EXHIBIT 10.2
FOIA Confidential Treatment Requested
EXECUTION VERSION

     
 
     

OPERATING AGREEMENT OF FLASH ALLIANCE, LTD.
Dated as of July 7, 2006
between
TOSHIBA CORPORATION
and
SANDISK (IRELAND) LIMITED

     
 
     

 

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Table of Contents

              Page
1. DEFINITIONS, RULES OF CONSTRUCTION AND DOCUMENTARY CONVENTIONS
    1  
 
       
1.1 Certain Definitions
    1  
1.2 Additional Definitions
    1  
1.3 Rules of Construction and Documentary Conventions
    2  
 
       
2. GENERAL PROVISIONS
    2  
 
       
2.1 Ownership of Shares; Capital Increase
    2  
2.2 Name
    3  
2.3 Principal Office
    3  
2.4 Term; Extension
    3  
2.5 Scope of Activity
    3  
2.6 Powers
    3  
2.7 Articles of Incorporation
    3  
2.8 Company Actions
    3    
3. BUSINESS OPERATIONS
    3  
 
       
3.1 Business Dealings with the Company
    3  
3.2 Other Activities
    4  
3.3 Personnel
    4  
3.4 Business Plans and Related Matters
    6  
3.5 Standard of Care
    7  
3.6 Use of Names
    7  
 
       
4. ACTIONS BY THE SHAREHOLDERS
    7  
 
       
4.1 Matters Requiring the Approval of the Shareholders
    8  
4.2 General Meetings of Shareholders
    10  
4.3 Restrictions on Shareholders
    10  
 
       
5. MANAGEMENT AND OPERATIONS OF COMPANY
    11  
 
       
5.1 Meetings of the Directors
    11  
5.2 Officers; Employees
    16  
5.3 Y4 Representatives; Y4 Operating Committee
    16  
5.4 Insurance
    17  
5.5 Records
    17  
 
       
6. CAPITAL CONTRIBUTIONS; DISTRIBUTIONS
    18  
 
       
6.1 Capital Contributions
    18  
6.2 Distributions
    18  
6.3 No Interest
    19  
6.4 Return of Capital Contributions
    19  

 

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Table of Contents

              Page
7. ADDITIONAL CONTRIBUTIONS
    19  
 
       
8. ACCOUNTING AND TAXATION
    19  
 
       
8.1 Financial Accounting Conventions
    19  
8.2 Maintenance of Books of Account
    20  
8.3 Financial Statements
    20  
8.4 Other Reports and Inspection
    22  
8.5 Characterization
    22  
8.6 Deposit of Funds
    22  
 
       
9. SHARES OF CONTRIBUTION; DISPOSITION OF SHARES
    22  
 
       
9.1 Restrictions on Transfer of Shares
    22  
9.2 Admission of New Shareholders
    24  
9.3 Withdrawal Prohibited
    24  
9.4 Purchase of Additional Interest
    24  
 
       
10. CERTAIN AGREEMENTS OF THE SHAREHOLDERS
    25  
 
       
10.1 Taxes and Charges; Governmental Rules
    25  
10.2 Further Assurances
    25  
10.3 Dispute Resolution; Deadlock
    25  
10.4 Remedies Upon Event of Default; Termination on Breach
    27  
10.5 Mechanics of Sale
    27  
 
       
11. DISSOLUTION
    28  
 
       
11.1 Events of Dissolution
    28  
11.2 Dissolution by Agreement
    28  
11.3 Dissolution Upon Event of Default
    28  
11.4 Dissolution by Unilateral Option
    29  
11.5 Dissolution upon Notice
    29  
11.6 Financing Defaults
    29  
11.7 Winding Up
    30  
11.8 Liquidation Proceeds
    30  
 
       
12. INDEMNIFICATION AND INSURANCE
    30  
 
       
12.1 Indemnification
    30  
12.2 Insurance
    31  
12.3 Indemnification by the Shareholders
    31  
12.4 Assertion of Claims
    32  
 
       
13. MISCELLANEOUS
    32  
 
       
13.1 Governing Law
    32  
13.2 Effectiveness
    32  

 

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Table of Contents
(continued)

         
EXHIBITS
       
 
       
Exhibit A
  -   Articles of Incorporation of the Company
 
       
SCHEDULES
       
 
       
Schedule 2.1(b)
  -   Committed Additional Capital Contributions
Schedule 5.3
  -   Management and Operating Reports
Schedule 6.1
  -   Capital Contributions
Schedule 8.3
  -   Monthly Reports

 

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EXECUTION VERSION
          OPERATING AGREEMENT of FLASH ALLIANCE, LTD., a Japanese limited
liability company (tokurei yugen kaisha), dated as of July 7, 2006, between
TOSHIBA CORPORATION, a Japanese corporation (“Toshiba”), and SANDISK
(IRELAND) LIMITED, a company organized under the laws of the Republic of Ireland
(“SanDisk”).
          WHEREAS, Flash Alliance, Ltd. (the “Company”) is a Japanese limited
liability company (tokurei yugen kaisha);
          WHEREAS, pursuant to that certain Share Purchase Agreement, dated as
of the date hereof, by and between SanDisk and Toshiba, concurrently with the
execution hereof, SanDisk has acquired from Toshiba 1,497 shares in the Company
(“Shares”), representing 49.9% of all issued and outstanding Shares;
          WHEREAS, Toshiba holds the remaining 1,503 Shares, representing 50.1%
of all issued and outstanding Shares; and
          WHEREAS, SanDisk and Toshiba (each a “Shareholder”) desire to enter
into this Operating Agreement in order to provide, subject to the Companies Act
and the Articles of Incorporation of the Company (as amended from time to time,
the “Articles”) for (i) the business of the Company, (ii) the conduct of the
Company’s affairs and (iii) the rights, powers, preferences, limitations and
responsibilities of the Company’s Shareholders, employees and Directors.
          Accordingly, Toshiba and SanDisk agree as follows:

1.   Definitions, Rules of Construction and Documentary Conventions   1.1  
Certain Definitions.   (a)   Capitalized terms used but not defined in the main
body of this Agreement shall have the respective meanings assigned to them in
that certain Flash Alliance Master Agreement, dated as of the date hereof, among
SanDisk, SanDisk Corporation and Toshiba (the “Master Agreement”) or in
Appendix A to the Master Agreement.   (b)   As used herein, the term “Agreement”
means this Operating Agreement together with any Exhibits, Schedules, Appendices
and Attachments hereto.   1.2   Additional Definitions. The following
capitalized terms used in this Agreement shall have the respective meanings
assigned in the sections indicated below:

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EXECUTION VERSION

      Term   Defined in
“Appendix A”
  Recitals
“Articles”
  Recitals
“Bankruptcy Event”
  Section 11.1(f)
“Claim”
  Section 12.4(a)
“Company”
  Recitals
“Deadlock”
  Section 10.3(c)
“Deadlock Dissolution Notice”
  Section 10.3(e)
“Defaulting Shareholder”
  Section 10.4
“Designated Individuals”
  Section 10.3(b)
“Director(s)”
  Section 3.5(a)
“Executive Vice President”
  Section 5.2(a)
“General Meeting of Shareholders”
  Section 4.1(b)
“Indemnified Party”
  Section 12.4(a)
“Indemnifying Party”
  Section 12.4(a)
“Initiating Shareholder”
  Section 10.3(e)
“Losses”
  Section 12.1(a)
“Master Agreement”
  Section 1.1(a)
“Nondefaulting Shareholder”
  Section 10.4
“Notified Party”
  Section 11.5
“Notifying Party”
  Section 11.5
“Permissible Assignee”
  Section 9.1(c)
“Permissible Assignment Agreement”
  Section 9.1(c)
“President”
  Section 5.2(a)
“Responding Shareholder”
  Section 10.3(e)
“SanDisk Representative”
  Section 5.3(a)
“Shares”
  Recitals
“Shareholder”
  Recitals
“Termination Date”
  Section 11.4
“Toshiba Representative”
  Section 5.3(a)
“Y4 Operating Committee”
  Section 5.3(a)

1.3   Rules of Construction and Documentary Conventions. The rules of
construction, documentary conventions and general terms and conditions set forth
in Appendix A shall apply to, and are hereby incorporated in, this Agreement.

