SanDisk 2009 Annual Report Download - page 104

required to negotiate a resolution to the non-compliance to avoid acceleration of the obligations under such
agreements. Such resolution could include, among other things, supplementary security to be supplied by us, as
guarantor, or increased interest rates or waiver fees, should the lessors decide they need additional collateral or
financial consideration under the circumstances. If a resolution was unsuccessful, we could be required to pay a
portion or up to the entire $1.07 billion outstanding lease obligations covered by our guarantee under such Flash
Ventures master lease agreements, based upon the exchange rate at January 3, 2010, which could negatively
impact our short-term liquidity.
Long-Term Requirements. Depending on the demand for our products, we may decide to make additional
investments, which could be substantial, in wafer fabrication foundry capacity and assembly and test
manufacturing equipment to support our business in the future. We may also make equity investments in other
companies or engage in merger or acquisition transactions. These activities may require us to raise additional
financing, which could be difficult to obtain, and which if not obtained in satisfactory amounts could prevent us
from funding Flash Ventures; increasing our wafer supply; developing or enhancing our products; taking
advantage of future opportunities; engaging in investments in or acquisitions of companies; growing our business
or responding to competitive pressures or unanticipated industry changes; any of which could harm our business.
Financing Arrangements. At January 3, 2010, we had $1.23 billion of aggregate principal amount in
convertible notes outstanding, consisting of $1.15 billion in aggregate principal amount of our 1% Senior
Convertible Notes due 2013 and $75.0 million in aggregate principal amount of our 1% Convertible Notes due
2035. Our 1% Convertible Notes due 2035 may be redeemed in whole or in part by the holders thereof at a
redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid
interest on March 15, 2010 and various dates thereafter. On February 11, 2010, we notified the holders of our 1%
Convertible Notes due 2035 that we would exercise our option to redeem the $75 million outstanding on
March 15, 2010. The redemption price will be $1,000 per $1,000 principal amount of the debentures, plus
accrued interest, for an aggregate cash expenditure of $75 million plus accrued interest of $0.4 million.
Concurrent with the issuance of the 1% Senior Convertible Notes due 2013, we sold warrants to acquire
shares of our common stock at an exercise price of $95.03 per share. As of January 3, 2010, the warrants had an
expected life of approximately 3.6 years and expire in August 2013. At expiration, we may, at our option, elect to
settle the warrants on a net share basis. As of January 3, 2010, the warrants had not been exercised and remain
outstanding. In addition, counterparties agreed to sell to us up to approximately 14.0 million shares of our
common stock, which is the number of shares initially issuable upon conversion of the 1% Senior Convertible
Notes due 2013 in full, at a conversion price of $82.36 per share. The convertible bond hedge transaction will be
settled in net shares and will terminate upon the earlier of the maturity date of the 1% Senior Convertible Notes
due 2013 or the first day that none of the 1% Senior Convertible Notes due 2013 remain outstanding due to
conversion or otherwise. Settlement of the convertible bond hedge in net shares on the expiration date would
result in us receiving net shares equivalent to the number of shares issuable by us upon conversion of the 1%
Senior Convertible Notes due 2013. As of January 3, 2010, we had not purchased any shares under this
convertible bond hedge agreement. See Note 7, “Financing Arrangements,” of the Notes to Consolidated
Financial Statements of this Form 10-K included in Item 8 of this report.
Flash Partners and Flash Alliance Ventures with Toshiba. We are a 49.9% owner in both Flash Partners
and Flash Alliance, or hereinafter collectively referred to as Flash Ventures, our business ventures with Toshiba
to develop and manufacture NAND flash memory products. These NAND flash memory products are
manufactured by Toshiba at Toshiba’s Yokkaichi, Japan operations using the semiconductor manufacturing
equipment owned or leased by Flash Ventures. This equipment is funded or will be funded by investments in or
loans to the Flash Ventures from us and Toshiba as well as through operating leases received by Flash Ventures
from third-party banks and guaranteed by us and Toshiba. Flash Ventures purchase wafers from Toshiba at cost
and then resells those wafers to us and Toshiba at cost plus a markup. We are contractually obligated to purchase
half of Flash Ventures’ NAND wafer supply or to pay for 50% of the fixed costs of Flash Ventures. We are not
able to estimate our total wafer purchase obligations beyond our rolling three month purchase commitment
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