SanDisk 2014 Annual Report Download - page 104

We may be obligated to indemnify our current or former directors or employees, or former directors
or employees of companies that we have acquired, in connection with litigation or regulatory
investigations. These liabilities could be substantial and may include, among other things, the costs of
defending lawsuits against these individuals; the cost of defending stockholder derivative suits; the cost of
governmental, law enforcement or regulatory investigations; civil or criminal fines and penalties; legal and
other expenses; and expenses associated with the remedial measures, if any, which may be imposed.
Moreover, from time-to-time, we agree to indemnify certain of our suppliers and customers for
alleged IP infringement. The scope of such indemnity varies but generally includes indemnification for
direct and consequential damages and expenses, including attorneys’ fees. We may be engaged in litigation
as a result of these indemnification obligations. Third-party claims for patent infringement are excluded
from coverage under our insurance policies. A future obligation to indemnify our customers or suppliers
may harm our business, financial condition and operating results. For additional information concerning
legal proceedings, see Part I, Item 3, ‘‘Legal Proceedings.’’
We may be unable to license, or license at a reasonable cost, IP from third parties as needed, which could
expose us to liability for damages, increase our costs or limit or prohibit us from selling products. If we
incorporate third-party technology into our products or if we are found to infringe the IP of others, we
could be required to license IP from third-parties. We may also need to license some of our IP to others in
order to enable us to obtain important cross-licenses to third-party patents. We cannot be certain that
licenses will be offered when we need them, that the terms offered will be acceptable, or that these licenses
will help our business. If we do obtain licenses from third parties, we may be required to pay license fees,
royalty payments, or offset license revenue. In addition, if we are unable to obtain a license that is
necessary to manufacture or sell our products, we could be required to redesign or stop shipping our
products to one or more geographic locations, suspend the manufacture of products or stop our product
suppliers from using processes that may infringe the rights of third parties. We may not be successful in
redesigning our products, or the necessary licenses may not be available under reasonable terms, which
would harm our business and financial results.
Changes in the seasonality of our business may result in our inability to accurately forecast our product
purchase requirements. Sales of our products in the consumer electronics market are subject to seasonality.
Sales have typically increased significantly in the fourth quarter of each fiscal year, sometimes followed by
significant declines in the first quarter of the following fiscal year. However, the global economic
environment may impact typical seasonal trends, making it more difficult for us to forecast our business.
Changes in the product or channel mix of our business can also impact seasonal patterns, adding to
complexity in forecasting demand. If our forecasts are inaccurate, we may lose market share or procure
excess inventory or inappropriately increase or decrease our operating expenses, any of which could harm
our business, financial condition and operating results. Changes in seasonality may also lead to greater
volatility in our stock price and the need for significant working capital investments in receivables and
inventory, including the need to build inventory levels in advance of our projected high volume selling
seasons.
The Flash Ventures’ master equipment lease obligations contain covenants, which if breached, would harm
our business, operating results, cash flows and liquidity. Flash Ventures’ master lease agreements contain
customary covenants for Japanese lease facilities. In addition to containing customary events of default
related to Flash Ventures that could result in an acceleration of Flash Ventures’ obligations, some of the
master lease agreements contain an acceleration clause for certain events of default related to us as
guarantor, including, among other things, our failure to maintain a minimum stockholders’ equity of at
least $1.51 billion. As of December 28, 2014, Flash Ventures was in compliance with all of its master lease
covenants.
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