SanDisk 2006 Annual Report Download - page 35

severance protections for each Named Executive Officer without factoring in the adverse tax effects on the Named
Executive Officers that may result under Section 4999 of the Internal Revenue Code. The excise tax gross-up is
intended to make the Named Executive Officers whole for any adverse tax consequences they may become subject
to under Section 4999 of the Internal Revenue Code, and to preserve the level of severance protections that we have
determined to be appropriate.
We generally do not believe that Named Executive Officers should be entitled to severance benefits merely
because a change in control transaction occurs. The payment of severance benefits is generally only triggered by an
actual or constructive termination of employment in connection with a change in control. However, we determined
that it was advisable to provide for one (1) year of accelerated vesting of equity awards in the event of a change in
control pursuant to the change in control agreements. In addition, under the terms of our stock incentive plans, if
there is a liquidation, sale of all or substantially all of our assets, or merger or reorganization that results in a change
in control of the Company, and such outstanding awards will not be continued or assumed following the transaction,
then, like all other employees, Named Executive Officers may receive immediate vesting and/or payout of their
outstanding long-term incentive compensation awards. Although this vesting will occur whether or not a Named
Executive Officer’s employment terminates, we believe it is appropriate to fully vest share-based awards in these
change in control situations because such a transaction may effectively end the Named Executive Officers’ ability to
realize any further value with respect to the share-based awards.
Please see the “Potential Payments Upon Termination or Change in Control” section below for a description of
the potential payments that may be made to the Named Executive Officers in connection with their termination of
employment or a change in control.
Stock Ownership Guidelines
Each Board member and executive officer (as defined in Section 16 of the Securities Exchange Act of 1934, as
amended) is required to own the Company’s Common Stock, with a minimum stock ownership requirement, if any,
to be determined by the Board from time to time.
Section 162(m) Policy
Section 162(m) of the Internal Revenue Code disallows a tax deduction to publicly-held companies for
compensation paid to certain executive officers, to the extent that compensation exceeds $1 million per officer in
any year. The limitation applies only to compensation which is not considered to be performance-based, either
because it is not tied to the attainment of performance milestones or because it is not paid pursuant to a stockholder-
approved plan. The Compensation Committee believes that in establishing the cash and equity incentive com-
pensation programs for the Company’s executive officers, the potential deductibility of the compensation payable
under those programs should be only one of a number of relevant factors taken into consideration, and not the sole
governing factor. Accordingly, the Compensation Committee may provide one or more executive officers with the
opportunity to earn incentive compensation, whether through cash bonus programs tied to the Company’s financial
performance or share-based awards in the form of restricted stock or restricted stock units, which may be in excess
of the amount deductible by reason of Section 162(m) or other provisions of the Internal Revenue Code. The
Compensation Committee believes it is important to maintain incentive compensation at the requisite level to attract
and retain the executive officers essential to the Company’s financial success, even if all or part of that
compensation may not be deductible by reason of the Section 162(m) limitation.
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