SanDisk 1999 Annual Report Download - page 30

the scope and proper interpretation of the asserted claims in our
patent at issue in the Lexar suit. On March 4, 1999, the court
issued its ruling on the proper construction of the claim terms in our
patent. On July 30, 1999, we filed a motion for partial summary
judgment that Lexar CompactFlash and PC Cards contributorily
infringe our patent. Lexar filed a motion for summary judgement
that our patent is invalid in view of prior art. A hearing on both of
these motions was held on March 17, 2000. Both matters were
taken under submission by the court and we are waiting for the
court’s order on both motions. In August 1999, we had a mandatory
settlement meeting with Lexar. No settlement was reached through
this meeting. A trial date has not yet been set.
Our rapid growth may strain our operations.
We are currently experiencing rapid growth, which has placed, and
continues to place, a significant strain on our personnel and other
resources. To accommodate this growth, we must continue to hire,
train, motivate and manage our employees. We are having difficulty
hiring the necessary engineering, sales and marketing personnel to
support our growth. In addition, we must make a significant invest-
ment in our existing internal information management systems to
support increased manufacturing, as well as accounting and other
management related functions. Our systems, procedures and controls
may not be adequate to support our rapid growth, which could in turn
harm our business, financial condition and results of operations.
Our success depends on key personnel, including
our executive officers, the loss of whom could
disrupt our business.
Our success greatly depends on the continued contributions of our
senior management and other key research and development, sales,
marketing and operations personnel, including Dr. Eli Harari, our
founder, President and Chief Executive Officer. Our success will also
depend on our ability to recruit additional highly skilled personnel.
We cannot assure you that we will be successful in hiring or retain-
ing such key personnel, or that any of our key personnel will remain
employed with us.
Anti-takeover provisions in our charter documents,
stockholder rights plan and in Delaware law could
prevent or delay a change in control and, as a
result, negatively impact our stockholders.
We have taken a number of actions that could have the effect of
discouraging a takeover attempt. For example, we have adopted a
stockholder rights plan that would cause substantial dilution to
a stockholder who attempts to acquire us on terms not approved by
our board of directors. In addition, our certificate of incorporation
grants the 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. Although we have no present
intention to issue shares of preferred stock, such an issuance 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 the common stock that could have a material
adverse effect on the market value of the common stock. In addi-
tion, we are subject to the anti-takeover provisions of Section 203
of the Delaware General Corporation Law. This section provides that
a corporation shall not engage in any business combination with any
interested stockholder during the three-year period following the
time that such stockholder becomes an interested stockholder. This
provision could have the effect of delaying or preventing a change
of control of SanDisk.
Our stock price has been, and may continue
to be, volatile.
The market price of our stock has fluctuated significantly in the past
and is likely to continue to fluctuate in the future. For example in the
twelve month period ending December 31, 1999 our stock price has
fluctuated from a low of $6.25 to a high of $50.31. We believe that
such fluctuations will continue as a result of future announcements
concerning us, our competitors or principal customers regarding tech-
nological innovations, new product introductions, governmental
regulations, litigation or changes in earnings estimates by analysts. In
addition, in recent years the stock market has experienced significant
price and volume fluctuations and the market prices of the securities
of high technology companies have been especially volatile, often for
reasons outside the control of the particular companies. These fluctu-
ations, as well as general economic, political and market conditions
may have an adverse affect on the market price of our common stock.
Market Risk Disclosure Information
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates
primarily to our investment portfolio. The primary objective of our
investment activities is to preserve principal while maximizing yields
without significantly increasing risk. This is accomplished by invest-
ing in widely diversified short-term investments, consisting primarily
of investment grade securities, substantially all of which either
mature within the next twelve months or have characteristics of
short-term investments. A hypothetical 50 basis point increase in
interest rates would result in an approximate $950,000 decline (less
than 0.32%) in the fair value of our available-for-sale securities.
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SanDisk Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS