SanDisk 2006 Annual Report Download - page 118

year option term or any earlier termination of those options in connection with the optionee’s cessation of service
with the Company. Grants and awards under these plans generally vest as follows: 25% of the shares will vest on the
first anniversary of the vesting commencement date and the remaining 75% will vest proportionately each quarter
over the next 36 months of continued service. As of December 31, 2006, options had been granted, net of
cancellations, to purchase 38,229,457 and 1,616,000 shares of common stock under the 1995 Stock Option Plan and
the 1995 Non-Employee Directors Stock Option Plan, respectively.
2005 Employee Stock Purchase Plan. The 2005 Employee Stock Purchase Plan, or ESPP, was approved by
the stockholders on May 27, 2005. The ESPP plan consists of two components: a component for employees residing
in the United States and an international component for employees who are non-U.S. residents. The ESPP plan
allows eligible employees to purchase shares of the Company’s common stock at the end of each six-month offering
period at a purchase price equal to 85% of the lower of the fair market value per share on the start date of the offering
period or the fair market value per share on the purchase date. As of December 31, 2006, a total of 5,000,000 shares
were reserved for issuance and in the year ended December 31, 2006 and since inception of the 2005 ESPP plan, a
total of 264,976 shares of common stock have been issued under this plan.
msystems Ltd. 1996 Section 102 Stock Option/Stock Purchase Plan and 2003 Stock Option and Restricted
Stock Incentive Plan. The msystems Ltd. 1996 Section 102 Stock Option/Stock Purchase Plan and 2003 Stock
Option and Restricted Stock Incentive Plan acquired through SanDisk’s acquisition of msystems, were terminated
on November 19, 2006, and no further grants were made under these plans after that date. However, awards grants
that were outstanding under these plans on November 19, 2006 will continue to be governed by their existing terms
and may be exercised for shares of the Company’s common stock at any time prior to the expiration of the ten-year
option term or any earlier termination of those options in connection with the optionee’s cessation of service with
the Company. Awards granted under these plans generally vest as follows: 50% of the shares will vest on the second
anniversary of the vesting commencement date and the remaining 50% will vest proportionately each quarter over
the next 24 months of continued service. As of December 31, 2006, options acquired through acquisition, net of
cancellations, to purchase 313,364 and 5,050,082 shares of common stock under the msystems 1996 Section 102
Stock Option/Stock Purchase Plan and 2003 Stock Option and Restricted Stock Incentive Plan, respectively.
Matrix Semiconductor, Inc. 2005 Stock Incentive Plan, 1999 Stock Plan and 1998 Long-term Incentive Plan.
The Matrix Semiconductor, Inc. 2005 Stock Incentive Plan, 1999 Stock Plan and the Rhombus, Inc. 1998 Long-
term Incentive Plan, or Matrix Stock Plans, acquired through SanDisk’s acquisition of Matrix were terminated on
January 13, 2006, and no further option grants were made under these plans after that date. However, award grants
that were outstanding under these plans on January 13, 2006 will continue to be governed by their existing terms and
may be exercised for shares of the Company’s common stock at any time prior to the expiration of the ten-year
option term or any earlier termination of those options in connection with the optionee’s cessation of service with
the Company. Awards granted under these plans generally vest as follows: 1/48 of the shares will vest propor-
tionately each month over the next 48 months of continued service or 1/60 of the shares will vest proportionately
each month over the next 60 months of continued service. As of December 31, 2006, awards acquired through
acquisition, net of cancellations, to purchase 552,323 shares of common stock under the Matrix Stock Plans.
Adoption of SFAS 123(R)
Effective January 2, 2006, the Company adopted the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123(R), or SFAS 123(R), Share-Based Payment, using the modified-pro-
spective transition method, and therefore, has not restated its financial statements for prior periods. For awards
expected to vest, compensation cost recognized in the year ended December 31, 2006 includes the following:
(a) compensation cost, based on the grant-date estimated fair value and expense attribution method of SFAS 123,
related to any share-based awards granted through, but not yet vested as of January 1, 2006, and (b) compensation
cost for any share-based awards granted on or subsequent to January 2, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R). The Company recognizes compensation expense for
Annual Report
F-19
Notes to Consolidated Financial Statements — (Continued)