SanDisk 2005 Annual Report Download - page 30

Proxy Statement
have the right to transfer such shares prior to vesting. A participant will not have any stockholder rights with
respect to the shares of Common Stock subject to a restricted stock unit or other share right award until that
unit or award vests and the shares of Common Stock are actually issued thereunder. However, dividend-
equivalent units may be paid or credited, either in cash or in actual or phantom shares of Common Stock, on
outstanding restricted stock units or other share-right awards, subject to such terms and conditions as the plan
administrator may deem appropriate.
Special Tax Election. The plan administrator may provide one or more holders of options, stock
appreciation rights, vested or unvested stock issuances, restricted stock units or any other stock-based awards
under the 2005 Plan 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 they become subject in connection with the
exercise of those options or stock appreciation rights, the issuance of vested shares or the vesting of unvested
shares issued to them. Alternatively, the plan administrator may allow such individuals to deliver previously
acquired shares of the Company's Common Stock in payment of such withholding tax liability.
Amendment and Termination. The Company's Board of Directors may amend or modify the 2005 Plan
at any time, subject to any stockholder approval requirements under applicable law or regulation or pursuant
to the listing standards of the stock exchange (or the Nasdaq National Market) on which the Company's
shares of Common Stock are at the time primarily traded. Unless sooner terminated by the Company's Board
of Directors, the 2005 Plan will terminate on the earliest of (i) March 15, 2015, (ii) the date on which all
shares available for issuance under the 2005 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options, stock appreciation rights, restricted stock units and other stock-based
awards in connection with certain changes in control or ownership.
Subplans. The Compensation Committee of the Company's Board of Directors will have the authority
to adopt and implement from time to time such subplans under the 2005 Plan as it may deem necessary in
order to bring the 2005 Plan into compliance with applicable laws and regulations of any foreign jurisdictions
in which grants or awards are to be made or to obtain favorable tax treatment in those foreign jurisdictions for
the individuals to whom the grants or awards are made.
Summary of Federal Income Tax Consequences
The following is a summary of the Federal income taxation treatment applicable to the Company and the
participants who receive awards under the 2005 Plan.
Option Grants. Options granted under the discretionary grant program 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:
Incentive Options. No taxable income is recognized by the optionee at the time of the option grant,
and no taxable income is recognized for regular tax purposes at the time the option is exercised, although
taxable income may arise at that time for alternative minimum tax purposes. The optionee will recognize
taxable income in the year in which the purchased shares are sold or otherwise made the subject of
certain other dispositions. 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 more than two (2) years after the date the option for the shares involved in such sale or disposition
is granted and more than one (1) year after the date the option is exercised for those shares. If the sale or
disposition occurs before these two periods are 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 or (if less) the amount realized
upon such sale or disposition over (ii) the exercise price paid for the shares will be taxable as ordinary
income to the optionee. Any additional gain recognized upon the disposition will be a capital gain.
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