholder rights with respect to the option shares
until such optionee has exercised the option and paid the exercise price for the
purchased shares. Options are generally not assignable or transferable other
than by will or the laws of inheritance and, during the optionee's lifetime, the
option may be exercised only by such optionee. However, the Plan Administrator
may allow non-statutory options to be transferred or assigned during the
optionee's lifetime to one or more members
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of the optionee's immediate family or to a trust established exclusively for one
or more such family members, to the extent such transfer or assignment is in
furtherance of the optionee's estate plan.
Termination of Service
Upon cessation of service, the optionee will have a limited period of time in
which to exercise his or her outstanding options for any shares in which the
optionee is vested at that time. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
Stock Appreciation Rights
The Plan Administrator is authorized to issue two types of stock appreciation
rights in connection with option grants made under the Option Plan:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the
Company equal in amount to the excess of (a) the fair market value of
the vested shares of Common Stock subject to the surrendered option
over (b) the aggregate exercise price payable for those shares. Such
appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash, in shares of Common Stock, or in a
combination of cash and shares of Common Stock.
Limited stock appreciation rights may be provided to one or more
officers or non-employee Board members as part of their option grants.
Any option with such a limited stock appreciation right may be
surrendered to the Company upon the successful completion of a hostile
tender offer for more than fifty percent (50%) of the Company's
outstanding voting stock. In return for the surrendered option, the
officer or Board member will be entitled to a cash distribution from
the Company in an amount per surrendered option share equal to the
excess of (a) the highest price paid per share of Common Stock paid in
connection with the tender offer over (b) the exercise price payable
for such share.
Cancellation/Regrant Program
The Plan Administrator will also have the authority to effect the cancellation
of outstanding options under the Option Plan which have exercise prices in
excess of the then current market price of the Common Stock and to issue
replacement options with an exercise price based on the lower current market
price of Common Stock at the time of the new grant.
On August 21, 1998, the Plan Administrator implemented an option
cancellation/regrant program for employees of the Company, excluding the
Company's executive officers. Pursuant to that program, each such employee was
given the opportunity to surrender his or her outstanding options under the Plan
with exercise prices in excess of $12.00 per share in return for a new option
grant for the same number of shares but with an exercise price of $10.00 per
share, the closing selling price per share of Common Stock as reported on the
Nasdaq National Market on the August 21, 1998 grant date of the new option.
Options for a total of 903,423 shares with a weighted average exercise price of
$20.66 per share were surrendered for cancellation, and new options for the same
number of shares were granted with the $10.00 per share exercise price. To the
extent the higher-priced option was exercisable for any option shares on the
August 21, 1998 cancellation date, the new option granted in replacement of that
option will become exercisable for those shares upon the optionee's continuation
in service through August 20, 1999. The option will become exercisable for the
remaining option shares in a series of quarterly installments over the
optionee's period of continued service with the Company, with each such
installment to become exercisable six (6) months later than the date that
installment was scheduled to become exercisable under the cancelled
higher-priced option.
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General Provisions
Acceleration
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Option Plan, to the extent not assumed by the
successor corporation or replaced with a cash incentive program preserving the
spread on the unvested option shares, will automatically accelerate in full, and
all unvested shares issued under the Option Plan will immediately vest, except
to the extent the Company's repurchase rights with respect to those shares are
to be assigned to the successor corporation. Any options assumed in connection
with such acquisition will immediately accelerate, and any unvested shares which
do not vest at the time of such acquisition will immediately vest, in the event
the individual's service with the successor entity is subsequently terminated
within a specified period following the acquisition. In connection with other
changes in control of the Company (whether by successful tender offer for more
than fifty percent (50%) of the outstanding voting stock or a change in the
majority of the Board as a result of one or more proxy contests for the election
of Board members), the Plan Administrator will have the discretionary authority
to provide for automatic acceleration of outstanding options and the automatic
vesting of all unvested shares outstanding under the Option Plan, with such
acceleration or vesting to occur either at the time of such change in control or
upon the subsequent termination of the individual's service.
The acceleration of vesting upon a change in the ownership or control of the
Company may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options under the Option
Plan. The Plan Administrator will have complete discretion to determine the
terms of any such financial assistance. However, the maximum amount of financing
provided any individual may not exceed the cash consideration payable for the
issued shares plus all applicable taxes. Any such financing may be subject to
forgiveness in whole or in part, at the discretion of the Plan Administrator,
over the participant's period of service.
Special Tax Election
The Plan Administrator may provide one or more holders of options or unvested
shares with the right to have the Company withhold a portion of the shares
otherwise issuable to such individuals in satisfaction of the withholding taxes
to which such individuals may become subject in connection with the exercise of
those options or the vesting of those shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
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Stock Options
The table below shows, as to each of the Company's executive officers named in
the Summary Compensation Table and the various indicated individuals and groups,
the number of shares of Common Stock subject to options granted under the Option
Plan between January 1, 1998 and March 15, 1999, together with the weighted
average exercise price payable per share. The number of shares and weighted
average exercise price calculations include all options which were granted
during the indicated period and subsequently cancelled and regranted at a lower
exercise price per share on August 21, 1998.
OPTION TRANSACTIONS
Options Granted Weighted Average
Name (Number of Shares) Exercise Price ($)
- ---------------------------- ------------------ ------------------
Eliyahou Harari 100,000 12.50
Daniel Auclair 15,000 12.50
Cindy Burgdorf 50,000 12.50
Leon Malmed 50,000 12.50
Ralph Hudson 110,000 8.5227
Marianne Jackson 0 0
All executive officers
as a group (6) 325,000 11.1538
All non-employee directors
as a group 0 0
All employees, including
current officers who are not
executive officers as a
group (469) 1,871,358 12.1019
As of March 15, 1999, options covering 3,839,354 shares of Common Stock were
outstanding under the Option Plan, 3,968,962 shares remained available for
future option grant, assuming stockholder approval of the 3,500,000-share
increase which forms part of this Proposal, and 1,690,395 shares have been
issued under the Option Plan.
Amendment and Termination
The Board may amend or modify the Option Plan in any or all respects whatsoever,
subject to any required stockholder approval. The Board may terminate the Option
Plan at any time, and the Option Plan will in all events terminate on July 24,
2005.
Federal Income Tax Consequences
Option Grants
Options granted under the Option Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
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Incentive Options. No taxable income is recognized by the optionee at the time
of the option grant, and no taxable income is generally recognized at the time
the option is exercised. The optionee will, however, recognize taxable income in
the year in which the purchased shares are sold or otherwise made the subject of
a taxable disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held the
shares for more than two (2) years after the option grant date and more than one
(1) year after the exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then the
excess of (i) the fair market value of those shares on the exercise date over
(ii) the exercise price paid for the shares will be taxable as ordinary income
to the optionee. Any additional gain or loss recognized upon the disposition
will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares, then
the Company will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal to the excess of (i) the fair market value
of such shares on the option exercise date over (ii) the exercise price paid for
the shares. In no other instance will the Company be allowed a deduction with
respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon the
grant of a non-statutory option. The optionee will in general recognize ordinary
income, in the year in which the option is exercised, equal to the excess of the
fair market value of the purchased shares on the exercise date over the exercise
price paid for the shares, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are unvested
and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount of
ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
Stock Appreciation Rights
An optionee who is granted a stock appreciation right will recognize ordinary
income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
such distribution for the taxable year in which the ordinary income is
recognized by the optionee.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in connection
with disqualifying dispositions of incentive stock option shares or exercises of
non-statutory options granted with exercise prices equal to the fair market
value of the option shares on the grant date will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million maximum limitation per covered
individual on the deductibility of the compensation paid to certain executive
officers of the Company. Accordingly, all compensation deemed paid with respect
to those options will remain deductible by the Company without limitation under
Code Section 162(m).
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Accounting Treatment
Option grants with exercise prices less than the fair market value of the shares
on the grant date will result in a compensation expense to the Company's
earnings equal to the difference between the exercise price and the fair market
value of the shares on the grant date. Such expense will be accruable by the
Company over the period that the option shares are to vest. Option grants with
exercise prices equal to the fair market value of the shares on the grant date
will not result in any charge to the Company's earnings, but the Company must
disclose, in footnotes to the Company's financial statements, the impact those
options would have upon the Company's reported earnings were the fair value of
those options treated as compensation expense. Whether or not granted at a
discount, the number of outstanding options may be a factor in determining the
Company's earnings per share on a fully-diluted basis.
The Financial Accounting Standards Board recently announced its intention to
issue an exposure draft of a proposed interpretation of the current accounting
principles applicable to equity incentive plans such as the Option Plan. Under
the proposed interpretation, option grants made to non-employee Board members or
consultants after December 15, 1998 will result in a direct charge to the
Company's reported earnings based upon the fair value of the option measured
initially as of the grant date of that option and then subsequently on the
vesting date of each installment of the underlying option shares. If the
proposed interpretation is adopted, then such charge will accordingly include
the appreciation in the value of the option shares over the period between the
grant date of the option (or, if later, the effective date of the final
interpretation) and the vesting date of each installment of the option shares.
In addition, if the proposed interpretation is adopted, any options which are
repriced after December 15, 1998 will also trigger a direct charge to the
Company's reported earnings measured by the appreciation in value of the
underlying shares between the grant date of the option (or, if later, the
effective date of the final interpretation) and the date the option is exercised
for those shares.
Should one or more individuals be granted tandem stock appreciation rights under
the option plan, then such rights would result in a compensation expense to be
charged against the Company's reported earnings. Accordingly, at the end of each
fiscal quarter, the amount (if any) by which the fair market value of the shares
of common stock subject to such outstanding stock appreciation rights has
increased from the prior quarter-end would be accrued as compensation expense,
to the extent such fair market value is in excess of the aggregate exercise
price in effect for those rights.
New Plan Benefits
As of March 15, 1999, no options have been granted to date on the basis of the
3,500,000-share increase to the Option Plan which forms part of this Proposal.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required to approve the amendment to the Option Plan. Should such stockholder
approval not be obtained, then any options granted on the basis of the 3,500,000
share increase which forms part of this Proposal will terminate without becoming
exercisable for any of the shares of Common Stock subject to those options, and
no further options will be made on the basis of such share increase. In
addition, the automatic annual share increase feature pursuant to which the
number of shares available for issuance under the Option Plan would increase on
the first trading day of January each calendar year, beginning with calendar
year 2002 and continuing over the remaining term of the Option Plan, by an
amount equal to four and thirty-six hundredths percent (4.36%) of the total
number of shares outstanding on the last trading day in December in the
immediately preceding calendar year will not be implemented. However, the Option
Plan will continue to remain in effect, and option grants may continue to be
made pursuant to the provisions of the Option Plan prior to the amendment until
the available reserve of Common Stock under the Option Plan as last approved by
the stockholders is issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENTS
TO THE OPTION PLAN.
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--------------------------------------------------------------
PROPOSAL NO. 3:
APPROVAL OF AMENDMENTS
TO THE 1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
--------------------------------------------------------------
The Company's stockholders are being asked to approve a series of amendments to
the Company's 1995 Non-Employee Directors Stock Option Plan (the "Directors
Plan") which will effect the following changes:
(i) The maximum number of shares of Common Stock authorized for
issuance over the term of the Directors Plan will be increased
by an additional 200,000 shares.
(ii) An automatic share increase feature will be implemented
pursuant to which the number of shares available for issuance
under the Directors Plan will automatically increase on the
first trading day in January each calendar year, beginning
with calendar year 2002 and continuing over the remaining term
of the Directors Plan, by an amount equal to two tenths of one
percent (0.2%) of the total number of shares outstanding on
the last trading day in December in the immediately preceding
calendar year, but in no event will any such annual increase
exceed 75,000 shares.
(iii) Each individual who is first elected or appointed as a
non-employee Board member at or after the 1999 Annual
Stockholders Meeting will automatically be granted, on the
date of such initial election or appointment, a non-statutory
stock option to purchase 32,000 shares of Common Stock.
Previously, newly elected or appointed non-employee Board
members received an initial option grant for 16,000 shares of
Common Stock.
