SanDisk 2008 Annual Report Download - page 120

Notes To Consolidated Financial Statements
request, according to which it has no objection to the amendment, subject to the issuance of an order for costs.
On April 10, 2008, the Court accepted Mr. Mosek’s request. According to the settlement agreement, reached
between the SDIL and Amir Ban in January 2008, Amir Ban shall indemnify and hold SDIL harmless with
regard to the claim filed by Mosek, as described in this section above. At a pre-trial hearing held on February 9,
2009, the Court indicated that Mr. Mosek should transfer his claim to the Tel-Aviv Labor Court due to the
District Court’s lack of jurisdiction. Mr. Mosek asked for the Court’s permission to divide the lawsuit into two
parts so the action against Amir Ban may be transferred to the Labor Court whereas the claim against SDIL
would remain in the District Court. The District Court has not yet ruled as to whether the portion of the claim
against Amir Ban should be transferred to the Labor Court together with the claim against SDIL.
In April 2006, the Company’s subsidiary SanDisk IL Ltd. (“SDIL”) terminated its supply and license
agreement (the “Agreement”) with Samsung. As a result of this termination, the Company’s subsidiary no longer
was entitled to purchase products on favorable pricing terms from Samsung, Samsung no longer had a
life-of-patent license to the Company’s subsidiary’s patents, and no further patent licensing payments would be
due. Samsung contested the termination and SDIL commenced an arbitration proceeding seeking a declaration
that its termination was valid. Samsung asserted various defenses and counterclaims in the arbitration. A hearing
was held in December 2007, and the arbitration panel issued an award on May 16, 2008 declaring that SDIL’s
termination of the agreement was valid and effective, and dismissing all Samsung’s counterclaims (the
“Award”). On July 24, 2008, in an action captioned Samsung Electronics Co., Ltd. v. SanDisk IL f/k/a
M-Systems Ltd., No. 08 Civ. 6596 (AKH), Samsung filed a petition to vacate the award in the District Court for
the Southern District of New York (“Samsung’s Petition”). On September 18, 2008, in an action captioned
SanDisk IL, Ltd. f/k/a msystems Ltd., No. 08 Civ. 8069 (AKH), SDIL petitioned to confirm the award pursuant
to the dispute resolution provisions of the Agreement and Section 207 of the Federal Arbitration Act,
9 U.S.C. § 207. On September 22, 2008, Samsung withdrew its petition for vacatur and asked the Court to
immediately enter judgment against itself with respect to SDIL’s petition to confirm. On September 24, 2008, the
Court entered judgment in favor of SDIL on SDIL’s petition to confirm the award. On October 7, 2008, SDIL
filed a motion for attorneys’ fees and expenses incurred in connection with Samsung’s withdrawn petition to
vacate the award. On October 20, 2008, after Samsung offered to pay in full the expenses claimed by SDIL, the
motion for attorneys’ fees and expenses was denied by the District Court.
On September 14, 2008, Daniel Harkabi and Gidon Elazar, former employees and founders of MDRM, Inc.,
filed a breach of contract action in the U.S. District Court for the Southern District of New York seeking earn-out
payments of approximately $3.8 million in connection with SanDisk’s acquisition of MDRM, Inc. in fiscal year
2004. A mediation was held in June 2007, as required by the acquisition agreement, but was unsuccessful. The
Company filed its answer on November 14, 2008 and discovery is proceeding.
On September 17, 2008, a purported shareholder class action, captioned McBride v. Federman, et al., Case
No. 1-08-CV-122921, was filed in the Superior Court of California in Santa Clara County. The lawsuit was
brought by a purported shareholder of the Company and names as defendants the Company and its directors,
Irwin Federman, Steven J. Gomo, Dr. Eli Harari, Eddy W. Hartenstein, Catherine P. Lego, Michael E. Marks,
and Dr. James D. Meindl. The complaint alleges breach of fiduciary duty by the Company and its directors in
rejecting Samsung Electronics Co., Ltd.’s non-binding proposal to acquire all of the outstanding common stock
of the Company for $26.00 per share. On September 29, 2008, plaintiff served his first request for production of
documents on the Company. On October 17, 2008, the Company and its directors filed a demurrer seeking
dismissal of the lawsuit, and plaintiff served his first requests for production of documents on the Company’s
directors. On November 4, 2008, the parties filed a stipulation to dismiss the litigation without prejudice, with
each party to bear its own costs. On November 11, 2008, the Court dismissed the case without prejudice.
On October 1, 2008, NorthPeak Wireless LLC (“NorthPeak”) filed suit against the Company and 30 other
named defendants including Dell, Inc., Fujitsu Computer Systems Corp., Gateway, Inc., Hewlett-Packard
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