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SanDisk DEF 14A 2008 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ) Filed by the Registrant þ
Filed by a Party other than the Registrant o Check the appropriate box:
SANDISK CORPORATION
Payment of Filing Fee (Check the appropriate box):
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SANDISK
CORPORATION
601 McCarthy Boulevard Milpitas, California 95035
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of
Stockholders (the “Annual Meeting”) of SanDisk
Corporation, a Delaware corporation (the “Company”),
to be held on May 28, 2008 at 8:00 a.m., local time,
at the Company’s headquarters, 601 McCarthy Boulevard,
Milpitas, California 95035, for the following purposes:
1. To elect seven Directors of the Company
(“Directors”) to serve for the ensuing year and until
their respective successors are duly elected and qualified. The
nominees are Dr. Eli Harari, Irwin Federman, Steven J.
Gomo, Eddy W. Hartenstein, Catherine P. Lego, Michael E. Marks
and Dr. James D. Meindl.
2. To ratify the appointment of Ernst & Young LLP
as the Company’s independent registered public accounting
firm for the fiscal year ending December 28, 2008.
3. To consider and vote on a stockholder proposal relating
to majority voting for Directors, if properly presented at the
Annual Meeting.
4. To transact such other business as may properly come
before the Annual Meeting or any adjournment or postponement
thereof.
The foregoing items of business are more fully described in the
Proxy Statement that accompanies this Notice. The Board of
Directors has unanimously approved proposals 1 and 2 above
as described in the Proxy Statement and recommends that you vote
“FOR” such proposals. The Board of Directors has
unanimously rejected proposal 3 above as described in the
Proxy Statement and recommends that you vote “AGAINST”
such proposal.
Only stockholders of record at the close of business on
March 31, 2008 are entitled to notice of and to vote at the
Annual Meeting and at any adjournment or postponement thereof. A
list of stockholders entitled to vote at the Annual Meeting will
be available for inspection at the executive offices of the
Company.
All stockholders are cordially invited and encouraged to attend
the Annual Meeting. In any event, to ensure your representation
at the Annual Meeting, please carefully read the accompanying
Proxy Statement. Regardless of whether you plan to attend the
Annual Meeting, please vote your shares as soon as possible so
that your shares will be voted in accordance with your
instructions. For specific voting instructions, please refer to
the instructions on the proxy card or on the Internet website at
the website described on the Notice of Internet Availability of
Proxy Materials that was mailed to you. Telephone and Internet
voting are available. If you attend the Annual Meeting and vote
by ballot, your proxy will be revoked automatically and only
your vote at the Annual Meeting will be counted.
We look forward to seeing you at the Annual Meeting.
By Order of the Board of Directors,
Eli Harari
Chairman of the Board, Director
and Chief Executive Officer
Milpitas, California
April 11, 2008
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL
MEETING IN PERSON. IN ANY EVENT, TO ENSURE YOUR REPRESENTATION
AT THE ANNUAL MEETING, WE URGE YOU TO SUBMIT YOUR PROXY AS
PROMPTLY AS POSSIBLE BY FOLLOWING THE INSTRUCTIONS INCLUDED
WITH THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS THAT
WAS MAILED TO YOU.
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FOR THE ANNUAL MEETING OF
STOCKHOLDERS OF
SANDISK CORPORATION
TO BE HELD MAY 28,
2008
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors (the “Board of
Directors” or the “Board”) of SanDisk
Corporation, a Delaware corporation (the “Company,”
“SanDisk,” “we” or “our”), of
proxies to be voted at the Company’s Annual Meeting of
Stockholders (the “Annual Meeting”) to be held on
May 28, 2008, or at any adjournment or postponement
thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Stockholders. Stockholders of record at the
close of business on March 31, 2008 will be entitled to
vote at the Annual Meeting. The Annual Meeting will be held at
8:00 a.m., local time, at the Company’s headquarters,
601 McCarthy Boulevard, Milpitas, California 95035.
This Proxy Statement and the proxy card will be made available
to stockholders entitled to vote at the Annual Meeting on or
about April 11, 2008.
Pursuant to the new rules recently adopted by the Securities and
Exchange Commission (the “SEC”), the Company has
elected to provide access to its proxy materials and the
Company’s Annual Report on
Form 10-K
(the “Proxy Materials”) over the Internet.
Accordingly, the Company is sending a Notice of Internet
Availability of Proxy Materials (the “Notice”) to its
stockholders of record and beneficial owners. All stockholders
will have the ability to access the Proxy Materials on a website
referred to in the Notice or request to receive a printed set of
the Proxy Materials. Instructions on how to access the Proxy
Materials over the Internet or to request a printed copy may be
found on the Notice. In addition, stockholders may request to
receive the Proxy Materials in printed form by mail or
electronically by email on an ongoing basis.
The Notice will provide stockholders with instructions regarding
how to:
Choosing to receive the future Proxy Materials by email will
save the Company the cost of printing and mailing documents to
its stockholders and will reduce the impact of the
Company’s annual stockholders’ meetings on the
environment. If a stockholder chooses to receive the future
Proxy Materials by email, the stockholder will receive an email
next year with instructions containing a link to those materials
and a link to the proxy voting site. Any stockholder’s
election to receive the Proxy Materials by email will remain in
effect until such stockholder terminates it.
The close of business on March 31, 2008 was the record date
for stockholders entitled to notice of and to vote at the Annual
Meeting or any adjournment or postponement thereof. At the
record date, the Company had approximately
224,739,318 shares of Common Stock outstanding and entitled
to vote at the Annual Meeting, held by approximately 495
stockholders of record. Each holder of record at the close of
business on March 31, 2008 is entitled to one vote for each
share of Common Stock so held. In the election of Directors,
however, cumulative voting is authorized for all stockholders if
any stockholder gives notice at the meeting, prior to voting for
the election of Directors, of his, her or its intention to
cumulate votes. Under cumulative voting, a stockholder may
cumulate votes and give to one nominee a number of votes equal
to the number of Directors to be elected (seven at this meeting)
multiplied by the number of votes to which such stockholder is
entitled, or may distribute such number among any or all of the
nominees. The seven candidates receiving the highest number of
votes will be elected. The
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Board is soliciting discretionary authority to vote proxies
cumulatively in the event a stockholder gives notice of an
intent to cumulate votes. A majority of the shares of Common
Stock entitled to vote will constitute a quorum for the
transaction of business at the Annual Meeting.
If any stockholder is unable to attend the Annual Meeting, the
stockholder may vote by proxy. The proxy is solicited by the
Board of Directors and, when the proxy card is properly
completed and returned, or the proxy is granted by telephone or
through the Internet, the proxy will be voted as directed by the
stockholder. Stockholders are urged to specify their choices on
the proxy card or by the telephone or through the Internet
voting process. If you sign and return the proxy card, or grant
your proxy by telephone or through the Internet, but do not vote
on a proposal, in the absence of contrary instructions, the
shares of Common Stock represented by such proxy will be voted
FOR Proposals 1 and 2 and AGAINST Proposal 3, and will
be voted in the proxy holders’ discretion as to other
matters that may properly come before the Annual Meeting.
The affirmative vote of a plurality of the shares present or
represented by proxy at the Annual Meeting and voting is
required for the election of Directors of the Company
(Proposal 1). The affirmative vote of a majority of the
shares present or represented by proxy at the Annual Meeting and
entitled to vote is required for the ratification of the
appointment of Ernst & Young LLP as the Company’s
independent registered public accounting firm (Proposal 2).
The affirmative vote of a majority of the shares present or
represented by proxy at the Annual Meeting and entitled to vote
is required to approve the stockholder proposal regarding
majority voting for Directors of the Company (Proposal 3).
Stockholder votes will be tabulated by a representative of
Broadridge Financial Solutions, Inc. Abstentions and broker
non-votes are each included in determining the number of shares
present and voting at the Annual Meeting for purposes of
determining the presence or absence of a quorum, and each is
tabulated separately. Abstentions with respect to any matter
other than the election of Directors of the Company
(Proposal 1) will be treated as shares present or
represented by proxy and entitled to vote on that matter and
will thus have the same effect as negative votes. If shares are
not voted by the bank, broker or other financial institution
which is the record holder of the shares but which does not
receive voting instructions from the beneficial owners of those
shares, or if shares are not voted in other circumstances in
which proxy authority is defective or has been withheld with
respect to any matter, these non-voted shares, or “broker
non-votes,” are deemed not to be entitled to vote on the
matter and accordingly are not counted for purposes of
determining whether stockholder approval of that matter has been
obtained with respect to Proposals 2 and 3.
Any person giving a proxy has the power to revoke it at any time
before the proxy holder’s exercise. A proxy may be revoked
by filing with the Secretary of the Company an instrument of
revocation or a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
The Company’s Board of Directors is soliciting proxies for
the Annual Meeting. The Company will bear the cost of soliciting
proxies. Copies of solicitation materials will be furnished to
brokerage houses, fiduciaries and custodians holding shares in
their names that are beneficially owned by others to forward to
such beneficial owners. The Company may reimburse such persons
for the costs they incur to forward the solicitation material to
such beneficial owners. The original solicitation of proxies may
be supplemented by solicitation by telephone, facsimile, or
other means by Directors, officers, employees or agents of the
Company. No additional compensation will be paid to these
individuals for these services. The Company has retained a proxy
solicitation firm, The Altman Group, Inc., to aid it in the
solicitation process. The Company will pay The Altman Group,
Inc. a fee equal to $6,000 plus reasonable and customary
expenses. Following the availability of the proxy materials and
other soliciting materials, the Company will request brokers,
custodians, nominees and other record holders to forward proxy
materials and other soliciting materials to persons for whom
they hold shares and to request authority for the exercise of
proxies. In these cases, the Company, upon the request of the
record holders, will reimburse these holders for their
reasonable expenses.
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Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company’s 2009 Annual
Meeting must be received no later than December 12, 2008 in
order that they may be included in the proxy statement and form
of proxy relating to that meeting. In addition, the proxy
solicited by the Board of Directors for the 2009 Annual Meeting
will confer discretionary authority to vote on any stockholder
proposal presented at that meeting, unless the Company receives
notice of such proposal before February 25, 2009.
PROPOSAL NO. 1
The current Board of Directors consists of seven members with
one vacancy. The Board of Directors has not nominated an
individual to fill the vacancy. It is intended that the proxies
will be voted for the seven nominees named below for election to
the Company’s Board of Directors unless authority to vote
for any such nominee is withheld. Each of the seven nominees is
currently a Director of the Company and was elected to the Board
of Directors by the stockholders at the last annual meeting.
Each of the non-employee nominees is independent as defined
under the SEC and applicable stock exchange rules. Directors
elected to the Board of Directors will serve for the ensuing
year and until their respective successors are duly elected and
qualified. Each nominee has been recommended for nomination by
the Nominating and Governance Committee, has been nominated by
the Board of Directors for election and has agreed to serve if
elected, and the Board of Directors has no reason to believe
that any nominee will be unavailable or will decline to serve.
In the event, however, that any nominee is unable or declines to
serve as a Director at the time of the Annual Meeting, the
proxies will be voted for any nominee who is designated by the
current Board of Directors to fill the vacancy. Unless otherwise
instructed, the proxyholders will vote the proxies received by
them “FOR” the nominees named below. The seven
candidates receiving the highest number of the affirmative votes
of the shares entitled to vote at the Annual Meeting will be
elected Directors of the Company. The proxies solicited by this
Proxy Statement may not be voted for more than seven nominees.
Set forth below is information regarding the nominees to the
Board of Directors.
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Dr. Harari, the founder of SanDisk, has served as
Chief Executive Officer and as a Director of SanDisk since June
1988. He was appointed Chairman of the Board in June 2006.
Dr. Harari also served as President from June 1998 to June
2006. Dr. Harari founded Waferscale Integration, Inc., a
privately held semiconductor company, in 1983 and was its
President and Chief Executive Officer from 1983 to 1986, and
Chairman and Chief Technical Officer from 1986 to 1988. From
1973 to 1983, Dr. Harari held various management positions
with Honeywell Inc., Intel Corporation and Hughes
Microelectronics Ltd. Dr. Harari holds a Ph.D. in Solid
State Sciences from Princeton University and has more than 100
patents issued in the field of non-volatile memories and storage
systems.
