Exhibit
10.40






SANDISK
CORPORATION






PERFORMANCE
STOCK UNIT ISSUANCE AGREEMENT






RECITALS






A.  The Board has adopted the
Plan for the purpose of retaining the services of selected Employees and
consultants and other independent advisors who provide services to the
Corporation (or any Parent or Subsidiary).






B.  Participant is to render
valuable services to the Corporation (or a Parent or Subsidiary), and this
Agreement is executed pursuant to, and is intended to carry out the purposes of,
the Plan in connection with the Corporation’s award of performance stock units
and, subject to the terms hereof, issuance of shares of Common Stock to the
Participant under the Stock Issuance Program.  Participant
acknowledges that such award is in lieu of, and not in addition to, the grant of
performance stock units to the Participant putatively made by the Plan
Administrator on or about July 23, 2008.






C.  In addition to providing
the terms and conditions of such award, this Agreement includes the
Participant’s agreement with respect to the satisfaction of tax withholding
obligations incurred in connection with prior grants of restricted stock units
by the Corporation to the Participant (if any) as set forth in Paragraph 7(c)
below.






D.  All
capitalized terms in this Agreement not otherwise defined herein shall have the
meaning assigned to them in the attached Appendix A.






NOW, THEREFORE, it is hereby
agreed as follows:






1.  Grant of
Performance Stock Units. The Corporation hereby awards to the
Participant, as of the Award Date, performance stock units (“Performance Stock
Units”) under the Plan. Each Performance Stock Unit represents the right to
receive one share of Common Stock on the vesting date of that unit. The number
of shares of Common Stock subject to the awarded Performance Stock Units, the
applicable vesting requirements for those shares, the dates on which those
vested shares shall become issuable to Participant and the remaining terms and
conditions governing the award (the “Award”) shall be as set forth in this
Agreement.




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AWARD SUMMARY




Award Date:
                          
                          ________, 2008Number of Shares Subject to
    Award:
                          
                          ________shares of Common Stock (the
      “Shares”)Performance Periods
                          
                          July
      1, 2008 - June 30, 2009 (the “2008-2009 Performance Period”) and July 1,
      2009 - June 30, 2010 (the “2009-2010 Performance
  Period”)Vesting Requirements:
                          
                          Subject
      to Paragraphs 3 and 5 of this Agreement, the Award shall vest and become
      nonforfeitable based on the achievement of the performance goals
      established by the Plan Administrator and set forth on Appendix B attached
      hereto for the Performance Periods identified above.Issuance Schedule
                          
                          The
      Shares in which the Participant vests in accordance with the foregoing
      Vesting Requirements will be issuable immediately upon vesting, subject to
      the Corporation’s collection of the applicable Withholding Taxes. The
      procedures pursuant to which the applicable Withholding Taxes are to be
      collected are set forth in Paragraph 7 of this
    Agreement.




2.  Limited
Transferability. Prior to actual receipt of the Shares which vest
hereunder, the Participant may not transfer any interest in the Award or the
underlying Shares. Any Shares which vest hereunder but which otherwise remain
unissued at the time of the Participant’s death may be transferred pursuant to
the provisions of the Participant’s will or the laws of inheritance or to the
Participant’s designated beneficiary or beneficiaries of this Award. The
Participant may also direct the Corporation to issue the stock certificates for
any Shares which in fact vest and become issuable under the Award during his or
her lifetime to one or more designated family members or a trust established for
the Participant and/or his or her family members. The Participant may make such
a beneficiary designation or certificate directive at any time by filing the
appropriate form with the Plan Administrator or its designee.






3.  Cessation
of Service. Except as expressly provided in Paragraph 5, should the
Participant cease Service for any reason prior to vesting in one or more
Performance Stock Units subject to this Award in accordance with the terms
hereof, then the Award will be immediately cancelled with respect to those
unvested Performance Stock Units; provided, however, that if the Participant’s
cessation of Service occurs as a result of the Participant’s death, the
Performance Stock Units subject to this Award, to the extent outstanding and
unvested as of the date of the Participant’s death, shall be fully vested as of
such date.  If any unvested Performance Stock Units are cancelled
pursuant to this Paragraph 3, the Participant shall thereupon cease to have any
right or entitlement to receive any Shares under those cancelled
units.