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EXECUTION VERSION

2.   General Provisions   2.1   Ownership of Shares; Capital Increase.   (a)  
The rights and obligations of the Shareholders shall be as set forth herein,
subject to the Articles and mandatory provisions of the Companies Act.   (b)  
The Shareholders shall effect the capital increases in the amounts and at the
times stipulated in Schedule 2.1(b).   2.2   Name. The name of the Company is
“Flash Alliance Yugen Kaisha,” which translates to “Flash Alliance, Ltd.” in
English, and all Company business shall be conducted in that name or such other
name as the Shareholders shall mutually agree.   2.3   Principal Office. The
principal office of the Company shall be located in Yokkaichi, Mie, or such
other place as the Shareholders shall mutually agree.   2.4   Term; Extension.
The Company shall be terminated on December 31, 2021, unless extended by mutual
written agreement of all of the Shareholders or earlier terminated in accordance
with Section 11 (Dissolution). Any such extension shall be effective only upon
the written agreement of all of the Shareholders and shall be on such terms and
for such period as set forth in such agreement. The Shareholders agree to meet,
no later than December 31, 2020, to discuss the possible extension of the term
of the Company.   2.5   Scope of Activity. The scope of activity of the Company
shall be as set forth in Section 3.1 (Purpose) and 6.7 (Capacity Sharing
Arrangement) of the Master Agreement.   2.6   Powers. The Company shall have all
the powers now or hereafter conferred by applicable law on limited liability
companies formed under the Companies Act and may do any and all acts and things
necessary, incidental or convenient to the purpose specified in Section 2.5
(Scope of Activity).   2.7   Articles of Incorporation. On the date hereof and
immediately following the execution of this Agreement, the Shareholders shall
hold a general meeting of the Shareholders and, among other matters agreed
between them, vote their Shares to amend the Articles so that they will be in
the form of Exhibit A. In the event of any conflict between this Agreement and
the Articles, the Shareholders confirm their intent that the terms of this
Agreement shall prevail, and on the request of either Shareholder, the
Shareholders shall amend the Articles to conform with this Agreement to the
extent legally possible; provided that the inability to implement such amendment
shall not relieve any Shareholder from liability for any breach of its
obligations hereunder.   2.8   Company Actions. The Shareholders hereby
authorize the Company, and ratify (including for purposes of Section 4.1
(Matters Requiring the Approval of the Shareholders)) all action having been
taken by or on behalf of the Company (including by its Shareholders and
Directors) prior to the date hereof, to execute and deliver the FA

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EXECUTION VERSION

    Operative Documents to which it is a party, including all certificates,
agreements and other documents required in connection therewith.   3.   Business
Operations   3.1   Business Dealings with the Company. Subject to
Sections 4.1(a) (Matters Requiring the Approval of the Shareholders) and 5.1(d)
(Matters Requiring the Approval of the Board of Directors), the Company may
enter into contracts or agreements, or otherwise enter into transactions or
dealings, with any Shareholder or any of their respective Affiliates, and derive
and retain profits therefrom. The validity of any such contract, agreement,
transaction or dealing or any payment or profit related thereto or derived
therefrom shall not be affected by any relationship between the Company and any
Shareholder or any of their respective Affiliates, subject to the Companies Act.
The Shareholders agree that where practicable and contractually allowable (based
on competitive price, availability and other material terms), the Board of
Directors will consider whether to utilize any Shareholder or any of their
respective Affiliates as the preferred providers of products and services that
may be required in the manufacturing operations of the Company, subject to the
ability of such Shareholder or Affiliate to meet the Company’s manufacturing
requirements on competitive terms. Unless otherwise approved by the Shareholders
or otherwise expressly provided in the FA Operative Documents, all business
dealings of the Company with any Shareholder or any of their respective
Affiliates shall be on the most beneficial standard commercial terms and
conditions, including volume, price and credit terms, currently offered or made
available to unaffiliated customers by such Shareholder or Affiliate, as the
case may be, with respect to the products and services to be offered and
provided to the Company.   3.2   Other Activities. The provisions of
Section 6.13 (Other Activities) of the Master Agreement are hereby incorporated
herein by reference.   3.3   Personnel. The provisions of Section 6.10 (FA
Management Structure and Headcount) of the Master Agreement are hereby
incorporated herein by reference.   3.4   Business Plans and Related Matters.  
(a)   Initial and Subsequent Business Plans. The initial Business Plan of the
Company, setting forth the Company’s products, pricing, operating budget,
capital expenditures, expense budgets, financing plans and other business
activities of the Company through the [*], will be agreed upon and certified by
the Board of Directors as soon as practicable after the Closing.

  (i)   The initial Business Plan and each successive Business Plan will, at the
time such Business Plan is in effect, represent the Company’s then-current
forecast of the proposed operations of the Company.

 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

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EXECUTION VERSION

  (ii)   An updated Business Plan complying with Section 3.4(b) (Form and Scope)
in respect of each successive Fiscal Year after the [*] shall be prepared under
the direction of the Chief Executive Officer of the Company and submitted to the
Board of Directors for review and approval not later than the [*] preceding the
commencement of such Fiscal Year.     (iii)   When the proposed Business Plan in
respect of a Fiscal Year is approved by the Board of Directors, it shall
constitute the Business Plan of the Company for such Fiscal Year and the Company
and its directors and employees shall implement such Business Plan, which shall
be the basis of the Company’s operations for such Fiscal Year. Upon approval,
the approved Business Plan shall constitute the approved operational, financing
and capital expenditure budget. The Board of Directors shall have the authority
pursuant to Section 5.1(d) (Matters Requiring the Approval of the Board of
Directors) to amend the most recently approved Business Plan, including the
operating budget contained therein, and any Shareholder may request that the
Board of Directors review the Company’s operating results and prospects, as well
as market conditions, and consider a proposal for amendment or review of the
most recently approved Business Plan at any regularly scheduled or special
meeting of the Board of Directors and upon such request, the Board of Directors
shall in good faith make such review and/or consider such proposal.

(b)   Form and Scope. Each Business Plan shall contain a statement of long-range
strategy and short-range tactics detailing quantitative and qualitative goals
for the Company and relating the attainment of those goals to the Company’s
manufacturing objectives, and shall include such items as planned capital
expenditures, planned product development, planned product output and projected
product cost, sales forecasts, total headcount, total spending and revenue and
profit projections, financing plans and tax planning. No Business Plan shall be
deemed to be an amendment of this Agreement. Any capital commitments made in any
Business Plan for a period after the Fiscal Year to which the Business Plan
applies shall be considered non-binding for purposes of any FA Operative
Document.   (c)   Approval. Other than the initial Business Plan (which shall be
approved in accordance with Section 3.4(a)), the Board of Directors shall vote
upon the proposed Business Plan, with such modifications as it may deem
necessary, before [*] preceding the commencement of each Fiscal Year. Subject to
Sections 10.3(c), (e) and (f) (Dispute Resolution; Deadlock), pending approval
by the Board of Directors of any proposed Business Plan, the most recently
approved Business Plan shall continue in effect; provided, however, the Board of
Directors may, by unanimous vote, adopt an amended interim business plan for the
Company’s operations until it is able to reach agreement on the proposed
Business Plan for the forthcoming year.   3.5   Standard of Care.

 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

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EXECUTION VERSION

(a)   Each Shareholder, and each director of the Company, as defined in the
Companies Act (each, a “Director”), shall be entitled to rely (unless such
Person has knowledge or information concerning the matter in question that makes
reliance unwarranted) on information, opinions, reports or statements, including
financial statements and other financial data, if prepared or presented by:

  (i)   one or more managers or employees of the Company who such Shareholder or
Director believes in good faith to be reliable and competent in the matters
presented; or     (ii)   legal counsel, public accountants or other Persons as
to matters that such Shareholder or Director believes to be within such Person’s
professional or expert competence.

(b)   Each Shareholder shall also be entitled to rely upon information,
opinions, reports or statements, including financial statements and other
financial data, prepared or presented by the Board of Directors pursuant to the
responsibilities delegated to the Board of Directors pursuant to this Agreement.
  3.6   Use of Names. Except as may be expressly provided in the FA Operative
Documents, nothing in this Agreement shall be construed as conferring on the
Company or any Shareholder the right to use in advertising, publicity or other
promotional activities any name, trade name, trademark or other designation of
any other Shareholder or any of its Affiliates, including any contraction,
abbreviation or simulation of any of the foregoing.   4.   Actions by the
Shareholders   4.1   Matters Requiring the Approval of the Shareholders.   (a)  
Notwithstanding any provision of the Articles to the contrary, no action shall
be taken by or on behalf of the Company in connection with any of the following
matters without the prior unanimous written approval of the Shareholders:

  (i)   any amendment, restatement or revocation of the Articles;     (ii)   any
amendment to or renewal of any FA Operative Document between the Company and any
Shareholder or any of their respective Affiliates;     (iii)   any change in the
scope of activity or strategic direction of the Company’s business;     (iv)  
any merger, consolidation or other business combination to which the Company or
any of its Subsidiaries is a party, or any other transaction to which the
Company is a party resulting in a Change of Control of the Company;     (v)  
any sale, lease, pledge, assignment or other disposition of assets of the
Company in an amount (in terms of consideration to be received by the Company)
in excess of ¥5,000,000 in one transaction or a series of related transactions,
other than as

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EXECUTION VERSION

      expressly provided for in the FA Operative Documents or as set forth in
the most recently approved Business Plan;     (vi)   the approval of any
transaction or agreement between the Company and any Shareholder or any of their
respective Affiliates (other than transactions or agreements expressly provided
for or authorized by an FA Operative Document or the most recently approved
Business Plan) or any amendment thereto (including the waiver of any material
term thereof), other than any such transaction, agreement or amendment that
contains generally available, arm’s length commercial terms and is in an amount
(in terms of payments to be made or the value of services or products to be
provided or delivered) less than ¥5,000,000 for any single transaction or
agreement or for substantially identical transactions within a 24 month period
(or a waiver that does not materially adversely affect the rights and benefits
of the Company), other than as set forth in the most recently approved Business
Plan;     (vii)   incurring Indebtedness in an amount in excess of ¥1,000,000 or
an increase in aggregate Indebtedness in excess of ¥1,000,000 in any calendar
quarter, other than as authorized by Section 5.1(d) (Matters Requiring the
Approval of the Board of Directors);     (viii)   with respect to the Company or
any of its Subsidiaries, (A) the voluntary commencement of any proceeding or the
voluntary filing of any petition seeking relief under Japanese or foreign
bankruptcy, insolvency, receivership or similar law, (B) the consent to the
institution of, or the failure to contest in a timely and appropriate manner,
any involuntary proceeding or any involuntary filing of any petition of the type
described in clause (A) above, (C) the application for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company, or for a substantial part of its property or
assets, (D) the filing of an answer admitting the material allegations of a
petition filed against the Company in any such proceeding described above,
(E) the consent to any order for relief issued with respect to any such
proceeding described above, (F) the making of a general assignment for the
benefit of creditors, (G) the admission in writing of the Company’s inability,
or the failure of the Company generally, to pay its debts as they become due or
(H) the taking of any action for the purpose of effecting any of the foregoing;
    (ix)   subject to Section 9.1(a) and Appendix A, the granting of consent to
the transfer of any Shares;     (x)   the winding up, dissolution or liquidation
of the Company or any of its Subsidiaries (other than the dissolution of the
Company pursuant to and as contemplated by Section 11 (Dissolution));     (xi)  
the acquisition of any business, entry into any joint venture or partnership, or
creation of any direct or indirect Subsidiary of the Company;

