Item 1.01.
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Entry into a Material Definitive Agreement
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On December 12, 2017, Western Digital
Corporation (
Western Digital
) announced a settlement with Toshiba Corporation (
Toshiba
) resolving the previously disclosed litigation and arbitration proceedings (the
Proceedings
) related to
the transfer by Toshiba of its interests in the NAND flash memory joint ventures with certain of Western Digitals SanDisk subsidiaries to its subsidiary, Toshiba Memory Corporation (
TMC
), and the proposed sale of TMC to a
consortium of investors led by Bain Capital (as defined below) (the
Bain Consortium
). In addition to the settlement with Toshiba, Western Digital entered into a settlement agreement with Bain Capital and certain other agreements
with TMC related to the operation of the joint ventures.
Y6 Facility Agreement
In connection with the settlement with Toshiba, on December 12, 2017, Western Digital entered into a Y6 Facility Agreement (the
Y6 Facility Agreement
) by and among Western Digital, SanDisk LLC, SanDisk (Cayman) Limited, SanDisk (Ireland) Limited, SanDisk Flash B.V. (together,
SanDisk
), Flash Partners, Ltd. (
FPL
), Flash
Alliance, Ltd. (
FAL
), Flash Forward Ltd. (
FFL
, together with FPL and FAL, the
Joint Ventures
) and TMC, setting forth their agreement regarding the construction and operation of a new
300-millimeter
wafer fabrication facility in Yokkaichi, Japan, referred to as Fab 6. The primary purpose of Fab 6, which is located adjacent to the fabrication facilities in Yokkaichi currently utilized
by the Joint Ventures (together with Fab 6, the
Yokkaichi Facility
), is to provide cleanroom space to continue the transition of the parties existing 2D NAND manufacturing capacity to BiCS 3D NAND manufacturing capacity. The
Y6 Facility Agreement establishes terms for the manufacture of NAND in Fab 6 and amends the existing agreements governing the Joint Ventures to provide for their use of Fab 6.
TMC owns and is funding the construction of Fab 6. The shell is being built in two phases of substantially similar size, and the cleanroom
within each such phase is being built in two phases of substantially similar size (i.e., a total of four phases). As previously announced by TMC, TMC has already begun and will continue to unilaterally implement an initial investment in NAND
manufacturing equipment to be installed in Fab 6 (
Phase I
). As TMC is implementing Phase I on its standalone capacity at the Yokkaichi Facility, TMC will exclusively receive the output associated with Phase I. Western Digital will
participate through the Joint Ventures from the subsequent equipment investment for Fab 6 (
Phase II
) and will receive output associated with Phase II beginning in the second half of calendar 2018.
Under the Y6 Facility Agreement, Western Digital is committed to fund 50% of Fab 6s
start-up
costs, as well as 50% of the Joint Ventures portion of Phase II. Western Digitals share of the initial commitment is expected to be approximately $950 million, mostly for equipment investments and some
start-up
costs to be incurred primarily through calendar 2018. Western Digital is also required under the Y6 Facility Agreement to prepay approximately $60 million in January 2018 toward the Fab 6
building depreciation, to be credited against future wafer charges. Western Digital expects to fund its portion of the initial commitment and building depreciation prepayment with cash on hand as well as through other financing sources. Beyond Phase
II, each of TMC and Western Digital has some flexibility as to the extent and timing of its participation in any BiCS 3D NAND transitions or capacity expansions using Fab 6.
Additionally, Western Digital and TMC intend to enter into definitive agreements in due course applicable to Western Digitals
participation in TMCs wafer fabrication facility to be constructed in Iwate, Japan (the
Iwate Facility
). Under the Y6 Facility Agreement, TMC and Western Digital have agreed that Western Digitals participation in the
manufacture of BiCS 3D NAND at the Iwate Facility shall be on terms substantially similar to the terms that apply to the manufacture of BiCS 3D NAND at the Yokkaichi Facility subject to certain conditions, including with respect to Western
Digitals and TMCs respective levels of investment at the Iwate Facility.