Mr. Federman has served as a Director of the Company
since September 1988. Mr. Federman has been a general
partner in U.S. Venture Partners, a venture capital firm,
since April 1990. Mr. Federman was President and Chief
Executive Officer of Monolithic Memories, Inc., a semiconductor
company, from 1978 to 1987. Prior to serving as President and
Chief Executive Officer, Mr. Federman was the Chief
Financial Officer of Monolithic Memories, Inc. Mr. Federman
also serves as a director for Check Point Software Technologies
Ltd., a security software company, Mellanox Technologies, Ltd.,
a semiconductor company, and various private corporations and
charitable trusts. Mr. Federman holds a B.S. in Economics
from Brooklyn College and was awarded an Honorary Doctorate of
Engineering from Santa Clara University.
Mr. Gomo has served as a Director of the Company
since December 2005. Mr. Gomo serves as Executive Vice
President, Finance and Chief Financial Officer of Network
Appliance, Inc. Prior to joining Network Appliance, Inc. in
August 2002, Mr. Gomo served as Chief Financial Officer of
Gemplus International S.A. from November 2000 to April 2002, as
Chief Financial Officer of Asera, Inc. from February 2000 to
November 2000, and as Chief Financial Officer of Silicon
Graphics, Inc. from February 1998 to February 2000. Previously,
Mr. Gomo spent 24 years at Hewlett-Packard Company
serving in various positions including finance, financial
management, manufacturing and general management. Mr. Gomo
holds a B.S. in Business Administration from Oregon State
University and an M.B.A. from Santa Clara University.
Mr. Gomo was a director of Macromedia, Inc. from April 2004
to December 2005.
Mr. Hartenstein has served as a Director of the
Company since November 2005. Mr. Hartenstein served as
Chairman, President and Chief Executive Officer of HD Partners
Acquisition Corporation from its formation in December 2005
through February 2008. Previously, Mr. Hartenstein served
as Chairman and Chief Executive Officer of DIRECTV, Inc., a
television service provider, from its inception in 1990 through
2003, when News Corporation purchased a controlling interest in
the company. He continued as vice chairman of The DIRECTV Group
through 2004 when he retired. Mr. Hartenstein received a
B.S. in Aerospace Engineering and Mathematics from California
State Polytechnic University, Pomona and he received an M.S. in
Applied Mechanics from the California Institute of Technology.
He is a member of the National Academy of Engineering, was
inducted into the Broadcasting and Cable Hall of Fame in 2002
and received an Emmy for lifetime achievement from the National
Academy of Television Arts and Sciences in 2007.
Mr. Hartenstein also serves as a director of XM Satellite
Radio Holdings Inc., Thomson S.A. (Thomson Multimedia) and the
City of Hope.
Ms. Lego served as a Director of the Company from
1989 to 2002 and returned to the Board in May 2004.
Ms. Lego has been a General Partner of The Photonics Fund,
an early stage venture fund focused on investing in components,
modules and systems companies for the fiber optics
telecommunications market since December 1999. She was a general
partner at Oak Investment Partners from 1981 to 1992.
Ms. Lego serves as a director and Chair of the Audit
Committee for WJ Communications, Inc., a public semiconductor
company in the wireless communications market. Ms. Lego
also serves as a director and member of the Audit Committee for
Lam Research Corporation, a provider of wafer fabrication
equipment and services for the semiconductor industry. She also
serves as a director and chairs the Audit Committee of
StrataLight Communication, Inc., a private company which sells
optical transport equipment. Ms. Lego received a B.A. from
Williams College and an M.S. in Accounting from the New York
University Graduate School of Business. She has previously
practiced as a Certified Public Accountant.
Mr. Marks has served as a Director of the Company
since August 2003. Since March 2007, Mr. Marks has managed
a private equity fund called Riverwood Capital, LLC (formerly
Bigwood Capital) which invests in rapidly growing private
companies in North America and in emerging markets. From August
to November 2007, Mr. Marks held the position of interim
Chief Executive Officer at Tesla Motors, Inc., a company
producing electric sports cars.
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Prior to Riverwood, Mr. Marks was a senior adviser of
Kohlberg Kravis Roberts & Co., a private equity firm,
from January 2007 to March 2007. From January 2006 until January
2007, Mr. Marks was a member of Kohlberg Kravis
Roberts & Co. From January 1994 to January 2006,
Mr. Marks served as the Chief Executive Officer of
Flextronics, Inc., a leading producer of advanced electronic
manufacturing services. Mr. Marks served as a director of
Flextronics from 1991 to January 2008. He was appointed Chairman
of the Board of Flextronics effective upon his retirement as
Chief Executive Officer on January 1, 2006 until his
retirement from the Board of Flextronics in January 2008, and he
previously served as Chairman of the Board of Flextronics from
1993 to January 2003. Since April 25, 2007, Mr. Marks
has served as a director of Sun Microsystems, Inc. and, since
August 1, 2007, as a member of its Audit Committee.
Mr. Marks also serves as a director of Crocs, Inc., a
designer, manufacturer and marketer of footwear for men, women
and children, Schlumberger Limited, an oil services company, and
The V Foundation for Cancer Research. Mr. Marks received a
B.A. and an M.A. from Oberlin College and an M.B.A. from Harvard
Business School.
Dr. Meindl has served as a Director of the Company
since March 1989. Dr. Meindl has been the Joseph M. Pettit
Chair Professor of Microelectronics at the Georgia Institute of
Technology in Atlanta, Georgia, since 1993. From 1986 to 1993,
Dr. Meindl served as Senior Vice President for Academic
Affairs and Provost of Rensselaer Polytechnic Institute. While
at Stanford University from 1967 to 1986, he was the John M.
Fluke Professor of Electrical Engineering and Director of the
Stanford Electronics Laboratory and the Center for Integrated
Systems. Dr. Meindl serves as a director of Zoran
Corporation, a leading provider of digital
solutions-on-a-chip
for applications in the consumer electronics and digital imaging
markets. He received the 2006 IEEE Medal of Honor, the highest
award presented by IEEE. Dr. Meindl holds a B.S., M.S. and
Ph.D. in Electrical Engineering from Carnegie-Mellon University.
The Board of Directors held five meetings and acted by unanimous
written consent one time during fiscal 2007. During fiscal 2007,
each member of the Board of Directors attended or participated
in seventy-five percent (75%) or more of the aggregate of
(i) the total number of meetings of the Board of Directors
held during the fiscal year or the portion thereof following
such person’s appointment to the Board and (ii) the
total number of meetings held by all committees on which such
Director served during the past fiscal year or the portion
thereof following such person’s appointment to one or more
of those committees. There are no family relationships among
executive officers or Directors of the Company. The Board of
Directors has an Audit Committee, a Compensation Committee, a
Nominating and Governance Committee, a Special Option Committee
and a Secondary Executive Committee.
The Company encourages stockholder communications with its Board
of Directors. Any stockholder communications with the Board of
Directors may be submitted either via postal mail or email.
Postal mail submissions should be directed to the following
address:
Board of Directors
c/o Investor
Relations
SanDisk Corporation
601 McCarthy Boulevard
Milpitas, CA 95035
Individuals may also communicate with the Board by submitting an
email to the Company’s Board at BOD@sandisk.com. Email
submitted to this email address will be relayed to all Directors.
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Communications that are intended specifically for non-management
Directors should be sent to the postal or email address above to
the attention of the Chair of the Nominating and Governance
Committee.
The Company encourages attendance at its Annual Meeting of
Stockholders by each incumbent Director and each nominee to the
Board. All of the incumbent Directors members attended the
Company’s 2007 Annual Meeting of Stockholders.
The Audit Committee of the Board of Directors (the “Audit
Committee”) held eight meetings during fiscal 2007. The
Audit Committee, which consists of Directors Federman, Gomo and
Lego, oversees on behalf of the Board of Directors the integrity
of the Company’s financial statements, the appointment,
compensation, qualifications, independence and performance of
the Company’s independent registered public accounting
firm, the Company’s compliance with legal and regulatory
requirements and the performance of the Company’s internal
accounting, audit and financial controls. The Audit Committee is
authorized to conduct investigations, and to retain, at the
expense of the Company, independent legal, accounting, or other
professional consultants selected by the Audit Committee, for
any matters relating to its purposes. The Board of Directors
adopted and approved a revised written charter for the Audit
Committee in March 2008 that reflects new AICPA standards on
non-audit services. A copy of this charter is available on the
Company’s website at www.sandisk.com. The Board of
Directors has determined that each of the members of this
Committee is an “audit committee financial expert” as
defined by the SEC. The Board of Directors has also determined
that each member of the Audit Committee is an “independent
director” as defined in Rule 4200 of the Marketplace
Rules of the National Association of Securities Dealers, Inc.
and also meets the additional criteria for independence of Audit
Committee members set forth in
Rule 10A-3(b)(1)
under the Securities Exchange Act of 1934, as amended.
The Compensation Committee of the Board of Directors (the
“Compensation Committee”) held five meetings during
fiscal 2007. The Compensation Committee, which consists of
Directors Federman, Marks and Meindl, establishes the general
compensation policies of the Company and reviews and approves
compensation of the executive officers of the Company. The Board
of Directors adopted a charter for the Compensation Committee in
February 2003, which was last amended in February 2007. A copy
of this charter is available on the Company’s website at
www.sandisk.com. The charter requires that the Compensation
Committee consist of no fewer than two Board members who satisfy
the independence requirements of NASDAQ and applicable law. At
all times during fiscal 2007, the Compensation Committee
consisted of three Board members, each of whom the Board has
affirmatively determined satisfies these independence
requirements.
Pursuant to its charter, the Compensation Committee’s
responsibilities include the following:
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Our Chief Executive Officer recommends to the Compensation
Committee salary, annual bonus and long-term compensation levels
for less senior officers, including the other Named Executive
Officers (as defined below under “Compensation Discussion
and Analysis”), in accordance with the Compensation
Committee charter. Our President and Chief Operating Officer
assists the Chief Executive Officer in reviewing performance and
formulating these recommendations to the Compensation Committee.
Our Chief Financial Officer provides financial and other
information to the Compensation Committee to assist in
determining appropriate compensation levels. Other Named
Executive Officers do not currently have any role in determining
or recommending the form or amount of compensation paid to our
Named Executive Officers and our other senior executive officers.
The Board has delegated concurrent authority to the Compensation
Committee and the Special Option Committee to grant share-based
awards (including stock options and stock units) to employees
who are not subject to Section 16 of the Securities
Exchange Act of 1934, as amended (“Section 16
officers”). The Special Option Committee may not grant
share-based awards to Directors. The Special Option Committee
may consist of one or more directors, and currently consists of
one director, Dr. Harari. The Special Option Committee took
action by written consent 44 times during fiscal 2007. The Board
has also delegated authority to the Secondary Executive
Committee to grant stock options (but not stock units or other
equity awards) to non-Section 16 officers and
non-directors.
The Secondary Executive Committee may be comprised of one or
more officers of the Company, and is currently comprised of two
officers, Sanjay Mehrotra, the Company’s President and
Chief Operating Officer, and Judy Bruner, the Company’s
Executive Vice President, Administration and Chief Financial
Officer. Share-based awards to Section 16 officers are made
by the Compensation Committee. The Secondary Executive Committee
took action by written consent 26 times during fiscal 2007.
As indicated above, pursuant to its charter, the Compensation
Committee has the power, in its discretion, to retain at the
Company’s expense, such independent counsel and other
advisors and experts as it deems necessary or appropriate to
carry out the Compensation Committee’s duties. The Board
delegates to the Compensation Committee the express authority to
decide whether to retain a compensation consultant to assist in
the evaluation of compensation pursuant to its charter. If the
Compensation Committee decides in its discretion to retain such
a firm, the Board delegates to the Compensation Committee the
sole authority to retain and terminate any compensation
consultant engaged to assist in the evaluation of the
compensation of the Company’s senior executive
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officers (including all of the Named Executive Officers). The
Compensation Committee has not retained the services of a
compensation consulting firm. From time to time, management has
retained and consulted with its own outside advisors, including
compensation consultants, to assist in analyzing the
Company’s peer group and preparing recommendations to the
Compensation Committee regarding compensation programs and
levels.
