SanDisk 2005 Annual Report Download - page 142

customary events of default for a Japanese lease facility and is an exhibit to this report. That agreement
should be read carefully in its entirety for a comprehensive understanding of its terms and the nature of the
obligations the Company guaranteed.
In addition, Flash Partners expects to secure additional equipment lease facilities over time.
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 indem-
nification payments under any such agreements. As of January 1, 2006, no amount has been accrued in the
accompanying condensed consolidated financial statements with respect to these indemnification guarantees.
As permitted under Delaware law and the Company’s charter and bylaws, the Company has agreements
whereby it indemnifies certain of its officers and each of its directors for certain events or occurrences while the
officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification
period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company
could be required to make under these indemnification agreements is 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
January 1, 2006 or January 2, 2005, as this liability is not reasonably estimable even though liability under these
agreements is not remote.
The Company and Toshiba have agreed to mutually contribute to, and indemnify each other and Flash Partners
for, environmental remediation costs or liability resulting from Flash Partners’ 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 Partners infringe third-party patents. In 2004, the
Company and Toshiba each engaged consultants to perform a review of the existing environmental conditions at the
site of the facility in which Flash Partners operations are located to establish a baseline for evaluating future
environmental conditions. The Company has not made any indemnification payments under any such agreements
and as of January 1, 2006, no amounts have been accrued in the accompanying condensed consolidated financial
statements with respect to these indemnification guarantees.
See also “Off Balance Sheet Liabilities” above regarding Flash Partner equipment lease facilities.
Litigation
The Company is involved in a number of lawsuits, including, among others, cases involving the Company’s
patents and the patents of third parties. The Company cannot reasonably estimate a probable loss in any of these
matters. Some of the actions seek injunctions against the Company’s sale of its products and/or substantial monetary
damages, which if granted or awarded could have a material adverse effect on the Company’s business, financial
condition and results of operations.
Litigation is subject to inherent risks and uncertainties that may cause actual results to differ materially from
the Company’s expectations. Factors that could cause litigation results to differ include, but are not limited to, the
discovery of previously unknown facts, changes in the law or in the interpretation of laws, and uncertainties
F-23
Notes to Consolidated Financial Statements — (Continued)
Annual Report