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4.  Stockholder
Rights and Dividend Equivalents






(a)  The holder of this Award
shall not have any stockholder rights, including voting or dividend rights, with
respect to the Shares subject to the Award until the Participant becomes the
record holder of those Shares following their actual issuance upon the
Corporation’s collection of the applicable Withholding Taxes.






(b)  Notwithstanding the
foregoing, should any dividend or other distribution payable other than in
shares of Common Stock, whether regular or extraordinary, be declared and paid
on the outstanding Common Stock while one or more Shares remain subject to this
Award (i.e., those Shares are not otherwise issued and outstanding for purposes
of entitlement to the dividend or distribution), then a special book account
shall be established for the Participant and credited with a phantom dividend
equivalent to the actual dividend or distribution which would have been paid on
those Shares had they been issued and outstanding and entitled to that dividend
or distribution. As the Shares subsequently vest hereunder, the phantom dividend
equivalents credited to those Shares in the book account shall be distributed to
the Participant (in cash or such other form as the Plan Administrator may deem
appropriate in its sole discretion) concurrently with the issuance of the vested
Shares to which those phantom dividend equivalents relate. However, each such
distribution shall be subject to the Corporation’s collection of the Withholding
Taxes applicable to that distribution.






5.  Change of
Control.






(a)  Any Performance Stock Units
subject to this Award at the time of a Change of Control (as defined in Appendix
A hereto) may be assumed by the successor entity or otherwise continued in full
force and effect or may be replaced with a cash incentive program of the
successor entity which preserves the Fair Market Value of the unvested shares of
Common Stock subject to the Award at the time of the Change of Control and
provides for subsequent payout of that value in accordance with the vesting
requirements applicable to the Award.  In the event of such assumption
or continuation of the Award or such replacement of the Award with a cash
incentive program, the following provisions shall apply:




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·
            If
      the Change of Control occurs after the Award Date and on or before the
      date on which the Company files its quarterly report on Form 10-Q for the
      fiscal quarter ending June 30, 2009 (or on or before September 1, 2009 if
      Form 10-Q for the quarter ending June 30, 2009 is not filed by such date)
      (the “2009 Vesting Date”), (i) the portion of the Award that is eligible
      to vest based on the 2008-2009 Performance Period, to the extent then
      outstanding and unvested, shall be fully vested as of the date of the
      Change of Control, and (ii) the portion of the Award that is eligible to
      vest based on the 2009-2010 Performance Period, to the extent then
      outstanding and unvested, shall continue to be eligible to vest in
      accordance with the vesting requirements set forth herein, including,
      without limitation, the Service requirement set forth in Paragraph 3 and
      the performance requirements applicable for the 2009-2010 Performance
      Period set forth on Appendix B hereto; provided, however, that in the
      event the Participant incurs an Involuntary Termination (as defined in
      Appendix A hereto) on or before the date on which the Company files its
      quarterly report on Form 10-Q for the fiscal quarter ending June 30, 2010
      (or on or before September 1, 2010 if Form 10-Q for the quarter ending
      June 30, 2010 is not filed by such date) (the “2010 Vesting Date”), the
      portion of the Award that is eligible to vest based on the 2009-2010
      Performance Period, to the extent then outstanding and unvested, shall be
      fully vested as of the date of such Involuntary
    Termination.




·
            If
      the Change of Control occurs at any time after the 2009 Vesting Date and
      prior to the 2010 Vesting Date, the portion of the Award that is eligible
      to vest based on the 2009-2010 Performance Period, to the extent then
      outstanding and unvested, shall be fully vested as of the date of the
      Change of Control.






