SanDisk 2000 Annual Report Download - page 27

2 5 . Sa n D is k C o rp o ra t io n . 2 0 0 0 A n n u a l Re p o rt
m ents. We c anno t b e c e rtain that lic ense s w ill b e
o ffere d w he n w e ne ed them , or that the term s offere d
w ill b e ac c e p tab le . If w e do o b tain licenses fro m third
p artie s, w e m ay be required to p ay lic ense fees o r ro y-
alty p aym e nts. In ad d itio n, if w e are unab le to obtain a
lic ense that is ne c essary to the m anufac ture o f o ur
p ro d uc ts, w e c o uld b e re q uire d to susp e nd the m anu-
facture o f p ro d ucts o r sto p our w afe r sup p liers fro m
using p ro c e sses th at m ay infring e the rig hts o f third
p artie s. W e cannot assure yo u that w e w o uld b e suc-
c essful in re d esig ning o ur p ro d uc ts or that the neces-
sary lic ense s w ill b e availab le und e r re asonab le term s.
W e have histo ric ally ag reed to ind em nify vario us
sup pliers and c usto m e rs fo r alleged p atent infring e -
m ent. The sc o p e of suc h indem nity varie s, but m ay, in
so m e instanc e s, inc lud e ind e m nific ation fo r d am ag e s
and exp ense s, includ ing atto rney’s fees. W e m ay p eri-
o d ic ally eng ag e in litig atio n as a result o f these ind e m -
nificatio n o b lig atio ns. We are not c urrently e ng aged in
any such indem nific atio n p ro c eed ings. Our insurance
p o lic ies exclud e c o ve rag e fo r third p arty c laim s fo r
p ate nt infring e m e nt. Any future o b lig ation to ind em nify
o ur custom ers o r sup p lie rs c o uld harm o ur b usin es s,
financ ial c o nditio n or re sults of operatio ns.
Litig atio n risks asso c iate d w ith o ur inte lle c tua l
prop e rty
Fro m tim e to tim e , it m ay b e ne c essary to initiate litiga-
tio n ag ainst third p arties to p reserve our intellec tual
p ro p erty rig hts. These partie s c o uld in turn b ring suit
ag ain st us. On M arc h 21, 200 0 , M itsub ishi Denki Co .
Ltd . (M itsub ishi Ele c tric ) file d a c om plaint in To kyo
Distric t Co urt against SanDisk K.K., o ur w ho lly ow ned
sub sid iary in Jap an. The c o m p laint alleg e s that SanDisk
K.K., base d in Yo koham a, Jap an, infringes o n thre e
M itsub ishi Jap anese p atents. The M its ub ishi p atents in
q ue stion are #JP209 934 2, #JP21290 71 and
#JP21380 47, w hic h are re lated p rim arily to the
m echanical construc tio n o f m e m o ry c ards. In the c o m -
p laint, M itsub ishi asked the c o urt for a p relim inary
injunc tio n halting the sale o f SanDisk Com pac tFlash
and flash ATA m em ory c ard s in Jap an. M itsub ishi has
sinc e dropp ed p atents #JP21290 71 and # JP2 13 804 7
fro m the suit. W e and SanDisk K.K. are vig o ro usly
d efend ing ag ainst M itsub ish i’s re m aining c laim s.
O u r r a p id g r o w th m a y s tr a in o ur o p e r a tio n s .
W e have exp erie nc ed rap id grow th, w hic h has p laced
a sig nific ant strain o n o ur personne l and o the r
reso urc es. To ac c o m m odate future g ro w th, w e m ust
c o ntinue to hire , train, m o tivate and m anag e our
em ployee s. W e have e xp e rienc e d d iffic u lty hiring the
ne c essary eng ine ering , sale s and m arketing personne l
to sup p o rt o ur g ro w th. In ad d itio n, w e m ust m ake a
sig nific ant investm ent in o ur existing internal info rm a-
tio n m anag em ent system s to support inc reased m anu-
facturing, as w ell as ac countin g and o ther m anag e -
m ent related func tions. Our syste m s, p ro c e d ure s and
c o ntro ls m ay no t b e ad eq uate to sup p o rt rap id g row th,
w hic h c o uld in turn harm o ur b usine ss, financ ial c o nd i-
tio n and results of operatio ns.
