SanDisk 2003 Annual Report Download - page 91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Company agreed to further amend the foundry investment agreements, referred to as the November
Amendment, to, among other things, (a) advance the entirety of the remaining Ñfth milestone payment of
$6,718,950, or Payment, (b) defer the Company's use of wafer credits, and (c) extend the lock-up period on
the Company's Tower ordinary shares. The November Amendment was approved by Tower's shareholders in
December 2003, following which approval the Company made the Payment. The Company received 777,294
Tower ordinary shares at the time it made the Payment and 628,611 Tower ordinary shares in January 2004
upon the closing of Tower's follow-on public oÅering, which generated net cash to Tower of approximately
$75.2 million and correspondingly reduced the Company's equity ownership position.
Also under the November Amendment, the Company agreed not to use wafer credits until January 1,
2007, except with respect to purchase orders issued before the date of the November Amendment utilizing
wafer credits; however, the Company will have the option to convert credits it would have otherwise been able
to utilize per quarter into Tower ordinary shares at the 15 day average trading price of Tower shares, or ATP,
preceding the last day of the relevant quarter. Unconverted credits shall accrue interest at a rate per annum
equal to three-month LIBOR plus 2.5% through December 31, 2007. Interest payments will be made
quarterly and the aggregate principal amount of the unconverted credits will be repaid in one lump sum on
December 31, 2007. EÅective as of December 31, 2005, the Company may convert all of the then remaining
Series A-4 Credits into Tower ordinary shares at the 15 day ATP preceding December 31, 2005. If the
number of Tower ordinary shares received by the Company and the other wafer partners as a result of this
conversion is greater than or equal to an aggregate of 5% of Tower's issued and outstanding share capital on
January 31, 2006, Tower will transact a rights oÅering for the distribution of rights to all of Tower's
shareholders, other than the Company and the other wafer partners but including Israel Corporation
Technologies, at the same 15 day ATP.
The November Amendment also provides that the Company will not sell its Tower ordinary shares until
January 29, 2006, except the Company may sell 30% of the Tower shares held as of January 29, 2004. In
addition, the Company has extended the date on which it may exercise its demand registration rights until the
earlier of (i) December 31, 2005 and (ii) such date that Tower has fulÑlled all of its obligations to raise any
additional Ñnancing pursuant to its facility agreement.
As of December 29, 2002, the Company had invested $68.0 million in Tower and obtained 6,100,959
ordinary shares, $14.3 million of prepaid wafer credits, and a warrant to purchase 360,313 ordinary shares at an
exercise price of $7.50 per share. The warrant expires on October 31, 2006. The investment in the ordinary
shares represented an approximate 14% equity ownership position in Tower as of December 29, 2002. In 2002
and 2001, the Company recognized losses of $15.2 million and $26.1 million, respectively, as a result of other-
than-temporary decline in the value of its Tower investment and the impairment in value on its prepaid wafer
credits and approximately $0.7 million in unrealized losses related to the fair value of the warrants purchased
in October of 2002. These warrants were valued at approximately $0.5 million at December 29, 2002. The
Company's investment in Tower was valued at $21.3 million as of December 29, 2002. At December 29, 2002,
the Company's prepaid wafer credits were valued at $6.0 million, which was net of $2.8 and $5.5 million in
write-downs recorded in Ñscal 2002 and 2001, respectively, related to the recoverability of these prepaid wafer
credits.
Divio Inc. In November 2000, the Company made a strategic investment of $7.2 million in Divio, Inc.,
or Divio. During Ñscal 2003, Divio was sold to ESS Technology resulting in a net loss from this sale for Ñscal
2003 of approximately $0.2 million. The carrying value of the Divio investment on the Company's
consolidated balance sheet at December 29, 2002 was $4.5 million. Prior to Divio's sale, the Company had
accounted for its investment in Divio using the cost method of accounting. During 2002, in connection with
the Company's review of equity investments, an impairment loss of $2.7 million on the Company's investment
in Divio was recognized in accordance with SFAS No. 115.
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