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EXECUTION VERSION

  (xii)   the commitment of the Company to any development project;     (xiii)  
the sale, license, assignment or other Transfer of any of the Company’s
intellectual property owned or in its possession (including any technology or
know-how, whether or not patented, any trademark, trade name or service mark,
any copyright or any software or other method or process);     (xiv)   any
increase or decrease in the capital amount of the Company, whether by increasing
the number of the Shares or otherwise;     (xv)   any other matter material to
the operation, staffing, business or financial condition of the Company; and    
(xvi)   any matter required by the Companies Act to be decided, in the case of a
limited liability company (tokurei yugen kaisha) by its shareholders.

(b)   Each Shareholder may exercise its vote by proxy; provided, that such proxy
shall submit to the Company, prior to the relevant General Meeting of
Shareholders, as defined in the Companies Act (the “General Meeting of
Shareholders”), a power of attorney duly signed by the Shareholder and/or other
document establishing its power of representation; and provided, further, that
the conferment of the power of proxy for one General Meeting of Shareholders
shall not be deemed to be a conferment of the power of proxy for any subsequent
General Meeting of Shareholders.   (c)   Notwithstanding the requirements of
Section 4.1(a) (Matters Requiring the Approval of the Shareholders) relating to
agreements between the Company and any Shareholder or any of their respective
Affiliates, any question regarding a material default or alleged material
default (including any question regarding a breach of representation or alleged
breach of representation) under any FA Operative Document between the Company
and any Shareholder or any of their respective Affiliates shall be subject to
the dispute resolution process set forth in Sections 10.3(a) and (b) (Dispute
Resolution; Deadlock).   4.2   General Meetings of Shareholders.   (a)   An
annual General Meeting of Shareholders shall be held within three (3) months
from the date immediately following the last day of each Fiscal Year of the
Company. A special General Meeting of Shareholders may be held at any time and
may be called by a resolution of the Board of Directors or in any other manner
permitted by the Companies Act or the Articles. All General Meetings of
Shareholders shall be called and held in accordance with the Articles and the
Companies Act. The General Meetings of Shareholders may be held at the Company’s
principal office or at any other location, or, if all the Shareholders agree,
and to the extent then permitted by the Companies Act, by telecommunications
conferences by means of which all persons participating in the meeting can hear
and be heard by each other, provided that such communications equipment
continues to be operational throughout the meeting. To the extent then permitted
by the Companies Act, the Shareholders may by unanimous written consent effect
any resolution that could otherwise be resolved at a meeting of the
Shareholders.

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EXECUTION VERSION

(b)   Except as otherwise provided in this Agreement, each Shareholder shall be
entitled to one vote for each Share owned by such Shareholder.   (c)   The
minutes of every General Meeting of Shareholders shall be kept with the
Company’s records referred to in Section 5.5 (Records).   (d)   The quorum
necessary for any General Meeting of Shareholders shall be those Persons
entitled to cast all of the votes held by the Shareholders. A quorum shall be
deemed not to be present at any meeting for which notice was not properly given
under the Articles or the Companies Act, unless the Shareholder as to whom such
notice was not properly given attends such meeting without protesting the lack
of notice or duly executes and delivers a written waiver of notice or a written
consent to the holding of such meeting.   4.3   Restrictions on Shareholders. No
Shareholder may, without the prior written consent of the other Shareholder:  
(a)   confess any judgment against the Company;   (b)   enter into any agreement
on behalf of or otherwise purport to bind the other Shareholder or the Company;
  (c)   do any act in contravention of this Agreement;   (d)   except as
contemplated by Section 11 (Dissolution), dispose of the goodwill or the
business of the Company; or   (e)   assign the property of the Company in trust
for creditors or on the assignee’s promise to pay any Indebtedness of the
Company.   5.   Management and Operations of Company   5.1   Meetings of the
Board of Directors.   (a)   General. The Shareholders agree to form a steering
committee consisting of Directors nominated by each of the Shareholders. The
Shareholders acknowledge and agree that while under the Companies Act a limited
liability company (tokurei yugen kaisha) does not have a board of directors, for
convenience they will in this Agreement (and elsewhere in the FA Operative
Documents) refer to such committee as the “Board of Directors” (“yakuin kai”).
Except as otherwise provided herein, as between the parties the Board of
Directors is vested with complete and exclusive power to direct and control the
Company and to manage the Company as provided by the Articles and this
Agreement, as it may be amended from time to time. The Board of Directors shall
have the power to delegate such responsibilities as it may deem appropriate from
time-to-time (including certain day-to-day responsibilities set forth in
Section 5.2 (Officers; Employees) and Section 5.3 (Y4 Operating Committee)). The
Shareholders shall cooperate in taking any necessary corporate steps under the
Companies Act to attain the purposes of this Section 5, including without
limitation, approval by the Directors and general meeting of shareholders with
respect to decisions made by the Board of Directors.

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(b)   Members of the Board of Directors; Voting; etc.

  (i)   The Board of Directors of the Company shall consist of six
(6) Directors, three (3) of which shall be nominated by Toshiba, and the other
three (3) of which shall be nominated by SanDisk; provided that the total number
of Directors of the Company may be changed by mutual agreement of the
Shareholders. Each Shareholder shall vote its Shares to elect as Directors those
persons nominated by the other Shareholder.     (ii)   Directors shall be
elected to serve until complete adjournment of the annual meeting of
Shareholders for the fiscal year last to end within one (1) year after his or
her assumption of the directorship, and shall be eligible for re-election.    
(iii)   Subject to the fiduciary duty of Directors under the Companies Act, each
Director shall serve at the pleasure of the designating Shareholder and may be
removed as such, with or without cause, and his successor designated, by the
designating Shareholder. Each Shareholder shall have the right to designate a
replacement Director in the event of any vacancy among such Shareholder’s
appointees. Each Shareholder shall vote its Shares in favor of any such removal
and in favor of any such replacement Director.     (iv)   Each Shareholder shall
bear any cost incurred by any Director nominated by it to serve on the Board of
Directors, and no Director shall be entitled to compensation from the Company
for serving in such capacity.     (v)   Each Shareholder shall notify the other
Shareholder and the Company of the name, business address and business
telephone, e-mail address and facsimile numbers of each Director that such
Shareholder has nominated. Each Shareholder shall promptly notify the other
Shareholder and the Company of any change in such Shareholder’s nominated or of
any change in any such address or number.     (vi)   For purposes of any
approval or action taken by the Board of Directors, each Director shall have one
vote. Unless otherwise required under Japanese law, unanimous agreement of all
Directors is required for valid action to be taken by the Board of Directors.  
  (vii)   At any meeting of the Board of Directors, each Director may exercise
his vote by proxy; provided, that such proxy shall submit to the Company, prior
to the relevant meeting, a power of attorney duly signed by the Director and/or
other document establishing its power of representation; and provided, further,
that the conferment of the power of proxy for one meeting of the Board of
Directors shall not be deemed to be a conferment of the power of proxy for any
subsequent meeting of the Board of Directors.     (viii)   The quorum necessary
for any meeting of the Board of Directors shall be those Directors entitled to
cast all of the votes held by the members of the Board of Directors. A quorum
shall be deemed not to be present at any meeting for which

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EXECUTION VERSION

      notice was not properly given under Section 5.1(c) (Meetings, Notices,
etc.), unless the Director or Directors as to whom such notice was not properly
given attend such meeting without protesting the lack of notice or duly execute
and deliver a written waiver of notice or a written consent to the holding of
such meeting.

(c)   Meetings, Notice, etc. Meetings of the Board of Directors shall be held at
such location or locations as may be selected by the Board of Directors from
time to time.