·
            In
      the event the Award is assumed or otherwise continued in effect after a
      Change of Control, the Performance Stock Units subject to the Award shall
      be adjusted immediately after the consummation of the Change of Control so
      as to apply to the number and class of securities into which the Shares
      subject to those units immediately prior to the Change of Control would
      have been converted in consummation of that Change of Control had those
      Shares actually been issued and outstanding at that time. To the extent
      the actual holders of the outstanding Common Stock receive cash
      consideration for their Common Stock in consummation of the Change of
      Control, the successor corporation (or parent entity) may, in connection
      with the assumption or continuation of the Performance Stock Units subject
      to the Award at that time, substitute one or more shares of its own common
      stock with a fair market value equivalent to the cash consideration paid
      per share of Common Stock in the Change of Control transaction, provided
      such common stock is readily tradable on an established U.S. securities
      exchange or market.




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(b)  If the Performance Stock
Units subject to this Award at the time of the Change of Control are not assumed
or otherwise continued in effect or replaced with a cash incentive program in
accordance with Paragraph 5(a), the Award, to the extent then outstanding
and unvested, shall be fully vested as of the date of the Change of
Control.






(c)  Any
Performance Stock Units that vest pursuant to the foregoing provisions of this
Paragraph 5 shall be paid as provided in Paragraph 7.






(d)  This Agreement shall not in
any way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.






6.  Adjustment
in Shares. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation’s receipt of consideration, appropriate adjustments
shall be made to the total number and/or class of securities issuable pursuant
to this Award in order to reflect such change and thereby preclude a dilution or
enlargement of benefits hereunder.  Furthermore, the Plan
Administrator shall adjust the performance measures and performance goals
referenced in Appendix B hereof to the extent (if any) it determines that the
adjustment is necessary or advisable to preserve the intended incentives and
benefits to reflect (1) any material change in corporate capitalization, any
material corporate transaction (such as a reorganization, combination,
separation, merger, acquisition, or any combination of the foregoing), or any
complete or partial liquidation of the Corporation, (2) any change in accounting
policies or practices, (3) the effects of any special charges to the
Corporation’s earnings, or (4) any other similar special
circumstances.






7.  Issuance
of Shares of Common Stock.






(a)  As soon as administratively
practicable following each date one or more Performance Stock Units vest in
accordance with the provisions of this Agreement (and in all events not later
than the last day of the month following the month in which the vesting date
occurs), the Corporation shall issue to or on behalf of the Participant a
certificate (which may be in electronic form) for the shares of Common Stock
payable in respect of such vested Performance Stock Units under the Award and
shall concurrently distribute to the Participant any phantom dividend
equivalents with respect to those Shares, subject in each instance to the
Corporation’s collection of the applicable Withholding Taxes.




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(b)  Subject
to Section VI of Article 5 of the Plan, upon any distribution of Shares in
respect of the Performance Stock Units, the Corporation shall automatically
reduce the number of shares to be delivered by (or otherwise reacquire) the
appropriate number of whole shares, valued at their then Fair Market Value, to
satisfy any withholding obligations of the Corporation or its Subsidiaries with
respect to such distribution of shares at the minimum applicable withholding
rates.  In the event that the Corporation cannot legally satisfy such
withholding obligations by such reduction of shares, or in the event of a cash
payment or any other withholding event in respect of the Performance Stock
Units, the Corporation (or a Subsidiary) shall be entitled to require a cash
payment by or on behalf of the Participant and/or to deduct from other
compensation payable to the Participant any sums required by federal, state or
local tax law to be withheld with respect to such distribution or
payment.






(c)  Notwithstanding any
other provision herein or in the Plan, as a condition to the grant of the Award
and all rights of the Participant hereunder, the Participant agrees that, with
respect to all restricted stock units granted by the Corporation to the
Participant that are outstanding and unvested as of the date hereof, the
Corporation shall automatically reduce the number of shares otherwise
deliverable in connection with each vesting of such restricted stock units that
occurs at any time on or after the date hereof, so as to satisfy the tax
withholding obligations incurred by the Corporation (or a Subsidiary) in
connection with such vesting event, such reduction in shares to be made in
accordance with and subject to the provisions of Paragraph 7(b)
above.






(d) 
Except as otherwise provided in Paragraph 5 or this Paragraph 7, the
settlement of all Performance Stock Units which vest under the Award shall be
made solely in shares of Common Stock. In no event, however, shall any
fractional shares be issued. Accordingly, the total number of shares of Common
Stock to be issued at the time the Award vests shall, to the extent necessary,
be rounded down to the next whole share in order to avoid the issuance of a
fractional share.






