SanDisk 2007 Annual Report Download - page 131

expects to secure additional equipment lease facilities over time, which the Company may be required to guarantee
in whole or in part.
Flash Alliance. Flash Alliance sells and leases-back from a consortium of financial institutions a portion of
its tools and has entered into an equipment master lease agreement totaling approximately 100.0 billion Japanese
yen, or approximately $886 million based upon the exchange rate at December 30, 2007, of which 30.0 billion
Japanese yen, or approximately $266 million based upon the exchange rate at December 30, 2007, had been drawn
and was outstanding as of December 30, 2007. The Company and Toshiba have each guaranteed, on a several basis,
50% of Flash Alliance’s obligation under the master lease agreement. As of December 30, 2007, the maximum
amount of the Company’s guarantee obligation of the Flash Alliance master lease agreement was approximately
15.0 billion Japanese yen, or approximately $133 million based upon the exchange rate at December 30, 2007.
Remaining master lease payments are due semi-annually and are scheduled to be completed in fiscal year 2012. At
the end of the lease term, Flash Alliance has the option of purchasing the tools from the lessors. Flash Alliance is
obligated to insure the equipment, maintain the equipment in accordance with the manufacturers’ recommendations
and comply with other customary terms to protect the leased assets. The master lease agreements contain covenants,
the most restrictive of which require the Company to maintain a minimum shareholder equity balance of
$1.51 billion as well as a long-term loan rating of BB+, based on a named independent rating service. In addition,
the master lease agreement contains customary events of default for a Japanese lease facility. The fair value of the
Company’s guarantee of Flash Alliance’s lease obligation was insignificant at inception of each of the guarantee. In
addition, Flash Alliance expects to secure additional equipment lease facilities over time, which the Company may
be required to guarantee in whole or in part. See also Note 19, “Subsequent Events.”
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 December 30, 2007, 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 charter 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 30, 2007 or December 31, 2006, 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, Flash Partners and
Flash Alliance, for environmental remediation costs or liability resulting from Flash Partners or Flash Alliance’s
manufacturing operations in certain circumstances. In fiscal years 2004 and 2006, the Company and Toshiba each
engaged consultants to perform a review of the existing environmental conditions at the site of the facilities at which
Flash Partners and Flash Alliance operations are located to establish a baseline for evaluating future environmental
conditions. 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
F-35
Notes to Consolidated Financial Statements — (Continued)