  (i)   Regular meetings of the Board of Directors shall be held on such dates
and at such times as shall be determined by the Board of Directors and shall be
held at least on a quarterly basis, unless otherwise agreed by the Directors.  
  (ii)   Notice of any regular meeting or special meeting pursuant to Section
5.1(c)(iii) shall be given to each Director at least ten (10) Business Days
prior to such meeting in the case of a meeting in person or at least five
(5) Business Days prior to such meeting in the case of a meeting by conference
telephone or similar communications equipment pursuant to Section 5.1(c)(vii),
which notice shall state the purpose or purposes for which such meeting is being
called and include any supporting documentation relating to any action to be
taken at such meeting.     (iii)   Special meetings of the Board of Directors
may be called by any Director by notice given in accordance with the notice
requirements set forth in Section 5.1(c)(ii); provided that the Directors
appointed by the Shareholder that is not represented by the Director calling
such special meeting shall be entitled to select a convenient location for the
meeting and to suggest an alternative time or times if the designated time is
not convenient for them. No action may be taken and no business may be
transacted at such special meeting which is not identified in such notice unless
(A) such action or business is incidental to the action or business for which
the special meeting is called or (B) such action or business does not materially
adversely affect any Shareholder or the Company.     (iv)   Each Shareholder may
invite a reasonable number of observers to all meetings of the Board of
Directors.     (v)   The minutes of each meeting of the Board of Directors shall
be delivered to all Directors within twenty (20) calendar days after such
meeting. Material to be presented at a Board of Directors meeting shall be
delivered to all Directors ten (10) Business Days prior to such meeting if
feasible in light of the circumstances giving rise to the need for such meeting,
or in any event a minimum of five (5) Business Days prior to such meeting.    
(vi)   The actions taken by the Board of Directors at any meeting, however
called and noticed, shall be as valid as though taken at a meeting duly held
after regular call and notice if (but not until), either before, at or after the
meeting, each Director as to whom such meeting was improperly held duly executes
and delivers a written waiver of notice or a written consent to the holding of
such meeting; provided,

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      however, any Director who is present at a meeting and does not protest the
failure of notice shall be deemed to have received adequate notice thereof. A
vote of the Board of Directors may be taken only (A) at a meeting of the members
thereof duly called and held or (B) without a meeting by the execution by the
Directors eligible to cast all the votes on the Board of Directors of a consent
setting forth the action so taken, and identified as a unanimous written consent
of the Directors.     (vii)   Upon the consent of both Representative Directors,
meetings of the Board of Directors may be held by conference telephone or
similar communications equipment by means of which all Directors participating
in the meeting can be heard by all other participants; provided that such
communications equipment continues to be operational throughout the meeting. Any
Director may elect to participate in a meeting by conference telephone or
similar communications equipment upon sufficient advance notice to permit
arrangements therefor to be made.     (viii)   At each meeting, the Board of
Directors shall consider (A) any of the items set forth in Section 5.1(d)
(Matters Requiring the Approval of the Board of Directors) that may require the
Board of Directors’ attention, (B) any items added to the Board of Directors’
agenda for discussion by any Shareholder and (C) such other matters as the Board
of Directors decides to review; provided, however, that the Directors shall not
be required to vote or take other action (other than carrying on discussions) on
matters that were not placed on the meeting agenda at least five (5) Business
Days in advance of the time set for the meeting unless such action or business
is incidental to the action or business which was otherwise properly on the
agenda and considered at such meeting.     (ix)   The Board of Directors shall,
from time to time, elect one of its members to preside at its meetings. The
Board of Directors may establish reasonable rules and regulations to (A) require
officers to call meetings and perform other administrative duties, (B) limit the
number and participation of observers, if any, and require them to observe
confidentiality obligations and (C) otherwise provide for the keeping and
distribution of minutes and other internal Board of Directors governance matters
not inconsistent with the terms of this Agreement.     (x)   Subject to the
Companies Act, the Board of Directors shall have the authority to establish
subcommittees and to delegate to any such subcommittee any of the Board of
Directors’ responsibilities; provided, however, the power of the Board of
Directors to approve the matters set forth in Section 5.1(d) (Matters Requiring
the Approval of the Board of Directors) may not be delegated to a subcommittee.

(d)   Matters Requiring the Approval of the Board of Directors. Notwithstanding
any provision of the Articles to the contrary, no action may be taken by or on
behalf of the Company in connection with any of the following matters without
the unanimous written approval of the Board of Directors:

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  (i)   any sale, lease, pledge, assignment or other disposition of assets of
the Company in an amount (in terms of consideration to be received by the
Company) in excess of ¥1,000,000 in one transaction or a series of related
transactions, other than as set forth in the most recently approved Business
Plan;     (ii)   the approval of any transaction or agreement between the
Company and any Shareholder or any of their respective Affiliates (other than
transactions or agreements expressly provided for or authorized by an FA
Operative Document or the most recently approved Business Plan) or any amendment
thereto (including the waiver of any material term thereof), other than any such
transaction, agreement or amendment that contains generally available, arm’s
length commercial terms and is in an amount (in terms of payments to be made or
the value of services or products to be provided or delivered) less than
¥1,000,000 for any single transaction or agreement or for substantially
identical transactions within a 24 month period (or a waiver that does not
materially adversely affect the rights and benefits of the Company), other than
as set forth in the most recently approved Business Plan;     (iii)   the
purchase, lease, license or other acquisition of (A) personal property or
services or (B) any list of capital equipment approved by the Shareholders, in
each case in an amount (in terms of payments to be made or the value of services
of products to be provided or delivered) exceeding ¥1,000,000 in any one
transaction or a series of related transactions, other than as provided for in
the most recently approved Business Plan;     (iv)   the selection of attorneys,
accountants, auditors and financial advisors;     (v)   the adoption of
accounting and tax policies, procedures and principles;     (vi)   incurring any
Indebtedness;     (vii)   the hiring or termination of any employees referenced
in Section 5.2(a) (Officers; Employees) who are not members of the SanDisk Team,
if any;     (viii)   the adoption of or changes to the forms of confidentiality,
assignment or disclosure of intellectual property or employment agreements to be
entered into between the Company and its employees;     (ix)   the adoption of
or changes to any employee benefit plan, including any incentive compensation
plan;     (x)   the amount and timing of any distributions;     (xi)   the
commencement or settlement of litigation by or against the Company;     (xii)  
the purchase, sale or lease (as lessor or lessee) of any real property;    
(xiii)   any acquisition of securities or any other ownership interest in any
entity;

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EXECUTION VERSION

  (xiv)   the making of any public announcements by or on behalf of the Company;
provided, that in any case any such public announcements must otherwise comply
with the requirements of Section 5.2 (Public Announcements) of the Master
Agreement, if applicable;     (xv)   the entry into or amendment of any
collective bargaining arrangements or the waiver of any material provision or
requirement thereof;     (xvi)   the approval of a proposed Business Plan, or
the amendment to the most recently approved Business Plan, in each case
including the operating budget contained therein;     (xvii)   the incurrence of
capital expenditures in excess of those provided for in the most recently
approved Business Plan or the commitment of the Company to any development
projects other than as provided for in the most recently approved Business Plan;
    (xviii)   subject to Section 5.1(c)(x), the establishment of any
subcommittees or delegation of authority of the Board of Directors;     (xix)  
the authorization and approval of any filing with, public comments to, or
negotiation/discussion with, any Governmental Authority (excluding regular
operating filings and other routine administrative matters);     (xx)   the
approval of Unique Activities to be performed by the Company at the request of
any Shareholder, in connection with which the Board of Directors shall be
satisfied that such Shareholder has reached agreement with the Company as to the
payment by such Shareholder of all costs incurred in connection with such Unique
Activities and that adequate provision has been made by such Shareholder for the
funding of any additional required capital expenditures required in conjunction
with such Unique Activities;     (xxi)   the decision of the Company to
negotiate external sources of additional wafer fabrication capacity for NAND
Flash Memory Products;     (xxii)   any dispute referred to the Board of
Directors by the Y4 Operating Committee pursuant to Section 5.3(b); and    
(xxiii)   such other matters as the Board of Directors decides, in its sole
discretion, to review.

5.2   Officers; Employees.

(a)   Unless otherwise mutually agreed by the Shareholders, the Directors of the
Company with specific titles shall be designated as: the Representative
Director/President/Chief Executive Officer (“President”) and the Representative
Director/Executive Vice President (“Executive Vice President”). The President
and Executive Vice President shall be elected by the Board of Directors and
serve three successive one-year terms, with the first

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EXECUTION VERSION

    such set of terms ending at complete adjournment of the annual meeting of
Shareholders for the fiscal year last to end within one (1) year after his or
her assumption of the officership. Toshiba shall have the right to nominate the
first President and SanDisk shall have the right to nominate the first Executive
Vice President, and then the Shareholders will then alternate such nominating
rights for each three year term for such positions. Each nominee for the
President and for the Executive Vice President shall be subject to the consent
of the non-nominating Shareholder, which consent shall not unreasonably be
withheld. In addition to the President and Executive Vice President, the Board
of Directors may appoint such other officers from time to time as it deems
necessary or advisable in the conduct of the business and affairs of the
Company. Any individual may hold more than one office.

(b)   The President shall have the authority to retain other senior management
of the Company, subject to the prior approval of the Board of Directors.

(c)   The Company shall have agreements with and policies applicable to each of
its officers, employees and consultants who are not members of the SanDisk Team,
in forms acceptable to each Shareholder, and shall also have appropriate
arrangements with its members of the SanDisk Team, in each case with respect to
(i) protection of confidential information, (ii) patent and copyright
assignment, (iii) invention disclosure (including improvements and advances) and
assignments thereof and (iv) in respect of certain employees who are not members
of the SanDisk Team, non-competition.

