Foundry Venture Agreement

EXHIBIT 10.23


FOUNDRY VENTURE AGREEMENT


This Foundry Venture Agreement ("Foundry Venture Agreement") is entered into as of June ___, 1997, by and between SanDisk Corporation, a corporation with its headquarters in California ("SanDisk") and United Microelectronics Corporation, a corporation organized under the laws of the Republic of China ("UMC").


SanDisk understands that UMC is in discussions with others who are interested in participating in USI. SanDisk agrees that UMC may commit to such others (collectively referred to in this Foundry Venture Agreement as "OtherVen") in such amounts as UMC deems appropriate, subject to the commitments made to SanDisk hereunder, and provided further that each OtherVen must commit in writing to comply with and be bound by this Foundry Venture Agreement as if specifically named as a Venturer herein. Notwithstanding such OtherVen, SanDisk will be fully bound by and is committed to the terms of this Foundry Venture Agreement.


SanDisk, OtherVen and UMC (collectively "the Venturers") agree:


1. PURPOSE AND FORMATION OF VENTURE


1.1 Subject to the Technology Transfer and License Agreement and the Foundry Capacity Agreement referred to in paragraphs 3 and 5 below (collectively, the "Venture Agreements"), the Venturers each commit to form and invest in a corporation to be formed under the laws of the Republic of China ("R.O.C.") for purposes of engaging in the business of providing integrated circuit foundry services, making and selling integrated circuits in wafer, die and packaged form as generally described in the USI Business Plan referred to in paragraph 1.4 below.


1.2 UMC has arranged for the formalities of submission to the Administration of the Science Based Industrial Park for approval of and then for incorporation of the corporation contemplated under this Foundry Venture Agreement, using a name mutually agreeable to the Venturers (for purposes of this Foundry Venture Agreement, the corporation contemplated under this Foundry Venture Agreement shall be referred to as "USI."). All reasonable expenses, up to a maximum of USD [*] (exclusive of fees to be paid to the government), incurred by UMC pursuant to this paragraph 1.2 with respect to such incorporation shall be subject to reimbursement by USI if the USI shares contemplated under Paragraph 4 are not issued to UMC as described below.


1.3 Subject to the terms of the Venture Agreements, USI shall engage in the business of foundry services, and develop and improve processing and manufacturing techniques in order to improve its competitiveness in the foundry area.


- ------------ *Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.


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1.4 UMC has submitted to the Science Based Industrial Park a written business plan (the "USI Business Plan") for the operations and for the capital structure and expenditures of USI; this USI Business Plan is subject to approval by the Administration of the Science Based Industrial Park; and, subject to the conditions of confidentiality in Paragraph 9.7 below, will be made available to the Venturers. As part of the USI Business Plan, the Venturers contemplate USI will apply for "tax holiday" and/or other favorable tax treatment under R.O.C. law.


2. INITIAL OPERATIONS


2.1 The Venturers generally contemplate the Building and Construction Schedule for USI as shown in Attachment A and the Production and Business Schedule for USI as shown in Attachment B.


2.2 Under mutually agreeable written terms to be negotiated between UMC and USI, USI shall lease from UMC the land generally described in Attachment C, and commonly known as UMC's Module C, located at No. 3 Li-Hsin Road Science Based Industrial Park, Hsin Chu City, Taiwan, R.O.C.


(a) The Venturers contemplate that except as agreed by them in writing, the terms of this lease will be at the market rate which would be negotiated between a lessor and lessee dealing with one another at arms length in the context of an independent lease and not based on some other business relationship.


(b) Without limiting the foregoing, any and all services and supplies (including without limitation power, water, gas and/or materials) will not be part of such lease, and will be the subject of such terms as may be negotiated by USI.


(c) The lease term for Module C will be for an initial period of five years, and USI will have the right to extend the lease for up to two additional five year periods under terms to be stated in the lease agreement. USI will occupy the land for this Module as its principal place of business, and will utilize this land for its production facility.


2.3 The Venturers shall each cooperate to build out this land as USI's production facility as quickly and efficiently as commercially reasonable, provided however that this Paragraph 2.3 shall not impose any obligation to provide additional funding beyond that expressly required under this Foundry Venture Agreement.


3. TECHNOLOGY TRANSFER AND MANAGERIAL SUPPORT


Promptly after USI's formation, UMC and USI will enter into a mutually agreeable Technology Transfer and License Agreement pursuant to which UMC will transfer to USI for


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use in USI facilities the Licensed Process (as defined in the Technology Transfer and License Agreement) and related manufacturing know-how. The execution of the Technology Transfer and License Agreement is an essential aspect of the relationship contemplated under this Foundry Venture Agreement.


4. INVESTMENT COMMITMENTS & STOCK PURCHASE AND SHAREHOLDER
AGREEMENTS & REPRESENTATION ON BOARD OF DIRECTORS


4.1 The Venturers will purchase shares in USI as follows:


(a) The total capital of USI shall be USD $1 Billion: USD $600 million will be by investment in standard shares, and, as may be approved by the USI board of directors, USD $400 million (plus any other additional capital required) will be by way of participation in UMC credit facilities and/or bank loans, and/or will be by way of other debt and/or equity to the extent such other debt and equity is approved in writing by each of the Venturers. Notwithstanding anything to the contrary, (i) UMC shall not be required to provide participation on behalf of USI in UMC's credit facilities in any amount in excess of USD $400 million, and (ii) provided further that, to the extent demanded by the lender and subject to the requirements of the law, UMC shall guarantee such bank loans made directly to USI but only so long as and to the extent that the total USI capital financed by way of participation in credit facilities, bank loans, debt and/or such other equity (excluding the investment stated in the table of paragraph 4.1(b) below) is less than and/or equal to USD $410 million.


