SanDisk 2004 Annual Report Download - page 73

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Table of Contents
Notes to Consolidated Financial Statements — (Continued)
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 is obligated to make a rights offering 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. As of January 2, 2005, the Company’s Tower prepaid wafer credits were valued at zero and the Company has recognized
cumulative losses of $12.2 million as a result of the impairment in value on its prepaid wafer credits.
The Company invested in Tower’s rights offering during 2002 and received a warrant to purchase Tower ordinary shares which is
included in the accompanying consolidated balance sheets under the caption Investment in Foundries. The fair value of the Tower
warrant as of January 2, 2005 was estimated at approximately $65,000 using a Black−Scholes−Merton option pricing model with the
following assumptions: dividend yield of 0.0%; expected life of 1.75 years; volatility factor of 0.70; and risk free interest rate of
3.08%. The fair value of the Tower warrant as of December 28, 2003 was estimated at approximately $1.2 million, using the following
assumptions: dividend yield of 0.0%; expected life of 2.75 years; volatility factor of 0.70; and risk free interest rate of 2.32%. The fair
value of the Tower warrant, at December 29, 2002 was estimated at approximately $0.5 million using the following assumptions:
dividend yield of 0.0%; expected life of 3.75 years; volatility factor of 0.845; and risk free interest rate of 2.38%. The fair value of the
Tower warrant will continue to fluctuate and additional adjustments to the warrant’s fair value will be recorded in future periods.
Note 8: Stockholders’ Rights Plan
On September 15, 2003, the Company amended its existing stockholder rights plan to terminate the rights issued under that rights
plan, and the Company adopted a new rights plan. Under the new rights plan, rights were distributed as a dividend at the rate of one
right for each share of common stock of the Company held by stockholders of record as of the close of business on September 25,
2003. The rights will expire on April 28, 2007 unless redeemed or exchanged. Under the new rights agreement and after giving effect
to the Company’s stock dividend effected on February 18, 2004, each right will, under the circumstances described below, entitle the
registered holder to buy one two−hundredths of a share of Series A Junior Participating Preferred Stock for $225.00. The rights will
become exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company’s common stock or
commences a tender offer or exchange offer upon consummation of which such person or group would beneficially own 15% or more
of the Company’s common stock. F−27