5.3   Y4 Representatives; Y4 Operating Committee.   (a)   The Company shall have
an Operating Committee for Y4 Facility operations (the “Y4 Operating Committee”)
consisting of a senior executive designated by each of SanDisk and Toshiba (each
such individual the “SanDisk Representative” and the “Toshiba Representative,”
respectively) each of whom shall represent the designating Party on a day-to-day
basis at the Y4 Facility. Each Shareholder shall notify the other Shareholder in
advance of any replacement of its representative. If a Shareholder requests in
good faith that the other Shareholder’s representative be replaced with another
person from the other Shareholder’s organization, the other Shareholder shall
consider and discuss in good faith with the requesting Shareholder such request,
provided that such replacement, if any, shall be determined solely by such other
Shareholder. [*]   (b)   The Y4 Operating Committee shall work together and
endeavor to make the Y4 Facility the most advanced and competitive memory
fabrication facility in the world. The Y4 Operating Committee shall have the
authority to determine all matters concerning the day-to-day operations of the
Company and the Y4 Facility [*] subject to those matters reserved herein to the
Board of Directors or the Shareholders as well as to the requirements of this
Agreement, the Articles and the Companies Act. The Y4 Operating Committee shall
communicate on a day-to-day basis with respect to the status of Y4 Facility
operations and any other issues that may arise, and shall meet in person no less
than two (2) times per week, or such other times and frequency as may be agreed
upon by all members of such committee. If the members of the Y4 Operating
Committee are unable to agree on any issue after thirty (30) days, they shall
submit such matter together

 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

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EXECUTION VERSION

    with their respective recommendations to the Board of Directors, which shall
endeavor to immediately resolve the issue. If the Board of Directors is unable
to agree on any such issue after ten (10) days, such issue shall be submitted to
the Management Committee for final resolution.   (c)   The Y4 Operating
Committee shall hold a monthly review meeting in English at the Yokkaichi
Facility on [*] of each calendar month, unless otherwise agreed by the
Shareholders or the Y4 Operating Committee. The Y4 Operating Committee shall
prepare and distribute to each Shareholder (at least three Business Days in
advance of the monthly review meetings) monthly reports in English with respect
to the engineering activities, operations and financial affairs of the Company
and the Y4 Facility.   (d)   Upon the request of either Shareholder, the Y4
Operating Committee shall provide the Shareholders with (i) any management or
operation reports of the Company related to the Y4 Facility (which neither
Shareholder shall have an obligation to translate) and (ii) simultaneously in
Japanese and English, those management and operating reports identified on
Schedule 5.3 as mutually agreed upon from time to time by the Parties. Upon
reasonable request from SanDisk, Toshiba employees shall explain such reports to
SanDisk’s employees and respond to questions from SanDisk’s employees; provided,
however that SanDisk acknowledges and agrees that Toshiba shall not be
responsible for SanDisk’s failure to understand any such reports.   5.4  
Insurance. The Company shall maintain insurance against such liabilities and
other risks associated with the conduct by the Company of its business and in
such amounts and against such risks as agreed by the Shareholders, and in any
event as is generally maintained by companies engaged in a business similar to
that of the Company.   5.5   Records. The Company shall maintain the following
records at its principal office:   (a)   a current list of the full name set
forth in alphabetical order and last known business address of each Shareholder
and Director;   (b)   a copy of the Articles, and all articles of amendment
thereto;   (c)   a copy of this Agreement and all amendments hereto;   (d)   a
copy of all financial statements of the Company for the three most recent Fiscal
Years;   (e)   a copy of the Company’s income tax or information returns and
reports, if any, for the three most recent years;   (f)   a copy of all
indentures, loan agreements, lease agreements, guarantees, security agreements,
promissory notes, licensing or other intellectual property agreements,
agreements that relate to the payment or receipt by the Company of amounts in
excess of ¥5,000,000 or that are not terminable by the Company upon ninety
(90) days notice,

 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

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EXECUTION VERSION

    documents, if any, evidencing employee compensation arrangements, employee
pension or other benefit arrangements, and similar documents and instruments
executed and delivered by the Company;   (g)   a list of all contributions made
to the Company by the Shareholders; and   (h)   a record of all distributions by
the Company to each Shareholder.

The Shareholders and/or the Directors and/or their respective designees (which
shall be limited to its employees or professional advisers subject to
appropriate confidentiality obligations) shall have reasonable access to the
records during normal business hours upon reasonable request. Copies of records
shall be made available and delivered to the Shareholders and/or the Directors
promptly after reasonable request for same, provided the requesting party pays
for copy and delivery charges.

6.   Capital Contributions; Distributions   6.1   Capital Contributions.   (a)  
The Shareholders shall be deemed to have made Capital Contributions to the
Company in the amounts set forth opposite their respective names on
Schedule 6.1.   (b)   Except as provided in Section 2.1(b), no Shareholder shall
be obligated to make any additional Capital Contributions to the Company, unless
otherwise mutually agreed upon by the Shareholders in writing, in which case
such additional Capital Contributions shall be made in proportion to the
Shareholders’ respective Percentages as of the date of such additional Capital
Contribution.   6.2   Distributions.   (a)   General. Notwithstanding any
provision of the Articles to the contrary, and subject to Section 11.8
(Liquidation Proceeds), unless otherwise agreed by the Shareholders, no
distributions of cash (or in the case of Section 11.8, other property) shall be
made by the Company to the Shareholders for a period of three (3) years from the
date of this Agreement, and thereafter all distributions of cash (or, in the
case of Section 11.8, other property) by the Company to the Shareholders shall
be made in Japanese Yen at the times and in the amounts determined by the Board
of Directors. Except as provided in Section 11.8, each distribution to the
Shareholders shall be made on a pro rata basis based upon the respective
Percentages of the Shareholders as of the date of such distribution.   (b)  
Distribution for Taxes. Notwithstanding Section 6.2(a), subject to the Companies
Act and other applicable law, the Company shall make, in respect of each Fiscal
Year in which SanDisk must recognize taxable income of the Company in SanDisk’s
US federal, state and local income and franchise tax returns, a distribution to
SanDisk to the extent necessary to meet SanDisk’s aggregate US tax liability
with respect to such taxable income, with such liability calculated at the
highest US, state and local corporate tax rates as may be then applicable to
SanDisk. SanDisk will make a request upon the Company

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EXECUTION VERSION

    for such distribution as soon as is practicable after the filing of SanDisk
Corporation’s applicable US tax returns. Following receipt of such request, the
Company shall make the requested distribution on the next date on which the
Company is permitted to make distributions pursuant to the Companies Act.
Simultaneously therewith, the Company shall also make a distribution to Toshiba
in an amount equal to the amount of the per Share distribution made to SanDisk
pursuant to this Section 6.2(b). Any such prior distributions shall be taken
into account upon any purchase and sale of Shares under Section 10 (Certain
Agreements of the Shareholders) or dissolution of the Company under Section 11
(Dissolution) hereof. If necessary, the Board of Directors shall consider
capital reductions to the extent that any such capital reduction will not
adversely affect the Y4 Facility’s operations.   6.3   No Interest. No interest
shall be payable to the Shareholders on their Capital Contributions or otherwise
in respect of the capital of the Company.   6.4   Return of Capital
Contributions. Except as expressly provided herein, no Shareholder shall be
entitled to the return of any part of such Shareholder’s Capital Contributions.
  7.   Additional Contributions       No Shareholder shall be obligated under
this Agreement or the Articles to contribute any additional amounts to the
Company or otherwise to be liable for the debts and obligations of the Company.
  8.   Accounting and Taxation   8.1   Financial Accounting Conventions.   (a)  
The Company shall adopt and follow Japanese GAAP.   (b)   Notwithstanding
anything to the contrary in Appendix A, the first Fiscal Year shall begin on the
date of formation of the Company and end on March 31, 2007.   (c)   The Company
shall in principle (but subject to applicable Law) utilize a five-year straight
line depreciation method for manufacturing equipment.   8.2   Maintenance of
Books of Account. The Company shall keep or cause to be kept at its principal
office, or such other location as the Board of Directors shall designate, full
and complete books of account. The books of account shall be maintained in a
manner that provides sufficient assurance that transactions of the Company are
recorded so as to comply with all applicable laws and to permit (a) the
preparation of the Company’s consolidated financial statements in accordance
with Japanese GAAP and (b) the Shareholders to account for their interest in the
Company in accordance with Japanese GAAP.   8.3   Financial Statements.

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EXECUTION VERSION

(a)   Annual Statements. As soon as practicable following the end of each Fiscal
Year (and in any event not later than fifty-two (52) days after the end of such
Fiscal Year), the Company shall prepare and deliver to each Shareholder and each
Director, audited consolidated and consolidating balance sheets of the Company
as of the end of such Fiscal Year and the related audited consolidated and
consolidating statements of operations, the Shareholders’ capital accounts and
cash flows of the Company for such Fiscal Year (or similar statements if such
statements change as the result of changes in Japanese GAAP), together with
appropriate notes to such consolidated financial statements, and in each case
setting forth in comparative form the corresponding figures for the preceding
Fiscal Year and for the budget for the Fiscal Year just completed. Such
financial statements shall be accompanied by (i) the report of the Accountants
to the effect that such financial statements (except for the comparison to the
budget) have been prepared in conformity with Japanese GAAP (except as otherwise
specified in such report) and that the audit of such financial statements has
been performed in accordance with Japanese GAAP and (ii) a report as to all
transactions (including the nature, type and amount) between the Company and
each Shareholder and their respective Affiliates. The Company shall conduct its
business such that the report of the Accountants shall not contain any
qualifications as to the scope of the audit or with respect to the Company’s
compliance with Japanese GAAP, except for changes in methods of accounting in
which such Accountants concur and except that the foregoing shall not be deemed
to obligate any Shareholder to contribute any capital to the Company. The
Company shall also provide SanDisk with an English version of such report, which
shall contain sufficient data to enable SanDisk to prepare a reconciliation of
the Company’s financial reports from Japanese GAAP to United States GAAP. The
Company shall deliver to SanDisk, at SanDisk’s request and expense, any other
financial information related to the Company that is reasonably requested by
SanDisk for US Federal, state, and local income or franchise tax purposes.   (b)
  Quarterly Statements.

