SanDisk 2010 Annual Report Download - page 28

Share-Based Awards
Under the Company’s Non-Employee Director compensation policy, as currently in effect, a Non-Employee
Director who first takes office and who has not been employed by the Company in the preceding twelve months
receives, at the time of his or her election or appointment to the Board, (i) an initial option grant to purchase
25,000 shares of Common Stock (the “Initial Option Grant”), and (ii) an initial restricted stock unit grant for a
number of units determined by dividing $320,000 by the average closing price per share of Common Stock on
NASDAQ for the five trading days ended on, and including, the grant date (the “Initial Unit Grant”). Each
Non-Employee Director who has served in that capacity for at least six months at the time of grant also receives
an annual award consisting of (i) an option grant to purchase 6,250 shares of Common Stock (the “Annual
Option Grant”), and (ii) a restricted stock unit grant for a number of units determined by dividing $80,000 by the
average closing price per share of Common Stock on NASDAQ for the five trading days ended on, and
including, the grant date (the “Annual Unit Grant”). The initial and annual awards described above are granted
under, and are subject to, the Company’s 2005 Incentive Plan, as amended (the “2005 Plan”).
Initial and Annual Stock Option Grants. The Initial and Annual Option Grants are granted with a per share
exercise price equal to the fair market value of a share of Common Stock on the grant date. For these purposes,
and in accordance with the terms of the 2005 Plan and the Company’s share-based award grant practices, the fair
market value is equal to the closing price of a share of the Common Stock on NASDAQ on the grant date.
The stock options granted to Non-Employee Directors are immediately exercisable. However, upon a
Non-Employee Director’s cessation of service with the Company, any shares purchased upon exercise of the
option that have not vested (as described below) are subject to repurchase by the Company at the lower of (i) the
exercise price paid for the shares or (ii) the fair market value of the shares at the time of repurchase (as
determined under the 2005 Plan). This type of stock option is generally referred to as an “early exercise” stock
option because the holder is permitted to exercise the option prior to the time that the underlying shares vest.
Subject to the Non-Employee Director’s continued service, the shares subject to the Initial Option Grant vest, and
the Company’s repurchase right lapses, in four substantially equal annual installments on each of the first
through fourth anniversaries of the grant date. Subject to the Non-Employee Director’s continued service, the
shares subject to the Annual Option Grant vest, and the Company’s repurchase right lapses, in one installment on
the earlier of (i) first anniversary of the grant date or (ii) the day immediately preceding the next annual meeting
of the Company’s stockholders following the grant date.
Once vested, each option will generally remain exercisable for fully vested shares of Common Stock
(i.e., shares which are not subject to the Company’s repurchase right) until its normal expiration date. Each of
the options granted to the Company’s Non-Employee Directors under the 2005 Plan has a term of seven years.
However, vested stock options may terminate earlier in connection with a change in control of the Company.
Pursuant to the terms of the 2005 Plan, stock options granted to the Company’s Non-Employee Directors shall
vest on an accelerated basis in connection with a change in control of the Company. Shares subject to the option
that have not vested will immediately terminate (or be subject to the Company’s repurchase right to the extent
already purchased under the option) upon the cessation of the Non-Employee Director’s service. However, the
shares subject to options vest, and the Company’s repurchase right lapses, in full if the Non-Employee Director’s
cessation of service is as a result of the Director’s death or permanent disability. Non-Employee Directors
generally have twelve months to exercise the vested portion of the option following a cessation of service.
The options granted to Non-Employee Directors do not include any dividend or dividend equivalent rights.
However, Non-Employee Directors are entitled to dividends with respect to shares purchased under an option,
whether or not such shares have vested under the option, at the same rate as of the Company’s other stockholders.
Initial and Annual Restricted Stock Unit Grants. Each restricted stock unit awarded to the Company’s
Non-Employee Directors represents a contractual right to receive one share of the Common Stock if the time-
based vesting requirements described below are satisfied. Restricted stock units are credited to a bookkeeping
account established by the Company on behalf of each Non-Employee Director.
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