SanDisk 2005 Annual Report Download - page 100

stockholders’ rights plan that would cause substantial dilution to a stockholder, and substantially increase the cost
paid by a stockholder, who attempts to acquire us on terms not approved by our board of directors. This could
discourage an acquisition of us. In addition, our certificate of incorporation grants our board of directors the
authority to fix the rights, preferences and privileges of and issue up to 4,000,000 shares of preferred stock without
stockholder action (2,000,000 of which have already been reserved under our stockholder rights plan). Issuing
preferred stock could have the effect of making it more difficult and less attractive for a third-party to acquire a
majority of our outstanding voting stock. Preferred stock may also have other rights, including economic rights
senior to our common stock that could have a material adverse effect on the market value of our common stock. In
addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law.
This section provides that a corporation may not engage in any business combination with any interested
stockholder during the three-year period following the time that a stockholder became an interested stockholder.
This provision could have the effect of delaying or discouraging a change of control of SanDisk.
Changes in securities laws and regulations have increased our costs; further, in the event we are unable to
satisfy regulatory requirements relating to internal control, or if our internal control over financial reporting is not
effective, our business could suffer. The Sarbanes-Oxley Act of 2002 that became law in July 2002 required
changes in our corporate governance, public disclosure and compliance practices. The number of rules and
regulations applicable to us has increased and will continue to increase our legal and financial compliance costs, and
has made some activities more difficult, such as stockholder approval of new option plans. In addition, we have
incurred and expect to continue to incur significant costs in connection with compliance with Section 404 of that
law regarding internal control over financial reporting. These laws and regulations and perceived increased risk of
liability could make it more difficult for us to attract and retain qualified members of our board of directors,
particularly to serve on our audit committee, and qualified executive officers. We cannot estimate the timing or
magnitude of additional costs we may incur as a result.
In connection with our certification process under Section 404 of the Sarbanes-Oxley Act of 2002, we have
identified and will from time to time identify a number of deficiencies in our internal control over financial
reporting. We cannot assure you that individually or in the aggregate these deficiencies would not be deemed to be a
material weakness. Furthermore, we may not be able to implement enhancements on a timely basis in order to
prevent a failure of our internal controls or enable us to furnish future unqualified certifications. A material
weakness or deficiency in internal control over financial reporting could materially impact our reported financial
results and the market price of our stock could significantly decline. Additionally, adverse publicity related to the
disclosure of a material weakness or deficiency in internal controls over financial reporting could have a negative
impact on our reputation, business and stock price. Any internal control or procedure, no matter how well designed
and operated, can provide only reasonable assurance of achieving desired control objectives.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our principal facilities are located in Sunnyvale, California. We lease three adjacent buildings comprising
approximately 206,000 square feet. These facilities house our corporate offices, the majority of our engineering
team, as well as a portion of our sales, marketing, operations and corporate services organizations. We occupy this
space under lease agreements that expire in June 2006. In January 2006, we entered into an agreement to lease three
adjacent buildings located in Milpitas, California, comprising approximately 349,000 square feet. Our corporate
offices, the majority of our engineering team, as well as a portion of our sales, marketing, operations and corporate
services organizations expect to move to these new facilities in June 2006.
We also lease sales and marketing offices in the United States, Japan, Germany, Hong Kong , Ireland, the
Netherlands and Scotland, and operation support offices in Taichung, Taiwan, Shanghai and Shenzhen, China and
design centers in Tefen and Petah Tikva, Israel, Edinburgh, Scotland and Bangalore, India.
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Annual Report