  (i)   As soon as practicable following the end of each Fiscal Quarter (and in
any event not later than ten (10) days after the end of such Fiscal Quarter),
the Company shall prepare and deliver to each Shareholder and each Director
unaudited consolidated and consolidating balance sheets of the Company as of the
end of such Fiscal Quarter and the related unaudited consolidated and
consolidating statements of operations, the Shareholders’ capital accounts and
cash flows of the Company for such Fiscal Quarter and for the Fiscal Year to
date (or similar statements if such statements change as the result of changes
in Japanese GAAP), in each case setting forth in comparative form the
corresponding figures for the preceding Fiscal Quarter, for the corresponding
Fiscal Quarter of the preceding Fiscal Year and for the budget for the Fiscal
Quarter just completed and for the Fiscal Year to date.     (ii)   The financial
statements for such Fiscal Quarter shall be accompanied by a certificate of the
principal accounting or financial officer of the Company to the effect that such
financial statements have been prepared under such officer’s

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EXECUTION VERSION

      supervision and that, although such financial statements do not contain
the footnotes and other disclosures required to be presented in interim
financial statements by Japanese GAAP, such financial statements, in such
officer’s judgment, fairly present the financial condition and results of
operations of the Company as of the date and for the periods indicated, subject
to normal recurring year-end audit adjustments. The Company shall deliver to
SanDisk, at SanDisk’s request and expense, any other financial information
related to the Company that is reasonably requested by SanDisk for US financial
reporting or Federal, state, and local income or franchise tax purposes.

(c)   The Company shall obtain a professional tax audit from a qualified
accountant complying with Japanese GAAP by May 22 of each year (including an
English translation thereof). As part of its engagement of its auditors, the
Company shall cause its auditors to provide such English language financial
statements, audit reports, US GAAP reconciliations and consents as are required
(or reasonably requested by SanDisk) in connection with SanDisk Corporation’s
filings with the United States Securities and Exchange Commission; provided that
SanDisk shall pay for all the costs relating to such auditors’ work. SanDisk may
also request that the Company provide SanDisk with “comfort letters” in the
manner customary for Japanese auditors in connection with public offerings in
the United States, at SanDisk’s own expense.

(d)   Monthly Reports. Each month, the Company shall prepare and deliver to each
Shareholder and each Director the reports and other information set forth on
Schedule 8.3. Such reports and other information will become available at the
respective times set forth on Schedule 8.3.

(e)   Business Plan. Subject to Sections 10.3(c), (e) and (f), and provided that
the most recently approved Business Plan does not provide for the next Fiscal
Year, the Company shall, not later than [*] prior to the commencement of each
Fiscal Year, deliver to each Shareholder a copy of the Business Plan, including
the Company’s monthly budgets, for the upcoming Fiscal Year, as approved by the
Board of Directors.

(f)   Legal Proceedings. The Company shall promptly inform each Shareholder and
each Director with regard to litigation, governmental investigations, material
government notices and threatened legal proceedings.

8.4   Other Reports and Inspection. The Company shall furnish promptly to each
Shareholder such other reports, financial data and information relating to the
Company as such Shareholder may reasonably request and shall require the
Accountants to provide to each Shareholder copies of any document related to the
Company in the possession of the Accountants as such Shareholder may reasonably
request. The Company shall, upon reasonable prior notice and during normal
business hours, make available to each Shareholder and their respective
professional advisors, from time to time as requested by such Shareholder, all
properties, assets, books of account, corporate records, contracts and
documentation, if any, relating to employee benefits of the Company, and any
other

 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

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EXECUTION VERSION
          material requested by such Shareholder for inspection and, in the case
of books of account, corporate records, contracts and documentation, if any,
relating to employee benefits, copying, and shall use reasonable efforts to make
available to such Shareholder the Accountants and the key employees of the
Company for interviews to verify any information furnished or to enable such
Shareholder otherwise to review the Company and its operations. The Company may
condition such availability upon the entering into of reasonable and appropriate
confidentiality agreements. Notwithstanding the foregoing, the Company will not
make available to any Shareholder information provided to the Company on a
confidential basis by any other Shareholder without the consent of such other
Shareholder.
     8.5 Deposit of Funds. All funds of the Company and its Subsidiaries not
otherwise employed shall be deposited from time to time to its credit in such
banks, trust companies or other depositories, or invested in such other
investments held as cash equivalents, as the Board of Directors shall authorize.
The funds of the Company and its Subsidiaries shall not be commingled with the
funds of any Shareholder or any of their respective Affiliates.
     9. Shares of Contribution; Disposition of Shares
     9.1 Restrictions on Transfer of Shares.
     (a) No Shareholder (nor any permitted transferees of any Shareholder) may
Transfer any interest in the Company, including any of such Shareholder’s
Shares, to any Person, except by a Change of Control; provided, that any
Shareholder may Transfer all of its interest in the Company, including all of
its Shares, subject to the Companies Act, to any one (1) of their respective
Affiliates, with the prior written consent of every other Shareholder, which
consent shall not be unreasonably withheld; and provided, further, that (i) the
transferee agrees in writing to become a party hereto and assumes all the
obligations of the transferring Shareholder hereunder and under each other FA
Operative Document to which the transferring Shareholder is a party (except to
the extent the express terms of the Patent Indemnification Agreement condition
its transferability on the consent of the non-transferring Shareholder and such
Shareholder has not consented to Transfer thereof), and (ii) immediately after
giving effect to such Transfer, no Event of Default or an event or condition
that with the giving of notice or lapse of time or both would constitute an
Event of Default with respect to the transferee Shareholder shall exist.
Following the effectiveness of any such Transfer, the transferring Shareholder
shall no longer have the transferred right, title or interest in the Company or
any rights under this Agreement and the transferee shall be substituted as a
Shareholder for all purposes of this Agreement. The transferring Shareholder
shall, however, remain responsible for all obligations under this Agreement and
the other FA Operative Documents for any transferee which is an Affiliate of the
transferring Shareholder and shall not be released or discharged from any
existing liability or obligation to any Person. Any subsequent Transfer of an
ownership interest in such Affiliate by the transferring Shareholder shall be
deemed to constitute a Transfer of Shares requiring compliance with this
Section 9.1.

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EXECUTION VERSION
     (b) If a Shareholder Transfers its entire interest in the Company pursuant
to Section 9.1(a), the transferee shall succeed to all the rights and
obligations of such Shareholder under this Agreement.
     (c) Any Shareholder may agree to pay amounts equal to distributions
received by such Shareholder from the Company to a third party in its sole
discretion pursuant to a Permissible Assignment Agreement. “Permissible
Assignment Agreement” means an agreement between a Shareholder and another
Person (the “Permissible Assignee”) which:

  (i)   provides for the grant by such Shareholder to the Permissible Assignee
of the right to receive amounts equal to distributions received by such
Shareholder from the Company pursuant to Section 6 or 11 of this Agreement, but
does not give the Permissible Assignee any Shares or any other rights whatsoever
with respect to the Company;     (ii)   provides that under no circumstances
(including any Bankruptcy Event in respect of such Shareholder) may any claim be
made by the Permissible Assignee against the Company or any such Shareholder or
any Affiliate of any such Shareholder or any of their respective assets, under
or in connection with such agreement, even if such Shareholder defaults in
performance thereunder;     (iii)   provides that the rights of the Permissible
Assignee under such agreement may not be transferred without the prior written
consent of each Shareholder and that any such Transfer without such consents
shall be null and void;     (iv)   may not be amended, nor any provision thereof
waived, in a manner that would cause it not to be a Permissible Assignment
Agreement, without the prior written consent of the non-assigning Shareholder;  
  (v)   provides that the assigning Shareholder is authorized to Transfer its
entire interest in the Company pursuant to Section 9.1(a) free and clear of any
interest of the Permissible Assignee and without any liability on the part of
the transferee thereunder to the Permissible Assignee; and     (vi)   contains
an express acknowledgment by the Permissible Assignee, for the benefit of the
non-assigning Shareholder and the Company, to the effect of clauses (i)-(v)
above.

