SanDisk 2014 Annual Report Download - page 45

Severance Benefits Agreement Upon Termination of Employment. In connection with his promotion to
Chief Executive Officer in January 2011, Mr. Mehrotra and the Company entered into a separate
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 in
control has occurred. The benefits payable to Mr. Mehrotra under his severance agreement are generally
the same as provided for under his change in control agreement, which is discussed below, with the
exception that the severance payment is two times his base salary without a multiple of bonus and he is still
entitled to a pro-rata cash incentive bonus for the year in which his termination of employment has
occurred. Only the equity awards which would vest over the twenty-four (24) months following
Mr. Mehrotra’s termination of employment would accelerate upon his termination of employment (instead
of all of Mr. Mehrotra’s then outstanding equity awards as provided for under his change in control
agreement). In the event that Mr. Mehrotra is eligible to receive severance benefits under both his
severance agreement and his change in control agreement, he will be entitled only to the severance
benefits provided under his change in control agreement.
Executive Severance Benefits Agreement Upon a Change in Control. Uncertainty regarding the
continued employment of the executive officers upon the occurrence or potential occurrence of a change
in control transaction results from the fact that many change in control transactions result in significant
organizational changes, particularly at the senior executive level. However, the Company generally does
not believe that the executive officers should be entitled to cash severance benefits merely because a
change in control transaction occurs. In order to encourage the executive officers to remain employed with
the Company during an important time when their prospects for continued employment following the
transaction are often uncertain, the Company provides executive officers with severance benefits pursuant
to a change in control agreement, if their employment is terminated by the Company without ‘‘cause’’ or by
the executive officer for ‘‘good reason’’ (as those terms are defined in the agreements) within three
(3) months before or eighteen (18) months following a change in control (a ‘‘Qualifying Termination’’).
The Company believes that a protected period of three (3) months before and eighteen (18) months
following a change in control is in line with the severance protections provided to comparable executive
officers at the Company’s peer companies. Given that none of the Named Executive Officers has an
employment agreement that provides for a fixed position or duties, or for a fixed base salary or fixed
annual bonus, absent some form of severance trigger upon ‘‘good reason,’’ potential acquirers could
constructively terminate a Named Executive Officer’s employment and avoid paying severance. For
example, 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.
The Company believes that constructive terminations in connection with a change in control are
conceptually the same as actual terminations, and that acquirers would otherwise have an incentive to
constructively terminate Named Executive Officers to avoid paying severance. As a result, the change in
control agreements the Company has entered into with 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.
None of the change in control agreements of the Named Executive Officers provide for a tax
‘‘gross-up’’ obligation by the Company in the event of any excise tax payable as a result of Section 280G of
the Code. Instead, the change in control agreements provide for a ‘‘Best Results’’ methodology (which
means that if a Named Executive Officer would be subject to such excise tax, any payments and benefits
must be reduced to avoid triggering the excise tax if the reduction would result in a greater after-tax
amount to the executive officer compared to the amount the executive officer would receive net of the
excise tax if no reduction were made). The change in control agreements are for a term of four (4) years
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Proxy Statement