8.  Compliance
with Laws and Regulations. The issuance of shares of Common Stock
pursuant to the Award shall be subject to compliance by the Corporation and
Participant with all applicable requirements of law relating thereto and with
all applicable regulations of any stock exchange on which the Common Stock may
be listed for trading at the time of such issuance.






9.  Notices.
Any notice required to be given or delivered to the Corporation under the terms
of this Agreement shall be in writing and addressed to the Corporation at its
principal corporate offices. Any notice required to be given or delivered to
Participant shall be in writing and addressed to Participant at the address
indicated below Participant’s signature line on this Agreement. All notices
shall be deemed effective upon personal delivery or upon deposit in the U.S.
mail, postage prepaid and properly addressed to the party to be
notified.




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10.  Successors
and Assigns. Except to the extent otherwise provided in this Agreement,
the provisions of this Agreement shall inure to the benefit of, and be binding
upon, the Corporation and its successors and assigns and Participant,
Participant’s assigns, the legal representatives, heirs and legatees of
Participant’s estate and any beneficiaries of the Award designated by
Participant.






11.  Construction.
This Agreement and the Award evidenced hereby are made and granted pursuant to
the Plan and are in all respects limited by and subject to the terms of the
Plan. All decisions of the Plan Administrator with respect to any question or
issue arising under the Plan or this Agreement shall be conclusive and binding
on all persons having an interest in the Award.






12.  Governing
Law. The interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of California without resort to that
State’s conflict-of-laws rules.






13.  Employment
at Will. Nothing in this Agreement or in the Plan shall confer upon
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining Participant) or of
Participant, which rights are hereby expressly reserved by each, to terminate
Participant’s Service at any time for any reason, with or without
cause.






14.  Section
409A.  It is intended that the Award and any payment made in
respect of the Award will qualify as a “short-term deferral” (within the meaning
of Section 409A of the Code) and be exempt from taxation under Section 409A of
the Code.  This Agreement shall be construed and interpreted
consistent with that intent.




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IN WITNESS WHEREOF, the
parties have executed this Agreement on the day and year first indicated
above.




SANDISK
      CORPORATIONBy:Title:PARTICIPANTSignature:Address:


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APPENDIX A






DEFINITIONS






The following definitions shall be in
effect under the Agreement:






A.  Agreement
shall mean this Performance Stock Unit Issuance Agreement.






B.  Award
shall mean the award of Performance Stock Units made to the Participant pursuant
to the terms of this Agreement.






C.  Award
Date shall mean the date the Performance Stock Units are awarded to
Participant pursuant to the Agreement and shall be set forth in Paragraph 1
of the Agreement.






D.  Board
shall mean the Corporation’s Board of Directors.






E.  Change of
Control shall have the meaning ascribed to such term in that certain
Change of Control Benefits Agreement dated [___________, 2004] by and between the
Corporation and the Participant.






F.  Code
shall mean the Internal Revenue Code of 1986, as amended.






G.  Common
Stock shall mean shares of the Corporation’s common stock.






H.  Corporation
shall mean SanDisk Corporation, a Delaware corporation, and any successor
corporation to all or substantially all of the assets or voting stock of SanDisk
Corporation which shall by appropriate action adopt the Plan.






I.  Employee
shall mean an individual who is in the employ of the Corporation (or any Parent
or Subsidiary), subject to the control and direction of the employer entity as
to both the work to be performed and the manner and method of
performance.






J.  Fair
Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:




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(i)  If the Common Stock is
at the time traded on the NASDAQ Global Market, then the Fair Market Value shall
be the closing selling price per share of Common Stock at the close of regular
hours trading (i.e., before after- hours trading begins) on the NASDAQ Global
Market on the date in question, as such price is reported by the National
Association of Securities Dealers. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.