    The assigning Shareholder shall ensure that any payment due to a Permissible
Assignee pursuant to or in connection with a Permissible Assignment Agreement
shall be made in full to such Permissible Assignee when due.   9.2   Admission
of New Shareholders. No Person shall have the right to become a Shareholder
unless and until all the following conditions are satisfied:

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EXECUTION VERSION

(a)   except in the case of a Transfer of all of a Shareholder’s Shares to an
Affiliate of such Shareholder in accordance with Section 9.1(a) (Restrictions on
Transfer of Shares), such Person, the terms and conditions of such Person’s
admission as a Shareholder and the rights appurtenant to the Shares to be issued
or Transferred, as applicable, to such Person are approved by all existing
Shareholders and, if applicable, the creation of any new class or group of
Shares in the Company having different rights, powers and duties is reflected in
amendments to the Articles and to this Agreement;   (b)   such Person executes a
counterpart of this Agreement and such other instrument or instruments as the
Company and a non-transferring Shareholder may reasonably deem appropriate to
affirm that the representations and warranties contained in the Master Agreement
are true and correct with respect to such Person and that such Person agrees to
be bound as a Shareholder by this Agreement and all of the covenants and
agreements herein; and   (c)   if requested by the Company, an opinion of
counsel, a purchaser representation letter or other appropriate documentation is
furnished to the Company establishing that the issuance or Transfer, as
applicable, of Shares to the new Shareholder will comply with the Companies Act.
      Except to the extent required by law, the Company shall have no obligation
to recognize or to furnish information or make distributions to any new
Shareholder or any transferee of a Shareholder who does not become a Shareholder
in accordance with Section 9.1 (Restrictions on Transfer of Shares) or this
Section 9.2.   9.3   Withdrawal Prohibited. Except as otherwise expressly
permitted by this Agreement, (i) no Shareholder may withdraw from the Company
and (ii) no Shareholder may effect or cause a termination or dissolution of the
Company without the prior written consent of all other Shareholders (which
consent may be withheld in such other Shareholder’s sole discretion).   9.4  
Purchase of Additional Interest. At any time during the term of this Agreement
and so long as SanDisk is a Shareholder, SanDisk shall have the right to
purchase from Toshiba that number of Shares which is equal to 0.1% of the total
number of Shares then issued and outstanding in the event that (i) Toshiba’s
patent umbrella does not adequately protect the Company or (ii) dissolution of
the Company is commenced pursuant to Section 11 hereof. The purchase price of
such Shares shall equal [*] as of the date of such transaction.   10.   Certain
Agreements of the Shareholders   10.1   Taxes and Charges; Governmental Rules.
Each Shareholder shall (a) promptly pay all applicable Taxes and other
governmental charges imposed against such Shareholder except to the extent any
such Taxes or other charges are being contested in good faith by appropriate
proceedings and (b) comply with all applicable Governmental Rules, in each

 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

23

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EXECUTION VERSION

    case except to the extent that nonpayment or noncompliance will not have a
material adverse effect on the Company.   10.2   Further Assurances. Following
the Closing, each Shareholder shall, and shall cause its Affiliates and the
Company to take all reasonable actions necessary or appropriate to, effectuate
the transactions contemplated by this Agreement, and to obtain (and cooperate
with the other Shareholder in obtaining) any Governmental Action or third party
consent required to be obtained or made by it in connection with the
transactions contemplated by this Agreement; provided, that no Burdensome
Condition shall be made to exist with respect to such Shareholder or any of its
Affiliates in connection therewith.   10.3   Dispute Resolution; Deadlock.   (a)
  The Shareholders shall endeavor to settle, through their respective designees
to the Board of Directors, any disputes which may arise between them, including
without limitation, failure by the Board of Directors to reach agreement (or
failure to take a vote) on any matter requiring Directors approval pursuant to
Section 5.1(d) (Matters Requiring the Approval of the Board of Directors). The
Shareholders shall attempt to resolve the issue or proposed action in question,
to the extent practicable, in a manner consistent with the Company’s most
recently approved Business Plan, unless the issue in dispute is the adoption of
a new Business Plan, in which case the provisions of Sections 10.3(c), (e) and
(f) shall apply.   (b)   If (i) the Shareholders are unable to agree on any
matter requiring the approval of the Shareholders pursuant to Section 4.1(a)
(Matters Requiring the Approval of the Shareholders), (ii) the Board of
Directors is unable to agree on any matter requiring the approval of the Board
of Directors pursuant to Section 5.1(d) (Matters Requiring the Approval of the
Board of Directors) (other than the approval of any Business Plan, with respect
to which the failure to agree shall be governed by Sections 10.3(c), (e) and
(f)) or (iii) the Shareholders or the Board of Directors are otherwise unable to
resolve a dispute on any other item (other than the approval of any Business
Plan, with respect to which the failure to agree shall be governed by
Sections 10.3(c), (e) and (f)), then any Shareholder may bring the matter to the
attention of the General Manager Memory Division, Semiconductor Company of
Toshiba, and the Chief Operating Officer of SanDisk (the “Designated
Individuals”), who will attempt to find a resolution. If the matter has not been
resolved within thirty (30) days of referral to the Designated Individuals, the
matter will be referred to the Management Committee for a final decision, which
decision will be final and binding on the Company and the Shareholders with
respect to any matter specified in Sections 10.3(b)(i) and (ii) above. If an
agreement is reached by the Management Committee, the mutually agreed resolution
shall be implemented by the Company. Should no solution be agreed upon within
thirty (30) days after submission of the matter to the Management Committee with
respect to the matters specified in (iii) above, such matter shall be submitted
to arbitration in accordance with Section 2.5 of the Appendix A. Should no
solution be agreed upon within sixty (60) days after submission of the matter to
the Management Committee with respect to the matters specified in
Sections 10.3(b)(i) and (ii) above, then the action for which approval was

24

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EXECUTION VERSION

    requested will not occur, unless it is already included in the most recently
approved Business Plan.   (c)   Except as provided below, if by [*] of any
calendar year during the term of this Agreement, commencing [*], the Board of
Directors and the Shareholders have not approved and agreed upon a Business Plan
for the upcoming Fiscal Year, then any Shareholder may refer the dispute to the
Management Committee for a decision, which decision shall be final and binding
on the Company and the Shareholders. If a decision is reached by agreement of
the Management Committee, such decision shall be implemented by the Company.
Should no decision be reached within ninety (90) days after submission of the
matter to the Management Committee, and unless the Shareholders have agreed to
continue operations under the most recently approved Business Plan until a new
Business Plan is approved, then within ten (10) Business Days thereafter any
Shareholder may elect by written notice to all other Shareholders to declare a
deadlock (“Deadlock”), except with respect to any issue where the Master
Agreement expressly prohibits declaration of a Deadlock.   (d)   If demand for
both Shareholder’s NAND Flash Memory Products is significantly below
expectations, they shall address the matter as contemplated in
Section 6.7(b)(ii) of the Master Agreement.   (e)   Within thirty (30) days
after a Shareholder has notified the other Shareholder of a Deadlock, either
Shareholder (the “Initiating Shareholder”) may submit to the other Shareholder
(the “Responding Shareholder”) a written irrevocable notice (the “Deadlock
Dissolution Notice”) to the effect that the Initiating Shareholder offers to
sell to the Responding Shareholder or its designee the Initiating Shareholder’s
Shares for a cash payment, by wire transfer of immediately available Japanese
Yen, in an amount equal to the [*] as of the date of such transaction multiplied
by the Initiating Shareholder’s Percentage as of such date.   (f)   The
Responding Shareholder may accept such offer by written response to the
Initiating Shareholder within forty-five (45) days of receipt of the Deadlock
Dissolution Notice indicating that the Responding Shareholder elects to purchase
the Shares of the Initiating Shareholder. If the Responding Shareholder declines
to exercise its right to purchase the Shares of the Initiating Shareholder
pursuant to this Section 10.3 or fails to respond to such Deadlock Dissolution
Notice (or if both Shareholders submit Deadlock Dissolution Notices), the
Company shall be dissolved pursuant to Section 11.1(d) (Events of Dissolution),
at the end of a one-year period for the wind-down of operations commencing with
the receipt of the Deadlock Dissolution Notice by the Responding Shareholder.
During such one-year period, the Company’s business shall be conducted in
accordance with the most recently approved Business Plan except that additional
capital expenditures will not be made except as required for line maintenance.  
10.4   Remedies Upon Event of Default; Termination on Breach. If there has
occurred and is continuing an Event of Default with respect to a Shareholder
(upon such occurrence, such

 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

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EXECUTION VERSION

    Shareholder is referred to herein as the “Defaulting Shareholder”), in
addition to all other remedies available to the Company or the other Shareholder
(the “Nondefaulting Shareholder”), whether under any of the FA Operative
Documents or other agreements or by law, the Nondefaulting Shareholder shall
have the option to take one or more of the following actions:   (a)   give
written notice to the Defaulting Shareholder of its intention to acquire all of
the Shares of the Defaulting Shareholder for a cash payment, by wire transfer of
immediately available Japanese Yen, in an amount equal to the [*] as of the date
of such transaction multiplied by the Defaulting Shareholder’s Percentage as of
such date; and/or   (b)   elect to dissolve the Company pursuant to Section 11.3
(Dissolution Upon Event of Default), in which case the affairs of the Company
shall be wound up and the Company shall be dissolved in accordance with
Section 11 (Dissolution).   10.5   Mechanics of Sale.   (a)   The closing of any
purchase and sale of Shares pursuant to Section 10.3 (Dispute Resolution;
Deadlock), 10.4 (Remedies Upon Event of Default; Termination on Breach), 11.4
(Dissolution by Unilateral Option) or 11.5 (Dissolution Upon Notice) shall take
place not later than the thirtieth (30th) Business Day after notice of the
purchase is given, as the case may be, except that such period shall be extended
as necessary in order to comply with any Governmental Rule. The purchasing
Shareholder shall pay for the Shares being acquired by wire transfer of
immediately available funds in Japanese Yen to an account specified by the
selling Shareholder. The selling Shareholder shall execute all documents
necessary to effect the conveyance of its Shares, free and clear of all Liens,
to the purchasing Shareholder. In addition, the Shareholders shall enter into an
indemnity and release agreement, in a form reasonably satisfactory to each
Shareholder, indemnifying and holding harmless the selling Shareholder and its
Affiliates for liabilities or claims made after the date of the purchase and
sale under any guarantees or other agreements supporting the obligations of the
Company which may have been extended by the selling Shareholder or any of its
Affiliates. The Shareholders shall also reach agreement on a reasonable
transition plan of up to six months in connection with services provided to the
Company by members of the SanDisk Team assigned to the Company by the Selling
Shareholder.   (b)   If a Shareholder elects to acquire all of the Shares of the
other Shareholder pursuant to Section 10.3 (Dispute Resolution; Deadlock), 10.4
(Remedies Upon Event of Default; Termination on Breach), 11.4 (Dissolution by
Unilateral Option) or 11.5 (Dissolution Upon Notice), such Shareholder shall be
obligated to take all actions required of it to consummate the applicable
purchase and sale on the date determined pursuant to this Section 10.5
(Mechanics of Sale). If any Shareholder has the right to purchase the Shares of
any other Shareholder, such Shareholder shall have the right to assign such
right to purchase to any other Person.