(iv) On the date of each Annual Stockholders Meeting, beginning
with the 1999 Annual Meeting, each individual who is to
continue to serve as a non-employee Board member will
automatically be granted, whether or not such individual is
standing for re-election as a Board member at that Annual
Meeting, a non-statutory stock option to purchase an
additional 8,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at
least six (6) months prior to the date. Previously, such
annual option grants were for only 4,000 shares of Common
Stock.
The amendments will allow the Company to offer a more meaningful equity
compensation package in order to attract and retain highly-qualified individuals
to serve as non-employee Board members. The amendments were adopted by the Board
in December 1998, subject to stockholder approval at the 1999 Annual
Meeting.
The following is a summary of the principal features of the Directors Plan,
together with the applicable tax and accounting implications, which will be in
effect if the amendments to the Directors Plan are approved by the stockholders.
However, the summary does not purport to be a complete description of all the
provisions of the Directors Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Secretary at the Company's principal executive offices in Sunnyvale, California.
The terms and conditions of each automatic option grant (including the timing
and pricing of the option grant) are determined by the express provisions of the
Directors Plan. Neither the Board nor any committee of the Board will perform
any discretionary functions under the Directors Plan. Stockholder approval of
this Proposal will also constitute approval of each option granted under the
Directors Plan at or after the 1999 Annual Meeting and the subsequent exercise
of that option in accordance with the terms of the Directors Plan described in
this Proposal.
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Share Reserve
A total of 400,000 shares of Common Stock has been reserved for issuance over
the ten-year term of the Directors Plan, including the 200,000-share increase
which forms part of this Proposal. In addition, upon stockholder approval of
this Proposal, the number of shares available for issuance under the Directors
Plan will automatically increase on the first trading day in January each
calendar year, beginning with calendar year 2002 and continuing over the
remaining term of the Directors Plan, by an amount equal to two tenths of one
percent (0.2%) of the total number of shares of Common Stock outstanding on the
last trading day in December in the immediately preceding calendar year, but in
no event will any such annual increase exceed 75,000 shares. The shares of
Common Stock issuable under the Directors Plan may be made available from
authorized but unissued shares of the Company's Common Stock or from shares of
Common Stock repurchased by the Company, including shares repurchased on the
open market.
Should an option expire or terminate for any reason prior to exercise in full,
the shares subject to the portion of the option not so exercised will be
available for subsequent issuance under the Directors Plan. In addition,
unvested shares issued under the Directors Plan and subsequently repurchased by
the Company at the option exercise price paid per share will be added back to
the share reserve and will accordingly be available for subsequent issuance
under the Directors Plan. However, shares subject to any option surrendered in
accordance with the option surrender provisions of the Directors Plan will not
be available for subsequent issuance.
Changes in Capitalization
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and class of securities issuable under the
Directors Plan, (ii) the maximum number and class of securities by which the
share reserve may increase in any calendar year by reason of the automatic share
increase provisions of the Directors Plan, (iii) the number and class of
securities for which option grants are subsequently to be made to newly-elected
or continuing non-employee Board members and (iv) the number and class of
securities and the exercise price per share in effect under each outstanding
option.
Eligibility
Only non-employee Board members will be eligible to receive option grants under
the Directors Plan. As of March 15, 1999, six (6) non-employee Board members
were eligible to participate in the Directors Plan.
Valuation
The fair market value per share of Common Stock on any relevant date under the
Directors Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On March 15, 1999, the closing selling price per share
was $36.00.
Option Grants
Under the terms of the amended Directors Plan, each individual who first becomes
a non-employee Board member at or after the 1999 Annual Meeting, whether through
election by the stockholders or appointment by the Board, will automatically be
granted, at the time of such initial election or appointment, a non-statutory
stock option to purchase 32,000 shares of Common Stock, provided such individual
has not previously been in the Company's employ. In addition, each non-employee
Board member who is to continue to serve on the Board will receive a 8,000-share
automatic option grant on the date of each Annual Stockholders Meeting,
beginning with the 1999 Annual Meeting, provided such individual has served as a
non-employee Board member for at least six (6) months. There will be no limit on
the number of such 8,000-share option grants that any one non-employee Board
member may receive over his or her period of Board service, and non-employee
Board members who have been in the prior employ of the Company will be eligible
to receive one or more of those annual grants.
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Each option will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the grant date. The exercise price
will be payable in cash or in shares of Common Stock or through a same-day sale
program with no cash outlay by the optionee. The option will have a maximum term
of ten (10) years measured from the grant date, subject to earlier termination
at the end of the twelve (12)-month period measured from the date of the
optionee's cessation of Board service. Each option will be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option will be subject to repurchase by the Company, at the exercise
price paid per share, upon the optionee's cessation of Board service prior to
vesting in those shares. The shares subject to each initial 32,000-share option
grant will vest in four (4) successive equal annual installments upon the
optionee's completion of each year of Board service over the four (4)-year
period measured from the grant date. The shares subject to each annual
8,000-share option grant will vest in full upon the optionee's completion of one
(1) year of Board service measured from the grant date. The option may be
transferred or assigned during the optionee's lifetime to one or more members of
the optionee's immediate family or to a trust established exclusively for one or
more such family members, to the extent such transfer or assignment is in
furtherance of the optionee's estate plan.
Vesting Acceleration
The shares subject to each option will immediately vest upon (i) the optionee's
death or permanent disability while a Board member, (ii) an acquisition of the
Company by merger or asset sale, (iii) the successful completion of a tender
offer for more than fifty percent (50%) of the Company's outstanding voting
stock or (iv) a change in the majority of the Board effected through one or more
proxy contests for Board membership. In addition, upon the successful completion
of a hostile tender offer for more than fifty percent (50%) of the Company's
outstanding voting stock, each outstanding automatic option grant may be
surrendered to the Company for a cash distribution per surrendered option share
in an amount equal to the excess of (a) the highest price per share of Common
Stock paid in connection with such tender offer over (b) the exercise price
payable for such share. Stockholder approval of this Proposal will constitute
pre-approval of each such option surrender right subsequently granted under the
Directors Plan and the subsequent exercise of that right in accordance with the
terms of the Directors Plan.
The acceleration of vesting upon a change in the ownership or control of the
Company may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
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<PAGE>
Stock Awards
The table below shows, as to each of the Company's non-employee Board members,
the number of shares of Common Stock subject to options granted under the
Directors Plan between the January 1, 1998 and March 15, 1999, together with the
weighted average exercise price payable per share. Only non-employee Board
members received option grants under the Directors Plan.
OPTION TRANSACTIONS
Options Granted Weighted Average
Name (Number of Shares) Exercise Price
- -------------------------------------- ------------------ ----------------
Irwin Federman, Chairman 4,000 20.875
William Campbell 4,000 20.875
Catherine Lego 4,000 20.875
James Meindl 4,000 20.875
Thomas Mulvaney 16,000 9.50
Alan Shugart 4,000 20.875
Joseph Rizzi (1) 4,000 20.875
All non-employee directors as a group 40,000 16.325
As of March 15, 1999 options covering 124,000 shares of Common Stock were
outstanding under the Directors Plan, 276,000 shares remained available for
future option grant (including the 200,000-share increase which forms part of
this Proposal) and no shares have been issued under the Directors Plan.
(1) Mr. Rizzi resigned from the Board as of October 22, 1998.
Amendment and Termination
The Board may amend or modify the provisions of the Directors Plan at any time.
Certain amendments to the Directors Plan may require stockholder approval
pursuant to applicable laws or regulations. The Board may terminate the
Directors Plan at any time, and the Directors Plan will in all events terminate
on July 24, 2005.
Federal Income Tax Consequences
Options granted under the Directors Plan are all non-statutory options which are
not intended to satisfy the requirements of Section 422 of the Internal Revenue
Code. The Federal income tax treatment for non-statutory options is as follows:
No taxable income is recognized by an optionee upon the grant of a non-statutory
option. The optionee will in general recognize ordinary income, in the year in
which the option is exercised, equal to the excess of the fair market value of
the purchased shares on the exercise date over the exercise price paid for the
shares.
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<PAGE>
If the shares acquired upon exercise of the non-statutory option are unvested
and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when those shares vest, an amount equal to the excess
of (i) the fair market value of the shares at time of vesting over (ii) the
exercise price paid for those shares. The optionee may, however, elect under
Section 83(b) of the Internal Revenue Code to include as ordinary income, in the
year in which the option is exercised, an amount equal to the excess of (i) the
fair market value of the purchased shares on the exercise date over (ii) the
exercise price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the shares
subsequently vest.
The Company will be entitled to an income tax deduction equal to the amount of
ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
Accounting Treatment
Under current accounting principles, option grants to non-employee Board members
with exercise prices equal to the fair market value of the shares on the grant
date will not result in any charge to the Company's earnings, but the Company
must disclose, in footnotes to the Company's financial statements, the impact
those options would have upon the Company's reported earnings were the fair
value of those options at the time of grant treated as compensation expense.
However, under a recently-proposed interpretation of those accounting
principles, option grants made to non-employee Board members after December 15,
1998 will result in a direct charge to the Company's reported earnings based
upon the fair value of the option measured initially as of the grant date of
that option and then subsequently on the vesting date of each installment of the
underlying option shares. If the proposed interpretation is adopted, such charge
will accordingly include the appreciation in the value of the option shares over
the period between the grant date of the option (or, if later, the effective
date of the final interpretation) and the vesting date of each installment of
the option shares. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
New Plan Benefits
No option grants have been made on the basis of the 200,000-share increase to
the Directors Plan which forms part of this Proposal. At the 1999 Annual
Meeting, each of the following non-employee Board members who will continue to
serve in such capacity will automatically be granted an option to purchase 8,000
shares of Common Stock at an exercise price per share equal to the closing
selling price per share of Common Stock on that grant date: Messrs: Federman,
Campbell, Meindl, Mulvaney, Shugart and Ms. Lego.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required to approve the amendments to the Directors Plan. Should such
stockholder approval not be obtained, then none of the changes to the Directors
Plan will be implemented. Accordingly, each of the non-employee Board members
who are re-elected at the 1999 Annual Meeting will receive an automatic option
grant for 4,000 shares at that meeting, and the newly elected or appointed
non-employee Board members will each receive an option grant for 16,000 shares
at the time they first join the Board. In addition, the share reserve under the
Directors Plan will remain limited to 200,000 shares.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENTS
TO THE DIRECTORS PLAN.
20
<PAGE>
-----------------------------------------------
PROPOSAL NO. 4:
APPROVAL OF AMENDMENT
TO THE EMPLOYEE STOCK PURCHASE PLAN
-----------------------------------------------
The Company's stockholders are being asked to approve an amendment to the
Company's Employee Stock Purchase Plan (the "Purchase Plan") that will (i)
increase the maximum number of shares of Common Stock authorized for issuance
over the term of the Purchase Plan by an additional 300,000 shares to a total of
1,183,333 shares and (ii) implement an automatic share increase feature pursuant
to which the number of shares available for issuance under the Purchase Plan
will automatically increase on the first trading day in January each calendar
year, beginning with calendar year 2002 and continuing over the remaining term
of the Purchase Plan, by an amount equal to forty-three hundredths of one
percent (0.43%) of the total number of shares outstanding on the last trading
day in December in the immediately preceding calendar year, but in no event will
any such annual increase exceed 150,000 shares. The amendment to the Purchase
Plan was adopted by the Board of Directors in December 1998, subject to
stockholder approval at the 1999 Annual Meeting.
The amendment will allow the Company to maintain a sufficient share reserve
under the Purchase Plan so that eligible employees of the Company and its
participating affiliates will continue to have the opportunity to acquire an
equity interest in the Company and thereby further align their interests with
those of the stockholders.
The terms and provisions of the Purchase Plan as most recently amended are
summarized below. This summary, however, does not purport to be a complete
description of the Purchase Plan. Copies of the actual plan document may be
obtained by any stockholder upon written request to the Secretary at the
Company's principal offices in Sunnyvale, California.
Administration
The Purchase Plan is administered by the Compensation Committee of the Board.