The Nominating and Governance Committee of the Board of
Directors (the “Nominating and Governance Committee”)
held three meetings during fiscal 2007 and met subsequent to the
end of the last fiscal year to recommend to the full Board each
of the nominees for election to the Board of Directors, as
presented herein. The Nominating and Governance Committee
consists of Directors Marks and Hartenstein. The Nominating and
Governance Committee identifies, considers and recommends
director nominees to be selected by the Board of Directors for
submission to vote at the Company’s annual stockholder
meetings and to fill vacancies occurring between annual
stockholder meetings, implements the Board’s criteria for
selecting new Directors, develops or reviews and recommends
corporate governance policies for the Board, and oversees the
Board’s annual evaluation process. The Nominating and
Governance Committee is also authorized to conduct
investigations and to retain, at the expense of the Company,
independent legal, accounting, financial, governance or other
professional consultants selected by the Nominating and
Governance Committee, for any matters relating to its purposes.
The Board of Directors adopted a charter for the Nominating and
Governance Committee in February 2003, which was last amended in
February 2007. A copy of this charter is available on the
Company’s website at www.sandisk.com. The Board of
Directors has determined that each of the members of the
Nominating and Governance Committee is an “independent
director” as defined in Rule 4200 of the Marketplace
Rules of the National Association of Securities Dealers, Inc.
CONSIDERATION
OF DIRECTOR NOMINEES
The policy of the Nominating and Governance Committee is to
consider properly submitted stockholder recommendations for
nominees for membership on the Board as described below under
“Identifying and Evaluating Nominees for Directors.”
In evaluating the recommended nominees, the Nominating and
Governance Committee seeks to achieve a balance of knowledge,
experience and capability on the Board and to address the
membership criteria set forth under “Director
Qualifications.”
The Nominating and Governance Committee will consider
recommendations for nominees from stockholders. Stockholders may
recommend individuals for consideration by submitting the
materials set forth below to the Chair of the Nominating and
Governance Committee at the Company’s address. If the
nominees are intended to be considered by the Nominating and
Governance Committee for recommendation to the Board for the
slate of Directors to be voted on at the Company’s annual
meeting of stockholders (“Annual Meeting Nominees”),
the written materials must be submitted within the time
permitted for submission of a stockholder proposal for inclusion
in the Company’s proxy statement for the subject annual
meeting and such submission must also comply with the provisions
for stockholder proposals set forth in the Company’s
Bylaws. For all other vacancies, the written materials must be
submitted at least 30 days prior to the time that the
Nominating and Governance Committee meets to consider candidates
for any vacancy. Stockholder nominees that are not Annual
Meeting Nominees shall be considered if and when the Board
determines to fill any vacancy on the Board.
The written materials must include: (1) all information
relating to the individual recommended that is required to be
disclosed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including, with respect to
Annual Meeting Nominees, such person’s written consent to
being named in the proxy statement as a nominee and, with
respect to all nominees, such person’s written consent to
serving as a Director if elected); (2) the name(s) and
address(es) of the stockholder(s) making the recommendation and
the amount of the Company’s securities owned beneficially
and of record by such stockholder(s); (3) appropriate
biographical information (including a business address and a
telephone number) and a statement as to the individual’s
qualifications, with a focus on the criteria described below
under “Director Qualifications”; (4) a
representation that the stockholder is a
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holder of record of stock of the Company entitled to vote on the
date of submission of such written materials; and (5) any
material interest of the stockholder in the recommended
nomination.
Any stockholder nominations recommended for consideration by the
Nominating and Governance Committee should be addressed to:
Chair of the Nominating and Governance Committee
SanDisk Corporation
601 McCarthy Boulevard
Milpitas, CA 95035
The Nominating and Governance Committee has established the
following minimum criteria for evaluating prospective Board
candidates:
The Nominating and Governance Committee will also consider the
following factors in connection with its evaluation of each
prospective nominee:
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The Nominating and Governance Committee initiates the process by
preparing a slate of potential candidates who, based on their
biographical information and other information available to the
Nominating and Governance Committee, appear to meet the criteria
specified above
and/or who
have specific qualities, skills or experience being sought
(based on input from the full Board).
After reviewing appropriate biographical information and
qualifications, first-time candidates the Nominating and
Governance Committee proposes to include on the slate of
potential candidates described above, including those proposed
to fill any vacancy, will be interviewed by at least one member
of the Nominating and Governance Committee and by the Chief
Executive Officer. Upon completion of the above procedures, the
Nominating and Governance Committee shall determine the list of
potential candidates to be recommended to the full Board for
nomination at the annual meeting or to fill any vacancy on the
Board. The Board of Directors will select the slate of nominees,
including any nominee to fill a vacancy, only from candidates
identified, screened and approved by the Nominating and
Governance Committee.
The Special Option Committee of the Board of Directors has the
authority to grant options and stock units solely to employees
other than Section 16 officers and Directors. The Special
Option Committee, comprised of Director Harari, acted by written
consent on 44 occasions during fiscal 2007. The Special Option
Committee acts pursuant to limiting guidelines adopted by the
Board of Directors.
The Secondary Executive Committee of the Board of Directors has
the authority to grant stock options (but not stock units or
other share-based awards) to employees other than
Section 16 officers and Directors. The Secondary Executive
Committee may be comprised of one or more officers of the
Company and is currently comprised of Mr. Mehrotra and
Ms. Bruner. Each of Mr. Mehrotra and Ms. Bruner
may act independently on behalf of the Secondary Executive
Committee. The Secondary Executive Committee acted by written
consent on 26 occasions during fiscal 2007. The Secondary
Executive Committee acts pursuant to limiting guidelines adopted
by the Board of Directors.
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DIRECTOR
COMPENSATION — FISCAL 2007
The following table presents information regarding the
compensation paid during fiscal 2007 to individuals who were
members of our Board of Directors at any time during fiscal 2007
and who were not also our employees (referred to herein as
“Non-Employee Directors”). The compensation paid to
any director who was also one of our employees during fiscal
2007 is presented below in the Summary Compensation
Table — Fiscal 2006 and 2007 and the related
explanatory tables. Such
employee-directors
are generally not entitled to receive additional compensation
for their services as directors.
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Compensation for Non-Employee Directors during fiscal 2007
generally consisted of an annual retainer, committee membership
fees and annual share-based awards.
The following table sets forth the schedule of the annual
retainer and committee membership fees for each Non-Employee
Director in effect during fiscal 2007:
All Non-Employee Directors are also reimbursed for out-of-pocket
expenses they incur serving as directors.
Under our Non-Employee Director compensation policy as currently
in effect, a Non-Employee Director who first takes office and
who has not been employed by the Company in the preceding twelve
months receives, at the time of his or her election or
appointment to the Board, (i) an initial option grant to
purchase 25,000 shares of the Company’s Common Stock
(the “Initial Option Grant”), and (ii) an initial
restricted stock unit grant for a number of units determined by
dividing $320,000 by the average closing price per share of
Common Stock on the NASDAQ Global Select Market for the five
trading days ended on, and including, the grant date (the
“Initial Unit Grant”). Each Non-Employee Director who
has served in that capacity for at least six months at the time
of grant also receives an annual award consisting of (i) an
option grant to purchase 6,250 shares of Common Stock (the
“Annual Option Grant”), and (ii) a restricted
stock unit grant for a number of units determined by dividing
$80,000 by the average closing price per share of Common Stock
on the NASDAQ Global Select Market for the five trading days
ended on, and including, the grant date (the “Annual Unit
Grant”). The initial and annual awards described above are
granted under, and are subject to, the Company’s 2005
Incentive Plan (the “2005 Plan”).
The Initial and Annual Option Grants are granted with a
per-share exercise price equal to the fair market value of a
share of the Company’s Common Stock on the grant date. For
these purposes, and in accordance with the terms of the 2005
Plan and the Company’s share-based award grant practices,
the fair market value is equal to the closing price of a share
of the Company’s Common Stock on the NASDAQ Global Select
Market on the grant date.
The stock options granted to Non-Employee Directors are
immediately exercisable. However, upon a Non-Employee
Director’s cessation of service with the Company, any
shares purchased upon exercise of the option that have not
vested (as described below) are subject to repurchase by the
Company at the lower of (i) the exercise price paid for the
shares or (ii) the fair market value of the shares at the
time of repurchase (as determined under the 2005 Plan). This
type of stock option is generally referred to as an “early
exercise” stock option because the holder is permitted to
exercise the option prior to the time that the underlying shares
vest. Subject to the Non-Employee Director’s continued
service, the shares subject to the Initial Option Grant vest,
and the Company’s repurchase right lapses, in four
substantially equal annual installments on each of the first
through fourth anniversaries of the grant date. Subject to the
Non-Employee Director’s continued service, the shares
subject to the Annual Option Grant vest, and the Company’s
repurchase right lapses, in one installment on the earlier of
(i) first anniversary of the grant date or (ii) the
day immediately preceding the next annual meeting of the
Company’s stockholders following the grant date.
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Once vested, each option will generally remain exercisable for
fully vested shares of Common Stock (i.e., shares which
are not subject to the Company’s repurchase right) until
its normal expiration date. Each of the options granted to our
Non-Employee Directors under the 2005 Plan has a term of seven
years. However, vested stock options may terminate earlier in
connection with a change in control of the Company. Shares
subject to the option that have not vested will immediately
terminate (or be subject to the Company’s repurchase right
to the extent already purchased under the option) upon the
cessation of the Non-Employee Director’s service. However,
the shares subject to options vest, and the Company’s
repurchase right lapses, in full if the Non-Employee
Director’s cessation of service is as a result of the
director’s death or permanent disability. Non-Employee
Directors generally have twelve months to exercise the vested
portion of the option following a cessation of service.
The options granted to Non-Employee Directors do not include any
dividend or dividend equivalent rights. However, Non-Employee
Directors are entitled to dividends with respect to shares
purchased under an option, whether or not such shares have
vested under the option, at the same rate as of the
Company’s other stockholders.
Each restricted stock unit awarded to our Non-Employee Directors
represents a contractual right to receive one share of the
Company’s Common Stock if the time-based vesting
requirements described below are satisfied. Restricted stock
units are credited to a bookkeeping account established by the
Company on behalf of each Non-Employee Director.
Subject to the Non-Employee Director’s continued service,
the units subject to the Initial Unit Grant vest in four
substantially equal annual installments on each of the first
through fourth anniversaries of the grant date. Subject to the
Non-Employee Director’s continued service, the units
subject to the Annual Unit Grant vest in one installment on the
earlier of (i) the first anniversary of the grant date or
(ii) the day immediately preceding the next annual meeting
of the Company’s stockholders following the grant date.
Upon the cessation of the Non-Employee Director’s service,
any unvested restricted stock units will generally terminate.
However, restricted stock units granted to a Non-Employee
Director vest in full if the Non-Employee Director’s
cessation of service is as a result of the director’s death
or permanent disability.
Restricted stock units will generally be paid in an equivalent
number of shares of the Company’s Common Stock as they
become vested. Non-Employee Directors are not entitled to voting
or dividend rights with respect to the restricted stock units,
and the restricted stock units generally may not be transferred,
except to the Company or to a beneficiary of the Non-Employee
Director upon his or her death. Non-Employee Directors are,
however, entitled to the following dividend equivalent rights
with respect to the restricted stock units. If the Company pays
a cash dividend on its Common Stock and the dividend record date
occurs after the grant date and before all of the restricted
stock units have either been paid or terminated, then the
Company will credit the Non-Employee Director’s bookkeeping
account with an amount equal to (i) the per-share cash
dividend paid by the Company on its Common Stock with respect to
the dividend record date, multiplied by (ii) the total
number of outstanding and unpaid restricted stock units
(including any unvested restricted stock units) as of the
dividend record date. These dividend equivalents will be subject
to the same vesting, payment and other terms and conditions as
the original restricted stock units to which they relate (except
that the dividend equivalents may be paid in cash or such other
form as the plan administrator may deem appropriate).
