SanDisk 2004 Annual Report Download - page 42

Table of Contents
preferences or privileges senior to those of existing holders of common stock or debt securities. If we raise funds through debt or lease
financing, we will have to pay interest and may be subject to restrictive covenants, which could harm our business. If we cannot raise
funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products, fulfill our obligations to Flash
Partners, take advantage of future opportunities, grow our business or respond to competitive pressures or unanticipated industry
changes, any of which could have a negative impact on our business.
Anti−takeover provisions in our charter documents, stockholder rights plan and in Delaware law could discourage 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 a stockholders’ rights plan that would cause substantial dilution to a
stockholder, and substantially increase the cost paid by a stockholder, who attempts to acquire us on terms not approved by our board
of directors. This could discourage an acquisition of us. In addition, our certificate of incorporation grants our 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
(2,000,000 of which have already been reserved under our stockholder rights plan). Issuing preferred stock 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 our common stock that could have a material adverse effect on the market
value of our common stock. In addition, we are subject to the anti−takeover provisions of Section 203 of the Delaware General
Corporation Law. This section provides that a corporation may not engage in any business combination with any interested
stockholder during the three−year period following the time that a stockholder became an interested stockholder. This provision could
have the effect of delaying or discouraging a change of control of SanDisk.
Changes in securities laws and regulations have increased our costs; further, in the event we are unable to satisfy regulatory
requirements relating to internal controls, or if these internal controls over financial reporting are not effective, our business could
suffer. The Sarbanes−Oxley Act of 2002 that became law in July 2002 required changes in our corporate governance, public
disclosure and compliance practices. The number of rules and regulations applicable to us have increased and will continue to increase
our legal and financial compliance costs, and have made some activities more difficult, such as stockholder approval of new option
plans. In addition, we have incurred and expect to continue to incur significant costs in connection with compliance with Section 404
of that law regarding internal controls over financial reporting. These laws and regulations and perceived increased risk of liability
could make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit
committee, and qualified executive officers. We cannot estimate the timing or magnitude of additional costs we may incur as a result.
In connection with our certification process under Section 404 of the Sarbanes Oxley Act of 2002, we have identified and will
from time to time identify a number of deficiencies in our internal controls over financial reporting. We cannot assure you that
individually or in the aggregate these deficiencies would not be deemed to be a material weakness. Furthermore, we cannot assure you
that we will be able to implement enhancements on a timely basis in order to prevent a failure of our internal controls or enable us to
furnish future unqualified certifications. A material weakness or deficiency in internal control over financial reporting could materially
impact our reported financial results and the market price of our stock could significantly decline. Additionally, adverse publicity
related to the disclosure of a material weakness or deficiency in internal controls over financial reporting could have a negative impact
on our reputation, business and stock price. Any internal control or procedure, no matter how well designed and operated, can provide
only reasonable assurance of achieving desired control objectives.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and marketable
equity security prices. 37