Exhibit 10.38
SETTLEMENT AND GENERAL RELEASE AGREEMENT
This Settlement and General Release Agreement (the "Agreement") is
entered into as of November 14, 2003, Taipei time, by and among SanDisk
Corporation, a company incorporated and existing under the laws of the State of
Delaware, United States of America, with its principal business address at 000
Xxxxxxx Xxxxx, Xxxxxxxxx, Xxxxxxxxxx, XXX 00000 ("SanDisk"); Xxx and Li, a law
partnership organized and existing under the laws of the Republic of China, with
its principal business address at 0X, Xx. 000, Xxx-Xxx X. Xxxx, Xxxxxx, Xxxxxx,
Xxxxxxxx of China ("L & L"); and the 10 partners (each of whom represents that
such individual is a partner of L&L at the time of execution hereof) and senior
counselor who execute this Agreement below (each individual is hereinafter
individually referred to as a "Member", and collectively as the "Members").
WHEREAS, in or around 2002 to 2003, L&L acted as an agent for SanDisk
in connection with the proposed sale of certain shares of United
Microelectronics Corp. ("UMC"), held by SanDisk.
WHEREAS, in the course of representing SanDisk in the proposed share
sales, a then L&L employee carried out unauthorized sales of approximately 127.8
million of the UMC shares and embezzled the proceeds of such unauthorized sales.
The proceeds embezzled by the said employee according to L&L amounted to
NTD$3,090,876,453 (approximately USD $92 million) (the unauthorized sales and
the subsequent embezzlement are hereinafter referred to as the "Embezzlement")
and, according to SanDisk, were carried on SanDisk's books at a cost of USD
$83,338,828 and a market value of USD $106,623,708 at September 28, 2003.
WHEREAS, by this Agreement the parties seek to resolve claims between
or among the parties arising from the Embezzlement.
NOW, THEREFORE, in consideration of the mutual promises and releases
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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1. L&L shall pay to SanDisk USD $86,276,927 (the "Settlement Amount"),
without any interest, consisting of the First Portion, the Second
Portion, the Third Portion, the Fee Portion and the Fourth Portion, all
as defined below, in settlement of claims between or among the parties
arising from the Embezzlement. In addition, SanDisk shall have the
right to receive in a manner as defined below an additional amount up
to the amount of the Fifth Portion (as defined below).
2. L&L shall pay the Settlement Amount to SanDisk in the following manner:
(a) Payment of USD $20.0 million (the "First Portion") by wire
transfer on or before 10:00 a.m. on November 14, 2003, Taipei
time of immediately available funds in accordance with the
wire transfer instructions set forth below.
[ *** ]
(b) Payment of USD $39,358,750 (the "Second Portion"), without any
interest, by wire transfer of immediately available funds in
accordance with the wire transfer instructions set forth
above, in 16 quarterly installments (as set forth in Schedule
A attached hereto) and to be made by L&L on or before 5:00
p.m. Taipei time on March 20, June 20, September 20 and
December 20 of each year. The Second Portion shall be secured
by a 4-year irrevocable standby letter of credit in the face
amount of USD $37,277,500 issued for the benefit of SanDisk,
by the International Commercial Bank of China (the "Bank") in
the form as set forth in Exhibit A attached hereto and issued
to SanDisk through its advising bank [ *** ] on or before the
close of business on November 14, 2003, California time, which
shall be confirmed by telephone from L&L to the person
designated by SanDisk and via facsimile transmission of a
photocopy of the standby letter of credit provided by the
Bank.
(c) Payment of USD $8,510,000 (the "Third Portion"), without any
interest, by wire transfer of immediately available funds in
accordance with the wire transfer instructions set forth
above, in 16 quarterly installments (as set forth in Schedule
B attached hereto) and to be made by L&L on or before 5:00
p.m. Taipei time on March 20, June 20, September 20 and
December 20 of each year. The Third Portion shall be secured
by a 4-year irrevocable standby letter of credit in the face
amount of USD $8,060,000 issued for the benefit of SanDisk, by
the Bank in the form as set forth in Exhibit B attached hereto
and issued to SanDisk through its advising bank [ *** ] on or
before the close of business on November 14, 2003,
[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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California time, which shall be confirmed by telephone from
L&L to the person designated by SanDisk and via facsimile
transmission of a photocopy of the standby letter of credit
provided by the Bank.
On or before March 20, 2004, L&L shall remit to SanDisk by
wire transfer of immediately available funds in accordance
with the wire transfer instructions set forth above the amount
of USD $69,349 (the "Fee Portion").