In connection with their entry into the Y6 Facility
Agreement, Western Digital, SanDisk and TMC have also agreed to, among other things, (i) extend their joint research and development activities at the Yokkaichi Facility to Fab 6 and (ii) mutually contribute to, and indemnify each other
and the Joint Ventures for, certain environmental remediation costs or liabilities resulting from Fab 6s operations.
Settlement Agreements
On December 12, 2017, Western Digital entered into a Confidential Settlement and Mutual Release Agreement (the
Toshiba Settlement
Agreement
) by and among Western Digital, SanDisk, Toshiba and TMC. Under the Toshiba Settlement Agreement, the parties agreed to withdraw and seek dismissal of the Proceedings and mutually release each other from all claims relating to,
among other things, (i) the transfer of Toshibas equity interests in the Joint Ventures to TMC, (ii) Toshibas restrictions on Western Digitals access to shared databases and networks relating to the Joint Ventures and
refusal to ship certain engineering wafers and samples to SanDisks affiliates (the
Access Restrictions
), (iii) TMCs decision to invest unilaterally in Phase I of Fab 6 and (iv) the sale of TMC to K.K. Pangea, a
Japanese corporation (
Pangea
) that will be owned, as of the closing of the sale, by certain members of the Bain Consortium (the
TMC Sale
). In addition, Western Digital and SanDisk agreed to consent to the
transfer of Toshibas interests in the Joint Ventures to TMC, the assignment of all agreements relating to the Joint Ventures by Toshiba to TMC and the sale of TMC to K.K. Pangea, which will be owned, as of the closing of the sale, by certain
members of the Bain Consortium. Toshiba and TMC have agreed to end the Access Restrictions. For a period of three years following the closing of the TMC sale (the
Restricted Period
), Western Digitals consent shall be
required for any issuance or transfer of equity securities, voting rights or control in TMC by TMC, Toshiba, Bain Capital or their respective affiliates to certain restricted parties (each, a
Restricted Party
), subject to certain
limited exceptions. These transfer restrictions would terminate in the event that a Restricted Party acquires or controls Western Digital or if the TMC Sale does not close (subject to reinstatement if TMC later consummates certain transactions with
Bain Capital). The Toshiba Settlement Agreement also terminated the Transition Agreement by and between SanDisk LLC, SanDisk Flash B.V. and Toshiba, dated as of July 13, 2010, under which Toshiba had the option to purchase SanDisks
interests in FFL upon a change of control of SanDisk resulting in control of SanDisk by certain designated companies.
On
December 12, 2017, Western Digital and SanDisk also entered into a Confidential Settlement Agreement and Mutual Release (the
Bain Settlement Agreement
and, together with the Toshiba Settlement Agreement, the
Settlement Agreements
) with Bain Capital Private Equity, L.P., BCPE Pangea Cayman, L.P., BCPE Pangea Cayman2, Ltd., Bain Capital Fund XII, L.P., Bain Capital Asia Fund III, L.P. and Pangea (together,
Bain
Capital
) on terms substantially similar to the terms of the Toshiba Settlement Agreement, subject to certain transfer restrictions on Bain Capital.
Extension of Joint Venture Agreement
In connection with the settlement with Toshiba, on December 12, 2017, Western Digital also entered into an FAL Commitment and Extension
Agreement (the
FAL Extension Agreement
) by and among Western Digital, SanDisk LLC, SanDisk (Ireland) Limited and TMC, under which the parties thereto extended the term of FAL to December 31, 2029. Western Digital, TMC and the
applicable SanDisk entities also extended the term of FFL to December 31, 2027. The term of FPL was previously extended to December 31, 2029.
The foregoing description of the Y6 Facility Agreement, the Settlement Agreements and the FAL Extension Agreement is not intended to be
complete and is qualified in its entirety by reference to the text of these agreements, which Western Digital intends to file as exhibits to its Quarterly Report on Form
10-Q
for the fiscal quarter ending
December 29, 2017.