Such committee, as Plan Administrator, has full authority to adopt
administrative rules and procedures and to interpret the provisions of the
Purchase Plan. All costs and expenses incurred in plan administration are paid
by the Company without charge to participants.
Securities Subject to the Purchase Plan
If the 300,000-share increase which forms part of this Proposal is approved at
the Annual Meeting, then the total number of shares of Common Stock reserved for
issuance in the aggregate over the term of the Purchase Plan and the Company's
International Employee Stock Purchase Plan, a comparable stock purchase plan for
employees of the Company's foreign subsidiaries who are not residing in the U.S.
(the "International Plan"), will be increased to 1,183,333 shares. Accordingly,
stockholder approval of this Proposal will also result in an increase to the
number of shares of Common Stock issuable under the International Plan, subject
to the aggregate limitation of 1,183,333 issuable shares over the term of this
Plan and the International Plan. In addition, upon stockholder approval of this
Proposal, the number of shares available for issuance under the combined reserve
under the Purchase Plan and the International Plan will automatically increase
on the first trading day in January each calendar year, beginning with calendar
year 2002 and continuing over the remaining term of the Purchase Plan, by an
amount equal to forty-three hundredths of one percent (0.43%) of the total
number of shares of Common Stock outstanding on the last trading day in December
in the immediately preceding calendar year, but in no event will any such annual
increase exceed 150,000 shares. The shares may be made available from authorized
but unissued shares of the Company's Common Stock or from shares of Common Stock
repurchased by the Company, including shares repurchased on the open market.
In the event that any change is made to the Company's outstanding Common Stock
(whether by reason of any recapitalization, stock dividend, stock split,
exchange or combination of shares or other change in corporate structure
effected without the Company's receipt of consideration), appropriate
adjustments will be made to (i) the class and maximum number of securities
issuable in the aggregate over the term of the Purchase Plan and the
International Plan, (ii) the maximum number and class of
21
<PAGE>
securities by which the combined share reserve under the Purchase Plan and
International Plan may increase in any calendar year by reason of the automatic
share increase provisions of the Purchase Plan, (iii) the class and maximum
number of securities purchasable per participant on any one semi-annual purchase
date and (iv) the class and number of securities and the price per share in
effect under each outstanding purchase right.
Purchase Periods and Purchase Rights
Shares of Common Stock are offered under the Purchase Plan through a series of
successive offering periods. Each such offering period will have a duration of
six (6) months. The offering periods will start on the first business day in
February and August each year, and each such offering period will have a single
purchase date that coincides with the last business day of that six (6)-month
offering period. For example, the current offering period began on February 1,
1999 and will end on July 30, 1999. That latter date will also be the date on
which the shares for the current offering period will be purchased.
Eligibility and Participation
Any individual who is employed on a basis under which he or she is regularly
expected to work for more than twenty (20) hours per week for more than five (5)
months per calendar year in the employ of the Company or any participating
parent or subsidiary corporation (including any corporation which subsequently
becomes such at any time during the term of the Purchase Plan) is eligible to
participate in the Purchase Plan.
Only individuals who are eligible employees at the start of an offering period
may join that offering period. At the time the participant joins the offering
period, he or she will be granted a purchase right to acquire shares of Common
Stock on the purchase date for that offering period. Purchase dates will occur
on the last business day in January and July each year, and all payroll
deductions collected from the participant for the period ending with each such
purchase date will automatically be applied to the purchase of Common Stock.
As of March 15, 1999, the Company estimated that approximately 474 employees,
including 5 executive officers, were eligible to participate in the Purchase
Plan.
Purchase Price
The purchase price of the Common Stock acquired on each semi-annual purchase
date will be equal to 85% of the lower of (i) the fair market value per share of
Common Stock on the start date of the offering period or (ii) the fair market
value on that purchase date.
The fair market value per share of Common Stock on any particular date under the
Purchase Plan will be deemed to be equal to the closing selling price per share
on such date on the Nasdaq National Market. On March 15, 1999, the closing
selling price per share of Common Stock on the Nasdaq National Market was
$36.00.
Payroll Deductions and Stock Purchases
Each participant may authorize periodic payroll deductions in any multiple of 1%
(up to a maximum of 10%) of his or her cash compensation (base salary plus
bonus, overtime and commissions) to be applied to the acquisition of Common
Stock at semi-annual intervals. Accordingly, on each semi-annual purchase date
(the last business day in January and July each year), the accumulated payroll
deductions of each participant will automatically be applied to the purchase of
whole shares of Common Stock at the purchase price in effect for the participant
for that purchase date.
22
<PAGE>
Special Limitations
The Purchase Plan imposes certain limitations upon a participant's rights to
acquire Common Stock, including the following limitations:
- Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 worth of Common Stock
(valued at the time each purchase right is granted) for each
calendar year those purchase rights are outstanding at any time.
- Purchase rights may not be granted to any individual if such
individual would, immediately after the grant, own or hold
outstanding options or other rights to purchase, stock possessing
five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company or any of its
affiliates.
- No participant may purchase more than 750 shares of Common Stock
on any one purchase date. However, the Plan Administrator may
increase or decrease this per participant limit as of the start
date of any new offering period under the Purchase Plan.
Termination of Purchase Rights
The participant may withdraw from the Purchase Plan at any time, and his or her
accumulated payroll deductions will, at the participant's election, either be
applied to the purchase of shares on the next semi-annual purchase date or
refunded.
The participant's purchase right will immediately terminate upon his or her
cessation of employment or loss of eligible employee status. Any payroll
deductions which the participant may have made for the semi-annual period in
which such cessation of employment or loss of eligibility occurs will be
refunded and will not be applied to the purchase of Common Stock.
Stockholder Rights
No participant will have any stockholder rights with respect to the shares
covered by his or her purchase rights until the shares are actually purchased on
the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
Assignability
No purchase rights will be assignable or transferable by the participant, and
the purchase rights will be exercisable only by the participant.
Change in Control
In the event the Company is acquired by merger or asset sale, all outstanding
purchase rights will automatically be exercised immediately prior to the
effective date of such acquisition. The purchase price will be equal to 85% of
the lower of (i) the fair market value per share of Common Stock on the start
date of the offering period in which such acquisition occurs or (ii) the fair
market value per share of Common Stock immediately prior to such acquisition
Share Pro-Ration
Should the total number of shares of Common Stock to be purchased pursuant to
outstanding purchase rights on any particular date exceed the number of shares
then available for issuance under the Purchase Plan, then the Plan Administrator
will make a pro-rata allocation of the available shares on a uniform and
nondiscriminatory basis, and the payroll deductions of each participant, to the
extent in excess of the aggregate purchase price payable for the Common Stock
pro-rated to such individual, will be refunded.
23
<PAGE>
Amendment and Termination
The Purchase Plan will terminate upon the earliest of (i) the last business day
in July, 2005, (ii) the date on which all shares available for issuance
thereunder are sold pursuant to exercised purchase rights or (iii) the date on
which all purchase rights are exercised in connection with an acquisition of the
Company.
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, the Board may not, without stockholder approval, (i) increase the
number of shares issuable under the Purchase Plan, except in connection with
certain changes in the Company's capital structure, (ii) alter the purchase
price formula so as to reduce the purchase price or (iii) modify the
requirements for eligibility to participate in the Purchase Plan.
Federal Tax Consequences
The Purchase Plan is intended to be an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code. Under a plan which so
qualifies, no taxable income will be recognized by a participant, and no
deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan or in the event the participant should die while still owning the purchased
shares.
If the participant sells or otherwise disposes of the purchased shares within
two (2) years after the start of the offering period in which such shares are
acquired, then the participant will recognize ordinary income in the year of
sale or disposition equal to the amount by which the fair market value of the
shares on the purchase date exceeded the purchase price paid for those shares,
and the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than two (2)
years after the start date of the offering period in which the shares are
acquired, then the participant will recognize ordinary income in the year of
sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or (ii) fifteen percent (15%) of the fair market
value of the shares on the participant's entry date into that offering period;
and any additional gain upon the disposition will be taxed as a long-term
capital gain. The Company will not be entitled to an income tax deduction with
respect to such disposition.
If the participant still owns the purchased shares at the time of death, the
lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on his or her entry date into the offering
period in which those shares were acquired will constitute ordinary income in
the year of death.
Accounting Treatment
The issuance of Common Stock under the Purchase Plan will not result in a
compensation expense chargeable against the Company's reported earnings.
However, the Company must disclose, in pro-forma statements to the Company's
financial statements, the impact the purchase rights granted under the Purchase
Plan would have upon the Company's reported earnings were the value of those
purchase rights treated as compensation expense.
24
<PAGE>
Stock Issuances
The table below shows, as to each of the Company's executive officers named in
the Summary Compensation Table and the various indicated groups, the number of
shares of Common Stock purchased under the Purchase Plan between January 1, 1998
and March 15, 1999, together with the weighted average purchase price paid per
share.
PURCHASE PLAN TRANSACTIONS
Number of Weighted
Purchased Average
Name Shares Purchase Price
- ------------------------------------ ---------- --------------
Dr. Eli Harari,
President and
Chief Executive Officer 750 8.8188
Cindy Burgdorf
Chief Financial Officer,
Senior Vice President,
Finance and Administration 2,072 11.1542
Leon Malmed
Senior Vice President,
Marketing and Sales 2,120 11.2866
Daniel Auclair
Senior Vice President,
Business Development and
Technology Licensing 2,044 11.0742
Ralph Hudson
Senior Vice President,
Operations 0 0
Marianne Jackson
Vice President,
Human Resources 1,001 12.2713
All executive officers
as a group (6) 7,987 11.0896
All non-employee directors
as a group(6) 0 0
All employees, including
current officers who are not
executive officers as a group (305) 215,744 10.2618
As of March 15, 1999, 441,878 shares of Common Stock had been issued under the
Purchase Plan, and 741,455 shares were available for future issuance, assuming
stockholder approval of the 300,000-share increase which forms part of this
Proposal.
New Plan Benefits
As of March 15, 1999, no shares have been purchased on the basis of the
300,000-share increase to the Purchase Plan.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required to approve the share increase to the Purchase Plan. Should such
stockholder approval not be obtained, then the maximum number of shares of
Common Stock that may be issued over the term of the Purchase Plan will remain
at the level of 883,333 shares, and the automatic share increase feature to the
Purchase Plan will not be implemented. However, the Purchase Plan will continue
to remain in effect, and stock purchases may continue to be made pursuant to the
provisions of the Purchase Plan until the available reserve of Common Stock
under the Purchase Plan is issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENTS
TO THE PURCHASE PLAN.
25
<PAGE>
---------------------------------------------------------
PROPOSAL NO. 5:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
---------------------------------------------------------
The Company is asking the stockholders to ratify the selection of Ernst & Young
LLP as the Company's independent public accountants for the fiscal year ending
January 2, 2000. The affirmative vote of the holders of a majority of the shares
represented and voting at the Annual Meeting will be required to ratify the
selection of Ernst & Young LLP.
In the event the stockholders fail to ratify the appointment, the Audit
Committee of the Board of Directors will consider it as a direction to select
other auditors for the subsequent year. Even if the selection is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors determines that such a change would be in the best interest of the
Company and its stockholders.
Ernst & Young LLP has audited the Company's financial statements annually since
1991. Its representatives are expected to be present at the Annual Meeting, will
have the opportunity to make a statement if they desire to do so, and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO
RATIFY THE SELECTION OF ERNST & YOUNG LLP TO SERVE AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING JANUARY 2, 2000.
26
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
the Company's Common Stock as of March 15, 1999 by (i) all persons known by the
Company to be beneficial owners of five percent (5%) or more of its outstanding
Common Stock, (ii) each director of the Company and each nominee for director,
(iii) the Chief Executive Officer and each of the four most highly compensated
executive officers of the Company who are named in the summary compensation
table below, and (iv) all current executive officers and directors of the
Company as a group.
Amount and Nature of
Beneficial Ownership(1)
Name or Group of Beneficial Owners Number of Shares Percent Owned(2)
Seagate Technology, Inc............... 6,141,374 22.90%
Scotts Valley, CA
FMR Corp.(3).......................... 2,965,000 11.06
Boston, MA
Denver Investment (3)................. 1,677,000 6.25
Denver, CO
Dimensional Fund Advisors, Inc. (3)... 1,703,700 6.35
Santa Monica, CA
William Campbell (4).................. 51,608 *
Irwin Federman (5).................... 61,686 *
Catherine P. Lego (6)................. 68,037 *
Dr. Eli Harari (7).................... 1,318,185 4.92
Dr. James D. Meindl (8)............... 69,665 *
Thomas F. Mulvaney (9)................ 6,157,374 22.96
Alan F. Shugart (10).................. 28,000 *
Daniel Auclair (11)................... 188,695 *
Cindy Burgdorf (12)................... 194,257 *
Leon Malmed (13)...................... 132,971 *
Ralph Hudson.......................... 0 *
Marianne Jackson (14)................. 14,083 *
All directors and executive
officers as a group
(11 persons) (15)..................... 8,270,478 30.84
- ---------
* Less than 1% of the outstanding Common Stock
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. The number of shares beneficially owned includes Common Stock of
which such individual has the right to acquire beneficial ownership
either currently or within 60 days after March 15, 1999, including, but
not limited to, upon the exercise of an option.
(2) Percentage of beneficial ownership is based upon 26,819,100 shares of
Common Stock, all of which were outstanding on March 15, 1999. For each
individual, this percentage includes Common Stock of which such
individual has the right to acquire beneficial ownership either currently
or within 60 days after March 15, 1999, including, but not limited to,
upon the exercise of
27
<PAGE>
an option; however, such Common Stock will not be deemed outstanding for
the purpose of computing the percentage owned by any other individual.
Such calculation is required by General Rule 13d-3(d)(1)(i) under the
Securities Exchange Act of 1934. Based upon a review of 13G filings made
with the Securities and Exchange Commission during 1998, the table above
includes all greater than 5% stockholders.
(3) Based on a Schedule 13G filed with the SEC in February 1999.
(4) Includes 12,000 shares owned by Mr. Campbell in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(5) Includes 28,000 shares owned by Mr. Federman in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(6) Includes 12,000 shares owned by Ms. Lego in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(7) Includes 1,085,840 shares held in the name of a trust for the benefit of
Dr. Harari and his wife. Also includes 206,769 shares owned by Dr. Harari
in the form of immediately exercisable options, some of which, if
exercised and issued, would be subject to a repurchase right of the
Company that lapses over time. Also includes 13,333 shares owned directly
by his son and 11,493 shares held in the name of a trust for the benefit
of his children.
(8) Represents 57,665 shares held as community property in the name of Dr.
Meindl and his wife. Also includes 12,000 shares owned by Mr. Meindl in
the form of immediately exercisable options, some of which, if exercised
and issued, would be subject to a repurchase right of the Company that
lapses over time.
(9) Includes 16,000 shares owned by Mr. Mulvaney in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
Represents 6,141,374 shares beneficially owned by Seagate Technology,
Inc. ("Seagate"). Mr. Mulvaney is Senior Vice President, General Counsel
and Secretary of Seagate. Mr. Mulvaney disclaims beneficial ownership of
the securities held by Seagate.
(10) Includes 28,000 shares owned by Mr. Shugart in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(11) Includes 93,540 shares owned by Mr. Auclair in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
Includes an aggregate of 8,540 shares owned by his children held in his
name as custodian.
(12) Includes 184,686 shares owned by Ms. Burgdorf in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(13) Includes 55,520 shares owned by Mr. Malmed in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(14) Ms. Jackson employment with the Company ended on October 31, 1998.
(15) Includes 648,515 shares subject to options, including those identified
in notes (4), (5), (6), (7), (8), (9), (10), (11), (12), and (13).
28
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent (10%) stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based upon (i) the copies of Section 16(a) reports which the Company received
from such persons for their 1998 fiscal year transactions in the Common Stock
and their Common Stock holdings, and (ii) the written representations received
from one or more of such persons that no annual Form 5 reports were required to
be filed by them for the 1998 fiscal year, the Company believes that all
executive officers and Board members complied with all their reporting
requirements under Section 16(a) for such fiscal year.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and Exchange
Commission on or about March 26, 1999. Stockholders may obtain a copy of this
report, without charge, by writing to Cindy Burgdorf, Chief Financial Officer,
Senior Vice President, Finance and Administration and Secretary of the Company,
at the Company's principal executive offices located at 140 Caspian Court,
Sunnyvale, California 94089.
29
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
compensation earned, by (i) the Company's Chief Executive Officer, (ii) each of
the four other most highly compensated executive officers of the Company whose
salary and bonus for the 1998 fiscal year was in excess of $100,000, and (iii)
one executive officer who terminated employment during the 1998 fiscal year, for
services rendered in all capacities to the Company and its subsidiaries for each
of the last three fiscal years. Such individuals will be hereafter referred to
as the Named Executive Officers. No other executive officer who would have
otherwise been included in such table on the basis of salary and bonus earned
for the 1998 fiscal year has resigned or terminated
employment during that fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation All Other
Annual Compensation Awards Compensation
------------------------------------ ------------ ------------
Securities
Name and Principal Underlying
Position Years Salary($)(1) Bonus($)(2) Options(#)
- ------------------------------ ----- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Dr. Eli Harari 1998 $ 303,529 $ 0 100,000 $ 0
President and Chief 1997 $ 273,384 $ 208,920 100,000 $ 0
Executive Officer 1996 $ 232,875 $130,992 75,000 $ 0
Cindy Burgdorf 1998 $ 196,501 $ 0 50,000 $ 0
Chief Financial Officer, 1997 $ 189,212 $ 69,309 25,000 $ 0
Senior Vice President, 1996 $ 174,477 $ 54,806 30,000 $ 0
Finance and Administration
and Secretary
Leon Malmed 1998 $ 215,938 $ 0 50,000 $ 0
Senior Vice President 1997 $ 210,781 $ 76,047 25,000 $ 0
Marketing and Sales 1996 $ 195,903 $ 60,636 30,000 $ 0
Daniel Auclair 1998 $ 202,590 $ 0 15,000 $ 0
Senior Vice President 1997 $ 197,760 $ 58,677 0 $ 0
Business Development & 1996 $ 186,464 $ 54,876 30,000 $ 0
Intellectual Property
Marianne Jackson (3) 1998 $ 138,053 $ 0 0 $ 0
Vice President Human 1997 $ 146,967 $ 32,180 12,000 $ 0
Resources 1996 $ 138,955 $ 27,363 15,000 $ 0
Ralph Hudson 1998 $ 76,933 $105,772 (4) 110,000 $ 0
Senior Vice President
Operations
<FN>
- --------------------
(1) Includes salary deferral contributions to the Company's 401(k) Plan.
(2) Bonus earned for the year indicated but paid in the following year
(excluding bonus to Mr. Hudson).
(3) Ms. Jackson terminated her employment with the Company on October 31, 1998.
(4) Mr. Hudson joined the Company on August 17, 1998 and was paid this one-time
hiring bonus.
</FN>
</TABLE>
30
<PAGE>
Stock Options
The following table contains information concerning the stock option grants made
to each of the Named Executive Officers for fiscal 1998. Except for the limited
stock appreciation rights described in footnote (1) below, no stock appreciation
rights were granted to those individuals during such year.
<TABLE>
<CAPTION>
Individual Grants
Number of Potential Realizable
Securities Value at Assumed
Underlying % of Total Annual Rates of Stock
Options Options Granted Exercise Price Appreciation
Granted to Employees in Price Expiration For Option Term(6)
Name (#)(3) Fiscal Year(4) ($/Sh)(5) Date 5%($) 10%($)
- ----------------- ---------- --------------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cindy Burgdorf 50,000(1) 2.29% 12.50 12/14/08 393,059 996,089
Leon Malmed 50,000(1) 2.29% 12.50 12/14/08 393,059 996,089
Daniel Auclair 15,000(1) 0.69% 12.50 12/14/08 117,917 298,826
Ralph Hudson 100,000(2) 4.58% 8.125 9/8/08 510,977 1,294,916
10,000(1) 0.46% 12.50 12/14/08 78,612 199,218
Marianne Jackson 0 0% N/A N/A 0 0
<FN>
(1) Each option will become exercisable for 25% of the option shares upon the
optionee's completion of one year of service measured from December 15,
1998, the vesting commencement date, and the option will become exercisable
for the remaining shares in a series of successive equal quarterly
installments upon the optionee's completion of each additional three
(3)-month period of service with the Company over the 36-month period
beginning December 15, 1999 and ending December 14, 2002.
(2) The option will become exercisable for 25% of the option shares upon Mr.
Hudson's completion of one year of service measured from September 9, 1998,
the vesting commencement date, and the option will become exercisable for
the remaining shares in a series of successive equal quarterly installments
upon his completion of each additional three (3)-month period of service
with the Company over the 36-month period beginning September 9, 1999 and
ending September 8, 2002.
(3) Each option will become immediately exercisable for all the option shares
upon an acquisition of the Company by merger or asset sale, unless the
option is assumed by the acquiring entity. Each option has a maximum term
of ten (10) years, subject to earlier termination in the event of the
optionee's cessation of service with the Company. Each option includes a
limited stock appreciation right that will allow the optionee, upon the
acquisition of 25% or more of the Company's outstanding voting stock
pursuant to a hostile tender offer, to surrender that option to the
Company, to the extent the option is at the time exercisable for vested
shares, in exchange for a cash distribution based on the tender offer
price.
(4) The Company granted options to purchase 2,182,058 shares of Common Stock to
employees during 1998. Options for 903,423 of those shares represented
options issued in replacment of higher-price options for the same number of
shares which were cancelled as part of the August 1998 cancellation/regrant
program.
(5) The exercise price may be paid in cash or in shares of the Company's Common
Stock valued at fair market value on the exercise date. The Company may
finance the option exercise by loaning the optionee sufficient funds to pay
the exercise price for the purchased shares, together with any federal and
state income tax liability incurred by the optionee in connection with such
exercise.
(6) Potential gains are net of exercise price, but before taxes associated with
exercise. There is no assurance that the actual stock price appreciation
over the 10-year option term will be at the assumed 5% and 10% levels of
assumed annual rates of compounded stock price appreciation or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.
</FN>
</TABLE>
31
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information concerning option exercises and
option holdings for the 1998 fiscal year by each of the Named Executive
Officers. Except for the limited stock appreciation rights described in footnote
(1) to the Stock Options table above, no stock appreciation rights were
exercised during such year or were outstanding at the end of that year.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at FY-End (#) in-the-Money Options at FY-End $(1)
- ------------------------- ------------- ---------------- --------------------------- -----------------------------------
Shares Aggregate
Acquired on Value
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ------------- ---------------- ------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Eli Harari 0 0 195,832(2) 212,500 1,192,176 104,688
Cindy Burgdorf 0 0 181,249(3) 83,750 1,786,867 48,125
Leon Malmed 114,566 1,718,194 52,083(4) 83,750 240,000 48,125
Daniel Auclair 51,666 524,369 96,666(5) 34,815 688,945 26,250
Ralph Hudson 0 0 0 110,000 0 506,250
Marianne Jackson(6) 39,143 309,886 0 0 0 0
<FN>
(1) Based on the fair market value of the Company's Common Stock at
December 24, 1998, $13.125 per share, (the closing selling price of the
Company's Common Stock on that date on the Nasdaq National Market) less
the exercise price payable for such shares.
(2) Includes 50,000 shares that are unvested and subject to repurchase by
the Company.
(3) Includes 26,666 shares that are unvested and subject to repurchase by
the Company.
(4) Includes 20,695 shares that are unvested and subject to repurchase by the
Company.
(5) Includes 33,333 shares that are unvested and subject to repurchase
by the Company.
(6) Ms. Jackson's employment with the Company ended on October 31, 1998.