(ii)  If the Common Stock is
at the time listed on any Stock Exchange, then the Fair Market Value shall be
the closing selling price per share of Common Stock at the close of regular
hours trading (i.e., before after-hours trading begins) on the date in question
on the Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the composite
tape of transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such quotation
exists.






K.  Good
Reason shall mean the occurrence of any of the following conditions
without the Participant’s express written consent: (i) a material diminution in
the Participant’s authority, duties or responsibilities; (ii) a reduction by the
Corporation of the Participant’s rate of base compensation by more than fifteen
percent (15%) from the rate in effect immediately prior to such reduction; or
(iii) a change in the location of the Participant’s principal workplace for the
Corporation to a location that is more than fifty (50) miles from the
Participant’s principal workplace as of the Award Date and that results in an
increased commute for the Participant from his or her principal residence
(except for reasonable periods of required travel on Corporation business);
provided, however, that any such condition shall not constitute “Good Reason”
unless both (x) the Participant provides written notice to the Corporation of
the condition claimed to constitute Good Reason within ninety (90) days of the
initial existence of such condition, and (y) the Corporation fails to remedy
such condition within thirty (30) days of receiving such written notice thereof;
and provided, further, that in all events the termination of the Participant’s
employment with the Corporation shall not be treated as a termination for “Good
Reason” unless such termination occurs not more than one (1) year following the
initial existence of the condition claimed to constitute “Good
Reason.”






L.  Involuntary
Termination shall mean the Participant’s “separation from service”
(within the meaning of Section 409A of the Code) which occurs by reason of
either (i) the Participant’s involuntary dismissal or discharge by the
Corporation (or any Parent or Subsidiary) for reasons other than Misconduct, or
(ii) the Participant’s voluntary resignation for Good Reason in accordance with
the definition of such term set forth above.




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M.  Misconductshall mean the
commission of any act of fraud, embezzlement or dishonesty by the Participant,
any unauthorized use or disclosure by such person of confidential information or
trade secrets of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by such person adversely affecting the business or
affairs of the Corporation (or any Parent or Subsidiary) in a material manner.
The foregoing definition shall not in any way preclude or restrict the right of
the Corporation (or any Parent or Subsidiary) to discharge or dismiss the
Participant for any other acts or omissions, but such other acts or omissions
shall not be deemed, for purposes of the Award, to constitute grounds for
termination for Misconduct.






N.  1934
Act shall mean the Securities Exchange Act of 1934, as amended from time
to time.






O.  Participant
shall mean the person to whom the Award is made pursuant to the
Agreement.






P.  Parent
shall mean any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation, provided each corporation in the
unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.






Q.  Plan
shall mean the Corporation’s Amended and Restated 2005 Incentive
Plan.






R.  Plan
Administrator shall mean either the Board or a committee of the Board
acting in its capacity as administrator of the Plan.






S.  Service
shall mean the Participant’s performance of services for the Corporation (or any
Parent or Subsidiary) in the capacity of an Employee, a non-employee member of
the board of directors or a consultant or independent advisor. For purposes of
this Agreement, Participant shall be deemed to cease Service immediately upon
the occurrence of the either of the following events: (i) Participant no
longer performs services in any of the foregoing capacities for the Corporation
(or any Parent or Subsidiary) or (ii) the entity for which Participant
performs such services ceases to remain a Parent or Subsidiary of the
Corporation, even though Participant may subsequently continue to perform
services for that entity. Service shall not be deemed to cease during a period
of military leave, sick leave or other personal leave approved by the
Corporation; provided, however, that except to the extent otherwise required by
law or expressly authorized by the Plan Administrator or by the Corporation’s
written policy on leaves of absence, no Service credit shall be given for
vesting purposes for any period the Participant is on a leave of
absence.




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T.  Stock
Exchange shall mean the American Stock Exchange or the New York Stock
Exchange.






U.  Subsidiary
shall mean any corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation, provided each corporation (other
than the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.






V.  Withholding
Taxes shall mean the federal, state and local income taxes and the
employee portion of the federal, state and local employment taxes required to be
withheld by the Corporation in connection with the issuance of the shares of
Common Stock which vest under the Award and any phantom dividend equivalents
distributed with respect to those shares.







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