The Board of Directors administers the 2005 Plan as to
Non-Employee Director awards and has the ability to interpret
and make all required determinations under the plan, subject to
plan limits. This authority includes making required
proportionate adjustments to outstanding awards to reflect any
impact resulting from various corporate events such as
reorganizations, mergers and stock splits. Pursuant to the terms
of the 2005 Plan, stock options and restricted stock units
granted to our Non-Employee Directors may vest on an accelerated
basis in connection with a change in control of the Company.
The affirmative vote of the holders of a plurality of the shares
present in person or represented by proxy at the Annual Meeting
and entitled to vote on Proposal No. 1 is required for
approval of Proposal No. 1.
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The Board believes that Proposal No. 1 is in the
Company’s best interests and in the best interests of its
stockholders and recommends a vote FOR the election of all of
the above nominees.
The Audit Committee has appointed Ernst & Young LLP as
the Company’s independent registered public accounting firm
for the fiscal year ending December 28, 2008, and is asking
the Company’s stockholders to ratify this appointment. The
affirmative vote of the holders of a majority of the shares
present or represented by proxy at the Annual Meeting and
entitled to vote on this Proposal No. 2 will be
required to ratify the selection of Ernst & Young LLP.
In the event the stockholders fail to ratify the appointment,
the Audit Committee will reconsider its appointment of
Ernst & Young LLP as the Company’s independent
registered public accounting firm for the fiscal year ending
December 28, 2008. Even if this appointment is ratified,
the Audit Committee, in its discretion, may direct the
appointment of a different independent registered public
accounting firm at any time during the year if the Audit
Committee determines that such a change would be in the best
interests of the Company and its stockholders.
Ernst & Young LLP has audited the Company’s
financial statements annually since 1991. Its representatives
are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions.
The following is a summary of the Ernst & Young LLP
fees incurred by the Company for professional services rendered
during the 2007 and 2006 fiscal years:
All of the 2007 services described above were pre-approved by
the Audit Committee to the extent required by Section 10A
of the Securities Exchange Act of 1934, as amended, which
requires audit committee pre-approval of audit and non-audit
services provided by the Company’s independent registered
public accounting firm. In accordance with Section 10A
under the Securities Exchange Act of 1934, as amended, the Audit
Committee may delegate to any member of the Audit Committee
(referred to as the “Audit Committee Delegate”) the
authority
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to pre-approve services not prohibited by law to be performed by
the Company’s independent registered public accounting
firm. The Audit Committee has appointed Catherine P. Lego as the
Audit Committee Delegate and, as such, Ms. Lego reports any
decision to pre-approve permissible services to the full Audit
Committee at its next regular meeting. In addition, from time to
time, the Audit Committee has adopted
and/or
revised a Pre-Approval Policy under which particular services or
categories of services are pre-approved, subject to certain
specified maximum dollar amounts. Such pre-approval is generally
granted for a term of twelve (12) months from the date of
pre-approval and automatically renews at the end of the one-year
period unless revoked or revised by the Audit Committee.
The Audit Committee has concluded that the provision of the
audit-related services, tax services and other non-audit
services identified above is compatible with the principal
accountants’ independence.
The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy at the Annual Meeting
and entitled to vote on Proposal No. 2 is required to
ratify the appointment of Ernst & Young LLP as the
Company’s independent registered public accounting firm for
the fiscal year ending December 28, 2008. Should such
stockholder approval not be obtained, the Audit Committee will
reconsider its appointment of Ernst & Young LLP as the
Company’s independent registered public accounting firm for
the fiscal year ending December 28, 2008.
The Board believes that Proposal No. 2 is in the
Company’s best interests and in the best interests of its
stockholders and recommends a vote FOR the ratification of the
appointment of Ernst & Young LLP to serve as the
Company’s independent registered public accounting firm for
the fiscal year ending December 28, 2008.
PROPOSAL NO. 3
FOR THE ELECTION OF DIRECTORS
The United Brotherhood of Carpenters Pension Fund, 101
Constitution Avenue, N.W., Washington, D.C. 20001, a
beneficial owner of 3,629 shares of Common Stock, has
notified us that it intends to present the following proposal at
the meeting:
RESOLVED, that the shareholders of the Company hereby request
that the Board of Directors initiate the appropriate process to
amend the Company’s governance documents (certificate of
incorporation or bylaws) to provide that director’s
nominees shall be elected by the affirmative vote of the
majority of votes cast at an annual meeting of shareholders,
with a plurality vote standard retained for contested director
elections, that is when the number of director nominees exceeds
the number of board seats.
In order to provide shareholders a meaningful role in director
elections, our Company’s director election vote standard
should be changed to a majority vote standard. A majority vote
standard would require that a nominee receive a majority of the
votes cast in order to be elected. The standard is particularly
well-suited for the vast majority of director elections in which
only board nominated candidates are on the ballot. We believe
that a majority vote standard in board elections would establish
a challenging vote standard for board nominees and improve the
performance of individual directors and entire boards. Our
Company presently uses a plurality vote standard in all director
elections. Under the plurality vote standard, a nominee for the
board can be elected with as little as a single affirmative
vote, even if a substantial majority of the votes cast are
“withheld” from the nominee.
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In response to strong shareholder support for a majority vote
standard in director elections, an increasing number of the
nation’s leading companies, including Intel, General
Electric, Motorola, Hewlett-Packard, Morgan Stanley, Wal-Mart,
Home Depot, Gannett, Marathon Oil, and recently Pfizer have
adopted a majority vote standard in company bylaws or articles
of incorporation. Additionally, these companies have adopted
director resignation policies in their bylaws or corporate
governance policies to address post-election issues related to
the status of director nominees that fail to win election. Other
companies have responded only partially to the call for change
by simply adopting post-election director resignation policies
that set procedures for addressing the status of director
nominees that receive more “withheld” votes than
“for” votes. At the time of this proposal submission,
our Company and its board had not taken either action.
We believe that a post-election director resignation policy
without a majority vote standard in company bylaws or articles
is an inadequate reform. The first critical step in establishing
a meaningful majority vote policy is the adoption of a majority
vote standard. With a majority vote standard in place, the board
can then consider action on developing post-election procedures
to address the status of directors that fail to win election. A
majority vote standard combined with a post-election director
resignation policy would establish a meaningful right for
shareholders to elect directors, and reserve for the board an
important post-election role in determining the continued status
of an unelected director. We feel that this combination of the
majority vote standard with a post-election policy represents a
true majority standard.
The Board of Directors believes this proposal does not serve the
best interests of the Company or its stockholders and recommends
a vote AGAINST it.
This proposal requests that the Company initiate a process to
amend its governance documents to provide a majority voting
standard for director elections so that stockholders have a
“meaningful role in director elections.” However, we
believe that our strong corporate governance practices and
director election process currently provide stockholders a
meaningful and important role in the election of directors. Like
most large public companies incorporated in Delaware, we
currently use a plurality voting standard, the default standard
under Delaware law, which provides that the nominees who receive
the most affirmative votes are elected to serve as our
directors. We also provide stockholders with the ability to
express their preferences in the election of directors by
cumulating their votes. As discussed below, cumulative voting,
which most public companies do not permit but is widely
recognized as a corporate governance mechanism designed to
protect stockholders’ rights, gives our stockholders unique
leverage in voting on the election of directors.
Cumulative Voting Provides Stockholders a Meaningful Role in
the Director Election Process
Retaining the plurality vote standard is particularly advisable
in the Company’s case because our stockholders have the
ability to express their preferences in the election of
directors by cumulating their votes. Cumulative voting, which
most public companies do not allow but is universally recognized
as protecting stockholders’ rights, gives our stockholders
unique leverage in voting on the election of directors. It
allows each stockholder to cast all of his or her available
votes in director elections for a single director nominee,
thereby enhancing the voting power of minority stockholders.
While the rules governing director elections are well understood
when cumulative voting rights are exercised under a plurality
vote standard, cumulative voting under a majority vote standard
presents technical and legal issues for which there is almost no
precedent.
The Company’s voting system must be a reliable process for
the election of qualified directors to represent the interests
of all of our stockholders. In the absence of uniform, workable
standards that can be consistently applied by all companies and
that take into account the special circumstances of companies
with cumulative voting, the Company believes it would be
inappropriate to adopt a majority voting standard.
The Proposed Voting Standard is not Tailored to Address the
Benefits to the Company’s Stockholders that Result from
Cumulative Voting
The proponent argues that under the plurality vote standard a
director could be elected with “a single affirmative vote,
even if a substantial majority of the votes cast are
’withheld’ from the nominee.” However, that
remote, theoretical possibility does not accurately reflect the
actual results experienced by the Company using cumulative
voting and a plurality standard for director elections. In the
past three years, the Company’s directors have, on average,
received the affirmative vote of greater than 81% of the shares
voted in director elections.
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The proposal takes the position that only one director election
standard should be used by all U.S. companies. However,
this approach does not take into consideration the unique
attributes of the Company’s cumulative voting provision or
our strong corporate governance structure and practices. Under
the current standard for electing directors, our stockholders
have consistently and overwhelmingly elected a board comprised
of highly qualified directors from diverse backgrounds. These
directors, and the management team selected by them, have
delivered solid financial performance and stockholder value. The
Board of Directors does not believe the proponent’s
proposal could improve such performance.
The Potential Uncertainty of a Simple Majority Voting
Standard
Under Delaware law, an incumbent director who is not re-elected
“holds over” and continues to serve with the same
voting rights and powers until his or her successor is elected
and qualified. While this critical aspect of sound corporate
governance practice is noted in the proponent’s supporting
statement, the proposed majority voting standard fails to
address the director “hold over” issue. Therefore,
even if the proposal were adopted, the Company could not force a
director who failed to receive a majority vote to leave the
Board of Directors until his or her successor is elected at a
subsequent stockholder meeting.
Moreover, the proposal fails to address vacancies on the Board
of Directors that would arise if a director who fails to receive
a majority of the votes cast chooses to resign his or her
position. Delaware law and the Company’s Bylaws permit the
Board of Directors to elect a director to fill the vacancy, let
the position remain vacant, or call another meeting of
stockholders for the sole purpose of filling the vacancy. In any
case, the Board may be left with vacancies for an indefinite
period of time, making it difficult to staff key committees and
otherwise meet its obligation to oversee the business and
affairs of the Company. This could cause additional uncertainty,
disruption, and expense for the Company.
A Task Force of the American Bar Association Committee on
Corporate Law studied the benefits and detriments associated
with a majority vote standard for the election of directors, and
decided not to recommend a majority voting standard for
directors, stating:
“The Committee believes that it is not advisable to alter
the existing plurality default rule. Although the Committee is
mindful of the criticisms of plurality voting, the Committee is
currently persuaded that the potential negative consequences of
failed elections, combined with the uncertainty of applying an
untested voting standard as the default rule for public
corporations, warrants the retention of the plurality voting
rule.”
The Company’s Corporate Governance Practices
The Company’s corporate governance practices, including
cumulative voting, have been recognized by RiskMetrics (formerly
Institutional Shareholder Services), which has ranked the
Company ahead of its peer companies in the technology hardware
and equipment group, as measured by the RiskMetrics Corporate
Governance Quotient. These corporate governance practices are
designed to identify and propose director nominees who will best
serve the interests of the Company and its stockholders. The
Board of Directors maintains a Nominating and Governance
Committee that is composed entirely of independent directors.
The Nominating and Governance Committee applies a robust set of
criteria in identifying director nominees and has established
procedures to consider and evaluate persons recommended by
stockholders, described in detail elsewhere in the proxy
statement under the heading “Consideration of Director
Nominees.”
The Company’s stockholders have consistently elected highly
qualified directors, substantially all of whom, other than the
Company’s Chief Executive Officer, have been
“independent” within standards adopted by The NASDAQ
Global Select Market. In the past, every director nominee has
received the affirmative vote of a strong majority of the shares
voted.
The affirmative vote of a majority of the shares present in
person or represented by proxy at the Annual Meeting and
entitled to vote on Proposal No. 3 is required to
approve the stockholder proposal regarding majority voting for
Directors of the Company
For the reasons set forth above, the Board believes that
Proposal No. 3 is not in the Company’s best
interests or the best interests of its stockholders and
recommends a vote AGAINST Proposal No. 3.