(d) Upon the execution of this Agreement, L&L shall extend to
SanDisk a credit of USD $18,338,828 (the "Credit") (the
"Fourth Portion"), without any interest, for legal services
which may be provided to SanDisk (at SanDisk's discretion) by
L&L, the Members and/or other affiliates of L&L (hereinafter
collectively referred to as "Xxx and Li" for purposes of
paragraph 2(d)), on or after January 1, 2004, over 18 years
pursuant to the schedule attached hereto as Exhibit C. To the
extent that the amount payable to Xxx and Li for legal
services provided by Xxx and Li in Taiwan and Mainland China
(together, the "Region") during any one of the
applicable years is more than the amount shown in Exhibit C
for that year, SanDisk may draw additional credit from future
years until the Credit is exhausted. Subject to the
last sentence of this paragraph, to the extent that the amount
payable to Xxx and Li for legal services provided by Xxx and
Li during any one of the applicable years is less than the
amount shown in Exhibit C for that year, the difference (the
"Excess Amount") shall be dispersed by L&L no later than
January 15th of the following year as follows: (i) Xxx and Li
shall pay one-third of such Excess Amount to SanDisk
and SanDisk shall donate such amount to its designated account
at Community Foundation Silicon Valley ("CFSV")
(xxx.xxxx.xxx); (ii) Xxx and Li shall donate one-third of such
Excess Amount to the Taiwan Red Cross, with consideration
given by L&L to SanDisk for positive goodwill between SanDisk
and Xxx and Li, and (iii) Xxx and Li shall use one-third of
such Excess Amount to generate positive goodwill towards
SanDisk and Xxx and Li in the business and/or academic
community in the Region through the sponsoring of a joint Xxx
and Li/SanDisk lecture program ("Lecture Program") to promote
integrated education in business, technology and law in the
Region. The curriculum and budget of the Lecture Program shall
be presented to the Chief Executive Officer of SanDisk for
review on a semi-annual basis. All amounts paid by SanDisk to
CFSV will be accounted for as a charitable donation made by
SanDisk and L&L will share with SanDisk recognition in the
Region for its
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donations. Either of SanDisk and Xxx and Li may, through a
third party independent Audit Firm (which firm may be such
party's primary outside auditing firm), annually audit, at
each party's respective expense, the amount and recipient of
the donations made by either party and the amount spent on the
Lecture Program. [ *** ] Notwithstanding the foregoing, L&L
may, at its option, defer part or all of the Excess Amount
that would otherwise be due to SanDisk in years 2004, 2005,
2006, and 2007 pursuant to subparagraph (i) and/or (ii) above,
by amortizing and paying such amounts to SanDisk over the
years 2008 - 2021 (with the first such payment being made on
January 15, 2009 and the last such payment being made on
January 15, 2022).
(e) In the event that any payment due under this paragraph 2 falls
on a date on which Taiwanese banks are generally not open for
business, then such payment shall be due on the next
succeeding day that Taiwanese banks are generally open for
business.
3. To the extent that any assets, money, shares, and/or other rights or
property of any kind or nature whatsoever as a result of, or relating
to, the Embezzlement (the "Stolen Assets") are recovered, or claims for
damages against any third parties are successful, SanDisk and L&L shall
share such Stolen Assets and damages (together "Recovered Amounts")
less Expenses (as defined below), in the manner set forth herein.
[***].
4. All amounts payable hereunder are net of and shall not take into
account any applicable withholding taxes and other applicable R.O.C.
taxes, and the parties hereto expressly acknowledge that L&L shall be
responsible for any R.O.C. taxes (including withholding taxes)
resulting from this Agreement and payments hereunder. To the extent
that as a result of payments to SanDisk under this Agreement, SanDisk
receives any foreign tax credits under applicable U.S. tax laws for
taxes paid or withheld by L&L (or any Member making the payment) that
reduce the aggregate amount of taxes otherwise payable by SanDisk to
all taxing authorities in the U.S., SanDisk shall reimburse L&L for
such amounts to the extent that L&L can provide SanDisk withholding
certifications issued by the R.O.C. tax authority evidencing such
withheld amounts.
5. Any one or more of the following events, acts or occurrences shall
constitute an event of default (each an "Event of Default"):
(a) A voluntary petition for bankruptcy shall be instituted by L&L
under applicable R.O.C. law; the dissolution, winding up or liquidation
of L&L as a partnership; or there shall be commenced against L&L an
involuntary petition seeking bankruptcy of
[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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L&L under applicable R.O.C. law and (i) L&L fails to contest such
involuntary petition, or (ii) a final and conclusive court order
adjudicating bankruptcy shall have been issued; and provided, further,
that such involuntary petition shall not be filed, directly or
indirectly, by SanDisk or its officers, directors, employees, agents,
legal counsel, attorneys, advisors, subsidiaries or stockholders acting
on SanDisk's behalf or for SanDisk's benefit, or by the afore-mentioned
persons of SanDisk's subsidiary except where L&L is in default of its
payment obligations under this Agreement;
(b) L&L shall fail to pay as and when due (whether at stated
maturity, upon acceleration, or otherwise) any payment to SanDisk of
the Second Portion or the Third Portion; and
(c) L&L and/or any Member shall transfer or assign this Agreement
in violation of paragraph 10.
