SanDisk 2006 Annual Report Download - page 34

substantially the same terms as our other participating employees. The Company does not maintain any deferred
compensation, defined benefit or supplemental retirement plans for its Named Executive Officers.
Severance and Other Benefits Upon Termination of Employment or Change in Control
In order to achieve our compensation objective of attracting, retaining and motivating qualified executives, we
believe that we need to provide our Named Executive Officers with severance protections that are consistent with
the severance protections offered by our peer group companies. For Named Executive Officers, our philosophy is
that severance should only be payable upon certain terminations of employment in connection with a change in
control of the Company. We believe that the occurrence, or potential occurrence, of a change in control transaction
will create uncertainty regarding the continued employment of Named Executive Officers. This uncertainty results
from the fact that many change in control transactions result in significant organizational changes, particularly at
the senior executive level. In order to encourage the Named Executive Officers to remain employed with the
Company during an important time when their prospects for continued employment following the transaction are
often uncertain, we provide Named Executive Officers (other than Dr. Thakur, who is not a party to a change in
control agreement) with severance benefits pursuant to a change in control benefits agreement if their employment
is terminated by us without cause or by the executive for good reason within twelve (12) months following a change
in control. We believe that a protected period of twelve (12) months following a change in control is in line with the
severance protections provided to comparable executives at our peer group companies. We also believe that these
Named Executive Officers should receive their change in control severance benefits if their employment is
constructively terminated in connection with a change in control. 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 actual or
target annual bonus, absent some form of constructive termination severance trigger, potential acquirors could
constructively terminate a Named Executive Officer’s employment and avoid paying severance. For example,
following a change in control, an acquiror 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 we believe that constructive
terminations in connection with a change in control are conceptually the same as actual terminations, and because
we believe that acquirors would otherwise have an incentive to constructively terminate Named Executive Officers
to avoid paying severance, the change in control agreements we have entered into with certain of our Named
Executive Officers permit the Named Executive Officers to terminate their employment in connection with a
change in control for certain “good reasons” that we believe result in the constructive termination of the Named
Executive Officers’ employment. In the event the employment of a Named Executive Officer is terminated under
the circumstances described above, we believe that providing these Named Executive Officers with a change in
control agreement with cash severance benefits based on one (1) times (two (2) times for the Chief Executive
Officer) salary and bonus levels is consistent with our peer group companies and provides them with financial
security during a period of time when they are likely to be unemployed and seeking new employment.
In the event that a Named Executive Officer becomes entitled to severance under the principles described
above, in addition to cash severance benefits, we believe that it is also appropriate to provide Named Executive
Officers with other severance protections, such as (1) continued medical insurance coverage for twenty-four
(24) months following termination; (2) 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 (3) executive outplacement benefits for twelve (12) months following termination (including resume assistance,
career evaluation and assessment, individual career counseling, financial counseling, access to one or more on-line
employment databases, private office and office support). Similar to cash severance benefits, we believe these other
severance benefits are consistent with the severance arrangements of our peer group companies and provide the
Named Executive Officers with financial and personal security during a period of time when they are likely to be
unemployed.
As part of their severance benefits under a change in control agreement, Named Executive Officers are also
reimbursed for the full amount of any excise taxes imposed on their severance payments and any other payments
under Section 4999 of the Internal Revenue Code. We provide the Named Executive Officers with a “gross-up” for
any parachute payment excise taxes that may be imposed because we have determined the appropriate level of
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