SanDisk 2000 Annual Report Download - page 38

3 6 . 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 echanical construc tio n o f m e m o ry c ards. In the
c o m p laint, M itsub ishi aske d the c o urt fo r 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. The Com p any and SanDisk K.K. are vig -
o ro usly d efe nd ing ag ainst M itsub ishi’s re m aining
c laim s .
Co m p aq Corp o ratio n has o p p o sed in se veral
c o untries, inc luding the United States, o ur attem p ting
to reg ister Co m pac tFlash as a trad e m ark. W e d o no t
b elieve that o ur failure to o b tain re g istratio n for the
Co m p actFlash m ark w ill m ate rially harm our b usine ss.
In the e vent o f an ad ve rse re sult in any suc h liti-
g atio n, the Co m p any c o uld b e re q uire d to p ay sub-
stantial d am ag es, c ease the m anufac ture, use and
sale of infring ing produc ts, ex p end significant
reso urc es to d evelop non- infring ing tec hno lo g y or
o b tain lic e nses to the infring ing tec hno lo g y, o r d isc o n-
tinue the use of c ertain p ro c esse s.
Fro m tim e to tim e the Com p any ag re es to indem -
nify c e rtain o f its sup p liers and custom ers for alle g e d
p ate nt infring e m e nt. The sc op e of suc h indem nity
varies b ut m ay in som e instanc es inc lude ind e m nific a-
tio n for d am ag es and e xp enses, inc lud ing atto rne ys’
fe es. The Co m p any m ay fro m tim e to tim e b e e ng aged
in litig ation as a re sult o f s uc h ind e m nific ation o bliga-
tio ns . Third p arty c laim s for p atent infringem e nt are
exc lud e d fro m coverage und er the Com p any’s insur-
anc e polic ies. The re c an b e no assuranc e that any
future o b lig atio n to ind e m nify the Co m pany’s c us-
to m e rs o r sup p liers , w ill no t have a m aterial ad ve rse
effe c t o n the Co m p any’s business, financ ial c o nditio n
and results o f o p e rations.
Litig ation frequently invo lves sub stantial e xp e nd i-
ture s and c an re q uire signific ant m anag em ent atte n-
tio n, eve n if the Co m p any ultim ate ly prevails. In ad d i-
tio n, the re sults of any litig atio n m atters are in herently
unc ertain. Ac c o rd ing ly, the re c an b e no assuranc e that
any o f the fo re g o ing m atters, o r any future litig atio n,
w ill no t have a m aterial ad ve rse e ffec t on the
Co m p any’s business, financ ial c o nditio n and results o f
o p e ra tio n s.
Note 4:
S t o c k h o ld e r s ’ E q u it y
S t o c k B e ne fit P la n
The 1989 Sto c k Be ne fit Plan, in e ffec t thro ugh Aug ust
19 95, c o m prised tw o se p arate p ro g ram s, the Sto c k
Issuanc e Pro g ram and the Op tion Grant Pro g ram . The
Sto c k Issuance Pro g ram allow ed eligible ind ivid uals to
im m ed iate ly purc hase the Co m p any’s co m m o n stock
at a fair value as d eterm ined b y the B o ard o f Directo rs.
Und e r the Op tion Grant Pro gram , eligible ind ivid uals
w ere g ranted o p tio ns to p urchase shares o f the
Co m p any’s co m m o n stock at a fair value , as d eter-
m ine d by the Board o f Dire c to rs, of suc h shares o n the
d ate of g rant. The o p tio ns generally vest over a fo ur-
year p e rio d , exp iring no late r than te n years fro m the
d ate of g rant. Unexerc ised o p tio ns are c ancele d up o n
the term ination o f em p lo ym e nt o r services. Op tio ns
that are c ancele d und e r this p lan w ill b e availab le for
future g rants under the 1995 Sto c k Op tion Plan. There
w ere no share s availab le for o p tio n g rants under the
19 89 Sto c k Benefit Plan at De c em b er 31, 200 0 .
19 9 5 S to c k B e n e fit P la n
The 1995 Sto c k Op tio n Plan p ro vid es fo r the issuance
o f inc e ntive sto c k o p tions and no nqualified stock
o p tio ns. Und e r this p lan, the ve sting and e xe rc ise pro-
visio ns o f o p tion grants are determ ined b y the B o ard
o f Direc tors. The optio ns g e ne rally ve st o ve r a four-
year p e rio d , exp iring no late r than te n years fro m the
d ate of g rant.
On July 17, 19 9 8, the B o ard o f Direc to rs ap p ro ved
an o p tio n c anc ellatio n/re g rant pro gram . Und e r the
c ancellatio n/ re g rant p ro g ram , em p lo ye es c ould e lec t
to exchange their sto c k o p tions w ith exercise p ric e s in
exc ess o f $6.00 per share fo r ne w o ptio ns p ric ed at
$5.00 p er share, the m arket p ric e of the Co m p any’s
c o m m o n stock on the d ate o f im p le m entatio n, Aug ust
21, 19 98. Under the new o p tions, share s bec o m e ex er-
c isable six to tw e lve m o nths later than und er th e o ld
hig her- p ric e d op tio ns. The new o p tio ns have a m axi-
m um te rm o f ten ye ars fro m the Aug ust 21, 19 98 g rant
d ate . Offic ers and d irec to rs o f the Co m p any w e re not
eligible fo r p artic ip atio n in the optio n
c ancellatio n/ re g rant p ro g ram . Op tio ns c o ve ring a to tal
o f ap p ro xim ate ly 1,8 06,846 share s w ere c ancele d and
reg rante d in c o nnectio n w ith the p ro g ram . The num b er
o f o p tio ns sho w n as g ranted and c anc eled in the tab le
b elow re fle c t this e xc hang e of optio ns. Suc h o p tio ns
had a w eighte d average exerc ise p ric e b e fo re re p ric -
ing o f $10.331, and the ne w optio ns w e re g ranted at
an exercise p ric e o f $ 5 .0 0.
In M ay 1999 , the stockho ld e rs inc rease d the
shares availab le for future issuanc e und e r the 19 9 5
Sto c k Benefit Plan b y 7,0 0 0,000 shares and appro ve d
an auto m atic share incre ase fe ature p ursuant to w hich
the num b e r of share s availab le for issuance und er the
p lan w ill autom atic ally inc re ase o n the first trading day
in January e ac h c ale nd ar year, b e g innin g w ith calend ar
year 2 002 and continuing o ver the rem aining te rm of
the plan, b y an am o unt equal to ap p ro xim ately 4 % o f
the to tal num b er o f shares o utstand ing o n the last
trad ing d ay in Dec em b e r in the im m e d iately p rec e d ing
c ale nd ar year, b ut in no eve nt w ill any such annual
inc re ase excee d 4,000 ,00 0 shares.
19 9 5 N o n - e m p lo ye e D ir e c to r s S to c k O p tio n P la n
In Aug ust 19 95, the Co m pany ad o p te d the 1995 N on -
em ployee Dire c to rs Sto c k Optio n Plan (the Directo rs’
Plan. Und e r this p lan, auto m atic op tio n g rants are
m ad e at perio d ic intervals to elig ib le no n- e m p lo yee
m em b ers o f the Board of Dire c to rs. Initial o p tion g rants
vest over a fo ur- ye ar p erio d . Sub se q ue nt annual
g rants ve st o ne year afte r d ate o f g rant. All o p tio ns
g ranted under the Non- em p lo ye e Directo rs Sto c k
Op tio n Plan exp ire te n years after the date o f g rant. In