If there shall occur an Event of Default described in subparagraph (a),
(b) or (c) above, SanDisk shall be entitled, in addition to any other
rights it might have, to (i) immediately draw down the entire amounts
of the letter of credits specified in paragraphs 2(b) and (c) hereof,
and (ii) seek legal enforcement of the remaining unpaid portions of the
Settlement Amount; provided that SanDisk shall have no obligation to
donate to charitable organizations or the Lecture Program any amounts
so received that would otherwise be due under the Credit provisions of
this Agreement.
The parties hereto acknowledge and agree that the foregoing rights of
SanDisk under this paragraph 5 are not exclusive, and SanDisk shall be
entitled to exercise all rights and remedies it may have in the event
of any breach or default under this Agreement.
6. Each of SanDisk and L&L represents that it has obtained all necessary
approvals, including the approval of its Board of Directors or other
governing body, and any approvals required under applicable law, for
the execution of this Agreement.
7. SanDisk hereby releases and forever discharges L&L, the Members and any
counselor or employee of L&L (except for any person that conspired,
directly or indirectly, in the Embezzlement) from and against all
actions, causes of action, claims, suits, debts, liens, damages,
judgments or demands whatsoever, that SanDisk
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now has, may have had, or hereafter may claim to have, against L&L, the
Members and any counselor or employee of L&L (except for any person
that conspired, directly or indirectly, in the Embezzlement) in
connection with the Embezzlement; provided, however, that nothing
stated in this paragraph 7 shall release or waive any obligations,
responsibilities, and/or liabilities arising out of this Agreement.
So long as L&L has paid the First Portion and delivered the standby
letters of credit for the Second Portion and the Third Portion, any and
all Members, counselors and employees of L&L (except for any person
that conspired, directly or indirectly, in the Embezzlement) shall be
discharged from any and all personal liabilities arising out of this
Agreement or by operation of law, and SanDisk's remedy and recourse
under this Agreement shall be limited to the partnership assets of L&L.
8. L&L, and each of the Members and any counselor or employee of L&L,
hereby releases and forever discharges SanDisk, its officers,
directors, employees, agents and subsidiaries (and officers, directors,
employees and agents of its subsidiaries) from and against all actions,
causes of action, claims, suits, debts, liens, damages, judgments or
demands whatsoever, that L&L, and/or each of the Members, any counselor
or employee of L&L, now have, may have had, or hereafter may claim to
have, against SanDisk, its officers, directors, employees, agents and
subsidiaries (and officers, directors employees and agents of its
subsidiaries) in connection with the Embezzlement; provided, however,
that nothing stated in this paragraph 8 shall release or waive any
obligations, responsibilities, and/or liabilities arising out of this
Agreement.
9. The parties intend that this Agreement shall extend to any and all
claims that they may have, known or unknown related to the
Embezzlement.
Each of SanDisk, Xxx and Li, the Members and employees of Xxx and Li
has been made aware by its respective legal counsel of the provisions
of Section 1542 of California Civil Code, and each expressly
relinquishes all rights and benefits which they have, had, or may have
had, under that section or any analogous section of R.O.C. law which
states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
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TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
10. This Agreement shall be binding on the successors and permitted assigns
of L&L and of SanDisk. This Agreement may not be assigned or otherwise
transferred by either party without the prior written consent of the
other party, and any such assignment without such consent shall be
void.
11. Any disputes or claims arising out of or in connection with this
Agreement shall be resolved by arbitration conducted in accordance with
the R.O.C. Arbitration Law. The arbitration shall be conducted in
Taipei, by a panel of three arbitrators. Each party in the dispute
shall appoint one arbitrator, and the two arbitrators shall jointly
appoint the third arbitrator. If the two arbitrators cannot agree on
the third arbitrator, the third arbitrator shall be appointed by the
Arbitration Association of the Republic of China. The parties agree
that the arbitrators in any such arbitration shall not be empowered to
add to, subtract from, or modify, alter or amend the terms of this
Agreement.
The arbitration proceedings shall be conducted in the English language,
including, without limitation, any oral or written communications. The
decision of the arbitrators shall be final and binding on the parties
to the arbitration, and shall be enforceable by all available
enforcement mechanisms or proceedings in any court having jurisdiction
under any applicable law. Each party shall bear its own legal fees and
expenses.
