SanDisk 2005 Annual Report Download - page 25

compensation under Section 162(m), except in the event of certain involuntary terminations or changes in
control or ownership.
Automatic Grant Program. Under the automatic grant program, each non-employee Board member
will automatically receive, upon his or her initial appointment or election to the Board, an option grant for a
specified number of shares of the Company's Common Stock, provided such individual has not been in the
Company's employ during the immediately preceding twelve (12) months. In addition, on the date of each
annual stockholders meeting, each individual serving as a non-employee Board member at that time will
automatically be granted an option to purchase a specified number of shares of the Company's Common
Stock, provided such individual has served on the Company's Board for at least six (6) months. The specific
number of shares subject to each such initial or annual option grant will be determined by the compensation
committee of the Company's Board of Directors, but will not exceed 150,000 shares in the case of an initial
grant or 40,000 shares in the case of an annual grant. Accordingly, the size of the initial option grant may vary
as to each new non-employee Board member, and the size of the annual option grants may vary from year to
year.
Each automatic grant will have an exercise price per share equal to the fair market value per share of the
Company's Common Stock on the grant date and will have a term of seven (7) years, subject to earlier
termination following the optionee's cessation of board service. The option will be immediately exercisable for
all of the option shares; however, the Company may repurchase, at the lower of the exercise price paid per
share or the fair market value per share, any shares purchased under the option which are not vested at the
time of the optionee's cessation of board service. The shares subject to each initial 150,000-or-less-share
automatic option grant will vest in four successive equal annual installments upon the optionee's completion of
each year of board service over the four-year period measured from the grant date. The shares subject to each
annual automatic option grant made to a continuing Board member will vest upon the earlier of (i) that
individual's completion of one (1) year of Board service measured from the grant date or (ii) such individual's
continuation in Board service through the day immediately preceding the date of the next annual stockholders
meeting following such grant date. However, the shares will immediately vest in full upon the optionee's death
or disability while a board member or upon the occurrence of certain changes in ownership or control.
The option grants under the automatic option grant program will be taxable as non-statutory options
under the Federal income tax laws.
Our Compensation Committee will have the authority to award to one or more non-employee Board
members, in lieu of all or a portion of the initial or annual automatic option grants, unvested shares of the
Company's Common Stock or restricted stock units covering such shares which in each instance have an
aggregate fair market value substantially equal to the fair value (as determined for financial reporting purposes
in accordance with Financial Accounting Standard 123R or any successor standard) of the automatic option
grant which such award replaces. Any such alternative award will be made at the same time the automatic
option grant which it replaces would have been made, and the vesting provisions (including vesting
acceleration) applicable to such award will be substantially the same as in effect for the automatic option
grant so replaced.
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