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SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the
ownership of the Company’s Common Stock as of
February 15, 2008 by (i) all persons known by the
Company, based solely on inspection of 13G filings made with the
SEC, to be beneficial owners of five percent (5%) or more (as
set forth in the Beneficial Ownership Table included below) of
its outstanding Common Stock, (ii) each Director of the
Company, (iii) the Named Executive Officers (as defined
below under “Compensation Discussion and Analysis”),
and (iv) all current executive officers and Directors of
the Company as a group. Unless otherwise indicated, the
principal address of each of the stockholders below is
c/o SanDisk
Corporation, 601 McCarthy Boulevard, Milpitas, California 95035.
Unless otherwise indicated and pursuant to applicable community
property laws, the persons named in the following table have
sole voting and investment power with respect to all shares of
Common Stock. The number of shares beneficially owned includes
Common Stock of which such individual has the right to acquire
beneficial ownership either currently or within 60 days
after February 15, 2008, including, but not limited to,
upon the exercise of a stock option.
Percentage of beneficial ownership is based upon
224,590,319 shares of Common Stock outstanding on
February 15, 2008. For each individual, this percentage
includes Common Stock of which such individual has the right to
acquire beneficial ownership either currently or within sixty
(60) days after February 15, 2008, including, but not
limited to, upon the exercise of a stock option; however, such
Common Stock will not be deemed outstanding for the purpose of
computing the percentage owned by any other individual. Such
calculation is required by General
Rule 13d-3(d)(1)(i)
under the Securities Exchange Act of 1934, as amended.
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Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company’s Directors, executive
officers, and persons who own more than ten percent (10%) of a
registered class of the Company’s equity securities, to
file initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the
Company with the SEC. Officers, Directors and stockholders
holding more than ten percent (10%) of the outstanding capital
stock of the Company are required by SEC regulations to furnish
the Company with copies of all Section 16(a) reports they
file.
Based upon (i) the copies of Section 16(a) reports
which the Company received from such persons for their 2007
fiscal year transactions in the Common Stock and their Common
Stock holdings, and (ii) the written representations
received from one or more of such persons that no annual
Form 5 reports were required to be filed by them for the
2007 fiscal year, the Company believes that all executive
officers, stockholders holding more than 10% of the outstanding
capital stock of the Company and Board members complied with all
their reporting requirements under Section 16(a) for such
fiscal year except that a late Form 4 report was filed for
each of the independent Board members on June 11, 2007,
reporting their annual automatic grants that occurred on
May 24, 2007 and a late Form 4 report for each of Judy
Bruner, Yoram Cedar, Eli Harari and Sanjay Mehrotra was filed on
February 22, 2007 for the withholding shares issued for
taxes in connection with the vesting of restricted stock units
that occurred on February 16, 2007.
The following table provides information as of February 15,
2008 with respect to the shares of the Company’s Common
Stock that may be issued under the Company’s existing
equity compensation plans. Other than as described in footnote
(4) to the following table, there are no assumed plans under
which any options to acquire such shares or other equity-based
awards may be granted.
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The Company filed an Annual Report on
Form 10-K
with the SEC on February 25, 2008. Stockholders may obtain
a copy of this report, without charge, by writing to Investor
Relations at the Company’s principal executive offices
located at 601 McCarthy Boulevard, Milpitas, California 95035.
The Annual Report on
Form 10-K
is also available at
http://ww3.ics.adp.com/streetlink/SNDK.
The information contained in this report shall not be deemed
to be “soliciting material” or to be “filed”
with the Securities and Exchange Commission, nor shall such
information be incorporated by reference into any future filings
with the Securities and Exchange Commission, or subject to the
liabilities of Section 18 of the Securities Exchange Act of
1934, as amended, except to the extent that the Company
specifically incorporates it by reference into a document filed
under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.
The following is the report of the Audit Committee with respect
to the Company’s audited financial statements for the
fiscal year ended December 30, 2007 included in the
Company’s Annual Report on
Form 10-K
for that year.
The Audit Committee has reviewed and discussed the audited
financial statements with management of the Company.
The Audit Committee has discussed with the Company’s
independent registered accounting firm, Ernst & Young
LLP, the matters required to be discussed by SAS 61
(“Codification of Statements on Auditing Standards, AU
Section 380”), as amended, which include, among other
items, matters related to the conduct of the audit of the
Company’s financial statements.
The Audit Committee has received the written disclosures and the
letter from Ernst & Young LLP required by Independence
Standards Board Standard No. 1 (“Independence
Discussions with Audit Committees”), as amended, and has
discussed with Ernst & Young LLP the independence of
Ernst & Young LLP from the Company.
Based on the review and discussions referred to above in this
report, the Audit Committee recommended to the Company’s
Board of Directors that the audited financial statements be
included in the Company’s Annual Report on
Form 10-K
for the fiscal year ended December 30, 2007 for filing with
the Securities and Exchange Commission.
Submitted by the Audit Committee
of the Board of Directors
Catherine P. Lego (Chair)
Irwin Federman
Steven J. Gomo
This section contains a discussion of the material elements of
compensation awarded to, earned by or paid to the principal
executive officer, principal financial officer of the Company
and our three other most highly compensated individuals who were
serving as executive officers as of December 31, 2007.
These individuals are referred to as “Named Executive
Officers” in this Proxy Statement.
The Company’s current executive compensation programs are
determined and approved by the Compensation Committee of the
Board. None of the Named Executive Officers is a member of the
Compensation Committee. As contemplated by the charter of the
Compensation Committee, the Company’s Chief Executive
Officer recommends to the Compensation Committee the base
salary, annual bonus and long-term compensation levels for the
other Named Executive Officers. Our President and Chief
Operating Officer assists the Chief Executive Officer in
reviewing performance and formulating recommendations to the
Compensation Committee. Our other Named
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Executive Officers, including our Chief Financial Officer,
provide financial and other information to the Compensation
Committee to assist in determining appropriate compensation
levels. Our other executive officers, including the other Named
Executive Officers, do not currently have any role in
determining or recommending the form or amount of compensation
paid to our Named Executive Officers and our other senior
executive officers.
The Company’s current executive compensation programs are
intended to achieve three fundamental objectives:
(1) attract, retain and motivate qualified executives;
(2) hold executives accountable for performance; and
(3) align executives’ interests with the interests of
our stockholders. In structuring our current executive
compensation programs, we are guided by the following basic
philosophies:
As described in more detail below, the material elements of our
current executive compensation program for Named Executive
Officers include a base salary, an annual cash incentive
opportunity, a long-term share-based incentive opportunity,
401(k) retirement benefits and severance protection for certain
actual or constructive terminations of the Named Executive
Officers’ employment.
We believe that each element of our executive compensation
program helps us to achieve one or more of our compensation
objectives. The table below lists each material element of our
executive compensation program and the compensation objective or
objectives that it is designed to achieve.
As illustrated by the table above, base salaries, 401(k)
retirement benefits and severance and other termination benefits
are all primarily intended to attract, retain and motivate
qualified executives. These are the elements of our current
executive compensation program where the value of the benefit in
any given year is generally not variable. We believe that in
order to attract, retain and motivate top-caliber executives, we
need to provide executives with predictable benefit amounts that
reward the executive’s continued service. Some of the
elements, such as base salaries, are generally paid out on a
short-term or current basis. The other elements are generally
paid out on a longer-term basis, such as upon retirement or
other termination of employment. We believe that this mix of
longer-term and short-term elements allows us to achieve our
dual goals of attracting and retaining executives (with the
longer-term benefits geared toward retention and the short-term
awards focused on recruitment).
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Our annual cash incentive opportunity is primarily intended to
hold Named Executive Officers accountable for performance,
although we also believe it aligns Named Executive
Officers’ interests with those of our stockholders and
helps us attract, retain and motivate executives. Our long-term
equity incentives are primarily intended to align Named
Executive Officers’ interests with those of our
stockholders, although we also believe they help hold executives
accountable for performance and help us attract, retain and
motivate executives. These are the elements of our current
executive compensation program that are designed to reward
performance and the creation of stockholder value, and therefore
the value of these benefits is dependent on performance. Each
Named Executive Officer’s annual bonus opportunity is paid
out on an annual short-term basis and is designed to reward
performance for that period. Long-term equity incentives are
generally paid out or earned on a longer-term basis and are
designed to reward performance over one or more years.
The individual compensation elements are intended to create a
total compensation package for each Named Executive Officer that
we believe achieves our compensation objectives and provides
competitive compensation opportunities. From time to time,
management has retained Compensia, Inc., an independent
compensation consulting firm, to review and identify our
appropriate peer group companies, and to obtain and evaluate
current executive compensation data for these companies. We
selected the following companies as our peer group companies in
fiscal 2007: Adobe Systems Incorporated; Advanced Micro Devices
Inc.; Analog Devices, Inc.; Avaya Inc.; Broadcom Corp.; CA Inc.;
Electronic Arts Inc.; Juniper Networks, Inc.; LSI Corporation;
Marvell Technology Group Ltd.; Maxim Integrated Products, Inc.;
Micron Technology, Inc.; Network Appliance, Inc.; NVIDIA Corp.;
Seagate Technology LLC; Symantec Corporation; Xilinx, Inc.; and
Yahoo! Inc. We believe that these peer group companies, which
were selected from within and outside the Company’s
industry, are comparable in size and growth pattern with the
Company and compete with the Company for executive talent.
Although the peer group differs from the S&P Semiconductor
Company Stock Index, and the PHLX Semiconductor Index, which the
Company has selected as the industry indices for purposes of the
stock performance graph that appeared in the Company’s
Annual Report on
Form 10-K
for the fiscal year ended December 30, 2007, we believe
these peer group companies provide relevant comparative
compensation data for the Company.
Consistent with our compensation philosophies described above,
our goal is to provide each Named Executive Officer with a
current executive compensation program that is competitive in
light of the compensation paid to comparable executives at our
peer group companies. To that end, we generally target base
salaries and long-term incentives at approximately the
50th percentile within our peer group companies. We
generally target total cash compensation at approximately the
60th percentile within our peer group companies; however,
we have the ability to, and do, exercise discretion to set
compensation levels that are above or below these benchmarks. As
indicated in the charter of the Compensation Committee, in
determining the appropriate levels of compensation to be paid to
Named Executive Officers, the Compensation Committee retains the
discretion to consider amounts realized from prior compensation.
However, amounts realized from prior compensation were not a
material factor in determining 2007 compensation for our Named
Executive Officers. Furthermore, amounts realized from prior
compensation were not considered in setting future retirement
benefits since the only retirement benefit currently offered by
the Company is the Named Executive Officer’s ability to
participate in the Company’s 401(k) plan during his or her
employment with the Company.
Dr. Harari attends each meeting of the Compensation
Committee that relates to Company-wide compensation issues and
the compensation of his direct reporting officers. At meetings
pertaining to officer pay, Dr. Harari presents compensation
recommendations for his direct reports and explains to the
Compensation Committee the basis and rationale for his
recommendations. The Compensation Committee understands that in
determining his recommendations Dr. Harari considers the
scope and responsibility of each officer’s position and the
individual performance of each officer and reviews compensation
of similarly situated officers in the Company’s peer group,
to the extent that there is a similarly situated officer. With
respect to Dr. Harari’s compensation, the Company and
its advisers collect chief executive officer compensation data
from comparable companies, including those in the Company’s
peer group, based on size, location and industry. The Company
presents the collected data to the Compensation Committee. The
Compensation Committee reviews the data and deliberates to
determine an appropriate level of compensation for
Dr. Harari based on the Company’s targeted
compensation levels. Dr. Harari does not participate in the
Compensation Committee deliberations that relate to his personal
compensation and he excuses himself from that portion of the
Compensation Committee meeting. Dr. Harari and other
employees of the
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Company occasionally meet with a compensation consulting firm
retained by the Company to discuss broader compensation issues
and trends or to discuss officer pay. Dr. Harari does not
meet or consult with the compensation consulting firm
individually nor does Dr. Harari discuss his individual
compensation with the consulting firm retained by the Company.
Current
Executive Compensation Program Elements
None of our Named Executive Officers has an employment agreement
or other contractual right to receive a fixed base salary. The
Compensation Committee generally reviews the base salaries for
each Named Executive Officer in the first quarter of each year.