</FN>
</TABLE>
32
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
establishing the base salary and incentive cash bonus programs for the Company's
executive officers and other key employees and administering certain other
compensation programs for such individuals, subject in each instance to review
by the full Board. The Compensation Committee also has the exclusive
responsibility for the administration of the Company's 1995 Stock Option Plan
under which grants may be made to executive officers and other key employees.
The Compensation Committee is comprised of three non-employee Board members,
William V. Campbell and Alan F. Shugart.
GENERAL COMPENSATION POLICY. The overall policy of the Compensation Committee is
to provide the Company's executive officers and other key employees with
competitive compensation opportunities based upon their contribution to the
financial success of the Company and their personal performance. It is the
Compensation Committee's objective to have a substantial portion of each
officer's compensation contingent upon the Company's performance as well as upon
the officer's own level of performance. Accordingly, the compensation package
for each executive officer and key employee is comprised of three elements: (i)
base salary which reflects individual performance and is designed primarily to
be competitive with salary levels in effect at companies within and outside the
industry with which the Company competes for executive talent, (ii) annual
variable performance awards payable in cash and tied to the Company's
achievement of financial and individual performance targets, and (iii) long-term
stock-based incentive awards which strengthen the mutuality of interests between
the executive officers and the Company's stockholders. As an executive officer's
level of responsibility increases, it is the intent of the Compensation
Committee to have a greater portion of the executive officer's total
compensation be dependent upon Company performance and stock price appreciation
rather than base salary.
Factors. The principal factors which the Compensation Committee considered in
establishing the components of each executive officer's compensation package for
the 1998 fiscal year are summarized below. The Compensation Committee may,
however, at its discretion apply entirely different factors, particularly
different measures of financial performance, in setting executive compensation
for future fiscal years.
* Base Salary. For comparative compensation purposes for the 1998 fiscal year,
the Compensation Committee selected a peer group of companies within the
industry which are comparable in size and growth pattern with the Company and
which compete with the Company for executive talent. The base salary for each
officer was then determined on the basis of the following factors: the salary
levels in effect for comparable positions at the peer group companies
(determined on the basis of their published 1997 fiscal year data), the
experience and personal performance of the officer and internal comparability
considerations. The weight given to each of these factors differed from
individual to individual, as the Compensation Committee deemed appropriate. The
compensation level for the Company's executive officers for the 1998 fiscal year
ranged from the 50th percentile to the 75th percentile of the base salary levels
in effect for executive officers with comparable positions at the peer group
companies, based on the published 1997 fiscal year data for those companies.
In selecting companies to survey for such compensation purposes, the
Compensation Committee considered many factors not directly associated with
stock price performance, such as geographic location, development stage,
organizational structure and market capitalization. For this reason, there is
not a meaningful correlation between the companies included within the peer
group identified for comparative compensation purposes and the companies
included within the S&P Electronics Semiconductor Index which the Company has
selected as the industry index for purposes of the stock performance graph
appearing later in this Proxy Statement.
* Annual Incentive Compensation. Annual bonuses are earned by each executive
officer on the basis of the Company's achievement of certain corporate financial
performance targets established for the fiscal year and the individual's level
of performance. For fiscal year 1998, a minimum of 75% of the bonus target was
measured on the basis of Company performance and the remainder of the bonus
target was tied to individual performance. Company performance was measured on
the basis of pre-tax profit (exclusive of royalties) and net revenue targets
established by the Compensation Committee at the start of the 1998 fiscal year.
Because these targets were not met for the year, no executive officers were
awarded bonuses for fiscal 1998 on this basis as indicated for them in the
Summary Compensation Table which appears earlier in this proxy statement.
However, Mr. Hudson was paid a one-time hiring bonus in 1998 as indicated in the
Summary Compensation Table which appears earlier in this proxy statement.
33
<PAGE>
* Long-Term Incentive Compensation. Long-term incentives are provided through
stock option grants. The grants are designed to align the interests of each
executive officer with those of the stockholders and provide each individual
with a significant incentive to manage the Company from the perspective of an
owner with an equity stake in the business. Each grant allows the individual to
acquire shares of the Company's common stock at a fixed price per share (the
market price on the grant date) over a specified period of time (up to 10
years). Each option generally becomes exercisable in installments over the
executive officer's continued employment with the Company. Accordingly, the
option will provide a return to the executive officer only if the executive
officer remains employed by the Company during the applicable vesting period,
and then only if the market price of the underlying shares appreciates over the
option term.
The number of shares subject to each option grant is set at a level intended to
create a meaningful opportunity for stock ownership based on the officer's
current position with the Company, the size of comparable awards made to
individuals in similar positions within the industry, the individual's potential
for increased responsibility and promotion over the option term, and the
individual's personal performance in recent periods. The Compensation Committee
also takes into account the number of unvested options held by the executive
officer in order to maintain an appropriate level of equity incentive for that
individual. However, the Compensation Committee does not adhere to any specific
guidelines as to the relative option holdings of the Company's executive
officers.
CEO COMPENSATION. In setting Dr. Harari's base salary as Chief Executive Officer
for the 1998 fiscal year, the Compensation Committee sought to achieve two
objectives: (i) establish a level of base salary competitive with that paid to
other chief executive officers of the peer group companies and (ii) make a
significant percentage of the total compensation package contingent upon Company
performance. The base salary established for Dr. Harari on the basis of the
foregoing criteria was intended to provide him with a level of stability and
certainty each year. Accordingly, this element of Dr. Harari's compensation was
not affected to any significant degree by Company performance factors and was at
the 50th percentile of the base salary levels in effect for other chief
executive officers at the same peer group of companies surveyed for comparative
compensation purposes. The remaining components of the compensation earned by
Dr. Harari for the 1998 fiscal year were entirely dependent upon financial
performance and provided no dollar guarantees. No cash bonus was paid to Dr.
Harari for the 1998 fiscal year, because the Company failed to attain the
pre-tax profit and net revenue targets established by the Compensation Committee
for that year.
A stock option for an additional 100,000 shares of Common Stock was granted to
Dr. Harari on December 15, 1998 in order to bring his level of unvested stock
option holdings to a level the Compensation Committee deemed appropriate to
provide him with a meaningful incentive to remain in the Company's employ and
contribute to the financial success of the Company in the form of stock price
appreciation.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
publicly-held companies for compensation paid to certain executive officers, to
the extent that compensation exceeds $1 million per officer in any year. The
compensation paid to the Company's executive officers for the 1998 fiscal year
did not exceed the $1 million limit per officer, and it is not expected the
compensation to be paid to the Company's executive officers for the 1999 fiscal
year will exceed that limit. In addition, the Company's 1995 Stock Option Plan
is structured so that any compensation deemed paid to an executive officer in
connection with the exercise of his or her outstanding options under the 1995
Plan with an exercise price per share equal to the fair market value per share
of the Common Stock on the grant date will qualify as performance-based
compensation which will not be subject to the $1 million limitation. Because it
is very unlikely that the cash compensation payable to any of the Company's
executive officers in the foreseeable future will approach the $1 million limit,
the Compensation Committee has decided at this time not to take any other action
to limit or restructure the elements of cash compensation payable to the
Company's executive officers. The Compensation Committee will reconsider this
decision should the individual compensation of any executive officer ever
approach the $1 million level.
William V. Campbell, Compensation Committee Member
Alan F. Shugart, Compensation Committee Member
34
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was formed in
June 1990 and is comprised of Messrs. William V. Campbell and Alan F. Shugart.
Neither of these individuals was at any time during fiscal 1998, or at any other
time, an officer or employee of the Company. No executive officer of the Company
serves as a member of the board of directors or compensation committee of any
other entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL AGREEMENTS
None of the Company's executive officers have employment agreements with the
Company, and their employment may be terminated at any time at the discretion of
the Board of Directors. Pursuant to the express provisions of the 1995 Stock
Option Plan, the outstanding options under the 1995 Plan held by the Chief
Executive Officer and the Company's other executive officers will immediately
accelerate in full, and all unvested shares of Common Stock at the time held by
such individuals under the 1995 Plan will immediately vest, in the event their
employment were to be terminated (whether involuntarily or through a forced
resignation) within twelve (12) months after any acquisition of the Company by
merger or asset sale in which those options and shares did not otherwise vest.
In addition, the Compensation Committee of the Board of Directors has the
authority as Plan Administrator of the 1995 Stock Option Plan to provide for the
accelerated vesting of the outstanding options under the 1995 Plan held by the
Chief Executive Officer and the Company's other executive officers and the
immediate vesting of all unvested shares of Common Stock at the time held by
such individuals under the 1995 Plan, in the event their employment were to be
terminated (whether involuntarily or through a forced resignation) following a
successful tender offer for more than fifty percent (50%) of the Company's
outstanding Common Stock or a change in the majority of the Board as a result of
one or more contested elections for Board membership.
35
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company with that of the Standard & Poors 500 Stock Index, a
broad market index published by S&P, and a selected S&P
Electronics/Semiconductor company stock index compiled by Morgan Stanley &
Company. The comparison for each of the periods assumes that $100 was invested
on November 7, 1995 (the date of the Company's initial public offering) in the
Company's Common Stock, the stocks included in the S&P 500 Stock Index and the
stocks included in the S&P Electronics/Semiconductor company index. These
indices, which reflect formulas for dividend reinvestment and weighing of
individual stocks, do not necessarily reflect returns that could be achieved by
individual investor
COMPARISON OF CUMULATIVE TOTAL RETURN FROM
NOVEMBER 7, 1995 TO DECEMBER 24, 1998.
AMONG SANDISK, S&P 500 STOCK INDEX AND
S&P ELECTRONICS SEMICONDUCTOR COMPANY INDEX
SanDisk S&P Electronics
Date Corporation Semiconductor Index S&P 500
07-Nov-95 100.00 100.00 100.00
26-Feb-96 152.50 86.11 111.73
12-Jun-96 137.50 96.40 115.77
27-Sep-96 160.00 115.14 119.51
15-Jan-97 107.50 163.93 134.38
02-May-97 125.00 187.48 143.17
19-Aug-97 213.75 231.60 164.01
04-Dec-97 236.25 174.25 173.23
25-Mar-98 250.00 177.83 197.07
13-Jul-98 131.25 188.30 209.31
27-Oct-98 90.63 197.12 192.16
24-Dec-98 131.25 282.97 221.77
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Exchange Act that might
incorporate future filings, including this Proxy Statement, in whole or in part,
the preceding Compensation Committee Report on Executive Compensation and the
preceding Performance Graph shall not be incorporated by reference into any such
filings; nor shall such Report or graph be incorporated by reference into any
future filings.
36
<PAGE>
CERTAIN TRANSACTIONS
The Company has a strategic relationship with Seagate Technology, Inc.
("Seagate"), which owns 23.5% of the Company's Common Stock as calculated on a
fully diluted basis. In January 1993, Seagate acquired a 25% ownership interest
in the Company. Seagate has the right to nominate one director to the Company's
Board of Directors. Thomas F. Mulvaney, Seagate's Senior Vice President, General
Counsel and Secretary, serves as Seagate's nominee to the Company's Board of
Directors. The Shareholder Rights Plan, adopted by the Board of Directors on
April 21, 1997, permits Seagate to continue to hold its ownership interest in
the Company without triggering the provisions of the plan.
The Company intends that all future transactions, including loans, between the
Company and its officers, directors, principal stockholders and their affiliates
be approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties. In addition, the Company has entered into
indemnification agreements with each of its directors and executive officers.
37
<PAGE>
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented for
consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
Annual Meeting of stockholders to be held in 2000 must be received by December
13, 1999 in order to be included in the proxy statement and proxy relating to
that meeting.
In addition, the proxy solicited by the Board of Directors for the Annual
Meeting to be held in 2000 will confer discretionary authority to vote on any
stockholder proposal presented at that meeting, unless the Company is provided
with notice of such proposal no later than February 24, 2000.
