SanDisk 2008 Annual Report Download - page 92

Notes To Consolidated Financial Statements
In addition, key components are purchased from single source vendors for which alternative sources are
currently not available. Shortages could occur in these essential materials due to an interruption of supply or
increased demand in the industry. If the Company were unable to procure certain of such materials, it would be
required to reduce its manufacturing operations, which could have a material adverse effect upon its results of
operations. The Company also relies on third-party subcontractors to assemble and test a portion of its products.
The Company has no long-term contracts with these subcontractors and cannot directly control product delivery
schedules or manufacturing processes. This could lead to product shortages or quality assurance problems that
could increase the manufacturing costs of its products and have material adverse effects on the Company’s
operating results.
Concentration of Credit Risk. The Company’s concentration of credit risk consists principally of cash, cash
equivalents, short and long-term investments and trade receivables. The Company’s investment policy restricts
investments to high-credit quality investments and limits the amounts invested with any one issuer. The
Company sells to original equipment manufacturers, retailers and distributors in the U.S., Japan, EMEA and
APAC, performs ongoing credit evaluations of its customers’ financial condition, and generally requires no
collateral.
Off-Balance Sheet Risk. The Company has off-balance sheet financial obligations. See Note 13,
“Commitments, Contingencies and Guarantees.”
Note 9: Compensation and Benefits
Share-Based Benefit Plans
2005 Incentive Plan.On May 27, 2005, the stockholders approved the 2005 Stock Incentive Plan, which
was amended in May 2006 and renamed the 2005 Incentive Plan (“2005 Plan”). Shares of the Company’s
common stock may be issued under the 2005 Plan pursuant to three separate equity incentive programs: (i) the
discretionary grant program under which stock options and stock appreciation rights may be granted to officers
and other employees, non-employee board members and independent consultants, (ii) the stock issuance program
under which shares may be awarded to such individuals through restricted stock or restricted stock unit awards or
as a stock bonus for services rendered to the Company, and (iii) an automatic grant program for the
non-employee board members pursuant to which such individuals will receive option grants or other stock
awards at designated intervals over their period of board service. The 2005 Plan also includes a performance-
based cash bonus awards program for employees classified under Section 16. Grants and awards under the
discretionary grant program 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. Awards under the stock issuance program generally vest in equal annual
installments over a 4-year period. Grants under the automatic grant program will vest in accordance with the
specific vesting provisions set forth in that program. A total of 22,222,931 shares of the Company’s common
stock have been reserved for issuance under this plan. The share reserve may increase by up to 10,000,000 shares
of common stock to the extent that outstanding options under the 1995 Stock Option Plan and the 1995
Non-Employee Directors Stock Option Plan expire or terminate unexercised, of which as of December 28, 2008,
1,522,931 shares of common stock has been added to the 2005 Plan reserve. All options granted under the 2005
Plan were granted with an exercise price equal to the fair market value of the common stock on the date of grant
and will expire seven years from the date of grant.
1995 Stock Option Plan and 1995 Non-Employee Directors Stock Option Plan. Both of these plans
terminated on May 27, 2005, and no further option grants were made under the plans after that date. However,
options that were outstanding under these plans on May 27, 2005 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
F-27