In determining the appropriate fiscal 2007 base salary for our
Named Executive Officers, we considered the base salary levels
in effect for comparable executives at our peer group companies
(based on their published 2006 fiscal year data), internal
comparables and individual performance. The weighting of these
factors by the Compensation Committee is subjective, not
formulaic. For example, for positions that are easily
benchmarked in the market, such as Chief Executive Officer and
President, an equal weighting might be given to all three
factors. For other positions that are somewhat hybrid in nature
and not directly comparable to positions at our peer group of
Companies, such as Executive Vice President, Technology and
Worldwide Operations and Executive Vice President, Mobile
Business Unit and Corporate Engineering, the internal
comparables and individual performance factors may be weighed
more heavily than the market data. The Compensation Committee
does not use a formula for determining compensation.
Based on our review in fiscal 2007, we determined that the
appropriate base salary rate was as follows for each Named
Executive Officer for fiscal 2007: Dr. Harari, $848,000;
Mr. Mehrotra, $510,000; Ms. Bruner, $450,000;
Dr. Thakur, $385,422 and Mr. Cedar, $385,422. This
determination was made after the temporary reduction in base
salaries described below had ended. In line with our target
benchmark, the fiscal 2007 compensation level (before the
reduction described below) for Named Executive Officers ranged
from the 50th percentile to the 60th percentile of the
base salary levels in effect for comparable executives at our
peer group companies (based on their published 2006 fiscal year
data). In connection with the Company’s overall cost
reduction program, the Compensation Committee approved a base
salary reduction for Named Executive Officers of 15% (20% for
the Chief Executive Officer), effective March 5, 2007. The
reduction to base salaries continued until August 6, 2007,
at which time the rates of base salary increased to the amounts
specified above for the remainder of fiscal 2007. No payment
intended to offset the temporary reduction to base salaries was
made to any Named Executive Officer, and in determining the base
salary amounts set forth above, we did not attempt to compensate
the Named Executive Officers for the temporary reduction in base
salaries. The total base salary amounts paid for fiscal 2007,
taking into account these adjustments, is reported for each
Named Executive Officer in column (c) of the Summary
Compensation Table — Fiscal 2006 and 2007, below.
The Company’s third-party executive compensation consultant
compared the Company’s compensation of Named Executive
Officers with the officer compensation at our peer group of
companies, and reported the results of its analysis to the
Compensation Committee in February 2008. Based on the analysis
and the subjective factors described above, in February 2008 the
Compensation Committee approved the following increases to the
base salaries of the Named Executive Officers: Dr. Harari,
0%; Mr. Mehrotra, 10%; Ms. Bruner, 8%;
Dr. Thakur, 4%; and Mr. Cedar, 5%.
None of our Named Executive Officers has an employment agreement
or other contractual right to a fixed actual or target bonus for
any given year. Prior to fiscal 2006, the Company utilized a
formula based upon achievement of financial targets under the
Company’s operating plan to set aside pre-tax net income to
fund a discretionary bonus pool. Each executive officer’s
participation in that bonus pool was based upon a target bonus,
which generally ranged from 75% to 100% of the officer’s
base salary. Actual bonuses paid from the pool were calculated
based upon the Company’s achievement of financial targets
under the Company’s operating plan for the fiscal year, the
officer’s target bonus and the officer’s individual
performance. The Compensation Committee also
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retained discretion to recommend an additional discretionary
bonus in recognition of special contributions during the fiscal
year. Cash bonuses paid to the Company’s executive officers
generally were not “performance-based” for purposes of
Section 162(m) of the Internal Revenue Code and were
therefore subject to the deductibility limitations of
Section 162(m), as explained in more detail below under
“Section 162(m) Policy.”
In fiscal 2006, the Company amended the 2005 Plan to provide for
the grant of cash incentive awards intended to qualify as
performance-based under Section 162(m) in lieu of
discretionary cash bonuses to Named Executive Officers. Such an
award was made to each Named Executive Officer in fiscal 2007.
The Company continued to utilize a bonus formula to fund a bonus
pool for fiscal 2007; however, the amount of the pool allocated
to Named Executive Officers was determined under the cash
incentive awards. The remaining portion of the bonus pool was
allocated among other employees in generally the same manner as
in years prior to fiscal 2006.
The Named Executive Officers’ cash incentive award for
fiscal 2007 contained a target incentive amount, expressed as a
percentage of base salary, which was approved by the
Compensation Committee. For Named Executive Officers other than
the Chief Executive Officer, the target incentive amount
reflected the recommendation of the Chief Executive Officer. The
percentage target bonus for each Named Executive Officer was
generally determined by reference to comparable bonus
opportunities at our peer group companies, internal
comparability with percentage targets of other executives and
the executive’s level of responsibility, experience and
knowledge. The target incentive amounts generally increase as an
executive’s responsibilities increase, reflecting our
compensation philosophy that, as an executive officer’s
level of responsibility increases, a greater portion of that
officer’s total compensation should be dependent on the
Company’s performance. For fiscal 2007,
Dr. Harari’s target bonus was 125% of base salary,
Mr. Mehrotra’s target bonus was 95% of base salary,
Ms. Bruner’s target bonus was 85% of base salary, and
the remaining Named Executive Officers’ respective target
bonuses were 75% of their respective base salaries. In each
case, the target bonus was based on the Named Executive
Officer’s full rate of base salary as of December 31,
2007, not taking into account the base salary reduction
discussed above under Base Salaries.
The performance goal for fiscal 2007 under the cash incentive
awards was the Company’s earning per share for fiscal 2007
(excluding stock compensation and acquisition- related charges).
The decision to utilize the earnings per share measure for
fiscal 2007, rather than the revenue and net income measures as
used in prior years, was based upon the significant pricing
downturn being experienced within the NAND flash industry in
early fiscal 2007. In that environment, the Compensation
Committee determined that the most appropriate measure of
financial performance by the Company would be earnings per
share. The Compensation Committee also determined that a
non-GAAP EPS measure, excluding stock compensation and
charges related to acquisition accounting, would provide the
most relevant measure of the Company’s performance in
comparison to the previous year and in comparison to its annual
operating plan. In addition to establishing target incentive
amounts for Named Executive Officers, the Compensation Committee
approved a range of potential multipliers of the target
incentive amount based on the Company’s achievement of
earnings per share goals. The maximum multiplier was 0% of
target for performance below a threshold level, up to 37.5% of
target for performance at the threshold level, and up to 225% of
target for exceptional performance. The bonus multipliers at the
threshold and maximum levels were reduced from the multipliers
in effect for fiscal 2006, because achievement of the maximum
goal in fiscal 2007 would not have been as valuable to the
Company’s stockholders as achievement of the maximum goals
in fiscal 2006. The probabilities of achieving the fiscal 2007
goals were not estimated. Achievement of the threshold goal was
believed to be attainable, but because of difficult market
conditions within the industry in early 2007, its achievement
was not believed to be certain. It was believed that achievement
of the maximum performance goal was possible, but, given the
prevailing market conditions within the industry, its
achievement would have constituted a particularly positive
performance by the Company.
Based on the Company’s achievement relative to the
performance goals in fiscal 2007 and the range of potential
multipliers, the maximum multiplier for fiscal 2007 was 129% of
target. Under the terms of the cash incentive awards, the
Compensation Committee may exercise discretion to reduce (but
not increase) the amount of the bonus otherwise payable to a
Named Executive Officer based on such maximum multiplier. For
2007, the Compensation Committee exercised its discretion to pay
bonuses at a rate less than the maximum multiplier, and approved
bonuses at 86% of target (as opposed to 129%) for the Named
Executive Officers employed by the Company at year-end, and the
86% multiplier was applied to the target bonus rate multiplied
by the base salary rate
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as of December 31, 2007. In exercising this discretion with
respect to Named Executive Officers, the Compensation Committee
generally considered a variety of factors, including whether a
larger portion of the company-wide bonus pool should be
allocated to other employees, the Named Executive Officer’s
position and the Named Executive Officer’s individual
performance for the year. No specific weightings were assigned
to these factors, and the assessment was subjective rather than
formulaic. In addition, the overall bonus pool payout to
employees other than the Named Executive Officers was 86% of
target, and we believed that it was appropriate to set the
payout for Named Executive Officers at this same level. Although
our discretionary adjustments represent the means by which
individual performance is factored into the incentive payout
amount, we determined that individual performances for 2007 did
not warrant differential payout percentages for our Named
Executive Officers.
In February 2008, the Compensation Committee reviewed the
Company’s performance with respect to earnings per share,
certified the level of performance achieved and approved
incentive payouts under the cash incentive awards based on that
review. The amount of the payout approved by the Compensation
Committee under each Named Executive Officer’s cash
incentive awards for fiscal 2007 is presented in column
(g) of the Summary Compensation Table — Fiscal
2006 and 2007 below.
The Company’s third-party executive compensation consultant
compared the Company’s compensation of Named Executive
Officers with the officer compensation at our peer group of
companies, and reported the results of its analysis to the
Compensation Committee in February 2008. The analysis indicated
that the target total cash compensation of two of the
Company’s officers was lower than our targeted pay
position. A recommendation was submitted and approved by the
Compensation Committee to increase the target bonuses for
Mr. Mehrotra and Ms. Bruner to conform the
individual’s target total cash compensation with the
Company’s compensation target, after taking into
consideration the market data. The target bonuses for our other
Named Executive Officers were unchanged. As a result, the fiscal
2008 individual bonus targets were established by the
Compensation Committee as the following percentages of base
salary: Dr. Harari, 125%; Mr. Mehrotra, 100%;
Ms. Bruner, 90%; Mr. Cedar, 75%; and Dr. Thakur,
75%.
The Company’s policy is that the Named Executive
Officers’ long-term compensation should be directly linked
to the value provided to our stockholders. Therefore, 100% of
the Named Executive Officers’ long-term compensation is
currently awarded in the form of share-based instruments that
are valued by reference to our Common Stock. Prior to fiscal
2006, the Company historically made annual equity incentive
grants solely in the form of stock options. In fiscal 2006, the
annual awards were granted in the form of stock options and
restricted stock units. In fiscal 2007, the annual awards were
granted in the form of stock options, except for a grant of
restricted stock units to Mr. Mehrotra to reflect his
promotion to President and Chief Operating Officer and to
replace previously granted awards that expired in the money but
unexercised. The Compensation Committee believed that this grant
was appropriate in light of Mr. Mehrotra’s significant
contributions to the growth of the Company over the period
covered by the expired awards. The number of shares of the
Company’s Common Stock subject to each annual award is
intended to create a meaningful opportunity for stock ownership
in light of the Named Executive Officer’s current position
with the Company, the economic value of comparable awards to
comparable executives at our peer group companies, the
individual’s potential for increased responsibility and
promotion over the award term, and the individual’s
personal performance in recent periods. The Compensation
Committee also takes into account the number of unvested equity
awards held by the Named Executive Officer in order to maintain
an appropriate level of equity incentive for that individual.
However, the Compensation Committee does not adhere to any
specific guidelines as to the relative equity award holdings of
the Company’s Named Executive Officers. Furthermore, as
with setting base salaries, weighting of the above factors is
subjective, and the Compensation Committee does not use a
formula to determine the number or value of share-based
incentive awards granted to any individual officer.
The Compensation Committee typically grants long-term
share-based awards in the first quarter of the fiscal year
except for awards to new hires and awards related to the
promotion of current employees. However, except as set forth
below with respect to grants to new employees and promotions,
there is no formal program, plan or policy in place at the
Company or in the Compensation Committee’s charter with
regards to the timing of long-term share-based incentive awards.
The Compensation Committee has complete discretion as to when it
awards long-term
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share-based incentives. There is no program, plan or policy
related to the timing of grants to its executive officers in
coordination with the release of material nonpublic information.
Long-term share-based incentive awards granted to new hires or
to promoted employees occur after the new hire has joined the
Company or, in the case of a promoted employee, after the
promotion has been approved. For a newly hired or promoted
executive officer, the associated stock award is granted at the
next meeting of the Compensation Committee. For a newly hired or
promoted employee who is not an executive officer, the
associated stock award is granted by the Company’s Special
Option Committee, which takes actions every Friday.
