SanDisk 2014 Annual Report Download - page 133

dividend of $0.225 per share or make a distribution to all or substantially all holders of our common stock.
Adjusting for dividends in excess of $0.225 per share paid through December 28, 2014, the counterparties
have agreed to sell to us up to approximately 16.3 million shares of our common stock, which is the number
of shares issuable upon conversion of the 0.5% Notes due 2020 in full, at a price of $92.04 per share. This
convertible bond hedge transaction will be settled in net shares and will terminate upon the earlier of the
maturity date of the 0.5% Notes due 2020 or the first day that none of the 0.5% Notes due 2020 remain
outstanding due to conversion or otherwise. As of December 28, 2014, we had not purchased any shares
under this convertible bond hedge agreement.
In addition, concurrent with the issuance of the 0.5% Notes due 2020, we sold warrants to acquire up
to approximately 16.3 million shares of our common stock at an exercise price of $122.9220 per share. The
warrant agreement contains provisions whereby the number of shares to be acquired under the warrants
and the strike price are adjusted if we pay a cash dividend greater than a regular quarterly cash dividend of
$0.225 per share or make a distribution to all or substantially all holders of our common stock. Adjusting
for dividends in excess of $0.225 per share paid through December 28, 2014, holders of the warrants may
acquire up to approximately 16.3 million shares of our common stock at a strike price of $122.7218 per
share. The warrants mature on 40 different dates from January 13, 2021 through March 11, 2021, and are
exercisable at the maturity date. At each maturity date, we may, at our option, elect to settle the warrants
on a net share basis. As of December 28, 2014, the warrants had not been exercised and remain
outstanding.
Ventures with Toshiba. We are a 49.9% owner of each entity within Flash Ventures, our business ventures
with Toshiba to develop and manufacture NAND flash memory products. These NAND flash memory
products are manufactured by Toshiba at Toshiba’s Yokkaichi, Japan operations using the semiconductor
manufacturing equipment owned or leased by Flash Ventures. This equipment is funded or will be funded
by investments in, or loans to, Flash Ventures from us and Toshiba as well as through operating leases
received by Flash Ventures from third-party banks and guaranteed by us and Toshiba. The entities within
Flash Ventures purchase wafers from Toshiba at cost and then resell those wafers to us and Toshiba at cost
plus a markup. We are contractually obligated to purchase half of Flash Ventures’ NAND wafer supply or
pay for 50% of the fixed costs of Flash Ventures. We are not able to estimate our total wafer purchase
obligations beyond our rolling three month purchase commitment because the price is determined by
reference to the future cost to produce the semiconductor wafers. We are also committed to fund 49.9% to
50% of other Flash Ventures’ costs to the extent that Flash Ventures’ revenue from wafer sales to us and
Toshiba are insufficient to cover these costs. See Note 14, ‘‘Commitments, Contingencies and Guarantees’’
and Note 15, ‘‘Related Parties and Strategic Investments,’’ in the Notes to Consolidated Financial
Statements of this Form 10-K included in Item 8, ‘‘Financial Statement and Supplementary Data’’ of this
report.
From time-to-time, we and Toshiba mutually approve the purchase of equipment for Flash Ventures in
order to convert to new process technologies or add wafer capacity. Flash Partners’ share of Fab 3 and
Flash Alliance’s share of Fab 4 have been previously equipped to full wafer capacity. Fab 5, which is
primarily occupied by Flash Forward, was built in two phases. Phase 1 of the building has been fully
equipped. The Phase 2 shell of Fab 5 is complete and has been partially equipped. Our current plans are to
use the Phase 2 shell primarily for technology transition of the existing Flash Ventures wafer capacity to
1Y-nanometer and 15-nanometer technology nodes, the addition of a 3D NAND pilot line in the second
half of 2015, and for the tools required for a planned increase in Flash Ventures wafer capacity of
approximately 5%, with such wafer capacity increase expected to be completed by mid-2015. To date, we
have invested in approximately 50% of Flash Forward’s equipment, and the output has been shared equally
between us and Toshiba. In 2014, we entered into a non-binding memorandum of understanding with
Toshiba related to the construction and operation of Toshiba’s ‘‘New Fab 2’’ fabrication facility, which is
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Annual Report