BY ORDER OF THE BOARD OF DIRECTORS
CINDY BURGDORF
Chief Financial Officer,
Senior Vice President,
Finance and Administration and Secretary
March 30, 1999
38
SANDISK CORPORATION
1995 STOCK OPTION PLAN
AMENDED AND RESTATED AS OF DECEMBER 17, 1998
ARTICLE One
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of
SanDisk Corporation, a Delaware corporation, by providing eligible persons 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
the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Committee shall have sole and exclusive authority to administer
the Plan with respect to Section 16 Insiders. Administration of the Plan with
respect to all other persons eligible to participate may, at the Board's
discretion, be vested in the Committee, or the Board may retain the power to
administer the Plan with respect to all such persons.
B. Members of the Committee shall serve for such period of time as the
Board may determine and shall be subject to removal by the Board at any time.
C. The 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 Plan and to make such
determinations under, and issue such interpretations of, the provisions of such
program and any outstanding options 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 Plan or any option thereunder.
D. Service on the Committee shall constitute service as a Board member,
and members of the Committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service. No member
of the Committee shall be liable for any act or omission made in good faith with
respect to the Plan or any option grants made under the Plan.
III. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
<PAGE>
(i) Employees,
(ii) Non-employee Board members, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine which eligible
persons are to receive option grants, the time or times when such option grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become exercisable and the
vesting schedule (if any) applicable to the option shares and the maximum term
for which the option is to remain outstanding.
IV. 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 maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 9,498,711 shares.
Such share reserve includes (i) the initial reserve of 3,498,711 shares which
reflects the 2:3 stock split adopted by the Board on July 25, 1995, (ii) the
additional increase of 2,500,000 shares authorized by the Board on February 10,
1997, and approved by the stockholders at the 1997 Annual Meeting and (iii) an
additional increase of 3,500,000 shares authorized by the Board on December 17,
1998, subject to stockholder approval at the 1999 Annual Meeting. The initial
authorized share reserve was comprised of the number of shares which remained
available for issuance, as of the Effective Date, under the Predecessor Plan as
last approved by the Corporation's stockholders prior to such date, including
the shares subject to the outstanding options incorporated into the Plan and any
other shares which would have been available for future option grants under the
Predecessor Plan.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2002, by
an amount equal to four and thirty-six hundreds percent (4.36%) of the shares of
Common Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
2,000,000 shares.
C. No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than 1,000,000 shares
of Common Stock in the aggregate over the term of the Plan.
2
<PAGE>
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
In addition, unvested shares issued under the Plan and subsequently repurchased
by the Corporation, at the original exercise 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 reissuance through one or more subsequent option
grants under the Plan. However, should the exercise price of an option under the
Plan (including any option incorporated from the Predecessor Plan) be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable under
the Plan be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an option under the Plan, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is exercised, and not
by the net number of shares of Common Stock issued to the holder of such option.
E. Should any change be 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 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
reserve is to increase automatically each calendar year pursuant to the
provisions of Section IV.B of this Article One, (iii) the number and/or class of
securities for which any one person may be granted options and separately
exercisable stock appreciation rights over the term of the Plan and (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
3
<PAGE>
ARTICLE TWO
OPTION 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 but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Three and 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
necessary to avoid a 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 irrevocable written instructions
to (a) a Corporation-designated brokerage firm 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 Federal, state
and local 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 in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
4
<PAGE>
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of 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 exercisable in whole or in part by the
Optionee at the time of death 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 in accordance with the laws of descent and
distribution.
(iii) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for
more than the number of vested shares for which the
option is exercisable on the date of the Optionee's
cessation of Service. 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 vested
shares for which the option has not been exercised.
However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease
to be outstanding to the extent it is not exercisable
for vested shares on the date of such cessation of
Service.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be
outstanding.
2. The Plan Administrator shall have the 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 period otherwise in effect for
that option to such greater period of time as the
Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term,
and/or
(ii) 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 under the
option 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.
5
<PAGE>
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 holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. 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. Limited Transferability of 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 by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. 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.
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
the Plan 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. Exercise Price. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. 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 (1) 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, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 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.
6
<PAGE>
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding option shall not so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option or (iii) the acceleration of such option is subject to
other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall be
made by the Plan Administrator, and its determination shall be final, binding
and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed or replaced (or those repurchase rights
are to be assigned) in the
Corporate Transaction.
D. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.
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F. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time, shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within twelve (12) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
G. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a specified period following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
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.
I. The grant of options under the Option Grant Program 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.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Option Grant Program
(including outstanding options incorporated from the Predecessor Plan) and to
grant in substitution new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
<PAGE>
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant
to selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares
of Common Stock and the surrender of that option in exchange
for a distribution from the Corporation in an amount equal to
the excess of (A) 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 (B) the aggregate exercise
price payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the Optionee shall be
entitled may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly
in shares and partly in cash, as the Plan Administrator shall
in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected 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 (A) five (5)
business days after the receipt of the rejection notice or (B)
the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such
option, but in no event may such rights be exercised more than
ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited
stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such
Hostile Take-Over) to surrender each such option to the
Corporation, to the extent the option is at the time
exercisable for vested shares of Common Stock. In return for
the surrendered option, the Optionee shall receive a cash
distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common
Stock which are at the time vested under each surrendered
option (or surrendered portion thereof) over (B) the aggregate
exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the option
surrender date.
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<PAGE>
(iii) The Plan Administrator shall pre-approve, at the time the
limited right is granted, the subsequent exercise of that
right in accordance with the terms of the grant and the
provisions of this Section V.C. No additional approval of the
Plan Administrator or the Board shall be required at the time
of the actual option surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing
such option.
10
<PAGE>
ARTICLE Three
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. In all events, the maximum credit available to the Optionee may
not exceed the sum of (i) the aggregate option exercise price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee in connection with the option exercise.
B. The Plan Administrator may, in its discretion, determine that one or
more such promissory notes shall be subject to forgiveness by the Corporation in
whole or in part upon such terms as the Plan Administrator may deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or stock appreciation rights under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options with the right to use shares of Common Stock in
satisfaction of all or part of the Withholding Taxes to which such holders may
be subject in connection with the exercise of their options. Such right may be
provided to any such holder in either or both of the following formats:
(i) 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, 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.
(ii) Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised, one or more
shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise 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.
11
<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective on the November 7, 1995 Effective Date
after adoption by the Board on July 25, 1995, and approval by the Corporation's
stockholders in August 1995.
B. The Plan was amended on February 10, 1997 (the "February 1997
Amendment") to effect the following changes: (i) increase the number of shares
of Common Stock authorized for issuance over the term of the Plan by an
additional 2,500,000 shares, (ii) render the non-employee Board members eligible
to receive option grants under the Plan, (iii) allow unvested shares issued
under the Plan and subsequently repurchased by the Corporation at the option
exercise price paid per share to be reissued under the Plan and (iv) effect a
series of technical changes to the provisions of the Plan (including the
stockholder approval requirements) in order to take advantage of the recent
amendments to Rule 16b-3 of the Securities Exchange Act of 1934 which exempts
certain officer and director transactions under the Plan from the short-swing
liability provisions of the Federal securities laws. The February 1997 Amendment
was approved at the 1997 Annual Meeting. All option grants made prior to the
February 1997 Amendment shall remain outstanding in accordance with the terms
and conditions of the respective instruments evidencing those options or
issuances, and nothing in the February 1997 Amendment shall be deemed to modify
or in any way affect those outstanding options or issuances. The Plan was
amended on December 17, 1998 (the "December 1998 Amendment") to effect the
following changes: (i) increase the number of shares of Common Stock authorized
for issuance over the term of the Plan by an additional 3,500,000 shares and
(ii) implement the automatic share increase provisions of Section IV.B of
Article One. The December 1998 Amendment is subject to stockholder approval at
the 1999 Annual Meeting and no option grants made on the basis of the
3,500,000-share increase authorized by that amendment shall become exercisable
in whole or in part unless and until the December 1998 Amendment is approved by
the stockholders. Should such stockholder approval not be obtained at the 1999
Annual Meeting, then each option grant made pursuant to the 3,500,000-share
increase authorized by the December 1998 Amendment shall terminate and cease to
remain outstanding, and no further option grants shall be made on the basis of
that share increase, and the automatic share increase provisions of Section IV.B
of Article One shall not be implemented. Subject to the foregoing limitations,
options may be granted under the Plan at any time before the date fixed herein
for the termination of the Plan.
C. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants shall be made under the Predecessor Plan after the
Effective Date. All options outstanding under the Predecessor Plan as of such
date shall, immediately upon approval of the Plan by the Corporation's
stockholders, be incorporated into the Plan and treated as outstanding options
under the Plan. However, each outstanding option so incorporated shall continue
to be governed solely by the terms of the documents evidencing such option, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with respect
to their acquisition of shares of Common Stock.
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<PAGE>
D. The provisions of the Plan (including, without limitation, the
option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control) may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise provide for such acceleration.
E. The Plan shall terminate upon the earliest of (i) July 24, 2005,
(ii) the date on which all shares available for issuance under the Plan have
been issued pursuant to the exercise of the options under the Plan or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options outstanding on such date
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such options.
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
options or stock appreciation rights at the time outstanding under the Plan
unless the Optionee consents to such amendment or modification. In addition,
certain amendments may require stockholder approval in accordance with
applicable laws and regulations.
B. Options to purchase shares of Common Stock may be granted that are
in excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued are held in escrow until stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock available for issuance under the Plan is obtained. If such stockholder
approval is not obtained within twelve (12) months after the date the first such
excess issuances are made, then (i) any unexercised options granted on the basis
of such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees the exercise price paid for
any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
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 option or stock
appreciation right under the Plan and the issuance of any shares of Common Stock
upon the exercise of any option or stock appreciation right shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options and stock
appreciation rights granted under it and the shares of Common Stock issued
pursuant to it.
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<PAGE>
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 Federal and state 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 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, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
14
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) 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, or
(ii) 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.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
D. Committee shall mean the committee of two (2) or more non-employee
Board members appointed by the Board to administer the Plan.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those
immediately prior to such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. Corporation shall mean SanDisk Corporation, a Delaware corporation.
A-1
<PAGE>
H. Effective Date shall mean November 7, 1995, the date on which the
Underwriting Agreement was executed and the initial public offering price of the
Common Stock was established.
I. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), 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.
J. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. 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 on the date in
question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National
Market or any successor system. 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 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.
L. Hostile Take-Over shall mean a change in ownership of the
Corporation effected through 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.
M. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
A-2
<PAGE>
N. 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 for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change
in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in
his or her level of compensation (including base salary,
fringe benefits and participation in 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 without the individual's consent.
O. Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, 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
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the Service of the Corporation (or any Parent
or Subsidiary).
P. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
Q. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
R. Option Grant Program shall mean the option grant program in effect
under the Plan.
S. Optionee shall mean any person to whom an option is granted under
the Plan.
T. 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.
U. Permanent Disability or Permanently Disabled shall mean the
inability of the Optionee 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.
A-3
<PAGE>
V. Plan shall mean the Corporation's 1995 Stock Option Plan, as set
forth in this document.
W. Plan Administrator shall mean the particular entity, whether the
Committee or the Board, which is authorized to administer the Option Grant
Program with respect to one or more classes of eligible persons, to the extent
such entity is carrying out its administrative functions under those programs
with respect to the persons under its jurisdiction.
X. Predecessor Plan shall mean the Corporation's existing 1989 Stock
Benefit Plan.
Y. 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.
Z. Section 12(g) Registration Date shall mean the first date on which
the Common Stock is registered under Section 12(g) of the 1934 Act.
AA. Service shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) 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.
BB. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
CC. 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.
DD. Take-Over Price shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
EE. 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).
FF. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters which managed the initial public
offering of the Common Stock.
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GG. Withholding Taxes shall mean the Federal, state and local income
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of such holder's options or the vesting of his or her shares.
A-5
SANDISK CORPORATION
1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
AMENDED AND RESTATED AS OF DECEMBER 17, 1998
ARTICLE One
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Non-Employee Directors Stock Option Plan is intended to
promote the interests of SanDisk Corporation, a Delaware corporation, by
providing the non-employee members of the Board 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 the service of the
Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The terms of each option grant (including the timing and pricing of the
option grant) shall be determined by the express terms of the Plan, and neither
the Board nor any committee of the Board shall exercise any discretionary
functions with respect to option grants made pursuant to the Plan.