Stock Options. The Company makes a portion of
its long-term incentive awards to Named Executive Officers in
the form of stock options with an exercise price that is equal
to the fair market value of the Company’s Common Stock on
the grant date. Thus, the Named Executive Officers will only
realize value on their stock options if our stockholders realize
value on their shares. The stock options also function as a
retention incentive for our executives as they vest over a four
year period following the grant date. In fiscal 2007, the
Compensation Committee granted stock options to each of our
Named Executive Officers. The material terms of these options
are described below under “Grants of Plan-Based
Awards.”
Restricted Stock Units. The Company may make a
portion of its long-term incentive grants to Named Executive
Officers in the form of restricted stock units. A restricted
stock unit represents a contractual right to receive one share
of the Company’s Common Stock if the applicable vesting
requirements are satisfied. The Company has determined that it
is advisable to grant restricted stock units in addition to
stock options (and in lieu of larger stock option grants) in
order to minimize stock expense to the Company and dilution. The
restricted stock units also function as a retention incentive as
they vest over a four year period following the grant date. The
material terms of the unit awards are described below under
“Grants of Plan-Based Awards.” The Company made grants
of restricted stock units to Named Executive Officers in fiscal
2006, but (except as discussed above with respect to
Mr. Mehrotra), did not grant restricted stock units to
Named Executive Officers in fiscal 2007. The Company decided to
grant equity awards in 2007 to Named Executive Officers (except
as discussed above with respect to Mr. Mehrotra) in the
form of option grants rather than a mix of restricted stock
units and option grants in order to more directly link the
long-term compensation value of the Named Executive Officers
with the value provided to our stockholders.
The Company provides retirement benefits to the Named Executive
Officers under the terms of its tax-qualified 401(k) plan. In
fiscal 2007, 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. These Company contributions function as a retention
incentive as they vest ratably over the first four years of
service with the Company (as determined under the plan). The
Named Executive Officers participate in the plan on
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.
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 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
months following a change in control. We believe that a
protected period of twelve months following a change in control
is in line with the severance protections provided to comparable
executives at our peer group
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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 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 24 months following termination;
(2) accelerated vesting of outstanding equity awards (with
accelerated options to remain exercisable for twelve months
following termination, subject to the maximum term of the
option); and (3) executive outplacement benefits for twelve
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, the 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 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 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, the 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.
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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.
Each Director 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. The
ownership requirement is satisfied by beneficial ownership as
defined under
Rule 13d-3
under the Securities Exchange Act of 1934, as amended. Each
Director and named executive officer (as defined in
Section 16 of the Securities Exchange Act of 1934, as
amended) should own no less than 1,000 shares of the
Company’s Common Stock on the first anniversary of his or
her service, and own an additional 1,000 shares for each
subsequent year until he or she is required to own
5,000 shares after 5 years of service, at which point
there is no requirement to own additional shares.
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 $1,000,000 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 compensation 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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The information contained in this report shall not be deemed
to be “soliciting material” or to be “filed”
with the Securities and Exchange Commission, nor shall such
information be incorporated by reference into any future filings
with the Securities and Exchange Commission, or subject to the
liabilities of Section 18 of the Securities Exchange Act of
1934, as amended, except to the extent that the Company
specifically incorporates it by reference into a document filed
under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.
The Compensation Committee has certain duties and powers as
described in its Charter. The Compensation Committee is
currently composed of the three Non-Employee Directors named at
the end of this report each of whom is independent as defined by
the NASDAQ Global Select Market listing standards.
The Compensation Committee has reviewed and discussed with
management the disclosures contained in the Compensation
Discussion and Analysis section of this proxy statement. Based
upon this review and our discussions, the Compensation Committee
has recommended to our Board of Directors that this Compensation
Discussion and Analysis section be included in the
Company’s 2007 Annual Report on
Form 10-K
filed with the SEC.
Compensation Committee of the Board of Directors
Irwin Federman (Chair)
Michael E. Marks
Dr. James D. Meindl
Of the Compensation Committee members whose names appear on the
Compensation Committee Report above, all were committee members
during all of fiscal 2007. No current member of the Compensation
Committee is a current or former executive officer or employee
of the Company or had any relationships requiring disclosure by
the Company under the SEC’s rules requiring disclosure of
certain relationships and related-party transactions. None of
the Company’s executive officers served as a director or a
member of a compensation committee (or other committee serving
an equivalent function) of any other entity, the executive
officers of which served as a director or member of the
Compensation Committee during the fiscal year ended
December 30, 2007.
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SUMMARY
COMPENSATION TABLE — FISCAL 2006 and 2007
The following table presents information regarding compensation
of our Named Executive Officers for services rendered during
fiscal 2006 and 2007.
Dr. Harari is the Chairman of the Board of Directors. As an
employee-director,
Dr. Harari does not receive additional compensation for his
services as a director.
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The Summary Compensation Table — Fiscal 2006 and 2007
above quantifies the value of the different forms of
compensation earned by or awarded to our Named Executive
Officers in fiscal years 2006 and 2007. The primary elements of
each Named Executive Officer’s total compensation reported
in the table are base salary, an annual bonus and long-term
equity incentives consisting of stock options and restricted
stock units. The Named Executive Officers also earned or were
paid the other benefits listed in column (i) of the Summary
Compensation Table — Fiscal 2006 and 2007, as further
described in footnote (4) to the table.
The Summary Compensation Table — Fiscal 2006 and 2007
should be read in conjunction with the tables and narrative
descriptions that follow. A description of the material terms of
each Named Executive Officer’s base salary and annual bonus
is provided immediately following this paragraph. The Grants of
Plan-Based Awards in Fiscal 2007 table, and the description of
the material terms of the stock options and restricted stock
units granted in fiscal 2007 that follows it, provides
information regarding the long-term equity incentives awarded to
the Named Executive Officers in fiscal 2007. The Outstanding
Equity Awards at Fiscal 2007 Year-End and Option Exercises
and Stock Vested in Fiscal 2007 tables provide further
information on the Named Executive Officers’ potential
realizable value and actual value realized with respect to their
equity awards. The discussion of the potential payments due upon
a termination of employment or change in control that follows is
intended to further explain the potential future payments that
are, or may become, payable to our Named Executive Officers
under certain circumstances.
As indicated above, none of the Named Executive Officers is
employed pursuant to an employment agreement. As a result, their
base salary and bonus opportunities are not fixed by contract.
Instead, in the first quarter of each fiscal year, the
Compensation Committee establishes the base salary level for
each of our Named Executive Officers for the year. In making its
determination, the Compensation Committee considers the factors
discussed above under “Current Executive Compensation
Program Elements — Base Salaries.” In fiscal
2007, instead of granting discretionary cash bonuses, the
Company granted Named Executive Officers a cash incentive award
under the 2005 Plan. In determining the terms of such awards,
the Compensation Committee considered the factors discussed
above under “Current Executive Compensation Program
Elements — Annual Cash Incentive Award.” The
material terms of the cash incentive awards granted to each
Named Executive Officer in fiscal 2007 are described below under
“Description of Plan-Based Awards.”
Consistent with the Company’s philosophy that a substantial
portion of compensation should be contingent on the
Company’s performance, base salary for Named Executive
Officers in fiscal 2007 comprised a relatively low percentage
(generally between 7% and 12%) of total compensation. Equity and
non-equity incentive compensation for Named Executive Officers
in fiscal 2007, the value of which, as described below under
“Description of Plan-Based Awards”, is significantly
dependent upon on Company performance, comprised a much larger
percentage (generally between 88% and 93%) of total
compensation. The Company believes this allocation of base
salary and incentive compensation in proportion to total
compensation is appropriate to balance the Company’s dual
goals of aligning the interests of executives and stockholders
and providing predictable benefit amounts that reward an
executive’s continued service.
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GRANTS OF
PLAN-BASED AWARDS IN FISCAL 2007
The following table presents information regarding the equity
and non-equity incentive awards granted to the Named Executive
Officers during fiscal 2007 under the 2005 Plan. The material
terms of each grant are described below under “Description
of Plan-Based Awards.”
During fiscal 2007, each Named Executive Officer was awarded a
time-based stock option award and Mr. Mehrotra was awarded
time-based restricted stock unit awards. In addition, each Named
Executive Officer was granted a cash incentive award. Each of
these awards was granted under, and is subject to the terms of,
the 2005 Plan. The plan is administered by the Compensation
Committee. The Compensation Committee has authority to interpret
the plan provisions and make all required determinations under
the plan. This authority includes making required proportionate
adjustments to outstanding awards upon the occurrence of certain
corporate events such as reorganizations, mergers and stock
splits, and making provision to ensure that any tax withholding
obligations incurred in respect of awards are satisfied. Awards
granted under the plan are generally only transferable to a
beneficiary of a Named Executive Officer upon his or her death.
However, the Compensation Committee may establish procedures for
the transfer of awards to other persons or entities, provided
that such transfers comply with applicable securities laws and,
with limited exceptions set forth in the plan document, are not
made for value.
Under the terms of the 2005 Plan, if there is a change in
control of the Company, each Named Executive Officer’s
outstanding share-based awards granted under the plan will
generally become fully vested and, in the case of options,
exercisable to the extent such outstanding awards are not
substituted or assumed in connection with the transaction. Any
options that become vested in connection with a change in
control generally must be exercised prior to the change in
control, or they will be canceled in exchange for the right to
receive a cash payment in connection with the change in control
transaction. In addition, if there is a change in control of the
Company, the Compensation Committee may terminate the
performance period applicable to the cash incentive award and
pro-
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rate (based on the number of days during the performance period
prior to the transaction) the bonus and performance targets
based on year-to-date performance.
Each stock option reported in column (g) of the table above
was granted with a per-share exercise price equal to the fair
market value of a share of the Company’s Common Stock on
the grant date. For these purposes, and in accordance with the
terms of the 2005 Plan and the Company’s option grant
practices, the fair market value is equal to the closing price
of a share of Common Stock on the NASDAQ Global Select Market on
the applicable grant date.
Each stock option granted to our Named Executive Officers in
fiscal 2007 is subject to a four year vesting schedule, with 25%
of the option vesting on March 20, 2008, and the remaining
75% of the option vesting in twelve substantially equal
installments on each successive three month anniversary of
March 20, 2008. Once vested, each stock option will
generally remain exercisable until its normal expiration date.
Each of the stock options granted to our Named Executive
Officers in fiscal 2007 has a term of seven years. Outstanding
options, however, may terminate earlier in connection with a
change in control transaction or a termination of the Named
Executive Officer’s employment. Subject to any accelerated
vesting that may apply, the unvested portion of the stock option
will immediately terminate upon a termination of the Named
Executive Officer’s employment. The Named Executive Officer
will generally have three months to exercise the vested portion
of the stock option following a termination of employment. This
period is extended to twelve months if the termination is on
account of the Named Executive Officer’s death or permanent
disability. However, if a Named Executive Officer’s
employment is terminated by the Company for
“misconduct” (as determined under the plan),
outstanding stock options (whether vested or unvested) will
immediately terminate.
The stock options granted to the Named Executive Officers during
fiscal 2007 do not include any dividend or dividend equivalent
rights.
Each restricted stock unit awarded to our Named Executive
Officers in fiscal 2007 represents a contractual right to
receive one share of the Company’s Common Stock if the
time-based vesting requirements described below are satisfied.
Restricted stock units are credited to a bookkeeping account
established by the Company on behalf of each Named Executive
Officer.
Mr. Mehrotra’s restricted stock unit award consisting
of 50,000 shares is subject to a four year vesting
schedule, with 25% of the restricted stock unit vesting on
March 20, 2008, and the remaining 75% of the restricted
stock unit vesting in three substantially equal installments on
each successive one year anniversary of March 20, 2008.
Mr. Mehrotra’s restricted stock unit award consisting
of 15,000 shares is subject to a one year vesting schedule,
with 100% of the restricted stock vesting on March 20,
2008. Subject to any accelerated vesting that may apply, upon
the termination of a Named Executive Officer’s employment,
any then-unvested restricted stock units will generally
terminate.