(b) The Venturers will invest according to the following table:


- --------------------------------------------------------------------------------
$ investment
represented by
Standard standard share
share % (USD millions) Technical share % - -------------------------------------------------------------------------------- SanDisk 10% $60M 0% - -------------------------------------------------------------------------------- OtherVen TBD% $TBD 0% - -------------------------------------------------------------------------------- UMC, UMC Affiliates* 40% $240M 15% USI employees, UMC employees** & R.O.C. financial institutions - -------------------------------------------------------------------------------- Total shareholding 85% $510M 15% - --------------------------------------------------------------------------------


*For purposes of this Foundry Venture Agreement, "UMC Affiliates" shall mean those entities: (i) nominated by UMC and approved by the Venturers in writing, (ii) which UMC directly and/or indirectly controls, and/or (iii) in which UMC directly or indirectly owns a majority interest.


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**UMC employees who intend to become (and who later become) regular employees of USI will be among the USI shareholders pursuant to this table. The UMC employees and the eligible USI employees shall be required to pay the value shown in this table for their standard shares.


(c) The Venturers shall pay in cash for their standard shares as follows:


(i) twenty-five percent (25%) to be paid in full on the later of
September 15, 1995, or when the appropriate governmental approvals for
the formation of USI have been obtained;


(ii) fifty percent (50%) to be paid in full on or before the start of
clean room construction; and


(iii) the remainder, twenty-five percent (25%), to be paid in full on or
before the start of fab production ramp-up.


(d) Subject to the requirements of law and pursuant to the applicable statutory and regulatory rules, the standard shares of the Venturers, of the UMC Affiliates, of the UMC employees, and of the USI employees as shown in paragraph 4.1(b) above shall vest upon payment for the shares involved; UMC's technical shares shall vest upon completion of first silicon for any process licensed from UMC having feature sizes of 0.35u or less; the shares of UMC Affiliates (to the extent fully paid) shall be issued as UMC requests; and the shares of UMC and UMC Affiliates shall be transferrable amongst UMC and UMC Affiliates without the necessity of USI's, SanDisk's, and/or OtherVen's prior written consent.


(e) The Venturers' shares shall be common stock, and, to the fullest extent allowable under the law, will be registered in any public offering by USI, provided that with respect to such shares, each Venturer (and all UMC Affiliates holding such shares) must follow and comply with all requirements of R.O.C. law and of the Taiwan Securities and Exchange Commission and of the Taiwan Securities Exchange, including, without limitation, with respect to stand-still, lock-up, and/or other requirements.


(f) Until USI completes a successful offering of its shares on a recognized securities exchange, the shares of the Venturers (and of UMC Affiliates holding such shares) in USI will not be transferable in any manner whatsoever except with the written consent of the Venturers, provided however that any Venturer may transfer its entire right, title and interest in USI (including its proportionate right of first refusal for foundry capacity, the "Foundry Rights") and other rights under the Foundry Venture Agreement and/or Venture Agreements:


(i) once but only to the extent and only as part of a transfer of all or
substantially all of the assets, business and/or ownership of that
Venturer to a transferee subject, with respect to the Foundry Rights, to
the terms of paragraph 4.1(f)(iii) below; and/or


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(ii) once to or between itself and any of its subsidiaries in which, at the
time of such transfer, the transferring Venturer owns at least 50%.


Notwithstanding anything to the contrary:


(iii) the Foundry Rights when and if transferred pursuant to Paragraph
4.1(f)(i) above shall only be exercisable with respect to the manufacture
of products which the transferring Venturer at the time of such transfer
was selling, was designing (as reflected in contemporaneous documents) or
was contemplating designing and selling (as demonstrated in its then
written business plan(s)), and all future revisions and more highly
integrated versions of such products.


(iv) if prior to the completion of a public offering of USI securities on a
recognized securities exchange, any Venturer (or UMC Affiliate holding such
shares) wishes and/or attempts to transfer its shares in USI (other than as
allowed by Paragraph 4.1(f)(i) and/or 4.1(f)(ii)) pursuant to any Court or
other order or law, or as a result of any nonconsensual action by any
authority with jurisdiction, the shares involved will be subject to a right
of first refusal as follows:


(aa) the other Venturers (the "eligible other Venturers") will have
the right to purchase the shares involved at their then fair market
value as determined by a mutually agreeable independent appraiser;


(bb) each such eligible other Venturer will have the right to
purchase such shares on a pro rata basis as determined by the ratio
of their respective shareholding percentages (which, absent any
previously permitted transfers, would be as shown in the table in
Paragraph 4.1(b) above);


(cc) if any such eligible other Venturer elects not to exercise any
portion or all of such right of first refusal within 30 days of the
independent appraisal, such portion of such right of first refusal
will be subject to exercise by the other eligible other Venturer,
and the shares involved will be subject to a right of such other
eligible other Venturer to purchase on the same terms as outlined
above; and


(dd) if the other eligible other Venturer does not commit to
purchase such shares within 60 days of the independent appraisal,
all rights under this Paragraph 4.1(f)(iv) will expire as to such
unpurchased shares.


(g) Subject to the requirements of and to the extent permissible under R.O.C. law, to the extent that USI wishes to offer any equity beyond the USD $600 million referred to in Paragraph 4.1(a) above, each Venturer shall have the right of first refusal to participate in such offering in proportion to its then current respective shareholding.


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4.2 The parties shall in good faith after execution of this Foundry Venture Agreement enter into negotiations regarding audit and information rights to be provided to the Venturers, in order to, among other things, make time ...