III. ELIGIBILITY
The individuals eligible to receive option grants under the Plan shall
be (i) those individuals who are serving as non-employee Board members on the
Effective Date or who are first elected or appointed as non-employee Board
members on or after such 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 after one or more Annual
Stockholders Meetings beginning with the 1996 Annual Meeting. 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 an option grant under the
Plan on the Effective Date or at the time he or she first becomes a non-employee
Board member, but shall be eligible to receive periodic option grants under the
Plan upon his or her continued service as a non-employee Board member following
one or more Annual Stockholders Meetings.
<PAGE>
IV. 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 maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 400,000 shares.1
Such share reserve includes (i) the initial share reserve of 150,000 shares
approved by the stockholders in August 1995, (ii) an additional 50,000 share
increase authorized by the Board on February 10, 1997 and approved by
stockholders at the 1997 Annual Stockholders Meeting and (iii) an additional
200,000 share increase authorized by the Board on December 17, 1998, subject to
stockholder approval at the 1999 Annual Meeting. No shares of Common Stock shall
become exercisable under the Plan on the basis of the 200,000- share increase
unless that increase is approved by the stockholders at the 1999 Annual Meeting.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2002, by
an amount equal to two tenths of one percent (0.2%) of the shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
75,000 shares.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent the options
expire or terminate for any reason prior to exercise in full. In addition,
unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the original exercise 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 reissuance through one or more subsequent option
grants under the Plan. However, shares subject to any option or portion thereof
surrendered in accordance with Article Two shall reduce on a share-for-share
basis the number of shares of Common Stock available for subsequent issuance
under the Plan. Should the exercise price of an option under the Plan be paid
with shares of Common Stock, then the number of shares of Common Stock available
for issuance under the Plan shall be reduced by the gross number of shares for
which the option is exercised, and not by the net number of shares of Common
Stock issued to the holder of such option.
D. Should any change be 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 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
reserve is to increase each calendar year pursuant to the provisions of Section
IV.B of this Article One, (iii) the number and/or class of securities for which
option grants are to be
- -------------------------
1 This number reflects the 2:3 stock split adopted by the Board on
July 25, 1995.
2
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subsequently made per Eligible Director and (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
The adjustments to the outstanding options shall be made by the Board and shall
be final, binding and conclusive.
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ARTICLE Two
OPTION GRANT PROGRAM
I. OPTION TERMS
The provisions of this Article Two reflect the changes to the number of
shares of Common Stock subject to the initial and annual option grants to be
made to the non-employee Board members pursuant to the amendment authorized by
the Board on December 17, 1998, subject to stockholder approval at the 1999
Annual Meeting. Stockholder approval of such amendment shall constitute
pre-approval of each option grant made on or after the date of the 1999 Annual
Meeting to the non-employee Board members pursuant to the amended provisions of
this Article Two and the subsequent exercise of that option in accordance with
such provisions.
A. Grant Dates. Option grants shall be made on the dates specified below:
1. Each Eligible Director who is first elected or appointed as a
non-employee Board member on or after the date of the 1999 Annual Stockholders
Meeting shall automatically be granted, on the date of such initial election or
appointment (as the case may be), a Non-Statutory Option to purchase 32,000
shares of Common Stock.
2. On the date of each Annual Stockholders Meeting, beginning with the
1999 Annual Meeting, each individual who is to continue to serve as an Eligible
Director shall automatically be granted, whether or not such individual is
standing for re-election as a Board member at that Annual Meeting, a
Non-Statutory Option to purchase an additional 8,000 shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months prior to the date of such Annual Meeting. There shall be no limit
on the number of such 8,000-share option grants any one Eligible Director may
receive over his or her period of Board service.
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 become immediately due upon exercise of the
option and shall 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 necessary
to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the
Exercise Date, or
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(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 irrevocable
written instructions to (A) a Corporation-designated brokerage
firm 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 Federal, state and local 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 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.
C. Option Term. Each option shall have a term of ten (10) years
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of four (4) equal and
successive annual installments over the Optionee's period of continued service
as a Board member, with the first such installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
Each annual grant shall vest, and the Corporation's repurchase right shall
lapse, upon the Optionee's completion of one (1) year of Board service measured
from the option grant date.
E. Effect of Termination of Board Service. The following provisions
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, 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 in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following
the date of such cessation of Board service in which to
exercise each 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 for which the option is exercisable at the time
of the Optionee's cessation of Board service.
(iii) 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
all or any portion of such shares as fully-vested shares.
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(iv) 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 Board service,
terminate and cease to be outstanding to the extent it is not
exercisable for vested shares on the date of such cessation of
Board service.
F. 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.
G. Limited Transferability of Options. An automatic option granted
under the Plan may, in connection with the Optionee's estate plan, be assigned
in whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. 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.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the specified effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common Stock
at the time subject to each outstanding option 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 fully exercisable for all of
the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares as fully-vested shares of Common
Stock. Each such option shall remain exercisable for such fully-vested option
shares until the expiration of the option term or the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each option
held by him or her. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock at the time subject
<PAGE>
to the surrendered option (whether or not the Optionee is otherwise at the time
vested in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation. Stockholder approval of the December
17, 1998 amendment and restatement of the Plan shall constitute pre-approval of
each option surrender right subsequently granted under the Plan and the
subsequent exercise of that right in accordance with the terms and provisions of
this Section II.C. No additional approval of the Board or any committee of the
Board shall be required at the time of the actual option surrender and cash
distribution.
D. The grant of options under 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.
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ARTICLE Three
MISCELLANEOUS
I. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective on the November 7, 1995 Effective Date
after adoption by the Board on July 25, 1995 and approval by the Corporation's
stockholders in August 1995.
B. The Plan was amended on February 10, 1997 (the "February 1997
Amendment") to effect the following changes: (i) increase the number of shares
of Common Stock authorized for issuance over the term of the Plan by an
additional 50,000 shares, (ii) allow unvested shares issued under the Plan and
subsequently repurchased by the Corporation at the option exercise price paid
per share to be reissued under the Plan and (iii) effect a series of technical
changes to the provisions of the Plan (including stockholder approval
requirements) in order to take advantage of the recent amendments to Rule 16b-3
of the Securities Exchange Act of 1934 which exempts certain officer and
director transactions under the Plan from the short-swing liability provisions
of the Federal securities laws. The February 1997 Amendment was approved by the
stockholders at the 1997 Annual Meeting. The Plan was amended on December 17,
1998 (the "December 1998 Amendment") to effect the following changes: (i)
increase the number of shares of Common Stock authorized for issuance over the
term of the Plan by an additional 200,000 shares, (ii) implement the automatic
share increase provisions of Section IV.B of Article One, (iii) increase the
size of the initial grants to non-employee Board members from 16,000 to 32,000
shares of Common Stock and (iv) increase the size of the annual grants to
non-employee Board members from 4,000 to 8,000 shares of Common Stock. No option
grants made on the basis of the 200,000-share increase authorized by the
December 1998 Amendment shall become exercisable in whole or in part unless and
until that amendment is approved by the stockholders. Should such stockholder
approval not be obtained at the 1999 Annual Meeting, then each option grant made
pursuant to the 200,000-share increase authorized by the December 1998 Amendment
shall terminate and cease to remain outstanding, no further option grants shall
be made on the basis of that share increase, and the automatic share increase
provisions of Section IV.B of Article One shall not be implemented. However, the
provisions of the Plan as in effect immediately prior to the December 1998
Amendment shall automatically be reinstated, and option grants may thereafter
continue to be made pursuant to the reinstated provisions of the Plan. All
option grants made prior to the December 1998 Amendment shall remain outstanding
in accordance with the terms and conditions of the respective instruments
evidencing those options or issuances, and nothing in the December 1998
Amendment shall be deemed to modify or in any way affect those outstanding
options or issuances. Subject to the foregoing limitations, options may be
granted under the Plan at any time before the date fixed herein for the
termination of the Plan.
C. The Plan shall terminate upon the earliest of (i) July 24, 2005,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued or cancelled pursuant to the exercise or cash-out of the
options under the Plan or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon such Plan termination, all
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<PAGE>
option grants and unvested stock issuances outstanding on such date shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
II. AMENDMENT OF THE PLAN
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
options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee consents to such amendment or modification. In addition,
certain amendments may require stockholder approval pursuant to applicable laws
or regulations.
III. 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.
IV. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under the
Plan and the issuance of any shares of Common Stock upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the 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 Federal and state 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.
V. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the 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 such person) and the Corporation's
stockholders or of the Optionee, which rights are hereby expressly reserved by
each, to terminate such person's Service at any time for any reason, with or
without cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) 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; or
(ii) 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 such election or
nomination was approved by the Board.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those immediately prior to
such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. Corporation shall mean SanDisk Corporation, a Delaware corporation.
G. Effective Date shall mean November 7, 1995, the date on which the
Underwriting Agreement was executed and the initial public offering price of the
Common Stock was established.
A-1
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H. Eligible Director shall mean a non-employee Board member eligible to
participate in the Plan.
I. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.
J. 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 on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. 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 on the date in question on the Stock Exchange
which serves as 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.
K. Hostile Take-Over shall mean a change in ownership of the
Corporation through the direct or indirect acquisition 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.
L. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
M. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
N. Optionee shall mean any person to whom an option is granted under
the Plan.
O. 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.
A-2
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P. Permanent Disability shall mean the inability of the Optionee 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.
Q. Plan shall mean the Corporation's 1995 Non-Employee Directors Stock
Option Plan, as set forth in this document.
R. Section 16 Insiders shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
S. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
T. 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.
U. Take-Over Price shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over.
V. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters which managed the initial public
offering of the Common Stock.
A-3
SANDISK CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
AMENDED AND RESTATED AS OF DECEMBER 17, 1998
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of SanDisk Corporation by providing eligible employees with the opportunity to
acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common Stock which
may be issued in the aggregate over the term of this Plan and the Corporation's
International Employee Stock Purchase Plan shall not exceed One Million One
Hundred Eighty-Three Thousand Three Hundred Thirty-Three (1,183,333) shares.
Such share reserve includes (i) the initial share reserve of 433,333 shares (as
adjusted to reflect the 2:3 split of the Common Stock authorized by the Board on
July 25, 1995) approved by the stockholders in August 1996, (ii) an additional
450,000 share increase authorized by the Board on February 10, 1997 and approved
by the stockholders at the 1997 Annual Meeting and (iii) an additional 300,000
share increase authorized by the Board on December 17, 1998, subject to
stockholder approval at the 1999 Annual Meeting. No shares of Common Stock shall
be issued under the Plan on the basis of such 300,000-share increase unless that
increase is approved by the stockholders at the 1999 Annual Meeting. In no event
shall more than 741,455 shares of Common Stock be issued in the aggregate under
this Plan and the International Employee Stock Purchase Plan after March 15,
1999.
B. The number of shares of Common Stock available for issuance under
the combined reserve of this Plan and the International Plan shall automatically
increase on the first trading day of January each calendar year during the term
of the Plan, beginning with calendar year 2002, by an amount equal to
forty-three one hundredths of one percent (0.43%) of the shares of Common Stock
outstanding on the last trading day in December of the immediately preceding
calendar year, but in no event shall any such annual increase exceed 150,000
shares.
<PAGE>
C. Should any change be 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 to (i) the maximum number and class of securities issuable in the aggregate
under this Plan and the International Plan, (ii) the maximum number and/or class
of securities by which the combined share reserve under this Plan and the
International Plan is to increase each calendar year pursuant to the provisions
of Section III.B, (iii) the maximum number and class of securities purchasable
per Participant on any one Purchase Date and (iv) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive Offering Periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each Offering Period (other than the Initial Offering Period) shall
have a duration of six (6) months. Offering Periods shall run from the first
business day in February to the last business day in July each year and from the
first business day of August each year to the last business day in January in
the following year. However, the Initial Offering Period shall commence at the
Effective Time and terminate on the last business day in January, 1997. During
the Initial Offering Period, there shall be three (3) successive Purchase
Intervals: the first shall run from the Effective Time to the last business day
in January 1996; the second shall run from the first business day in February
1996 to the last business day in July 1996; and the last shall run from the
first business day in August to the last business day in January 1997. A
Purchase Date shall occur at the end of each Purchase Interval within the
Initial Offering Period. However, for each subsequent Offering Period, there
shall only be a single Purchase Date coincident with the last day of that
Offering Period.