12. This Agreement shall be governed by the laws of the Republic of China.
13. This Agreement constitutes the entire agreement between the parties
with respect to its subject matter and supersedes any and all prior
agreements, understandings, promises, warranties or representations
made by each to the other concerning the subject matter.
14. This Agreement may be modified or amended only by a written agreement
duly executed by the parties. No waiver of any of the terms or
provisions in this Agreement is valid unless it is written and duly
executed by the party against whom the waiver is to be enforced.
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15. This Agreement shall be executed in the English language.
16. SanDisk and L&L will each simultaneously issue a separate press release
to announce this Agreement in the U.S. and R.O.C., respectively.
SanDisk's announcement will contain only such financial terms as are
required by the disclosure requirements of the rules and regulations of
the United States Securities and Exchange Commission. Neither party
shall disparage the other party in any public statements.
17. L&L shall have the right to prepay all or part of the Second and Third
Portions, and in case of any prepayment by L&L, the prepaid portion of
the Second and Third Portions, including any Recovered Amounts received
by SanDisk for settlement of the Second and Third Portions, shall be
discounted by a rate of [ *** ] per annum.
18. Whenever in connection with remitting Recovered Amounts to SanDisk L&L
is required to obtain all approvals from relevant governmental
authorities under this Agreement, L&L agrees and undertakes to seek
such approvals as quickly as possible. To the extent that any Recovered
Assets are in a form other than cash or liquid securities, such assets
shall be sold and converted to cash as soon as reasonably possible in
accordance with a plan approved by both SanDisk and L&L.
19. SanDisk shall instruct its legal counsel, attorneys, professional
advisors, agents, or any third party retained by and/or affiliated with
it not to disclose their role in the negotiation or execution of this
Agreement nor make any public comment about this Agreement or any
matters giving rise or pertaining to this Agreement.
20. This Agreement is executed as a compromise of disputed claims without
admission of any wrongdoing or liability, nor do the parties intend
this Agreement to be construed as such. Nothing in this Agreement may
be used in any litigation or arbitration other than for enforcement of
this Agreement.
21. For tax reporting and administration purposes, either party receiving
payments or properties from the other party, including those received
by way of accelerated payments under paragraphs 3(b), (c), (d) and (e)
above, shall issue a signed receipt therefor.
[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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22. To the extent that SanDisk determines to obtain a confirming letter of
credit, L&L will coordinate with the Bank to take such actions as the
Bank deems reasonable and necessary to procure such confirming letter
of credit by SanDisk.
23. This Agreement shall take effect upon execution by the parties;
provided that the release and waiver under paragraphs 7, 8 and 9 shall
not become effective until such time as L&L has wired the First Portion
pursuant to paragraph 2(a) and SanDisk has received the confirmations
of the issuance of the letters of credit pursuant to paragraphs 2(b)
and 2(c).
24. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which counterparts shall together constitute but
one and the same agreement. This Agreement shall not become effective
until all counterparts have been executed by each party hereto and
exchanged by facsimile. The parties agree that signatures delivered via
facsimile shall have the same force and effect as if delivered in
manually executed original form.
[This space intentionally left blank.]
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SANDISK CORPORATION XXX AND LI ATTORNEYS-AT-LAW
/s/ Xxx Xxxxxx /s/ X.X. Xxxx
------------------------------------- ---------------------------------------
Name: Xxx Xxxxxx By: X.X. Xxxx
Title: President & CEO Title: Senior Partner
MEMBERS
/s/ Xxxx X.X. Xxx
---------------------------------------
Name: Xxxx X.X. Xxx
Title Senior Partner
/s/ Xxxx-Xxx Xx
---------------------------------------
Name: Xxxx-Xxx Xx
Title: Senior Counselor
/s/ X.X. Xxxx
---------------------------------------
Name: X.X. Xxxx
Title: Senior Partner
/s/ Nigel N.T. Li
---------------------------------------
Name: Nigel N.T. Li
Title: Partner
/s/ Xxxxxxxx X. Xxx
---------------------------------------
Name: Xxxxxxxx X. Xxx
Title: Partner
/s/ X.X. Xxx
---------------------------------------
Name: X.X. Xxx
Title: Partner
/s/ Bo-Sen Von
---------------------------------------
Name: Bo-Sen Von
Title: Partner
/s/ X.X. Xxxxxx
---------------------------------------
Name: X.X. Xxxxxx
Title: Partner
/s/ Xxxxx X. Fan
---------------------------------------
Name: Xxxxx X. Fan
Title: Partner
/s/ Xxxxx Xxxx
---------------------------------------
Name: Xxxxx Xxxx
Title: Partner
/s/ C.T. Xxxxx
---------------------------------------
Name: C.T. Xxxxx
Title: Partner
Signed: November 14, 2003, Taipei time.
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