against certain liabilities arising out of performance of a consulting agreement with the Company and each of the Sponsors and certain other claims and liabilities, including liabilities arising
out of financing arrangements and securities offerings.
Officers and Directors: The Companys corporate by-laws require that, except to the extent expressly prohibited by law, the Company must indemnify Sensatas officers and directors against judgments, fines, penalties and
amounts paid in settlement, including legal fees and all appeals, incurred in connection with civil or criminal action or proceedings, as it relates to their services to Sensata and its subsidiaries. Although the by-laws provide no limit on the
amount of indemnification, the Company may have recourse against its insurance carriers for certain payments made by the Company. However, certain indemnification payments may not be covered under the Companys directors and
officers insurance coverage.
Intellectual Property and Product Liability Indemnification: The Company routinely sells products with a limited intellectual property and product liability indemnification included in the terms of sale. Historically, the Company has
had only minimal and infrequent losses associated with these indemnities. Consequently, any future liabilities resulting from these indemnities cannot reasonably be estimated or accrued.
Product Warranty Liabilities
The Companys standard terms of sale provide its customers with a warranty against faulty workmanship and
the use of defective materials. These warranties exist for a period of eighteen months after the date we ship the product to our customer or for a period of twelve months after the customer resells our product, whichever comes first. The Company
does not offer separately priced extended warranty or product maintenance contracts. The Companys liability associated with this warranty is, at the Companys option, to repair the product, replace the product or provide the customer with
a credit. The Company also sells products to customers under negotiated agreements or where the Company has accepted the customers terms of purchase. In these instances, the Company may make additional warranties, for longer durations
consistent with differing end-market practices, and where the Companys liability is not limited. Finally, many sales take place in situations where commercial or civil codes, or other laws, would imply various warranties and restrict
limitations on liability. In the event a warranty claim based on defective materials exists, the Company may be able to recover some of the cost of the claim from the vendor from whom the material was purchased. The Companys ability to recover
some of the costs will depend on the terms and conditions to which the Company agreed when the material was purchased. When a warranty claim is made, the only collateral available to the Company is the return of the inventory from the customer
making the warranty claim. Historically, when customers make a warranty claim, the Company either replaces the product or provides the customer with a credit. The Company generally does not rework the returned product.
The Companys policy is to accrue for warranty claims when
both a loss is probable and can be estimated. This is accomplished by reserving for estimated sales returns and estimated costs to rework the product at the time the related revenue is recognized. Reserves for sales returns and liabilities for
warranty claims have historically not been material. See Note 2 for further information on the Companys revenue recognition policy.
In some instances, customers may make claims for costs they incurred or other damages. Any potentially material liabilities associated with
these claims are discussed in this Note under the heading Legal Proceedings.
Environmental Remediation Liabilities
The Companys operations and facilities are subject to U.S. and foreign laws and regulations governing the protection of the environment
and the Companys employees, including those governing air emissions, water discharges, the management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites. The Company could incur substantial costs, including
cleanup costs, fines or civil or criminal sanctions, or third-party property damage or personal injury claims, in the event of violations or liabilities under these laws