SanDisk 2014 Annual Report Download - page 171

SANDISK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 0.5% Notes due 2020 may be converted on any day prior to the close of business on the scheduled
trading day immediately preceding July 15, 2020, in multiples of $1,000 principal amount at the option of
the holder under any of the following circumstances: 1) during the five business-day period after any five
consecutive trading-day period (the ‘‘measurement period’’) in which the trading price per note for each
day of such measurement period was less than 98% of the product of the last reported sale price of the
Company’s common stock and the conversion rate on each such day; 2) during any calendar quarter after
the calendar quarter ending December 29, 2013, if the last reported sale price of the Company’s common
stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day
of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect
on the last trading day of the immediately preceding calendar quarter; or 3) upon the occurrence of
specified corporate transactions. On and after July 15, 2020 until the close of business on the second
scheduled trading day immediately preceding the maturity date of October 15, 2020, holders may convert
their notes at any time, regardless of the foregoing circumstances.
Upon conversion, a holder will receive the conversion value of the 0.5% Notes due 2020 to be
converted equal to the conversion rate multiplied by the volume-weighted-average price of the Company’s
common stock during a specified period following the conversion date. The conversion value of each 0.5%
Note due 2020 will be paid in: 1) cash equal to the lesser of the principal amount of the note or the
conversion value, as defined, and 2) to the extent the conversion value exceeds the principal amount of the
note, common stock (plus cash in lieu of any fractional shares of common stock). The conversion price will
be subject to adjustment in some events but will not be adjusted for accrued interest. Upon a ‘‘fundamental
change’’ at any time, as defined, the Company will in some cases increase the conversion rate for a holder
who elects to convert its 0.5% Notes due 2020 in connection with such fundamental change. In addition,
the holders may require the Company to repurchase for cash all or a portion of their notes upon a
‘‘designated event’’ at a price equal to 100% of the principal amount of the notes being repurchased plus
accrued and unpaid interest, if any. As of December 28, 2014, the 0.5% Notes due 2020 were not
convertible.
The Company pays cash interest at an annual rate of 0.5%, payable semi-annually on April 15 and
October 15 of each year, beginning April 15, 2014. Debt issuance costs were $17.6 million, of which
$4.1 million was allocated to capital in excess of par value and $13.5 million was allocated to deferred
issuance costs and is amortized to interest expense over the term of the 0.5% Notes due 2020. As of
December 28, 2014, unamortized deferred issuance cost was $11.2 million.
Concurrently with the issuance of the 0.5% Notes due 2020, the Company purchased a convertible
bond hedge and sold warrants. The convertible bond hedge transaction is structured to reduce the
potential future economic dilution associated with the conversion of the 0.5% Notes due 2020 and,
combined with the warrants, to increase the initial conversion price to $122.9220 per share. Each of these
components is discussed separately below:
•Convertible Bond Hedge. Counterparties agreed to sell to the Company up to approximately
16.3 million shares of the Company’s common stock, which is the number of shares initially issuable
upon conversion of the 0.5% Notes due 2020 in full, at a price of $92.19 per share. The 0.5% Notes
due 2020 contains provisions where the number of shares to be sold under the convertible bond
hedge transaction and the conversion price will be adjusted if the Company pays a cash dividend
greater than a regular quarterly cash dividend of $0.225 per share or makes a distribution to all or
substantially all holders of its common stock. Adjusting for dividends paid through December 28,
2014, the counterparties have agreed to sell to us up to approximately 16.3 million shares of the
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Annual Report