Restricted stock units will generally be paid in an equivalent
number of shares of the Company’s Common Stock as they
become vested. Named Executive Officers are not entitled to
voting or dividend rights with respect to the restricted stock
units. Non-Employee Directors are, however, entitled to the
following dividend equivalent rights with respect to the
restricted stock units. If the Company pays a cash dividend on
its Common Stock and the dividend record date occurs after the
grant date and before all of the restricted stock units have
either been paid or terminated, then the Company will credit the
Named Executive Officer’s bookkeeping account with an
amount equal to (i) the per-share cash dividend paid by the
Company on its Common Stock with respect to the dividend record
date, multiplied by (ii) the total number of outstanding
and unpaid restricted stock units (including any unvested
restricted stock units) as of the dividend record date. These
dividend equivalents will be subject to the same vesting,
payment and other terms and conditions as the original
restricted stock units to which they relate (except that the
dividend equivalents may be paid in cash or such other form as
the plan administrator may deem appropriate).
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Each non-equity incentive plan award granted to our Named
Executive Officers in fiscal 2007 consisted of an annual cash
incentive opportunity under the 2005 Plan. The award provided
for the payment of a cash bonus based on the Company’s
performance for fiscal 2007 in the area of earnings per share.
The amount of each Named Executive Officer’s award (before
any application of the Compensation Committee’s discretion
to reduce the payout under any award) is (i) the Named
Executive Officer’s target incentive amount times
(ii) a multiplier determined based on the Company’s
performance. The target incentive amount is expressed as a
percentage of the Named Executive Officer’s rate of base
salary as of December 31, 2007. The target incentive
amounts for the Named Executive Officers were 125% of base
salary for Dr. Harari, 95% of base salary for
Mr. Mehrotra 85% of base salary for Ms. Bruner and 75%
of base salary for the remaining Named Executive Officers. In
addition to establishing target incentive amounts, the
Compensation Committee approved a range of multipliers of the
target amount based on the level of the Company’s
achievement of the earnings per share performance goal. The
maximum multiplier ranged from 0% of target for performance
below a threshold level, 37.5% of target for performance at a
threshold level, 150% of target at the achievement of the target
performance level and a maximum of 225% of target for
exceptional performance. Based on the Company’s achievement
of the performance goals in fiscal 2007 and the range of
multipliers established by the Compensation Committee, the
maximum multiplier for fiscal 2007 was 129% of target. Under the
terms of the cash incentive awards, the Compensation Committee
may exercise discretion to reduce (but not increase) the amount
of the bonus otherwise payable to a Named Executive Officer
based on the formula described above. For fiscal 2007, the
Compensation Committee exercised its discretion to pay bonuses
at a rate less than the maximum multiplier based on the
Company’s fiscal 2007 performance. Specifically, for fiscal
2007, the Compensation Committee approved bonuses at 86% of
target for the Named Executive Officers employed by the Company
at year-end. In determining whether to exercise this discretion,
the Compensation Committee considered the factors discussed
above under “Current Executive Compensation Program
Elements — Annual Cash Incentive Award” in the
Compensation Discussion and Analysis section.
In February 2008, the Compensation Committee reviewed the
Company’s performance with respect to earnings per share
for fiscal 2007, certified the level of performance achieved and
approved incentive payouts under the awards based on its review.
The amount of the payout approved by the Compensation Committee
under each Named Executive Officer’s incentive award for
fiscal 2007 is presented in column (g) of the Summary
Compensation Table — Fiscal 2006 and 2007 above.
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OUTSTANDING
EQUITY AWARDS AT FISCAL 2007 YEAR-END
The following table presents information regarding the
outstanding share-based awards held by each Named Executive
Officer as of December 31, 2007, including the vesting
dates for the portions of these awards that had not vested as of
that date. This table also includes the amounts recognized for
each of these awards for financial statement reporting purposes
for fiscal 2007 as reflected in the Summary Compensation
Table — Fiscal 2006 and 2007 above. For purposes of
clarity, awards that were granted prior to December 31,
2007 but that were not outstanding as of December 31, 2007
(for example, because the awards were forfeited, exercised, paid
or otherwise settled prior to December 31, 2007) are
also included in the table below if a charge was recognized for
financial statement reporting purposes for fiscal 2007 with
respect to the award. Additional information regarding these
awards is presented in the footnotes below and in the table
below under “Option Exercises and Stock Vested in Fiscal
2007.”
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The following table presents information regarding the exercise
of stock options by Named Executive Officers during fiscal 2007,
and on the vesting during fiscal 2007 of stock awards previously
granted to the Named Executive Officers.
The following section describes the benefits that may become
payable to Named Executive Officers in connection with certain
terminations of their employment with the Company
and/or a
change in control of the Company. As prescribed by the
SEC’s disclosure rules, in calculating the amount of any
potential payments to these Named Executive Officers, we have
assumed that the applicable triggering event (i.e., termination
of employment or change in control) occurred on
December 31, 2007 and that the price per share of the
Company’s Common Stock is equal to the closing price per
share on December 31, 2007, the last trading day in 2007.
In addition to the change in control and termination benefits
described below, outstanding share-based awards held by our
Named Executive Officers may also be subject to accelerated
vesting in connection with certain changes in control of the
Company under the terms of our equity incentive plans as noted
under “Grants of Plan-Based Awards” and
“Outstanding Equity Awards at Fiscal
2007 Year-End” above. The estimated value of
accelerated vesting under the Company’s equity incentive
plans is covered below under the description of these Named
Executive Officers’ severance arrangements.
As described below, if the benefits payable to a Named Executive
Officer in connection with a change in control of the Company
would be subject to the excise tax imposed under
Section 280G of the Internal Revenue Code of 1986
(“Section 280G”), the Company will make an
additional payment (a
“gross-up
payment”) to the executive so that the net amount of such
payment (after taxes) he or she receives is sufficient to pay
the excise tax due. For purposes of calculating the
Section 280G excise tax, we have assumed that the Named
Executive Officer’s outstanding equity awards would be
accelerated and terminated in exchange for a cash payment upon
the change in control. Based on this assumption, and as
indicated in the chart below, had the Named Executive Officers
terminated employment under their respective change in control
agreements on December 31, 2007, the Company estimates that
no gross-up
payment would have been payable to the Named Executive Officers.
The value of this acceleration of vesting would be higher if the
accelerated awards were assumed by the acquiring company rather
than terminated upon the transaction; however, the Company
estimates that this increase in value would not have been
significant enough to trigger a
gross-up
payment. For purposes other than calculating the
Section 280G excise tax, we have calculated the value of
any option or stock award that may be accelerated in connection
with a change in control of the Company to be the full value of
such award (i.e., the full “spread” value for option
awards and the full price per share of Common Stock for stock
awards).
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As indicated above, the Company has entered into a change of
control agreement with each Named Executive Officer. The
agreements are substantially identical (except as noted below
with respect to Dr. Harari) and provide for certain
benefits to be paid to the Named Executive Officer in connection
with a change of control
and/or
termination of employment with the Company under the
circumstances described below.
Change of Control Benefits. Upon a
“Change of Control” (as defined in the change in
control agreement) of the Company, for purposes of the Named
Executive Officer’s vesting in then outstanding and
unvested equity awards, the Named Executive Officer will be
treated as having completed one additional year of vesting
service as of the date of the Change of Control. The remaining
unvested portions of the equity awards will continue to vest in
accordance with their normal terms, but subject to the Named
Executive Officer’s additional year of deemed vesting
service. If a Change in Control of the Company had occurred on
December 31, 2007, the Company estimates that the value of
the one year acceleration of equity awards for each Named
Executive Officer with a change in control agreement would have
been as follows: Dr. Harari ($1,632,750), Ms. Bruner
($1,429,625), Mr. Mehrotra ($2,376,837), Dr. Thakur
($0) and Mr. Cedar ($656,750). The Company estimates that
this acceleration of vesting by itself would not trigger excise
taxes under Section 280G for any Named Executive Officer.
Severance Benefits — Termination of Employment in
Connection with Change in Control. In the event a
Named Executive Officer’s employment is terminated by the
Company (or a successor) without “Cause” (and not on
account of the Named Executive Officer’s death or
disability) or by the Named Executive Officer for “Good
Reason” (as those terms are defined in the change in
control agreement) within twelve months following a Change of
Control of the Company, the Named Executive Officer will be
entitled to severance pay that includes: (i) a lump sum
cash payment equal to one (1) times (two (2) times for
Dr. Harari) the sum of (A) the Named Executive
Officer’s annual base salary as of the Change of Control or
termination of employment, whichever is greater, plus
(B) the Named Executive Officer’s target annual bonus
for the year of termination; (ii) for a period of
24 months following the termination date, continuation of
the same or equivalent life, health, disability, vision, dental
and other insurance coverage for the Named Executive Officer and
his or her spouse and eligible dependents as the Named Executive
Officer was receiving immediately prior to the Change of
Control; (iii) accelerated vesting of the Named Executive
Officer’s equity awards to the extent outstanding on the
termination date and not otherwise vested, with accelerated
options to remain exercisable for twelve months following the
termination (subject to the maximum term of the option);
(iv) for a period of twelve months following the
termination, executive-level outplacement benefits (which shall
include at least 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); and (v) in the event that the
Named Executive Officer’s benefits are subject to the
excise tax imposed under Section 280G, a
gross-up
payment so that the net amount of such payment (after taxes) he
or she receives is sufficient to pay the excise tax due.
The following table lists the Named Executive Officers and the
estimated amounts they would have become entitled to under their
change of control agreement had their employment with the
Company terminated on December 31, 2007 under circumstances
described above.
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The Audit Committee is responsible for review, approval, or
ratification of “related-person transactions” between
the Company or its subsidiaries and related persons. Under the
SEC rules, a related person is a director, officer, nominee for
director, or 5% stockholder of the company since the beginning
of the last fiscal year and their immediate family members. The
Company has adopted written policies and procedures that apply
to any transaction or series of transactions in which the
Company or a subsidiary is a participant, the amount involved
exceeds $120,000, and a related person has a direct or indirect
material interest. The Audit Committee has determined that,
barring additional facts or circumstances, a related person does
not have a direct or indirect material interest in the following
categories of transactions:
Transactions involving related persons that are not included in
one of the above categories are generally reviewed by the
Company’s legal department. The legal department determines
whether a related person could have a significant interest in
such a transaction, and any such transaction is forwarded to the
Audit Committee for review. The Audit Committee determines
whether the related person has a material interest in a
transaction and may approve, ratify, rescind, or take other
action with respect to the transaction in its discretion.
Irwin Federman, the Company’s Vice Chairman of the Board of
Directors, Lead Independent Director and a member of the
Company’s Compensation and Audit Committees, is a general
partner of U.S. Venture Partners, a venture capital firm.
One of U.S. Venture Partners’ funds holds a 13%
interest in Intermolecular, Inc, a privately held company.
Mr. Federman also serves on Intermolecular’s board of
directors. In August 2006, the Company entered into an agreement
with Intermolecular pursuant to which Intermolecular agreed to
provide research and development services to the Company. In
2006 and 2007, the Company paid Intermolecular $1.5 and
$5.0 million, respectively, for services rendered. In light
of the relationship between Mr. Federman and
Intermolecular, Inc., the Audit Committee reviewed and approved
the Company’s transactions with Intermolecular, Inc.
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The Company’s Amended and Restated Certificate of
Incorporation, as amended (the “Certificate”)
authorizes the Company to provide indemnification of the
Company’s Directors and officers, and the Company’s
Restated Bylaws (the “Bylaws”) require the Company to
indemnify its Directors and officers, to the fullest extent
permitted by the Delaware General Corporation Law (the
“DGCL”). In addition, each of the Company’s
current Directors and executive officers has entered into a
separate indemnification agreement with the Company. Finally,
the Certificate and Bylaws limit the liability of Directors to
the Company or its stockholders to the fullest extent permitted
by the DGCL.
The Company intends that all future transactions between the
Company and its officers, Directors, principal stockholders and
their affiliates be approved by the Audit Committee, and be on
terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
The Board of Directors knows of no other business that will be
presented for consideration at the Annual Meeting. If other
matters are properly brought before the Annual Meeting, however,
it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
Eli Harari
Chairman of the Board, Director
and Chief Executive Officer
April 11, 2008
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