V. ELIGIBILITY
A. Only individuals who are Eligible Employees on the start date of an
Offering Period shall be eligible to participate in the Plan for that Offering
Period. For the Initial Offering Period, the following special eligibility
provisions shall be in effect:
- - Each individual who is an Eligible Employee at the Effective Time may
enter the Initial Offering Period at that time or on the start date of
any subsequent Purchase Interval within that Offering Period, provided
he or she remains an Eligible Employee on that date.
- - Each individual who first becomes an Eligible Employee after the
Effective Time may enter the Initial Offering Period on the start date
of any subsequent Purchase Interval within that Offering Period,
provided he or she is an Eligible Employee on that date.
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B. The date an Eligible Employee enters the Offering Period shall be
designated his or her Entry Date.
C. To participate in the Plan for a particular Offering Period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization form) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Cash Compensation paid to the Participant during each
Offering Period, up to a maximum of ten percent (10%). The deduction rate so
authorized shall continue in effect from Offering Period to Offering Period,
except to the extent such rate is changed in accordance with the following
guidelines:
(i) The Participant may, at any time during an Offering Period, reduce
his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator.
The Participant may not, however, effect more than one (1) such
reduction per Offering Period or Purchase Interval.
(ii) The Participant may, prior to the start of any new Offering Period
or the start of any new Purchase Interval within the Initial Offering
Period, increase the rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new rate (which may
not exceed the ten percent (10%) maximum) shall become effective as of
the start date of the first Offering Period or Purchase Interval
following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the Offering Period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that Offering Period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of
the Participant's purchase right in accordance with the provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date.
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VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a separate
purchase right for each Offering Period in which he or she participates. The
purchase right shall be granted on the Participant's Entry Date into the
Offering Period and shall provide the Participant with the right to purchase
shares of Common Stock upon the terms set forth below. The Participant shall
execute a stock purchase agreement embodying such terms and such other
provisions (not inconsistent with the Plan) as the Plan Administrator may deem
advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. Exercise of the Purchase Right. The purchase right shall be
automatically exercised on each Purchase Date within the Offering Period, and
shares of Common Stock shall accordingly be purchased on behalf of the
Participant (other than any Participant whose payroll deductions have previously
been refunded in accordance with the Termination of Purchase Right provisions
below) on such Purchase Date. The purchase shall be effected by applying the
Participant's payroll deductions for the Offering Period or the Purchase
Interval to the purchase of whole shares of Common Stock at the purchase price
in effect for the Participant for the Purchase Date coincident with the last day
of that Offering Period or Purchase Interval. All shares purchased on
Participant's behalf shall be directly deposited into an account maintained for
such Participant at a Corporation-designated brokerage firm.
C. Purchase Price. The purchase price per share at which Common Stock
shall be purchased on the Participant's behalf on each Purchase Date within the
Offering Period shall be equal to eighty-five percent (85%) of the lower of (i)
the Fair Market Value per share of Common Stock on the Participant's Entry Date
into that Offering Period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date. However, for each Participant who joins the Initial
Offering Period after the start date, the clause (i) amount shall in no event be
less than the Fair Market Value per share of Common Stock on the start date of
the Initial Offering Period.
D. Number of Purchasable Shares. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date shall be the number of whole
shares obtained by dividing the Participant's payroll deductions for the
Offering Period or Purchase Interval ending on such date by the purchase price
in effect for the Participant for that Purchase Date. However, the maximum
number of shares of Common Stock purchasable per Participant on any one Purchase
Date shall not exceed Seven Hundred Fifty (750) shares, subject to periodic
adjustments in the event of certain changes in the Corporation's capitalization.
However, the Plan Administrator shall have the discretionary authority,
exercisable prior to the start of any Offering Period, to increase or decrease
the limitation to be in effect for the number of shares purchasable per
Participant on the Purchase Date for that Offering Period.
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E. Excess Payroll Deductions. Any payroll deductions not applied to the
purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall govern
the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date, terminate his or her outstanding purchase right
by filing the appropriate form with the Plan Administrator (or
its designate), and no further payroll deductions shall be
collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the
Offering Period or Purchase Interval in which such termination
occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next
scheduled Purchase Date. If no such election is made at the
time such purchase right is terminated, then the payroll
deductions collected with respect to the terminated right
shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the Offering
Period for which the terminated purchase right was granted. In
order to resume participation in any subsequent Offering
Period, such individual must re-enroll in the Plan (by making
a timely filing of the prescribed enrollment forms) on or
before the start date of that Offering Period.
(iii) Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding,
then that purchase right shall immediately terminate, and all
of the Participant's payroll deductions for the Offering
Period or Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the
Participant cease to remain in active service by reason of an
approved unpaid leave of absence, then the Participant shall
have the election, exercisable up until the last day of the
Offering Period or Purchase Interval in which such leave
commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for such Offering
Period or Purchase Interval or (b) have such funds held for
the purchase of shares on the next scheduled Purchase Date. In
no event, however, shall any further payroll deductions be
collected on the Participant's behalf during such leave. Upon
the Participant's return to active service (x) within ninety
(90) days following the commencement of such leave or (y)
prior to the expiration of any longer period for which such
Participant's right to reemployment with the Corporation is
guaranteed by either statute or contract, his or her payroll
deductions under the Plan shall automatically resume at the
rate in effect at the time the leave began, unless the
Participant withdraws from the Plan prior to his or her
return. An individual who returns to active employment
following a leave of absence which exceeds in duration the
applicable (x) or (y) time period will be treated as a new
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Employee for purposes of subsequent participation in the Plan
and must accordingly re-enroll in the Plan (by making a timely
filing of the prescribed enrollment forms) on or before the
start date of any new Offering Period or Purchase Interval.
G. Corporate Transaction. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant to
the purchase of whole shares of Common Stock at a purchase price per share equal
to eighty-five percent (85%) of the lower of (i) the Fair Market Value per share
of Common Stock on the Participant's Entry Date into the Offering Period in
which such Corporate Transaction occurs or (ii) the Fair Market Value per share
of Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable limitation on the number of shares of
Common Stock purchasable per Participant shall continue to apply to each
purchase.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. Proration of Purchase Rights. Should the total number of shares of
Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. Assignability. During the Participant's lifetime, the purchase right
shall be exercisable only by the Participant and shall not be assignable or
transferable.
J. Stockholder Rights. A Participant shall have no stockholder rights
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value of such stock on the date or
dates such rights are granted) for each calendar year such rights are at any
time outstanding.
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B. For purposes of applying such accrual limitations to the purchase
rights granted under this Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in one or more installments on
each Purchase Date within the Offering Period for which such
right is granted.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has
already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a
rate equal to Twenty-Five Thousand Dollars ($25,000) worth of
Common Stock (determined on the basis of the Fair Market Value
of such stock on the date or dates of grant) for each calendar
year such rights were at any time outstanding.
C. If by reason of such accrual limitations, the purchase right of a
Participant does not accrue for a particular Offering Period (or a particular
Purchase Interval within the Initial Offering Period), then the payroll
deductions which the Participant made during that Offering Period (or Purchase
Interval) with respect to such unaccrued purchase right shall be promptly
refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on July 25, 1995 and shall become
effective at the Effective Time, provided no purchase rights granted under the
Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect and all sums collected from Participants during
the Initial Offering Period shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate upon
the earliest of (i) the last business day in July 2005, (ii) the date on which
all shares available for issuance under the Plan shall have been sold pursuant
to purchase rights exercised under the Plan or (iii) the date on which all
purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
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X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or discontinue the Plan at any
time to become effective immediately following the close of any Offering Period
or Purchase Interval. However, the Board may not, without the approval of the
Corporation's stockholders, (i) materially increase the number of shares of
Common Stock issuable under the Plan, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan or (iii) modify the requirements for
eligibility to participate in the Plan.
B. On February 10, 1997, the Board adopted an amendment to the Plan to
increase the number of shares of Common Stock authorized for issuance under this
Plan and the International Employee Stock Purchase Plan by an additional 450,000
shares in the aggregate. This amendment was approved by the stockholders at the
1997 Annual Meeting. On December 17, 1998, the Board adopted amendments to the
plan to (i) increase the number of shares of Common Stock authorized for
issuance in the aggregate under this Plan and the International Employee Stock
Purchase Plan by an additional 300,000 shares and (ii) to implement the
automatic share increase provisions of Section III.B. These amendments are
subject to stockholder approval at the 1999 Annual Meeting, and no shares may be
issued on the basis of the 300,000 share increase unless and until the share
increase is approved by the stockholders. Should such stockholder approval not
be obtained at the 1999 Annual Meeting, then the maximum number of shares
available for subsequent issuance in the aggregate under this Plan and the
International Employee Stock Purchase Plan shall not exceed the number of shares
which remained available for issuance immediately prior to the 300,000-share
increase authorized by the Board on December 17, 1998, and the automatic share
increase provisions of Section III.B shall not be implemented.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
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Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
SanDisk Corporation
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Cash Compensation shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more Offering Periods under the Plan, plus
(ii) any pre-tax contributions made by the Participant to any Code Section
401(k) salary deferral plan or any Code Section 125 cafeteria benefit program
now or hereafter established by the Corporation or any Corporate Affiliate, plus
(iii) all of the following amounts to the extent paid in cash: overtime
payments, bonuses, commissions, profit-sharing distributions and other
incentive-type payments. However, Eligible Earnings shall not include any
contributions (other than Code Section 401(k) or Code Section 125 contributions)
made on the Participant's behalf by the Corporation or any Corporate Affiliate
to any deferred compensation plan or welfare benefit program now or hereafter
established.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Affiliate shall mean any parent or subsidiary corporation
of the Corporation (as determined in accordance with Code Section 424), whether
now existing or subsequently established.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those
securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. 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 shall by appropriate action adopt the Plan.
H. Effective Time shall mean November 7, 1995, the time at which the
Underwriting Agreement was executed and finally priced. Any Corporate Affiliate
which becomes a Participating Corporation after such Effective Time shall
designate a subsequent Effective Time with respect to its employee-Participants.
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I. Eligible Employee shall mean any person who is employed by a
Participating Company on a basis under which he or she is regularly expected to
render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. Entry Date shall mean the date an Eligible Employee first commences
participation in the Offering Period in effect under the Plan. The earliest
Entry Date under the Plan shall be the Effective Time.
K. 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 on the date in
question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National
Market or any successor system. 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 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.
L. Initial Offering Period shall mean the first Offering Period in
effect under the Plan which began at the Effective Time and ended on the last
business day in January 1997.
M. 1933 Act shall mean the Securities Act of 1933, as amended.
N. Offering Period shall mean each successive period during which
payroll deductions are to be collected on the behalf of Participants and applied
to the purchase of Common Stock on one or more Purchase Dates within that
period.
O. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
P. Participating Corporation shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
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Q. Plan shall mean the Corporation's Employee Stock Purchase Plan, as
set forth in this document.
R. Plan Administrator shall mean the committee of two (2) or more Board
members appointed by the Board to administer the Plan.
S. Purchase Date shall mean the last business day of January and July
each year on which shares of Common Stock shall be purchased on behalf of each
Participant.
T. Purchase Interval shall mean each of three (3) successive periods
within the Initial Offering Period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant. The first Purchase
Interval shall begin at the Effective Time and end on the last business day in
January 1996; the second Purchase Interval shall begin on the first business day
in February 1996 and end on the last business day in July 1996; and the final
Purchase Interval shall begin on the first business day in August 1996 and end
on the last business day in January 1997.
U. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
V. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters which managed the initial public
offering of the Common Stock.
A-3