C a lifo r n ia e ne rg y c ris is
In rec e nt m o nths, California has b e en e xp erienc ing a
sho rtag e o f e ne rg y sup p ly. This sho rtag e is e xp ec te d
to c o ntinue throug ho u t 20 01 and p o ssibly into future
years. Altho ug h the m ajo rity o f o ur p ro d uc t assem b ly
and te sting is d o ne o utside o f Califo rnia, w e m ay
exp erie nc e so m e hard ship d ue to ro lling b lacko uts and
the need fo r reduc ed p o w e r consum ptio n, as w ell as
inc re ase d po w er c o sts.
O u r s uc c e s s d e p e n d s o n k e y p e r s o n n e l, in c lu d in g
o u r e x e c u t iv e o ffic e r s , th e lo s s o f w ho m c o uld d is -
r u p t o ur b u s in e s s .
Our success g re atly d ep en d s on the c o ntinued c o ntri-
b utions of o ur senio r m anag e m e nt and o ther ke y
research and d eve lo p m e nt, sale s, m arketing and o p er-
atio ns personne l, inc luding Dr. Eli H arari, o ur found e r,
Pre sid e nt and Chief Exec utive Offic e r. Our suc c ess w ill
also d ep end o n o ur ab ility to rec ruit add itio nal highly
skille d p ersonne l. W e c anno t assure yo u that w e w ill
b e succ essful in hiring o r retaining suc h key p e rso nnel,
o r that any o f o ur ke y p e rso nnel w ill rem ain em p loye d
w ith us.
Anti- takeo ver p ro visio ns in o ur c harter d o c um e nts,
sto c kho ld e r rig hts plan and in Delaw are law c o uld p re -
vent or d elay a c hang e in c o ntro l and , as a result, neg-
ative ly im pac t o ur sto c kho ld ers.
W e have taken a num b er o f ac tions that could
have the e ffec t of disc o uraging a take o ver attem pt.
Fo r e xam p le, w e have ad o p te d a sto c kho ld er rig hts
p lan that w o uld c aus e substantial d ilution to a sto c k-
ho ld e r, and sub stantially inc re ase the cost p aid b y a
sto c kho ld e r, w ho attem pts to ac q uire us on term s not
ap p ro ve d b y o ur board of direc tors. This c o uld p re vent
us fro m b e ing ac q uire d . In ad d ition, o ur c ertific ate o f
inc o rp o ratio n grants the b o ard o f d irec to rs the autho ri-
ty to fix the rights, prefere nc e s and p rivileges o f and
issue up to 4,000 ,00 0 shares of preferre d sto c k w ith-
o ut stockho ld e r ac tio n. Althoug h w e have no present
inte ntion to issue share s o f p refe rred stock, such an
issuanc e co uld have the e ffect o f m aking it m o re d iffi-
c ult and le ss attrac tive fo r a third p arty to ac quire a
m ajo rity o f o ur o utstanding vo ting sto c k. Prefe rred
sto c k m ay also have o ther rights, inc lud ing e c o no m ic
rig hts senior to o ur com m o n stock that c o uld have a
m aterial ad ve rse e ffec t on the m arket value o f o ur
c o m m o n stock. In ad d ition, w e are sub je c t to the anti-
takeo ve r p ro visions o f Sectio n 20 3 o f the De law are
Ge ne ral Co rp o ratio n Law . This se c tio n p ro vid es that a
c o rp o ratio n shall no t eng ag e in any b usine ss c o m b ina-
tio n w ith any intere sted stockho ld e r during the thre e-
year p e rio d fo llo w ing the tim e that suc h sto c kho ld er
b ecom es an interested stoc kho ld er. This p ro vision
c o uld have the e ffec t of d elaying or p reventing a
c hang e o f c o ntrol o f SanDisk.
O u r s to c k p r ic e h a s b e e n, a n d m a y c o n t in u e t o b e ,
vo la t ile .
The m arket price o f o ur sto c k has fluctuated sig nifi-
c antly in the p ast and is likely to continue to fluc tuate
in the future. Fo r exam p le , in 200 0 o ur stock p ric e
fluctuated sig n ific antly fro m a low o f $ 27.5 0 to a hig h