SanDisk 2010 Annual Report Download - page 66

granted prior to fiscal 2008 and in fiscal 2010 also function as a retention incentive as they vest over four
(4) years following the grant date. The Company did not grant restricted stock units in fiscal 2009. In fiscal 2008,
the Compensation Committee granted restricted stock units to each of the Named Executive Officers. The
restricted stock units awarded in fiscal 2008 were not subject to time-based vesting. Instead, fifty percent of the
restricted stock units granted in fiscal 2008 were to have become vested if the Company achieved cumulative
cash flow from operations of at least $200 million during the period commencing July 1, 2008 and ending
June 30, 2009. The Company did not achieve this level of cash flow from operations over that period, and
therefore the first fifty percent of the restricted stock units granted in fiscal 2008 did not become vested and were
forfeited. The remaining fifty percent of the restricted stock units granted in fiscal 2008 were to vest if the
Company achieved cumulative cash flow from operations of at least $600 million during the period commencing
July 1, 2009 and ending June 30, 2010. The Committee adopted the cash flow vesting targets because it believed
that the achievement of these cash flow targets would significantly benefit stockholders of the Company. In
August 2010, the Compensation Committee recognized that the cash flow vesting targets for the period
commencing July 1, 2009 and ending June 30, 2010 had been attained, and as a result fifty percent of the
restricted stock units granted in fiscal 2008 became vested. The restricted stock units granted in fiscal 2008 are
intended to satisfy the requirements for performance-based compensation under Section 162(m) of the Internal
Revenue Code. In fiscal 2010, the Compensation Committee also granted time vesting restricted stock units to
each of the Named Executive Officers. The material terms of the restricted stock units granted in fiscal 2008 and
in fiscal 2010 are described below under “Grants of Plan-Based Awards in Fiscal 2010.”
401(k) Retirement Benefits
The Company provides retirement benefits to the Named Executive Officers under the terms of its
tax-qualified 401(k) plan. In fiscal 2010, the Company made a discretionary matching contribution on behalf of
each participant equal to one-half of the first 6% of compensation contributed to the plan by the participant. The
Named Executive Officers participate in the plan on substantially the same terms as the Company’s 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 the Company’s compensation objective of attracting, retaining and motivating qualified
executives, the Company believes that it needs to provide the Named Executive Officers with severance
protections that are consistent with the severance protections offered by its peer companies. For Named
Executive Officers other than Mr. Mehrotra, the Company’s philosophy is that a contractual right to severance
pay should only exist upon certain terminations of employment in connection with a change in control of the
Company. The Company believes 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. However, the Company generally does not believe that Named
Executive Officers should be entitled to cash severance benefits merely because a change in control transaction
occurs. 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, the
Company provides Named Executive Officers with severance benefits pursuant to a change in control benefits
agreement if their employment is terminated by the Company without cause or by the executive for good reason
within three (3) months before or eighteen (18) months following a change in control. 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 executives at the Company’s peer companies. The
Company also believes 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 fixed annual bonus, absent some form of constructive termination severance trigger,
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