SanDisk 2007 Annual Report Download - page 119

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 the Company’s acquisition of msystems Ltd.
(“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 30, 2007, there were
equity awards outstanding to purchase 312,868 and 4,558,268 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 (“Matrix Stock Plans”), acquired through SanDisk’s acquisition of Matrix Semiconductor, Inc.
(“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 proportionately 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 30, 2007, there were equity
awards outstanding to purchase 539,486 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) (“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 30, 2007 includes the following:
(a) compensation cost, based on the grant-date estimated fair value and expense attribution method under Statement
of Financial Accounting Standards No. 123 (“SFAS 123”), Accounting for Stock-Based Compensation, 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 the fair values
of these awards, which have graded vesting, on a straight-line basis over the requisite service period of each of these
awards, net of estimated forfeitures. Prior to the implementation of SFAS 123(R), the Company accounted for stock
awards and ESPP shares under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and made pro forma footnote disclosures as required by Statement of Financial Accounting
Standards No. 148 (“SFAS 148”), Accounting For Stock-Based Compensation — Transition and Disclosure, which
amended Statement of Financial Accounting Standards No. 123, Accounting For Stock-Based Compensation. Pro
forma net income and pro forma net income per share disclosed in the footnotes to the consolidated financial
statements were estimated using a Black-Scholes-Merton closed-form option valuation model to determine the
estimated fair value and by attributing such fair value over the requisite service period on a straight-line basis for
those awards that actually vested.
The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing
formula and a single-option award approach. The Company’s expected term represents the period that the
Company’s share-based awards are expected to be outstanding and was determined based on historical experience
regarding similar awards, giving consideration to the contractual terms of the share-based awards. The Company’s
F-23
Notes to Consolidated Financial Statements — (Continued)