SanDisk 2003 Annual Report Download - page 83

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Contingencies
FlashVision Ì FlashVision secured an equipment lease arrangement of approximately 37.9 billion
Japanese Yen (or approximately $305.0 million based on the exchange rate in eÅect on the date the
agreement was executed) in May 2002 with Mizuho Corporate Bank, Ltd., or Mizuho, and other Ñnancial
institutions. Under the terms of the lease, Toshiba guaranteed these commitments on behalf of FlashVision.
The Company agreed to indemnify Toshiba for certain liabilities Toshiba incurs as a result of Toshiba's
guarantee of the FlashVision equipment lease arrangement. If FlashVision fails to meet its lease commit-
ments, and Toshiba fulÑlls these commitments under the terms of Toshiba's guarantee, then the Company will
be obligated to reimburse Toshiba for 49.9% of any claims and associated expenses under the lease, unless the
claims result from Toshiba's failure to meet its obligations to FlashVision or its covenants to the lenders.
Because FlashVision's equipment lease arrangement is denominated in Japanese Yen, the maximum amount
of the Company's contingent indemniÑcation obligation on a given date when converted to U.S. Dollars will
Öuctuate based on the exchange rate in eÅect on that date. As of December 28, 2003, the maximum amount
of the Company's contingent indemniÑcation obligation, which reÖects payments and any lease adjustments,
was approximately $125.5 million.
UMC Ì Subsequent to the end of the Company's third quarter ended September 28, 2003, the Company
was advised by its Taiwan law Ñrm that UMC shares owned by the Company and held in custody by its
Taiwan law Ñrm, Lee and Li, had been embezzled by an employee of Lee and Li. Based on information
provided by Lee and Li, a total of approximately 127.8 million of the Company's UMC shares were sold in
unauthorized transactions. The Company still holds approximately 20.6 million UMC shares.
EÅective as of November 14, 2003, the Company and Lee and Li entered into a Settlement and General
Release Agreement, or Settlement Agreement, concerning the embezzled shares. Pursuant to the Settlement
Agreement, the Company was remitted a cash payment of $20.0 million at the time of signing. In addition,
Lee and Li will pay the Company $45.0 million (inclusive of interest $47.9 million) over four years in sixteen
quarterly installments. These amounts are secured by irrevocable standby letters of credit issued by the
International Commercial Bank of China, or ICBC. Further, Lee and Li has extended a credit to the
Company in the amount of $18.3 million to be applied against future legal services provided by Lee and Li and
to be spread equally over 18 years. In the event that the Company does not fully utilize this credit in a given
year, Lee and Li will annually remit one-third of the unused credit amount for that year to the Company and
the Company will donate such amount to its corporate charitable fund. The remaining two-thirds of the
unused credit will be donated by Lee and Li in equal amounts to the Taiwan Red Cross and to a joint
SanDisk/Lee and Li Lecture Program to promote integrated education in business, technology and law in
Taiwan and China. If any of the stolen assets are recovered, the net amount after recovery expenses, will be
split between the Company and Lee and Li, in speciÑed proportions until the Company receives a maximum
amount of $106.6 million, including all amounts described above.
Guarantees
The Company has historically agreed to indemnify suppliers and customers for alleged patent infringe-
ment. The scope of such indemnity varies, but may, in some instances, include indemniÑcation for damages
and expenses, including attorneys' fees. The Company may periodically engage in litigation as a result of these
indemniÑcation obligations. The Company's insurance policies exclude coverage for third-party claims for
patent infringement. The nature of the patent infringement indemniÑcation 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 signiÑcant indemniÑcation payments
under any such agreements and no amount has been accrued in the accompanying consolidated Ñnancial
statements with respect to these indemniÑcation guarantees.
As permitted under Delaware law, the Company has agreements whereby it indemniÑes certain of its
oÇcers and each of its directors for certain events or occurrences while the oÇcer or director is, or was, serving
79