SanDisk 2003 Annual Report Download - page 84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
at the Company's request in such capacity. The term of the indemniÑcation period is for the oÇcer's or
director's lifetime. The maximum potential amount of future payments the Company could be required to
make under these indemniÑcation agreements is unlimited; however, the Company has a Director and OÇcer
insurance policy that may reduce its exposure and enable it to recover all or a portion of any future amounts
paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these
indemniÑcation agreements is minimal. The Company has no liabilities recorded for these agreements as of
December 28, 2003.
Note 4: Convertible Subordinated Notes Payable
On December 24, 2001, the Company completed a private placement of $125.0 million of 4
1
/ 2 % Converti-
ble Subordinated Notes due 2006 (""Notes''), and on January 10, 2002 the initial purchasers completed the
exercise of their option to purchase an additional $25.0 million of Notes, for which the Company received net
proceeds of approximately $145.9 million. Based on the aggregate principal amount at maturity of $150.0 mil-
lion, the Notes provide for semi-annual interest payments of $3.4 million each on May 15 and November 15.
The Notes are convertible into shares of our common stock at any time prior to the close of business on the
maturity date, unless previously redeemed or repurchased, at a conversion rate of 108.507 shares per $1,000
principal amount of the Notes, subject to adjustment in certain events. At anytime on or after November 17,
2004, the Company may redeem the notes in whole or in part at a speciÑed percentage of the principal amount
plus accrued interest. The debt issuance costs are being amortized over the term of the Notes using the
interest method. In 2002, the Company recorded $0.9 million of amortization of debt issuance costs as a
component on other income (loss) in the Consolidated Statements of Operations.
In the event of bankruptcy, liquidation or reorganization or upon acceleration of the notes due to an event
of default under the indenture and in certain other events, our assets will be available for distribution to our
current stockholders only after all senior indebtedness, including our contingent indemniÑcation obligations to
Toshiba and obligations under the notes, have been paid in full. The notes are also eÅectively subordinated to
the liabilities of any of our subsidiaries (including trade payables, which as of December 28, 2003 were
approximately $1.4 million).
Note 5: Stockholders' Equity
Stock BeneÑt Plan
The 1989 Stock BeneÑt Plan, in eÅect through August 1995, comprised two separate programs, the Stock
Issuance Program and the Option Grant Program. The Stock Issuance Program allowed eligible individuals to
immediately purchase the Company's common stock at a fair value as determined by the Board of Directors.
Under the Option Grant Program, eligible individuals were granted options to purchase shares of the
Company's common stock at a fair value, as determined by the Board of Directors, of such shares on the date
of grant. The options generally vest over a four-year period, expiring no later than ten years from the date of
grant. Unexercised options are canceled upon the termination of employment or services. Options that are
canceled under this plan will be available for future grants under the 1995 Stock Option Plan. There were no
shares available for option grants under the 1989 Stock BeneÑt Plan at December 28, 2003.
1995 Stock Option Plan
The 1995 Stock Option Plan provides for the issuance of incentive stock options and nonqualiÑed stock
options. Under this plan, the Board of Directors determines the vesting and exercise provisions of option
grants. The options generally vest over a four-year period, expiring no later than ten years from the date of
grant.
In May 1999, the stockholders increased the shares available for future issuance under the 1995 Stock
Option Plan by 14,000,000 shares and approved an automatic share increase feature pursuant to which the
number of shares available for issuance under the plan will automatically increase on the Ñrst trading day in
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