Western Digital 2006 Annual Report Download - page 69

Since the Company’s announcement on July 27, 2006 that it was conducting a company-initiated, voluntary review
of its historical stock option grants, several purported derivative actions were filed nominally on behalf of the Company
against certain current and former directors and officers of the Company in the United States District Court for the
Central District of California and the Superior Court of the State of California for the County of Orange. These complaints
assert claims for violations of Sections 14(a) and 20(a) of the Securities Exchange Act, accounting, breach of fiduciary duty
and/or aiding and abetting, constructive fraud, waste of corporate assets, unjust enrichment, rescission, breach of
contract, violation of the California Corporations Code, abuse of control, gross mismanagement, and constructive trust in
connection with the Company’s option granting practices. The complaints seek unspecified monetary damages and other
relief against the individual defendants and certain governance reforms affecting the Company. The Company is named
solely as a nominal defendant in each action. The Company has joined or intends to join the other defendants in filing
motions to dismiss each action.
Note 8. Shareholders’ Equity
Stock Incentive Plans
The Company has four stock-based incentive plans (collectively referred to as the “Stock Plans”): The 2004 amended
and restated Performance Incentive Plan, the Employee Stock Option Plan, the Broad-Based Stock Incentive Plan and the
Stock Option Plan for Non-Employee Directors. Subsequent to the expiration of the Employee Stock Option Plan on
November 10, 2004 and approval of the 2004 Performance Incentive Plan by the Company’s shareholders on
November 18, 2004, no new awards are permitted under the Employee Stock Option Plan, the Broad-Based Stock
Incentive Plan or the Stock Option Plan for Non-Employee Directors (collectively referred to as the “Prior Stock Plans”).
As of June 30, 2006, options to purchase 9.8 million shares of the Company’s common stock remain outstanding under
the Prior Stock Plans, of which 7.2 million shares were exercisable and 0.2 million shares of restricted stock remain
unvested. Options granted under the Prior Stock Plans vested over periods from one to four years. Options granted under
the Prior Stock Plans expire either five or ten years from the date of grant.
In November 2004, the Company’s shareholders approved the 2004 Performance Incentive Plan. Subsequently, in
November 2005, the Company’s shareholders approved an authorization for an additional 13 million shares. The types of
awards that may be granted under the 2004 Performance Incentive Plan include stock options, stock appreciation rights,
restricted stock, stock bonuses and other forms of awards granted or denominated in the Company’s common stock or
units of the Company’s common stock, as well as certain cash bonus awards. Persons eligible to receive awards under the
2004 Performance Incentive Plan include officers or employees of the Company or any of its subsidiaries, directors of the
Company and certain consultants and advisors to the Company or any of its subsidiaries. The vesting of awards under the
Performance Incentive Plan is determined at the date of grant. Each award expires on a date determined at the date of
grant; however, the maximum term of options, stock appreciation rights and other rights to acquire common stock under
the 2004 Performance Incentive Plan is ten years after the grant date of the award.
As of June 30, 2006, the maximum number of shares of the Company’s common stock that are authorized for award
grants under the 2004 Performance Incentive Plan is 21.7 million shares. Any shares subject to awards under the prior
stock plans that are cancelled, forfeited, or otherwise terminate without having vested or been exercised, as applicable,
will become available for other award grants under the 2004 Performance Incentive Plan. The 2004 Performance
Incentive Plan will terminate on September 21, 2014 unless terminated earlier by the Company’s Board of Directors.
Employee Stock Purchase Plan
During the second quarter of 2006, the Company adopted the Western Digital Corporation 2005 Employee Stock
Purchase Plan (“ESPP”) whereby eligible employees may authorize payroll deductions of up to 10% of their eligible
compensation to purchase shares of the Company’s common stock at 95% of the fair market value of common stock on
either the date of grant or on the exercise date, whichever is less. The date of grant of each offering period is June 1st or
December 1st, except for the initial offering period, which began on December 15, 2005. Each offering period is
24 months and consists of four exercise dates. If the fair market value of the common stock is less on a given exercise date
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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)