SanDisk 2010 Annual Report Download - page 67

Proxy Statement
potential acquirers could constructively terminate a Named Executive Officer’s employment and avoid paying
severance. For example, other than with respect to Mr. Mehrotra, following a change in control, an acquirer
could materially demote a Named Executive Officer, reduce significantly his or her salary and/or eliminate his or
her annual bonus opportunity to force the Named Executive Officer to terminate his or her own employment and
thereby avoid paying severance. Because the Company believes that constructive terminations in connection with
a change in control are conceptually the same as actual terminations, and because the Company believes that
acquirers would otherwise have an incentive to constructively terminate Named Executive Officers to avoid
paying severance, the change in control agreements the Company has entered into with certain of its Named
Executive Officers permit the Named Executive Officers to terminate their employment in connection with a
change in control for certain “good reasons” that the Company believes result in the constructive termination of
the Named Executive Officers’ employment.
The material terms of the Company’s severance agreements were amended during fiscal 2010 to reflect the
Committee’s determination of appropriate practice in light of peer company data and the intent of the
agreements. The amended and restated agreements: (i) eliminate the Company’s tax “gross-up” obligation in the
event of any excise tax payable as a result of Internal Revenue Code Section 280G and replaces it with a “Best
Results” methodology; (ii) reduce the term of the agreement from 10 years to 4 years; (iii) eliminate the partial
single trigger provision in the event of a change in control; (iv) reduce the Company-paid medical insurance in
the event of a change of control termination from 24 months to 18 months; (v) increase the protection period
from one year following the change in control to three months prior to and eighteen months following a change
in control; and (vi) increase the severance payment in the event of a change of control termination from one
times annual base salary and target bonus to one and one-half times annual base salary and target bonus. In
connection with his appointment as President and Chief Executive Officer, Mr. Mehrotra and the Company
entered into a change in control severance agreement on substantially the same terms as the amended change in
control agreements, except that Mr. Mehrotra’s severance payment is two times annual base salary and target
bonus and Mr. Mehrotra’s entitlement to Company-paid medical insurance in the event of a change of control
termination is 24 months.
As discussed above under “Annual Cash Incentive Award,” the Committee has established a target bonus
percentage for each Named Executive Officer. Severance payments under the change of control agreements are
based on these target bonus percentages as in effect for the calendar year in which the change of control occurs,
regardless of actual performance and regardless of whether the Committee had the discretion to award a lower
bonus or no bonus. The Company believes that the use of target bonuses for this purpose is appropriate to
provide certainty to executives and to avoid disputes concerning the calculation of severance payments.
The change in control severance agreements with the Named Executive Officers provide certain other
severance protections, such as (1) accelerated vesting of outstanding equity awards (with accelerated options to
remain exercisable for twelve (12) months following termination, subject to the maximum term of the option);
and (2) executive outplacement benefits for twelve (12) months following termination (including resume
assistance, career evaluation and assessment, individual career counseling, access to one or more on-line
employment databases, and administrative support). Similar to cash severance benefits, the Company believes
these other severance benefits are consistent with the severance arrangements of the Company’s peer companies
and provide the Named Executive Officers with financial and personal security during a period of time when they
are likely to be unemployed.
In connection with his appointment as President and Chief Executive Officer, Mr. Mehrotra and the
Company also entered into a severance agreement not related to a change in control of the Company, pursuant to
which Mr. Mehrotra is entitled to severance benefits upon his termination without cause or voluntary resignation
for good reason (as those terms are defined in the severance agreement) without regard to whether a change of
control has occurred. The benefits payable to Mr. Mehrotra under his severance agreement are generally the same
as provided for under his change of control agreement with the exception that the bonus component of the
severance is comprised of Mr. Mehrotra’s pro-rata cash incentive bonus for the year in which his termination of
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