SanDisk 2008 Annual Report Download - page 107

Notes to Consolidated Financial Statements
Alliance was in compliance with all of its master lease covenants. While the Company’s S&P credit rating was
B, two levels below the required minimum corporate rating threshold from S&P, the Company’s R&I credit
rating was BBB-, one level above the required minimum corporate rating threshold from R&I. If R&I were to
downgrade the Company’s credit rating below the minimum corporate rating threshold, Flash Alliance would
become non-compliant under its master equipment lease agreements and would be 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 the Company, 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 were unsuccessful, the Company could be required to pay a
portion or the entire outstanding lease obligations covered by its guarantee under such Flash Alliance master
lease agreements.
Guarantees
Indemnification Agreements. The Company has agreed to indemnify suppliers and customers for alleged
patent infringement. The scope of such indemnity varies, but may, in some instances, include indemnification for
damages and expenses, including attorneys’ fees. The Company may periodically engage in litigation as a result
of these indemnification obligations. The Company’s insurance policies exclude coverage for third-party claims
for patent infringement. Although the liability is not remote, the nature of the patent infringement
indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential
amount it could be required to pay to its suppliers and customers. Historically, the Company has not made any
significant indemnification payments under any such agreements. As of December 28, 2008, no amount had been
accrued in the accompanying Consolidated Financial Statements with respect to these indemnification
guarantees.
As permitted under Delaware law and the Company’s certificate of incorporation and bylaws, the Company
has agreements, or has assumed agreements in connection with its acquisitions, whereby it indemnifies certain of
its officers, employees, and each of its directors for certain events or occurrences while the officer, employee or
director is, or was, serving at the Company’s or the acquired company’s request in such capacity. The term of the
indemnification period is for the officer’s, employee’s or director’s lifetime. The maximum potential amount of
future payments the Company could be required to make under these indemnification agreements is generally
unlimited; however, the Company has a Director and Officer 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 indemnification agreements is minimal. The Company has no
liabilities recorded for these agreements as of December 28, 2008 or December 30, 2007, as these liabilities are
not reasonably estimable even though liabilities under these agreements are not remote.
The Company and Toshiba have agreed to mutually contribute to, and indemnify each other and Flash
Ventures for environmental remediation costs or liability resulting from Flash Ventures’ manufacturing
operations in certain circumstances. The Company and Toshiba have also entered into a Patent Indemnification
Agreement under which in many cases the Company will share in the expenses associated with the defense and
cost of settlement associated with such claims. This agreement provides limited protection for the Company
against third party claims that NAND flash memory products manufactured and sold by Flash Ventures infringes
third party patents. The Company has not made any indemnification payments under any such agreements and as
of December 28, 2008, no amounts have been accrued in the accompanying Consolidated Financial Statements
with respect to these indemnification guarantees.
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