 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

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EXECUTION VERSION

11.   Dissolution   11.1   Events of Dissolution. The Company shall be dissolved
and shall commence winding up its affairs upon the first to occur of the
following. The Shareholders shall cooperate in taking any necessary corporate
steps under the Companies Act to attain the purpose of this Section 11:   (a)  
the expiration of the term of the Company pursuant to Section 2.4 (Term;
Extension);   (b)   the agreement of the Shareholders to dissolve the Company
pursuant to Section 11.2 (Dissolution by Agreement);   (c)   the election of the
Nondefaulting Shareholder pursuant to Section 11.3 (Dissolution Upon Event of
Default);   (d)   the first anniversary of the receipt by either Shareholder of
a Deadlock Dissolution Notice submitted with respect to a failure of the
Shareholders to approve and agree upon a Business Plan pursuant to Section 10.3
(Dispute Resolution; Deadlock) if either (i) the Responding Shareholder declines
to exercise its right to purchase the Shares of the Initiating Shareholder or
fails to respond to such Deadlock Dissolution Notice, or (ii) both Shareholders
submit Deadlock Dissolution Notices with respect to such failure to agree;   (e)
  the election by Toshiba to dissolve the Company pursuant to Section 11.4
(Dissolution by Unilateral Option);   (f)   the bankruptcy, death, dissolution,
expulsion or incapacity of a Shareholder or the occurrence of any other event
which terminates the membership of a Shareholder in the Company (“Bankruptcy
Event”); or   (g)   the election of the Notifying Party to dissolve the Company
pursuant to Section 11.5 (Dissolution Upon Notice) unless the Notified Party
elects to purchase the Shares of the Notifying Party pursuant to Section 11.5
(Dissolution Upon Notice).   11.2   Dissolution by Agreement. The Company may be
dissolved at any time by the unanimous written consent of the Shareholders.  
11.3   Dissolution Upon Event of Default. During the occurrence and continuation
of an Event of Default (other than a Bankruptcy Event) with respect to a
Shareholder, the Nondefaulting Shareholder may elect, by written notice to the
Defaulting Shareholder, to dissolve the Company, in which event the Company
shall be dissolved and the Shareholders shall take all actions necessary to wind
up the affairs of the Company in accordance with Section 11.7 (Winding Up). This
Section 11.3 shall not be construed to limit the rights of the Nondefaulting
Shareholder under Section 10.4 (Remedies Upon Event of Default) or to seek
damages from the Defaulting Shareholder or any other Person for the breach of
its obligations under any of the FA Operative Documents.

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EXECUTION VERSION

11.4   Dissolution by Unilateral Option. At any time between April 1, 2009 and
March 31, 2010, SanDisk may, by giving written notice to Toshiba, elect to
withdraw from the Company, in which case Toshiba must, directly or through any
of its Affiliates, either (i) purchase from SanDisk all of SanDisk’s Shares
within one (1) year following SanDisk’s notice to withdraw for a cash payment,
by wire transfer of immediately available Japanese Yen, in an amount equal to
the [*] as of the FA Termination Date multiplied by SanDisk’s Percentage as of
the Termination Date (the estimated [*] as of the Termination Date to be agreed
by the Shareholders in good faith and any necessary true up payments promptly
after the actual [*] as of the Termination Date is determined), or
(ii) cooperate with SanDisk to dissolve the Company within one (1) year of the
notice of withdrawal and to wind-up its affairs in accordance with Section 11.7
(Winding Up) (the date as of which any Shareholder, itself or together with its
Affiliates, holds all Shares of the Company or the date the Company is dissolved
in accordance with applicable Law, the “Termination Date,” but in no event shall
the Termination Date occur later than one (1) year following SanDisk’s notice to
withdraw).   11.5   Dissolution upon Notice. At any time between April 1, 2013
and March 31, 2014, any Shareholder (the “Notifying Party”) may elect, by giving
notice to all other Shareholders (the “Notified Party”), to dissolve the
Company, in which event the Company will be dissolved and, within the one
(1) year period following the giving of such notice, the Shareholders shall
mutually agree upon a plan for winding up the affairs of the Company in
accordance with Section 11.7 (Winding Up), unless the Notified Party, directly
or through any of its Affiliates, elects in writing within three (3) months of
receiving such notice, to purchase from the Notifying Party all of its Shares
for a cash payment, by wire transfer of immediately available Japanese Yen, in
an amount equal to the [*] as of the date of such transaction multiplied by the
Notifying Party’s Percentage as of such date.   11.6   Financing Defaults.   (a)
  If pursuant to Section 6.5(c)(i) of the Master Agreement either Party, as the
Investing Party, exercises its election to terminate this Agreement, the
Shareholders shall cooperate in good faith to effect the purchase by Toshiba (or
its designated Affiliate) and sale by SanDisk of all of SanDisk’s Shares, at a
price equal to SanDisk’s percentage share of the issued and outstanding Shares
in the Company multiplied by the [*] as of the date such transaction is closed
(with estimated [*] as agreed by the Shareholders in good faith paid on the
closing of such transaction and any true-up payment made by the appropriate
Party promptly after determination of the actual [ * ] as of the closing of such
purchase and sale transaction).   (b)   [*]   (c)   If pursuant to
Section 6.12(d)(ii)of the Master Agreement either Party, as the Non-Defaulting
Party, exercises its election to terminate this Agreement, the Non-Defaulting
Party shall have the same rights as provided in Section 11.6(a) and the
Shareholders shall cooperate in good faith to effect the purchase by the
Non-Defaulting Party (or its

 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

28

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EXECUTION VERSION

    designated Affiliate) and sale by the Defaulting Party of all of the
Defaulting Party’s Shares.   11.7   Winding Up.   (a)   Upon the dissolution of
the Company, the Shareholders shall proceed as promptly as practicable to
(i) wind-up the affairs of the Company and satisfy the Company’s liabilities,
(ii) dispose of the Company’s assets as quickly as possible consistent with
obtaining the full fair market value of the Company, preferably, to the extent
it is commercially practicable to do so, by selling the Company as a going
concern (provided, however, no Shareholder shall be under any obligation to
extend the terms of any FA Operative Document or to offer to enter into any
other agreement with a prospective purchaser of the Company for the purchase or
sale of goods or services or the use of facilities or any other business
arrangement), and (iii) distribute any net proceeds to the Shareholders in
accordance with Section 11.8 hereof and applicable Law. In connection with a
sale of the Company’s assets under clause (ii), each Shareholder or any of their
respective Affiliates shall have a right of first offer to acquire the Company’s
tangible personal property in the liquidation process and may also acquire such
property through participation at auction except in the event of a dissolution
pursuant to Section 11.3 (Dissolution Upon Event of Default), in which event the
Defaulting Shareholder and its Affiliates shall not have such right of first
offer to acquire the Company’s tangible personal property. Each of the
Shareholders shall be furnished with a statement setting forth the assets and
liabilities of the Company as of the date of the complete liquidation of the
Company. The Accountants shall review the final accounting and shall render
their opinion with respect thereto.   (b)   During the period of winding-up, the
Company shall continue to operate and all the provisions of this Agreement shall
remain in effect, except as otherwise expressly provided herein. The Company
shall notify all known creditors and claimants of the dissolution of the Company
in accordance with applicable law.   11.8   Liquidation Proceeds.   (a)   In the
case of the dissolution and liquidation of the Company, the Company may make a
distribution in kind. Any cash and all distributions in kind that are to be
distributed shall be distributed to the Shareholders, on a pro rata basis based
upon the respective Percentages of the Shareholders as of the date of such
distribution.   (b)   Unless otherwise agreed by the Shareholders, and to the
extent permitted under any agreements with third parties, all assets to be
distributed upon the dissolution and liquidation of the Company shall be
distributed as follows:

  (i)   first, to creditors, including Shareholders who are creditors, to the
extent permitted by law, in satisfaction of liabilities of the Company, other
than for distributions to Shareholders pursuant to Section 6.2 (Distributions);
and

29

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EXECUTION VERSION

  (ii)   second, to the Shareholders on a pro rata basis based upon the
respective Percentages of the Shareholders as of the date of such distribution.

For purposes of this Section 11.8, instruments of transfer and other documents
reasonably requested by the distributee shall be executed by the Company or the
other Shareholder, or both.

(c)   Any distribution made pursuant to this Section 11.8 shall be made as soon
as practicable under and in accordance with applicable Japanese law.   12.  
Indemnification and Insurance   12.1   Indemnification.   (a)   Subject to
Section 12.1(c), the Company shall indemnify each Person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of a Shareholder or the
Company), by reason of the fact that such Person is or was a Shareholder or is
or was or has agreed to become a Director or is or was serving or has agreed to
serve at the request of the Company as a director, officer, employee or agent of
the Company or of another partnership, corporation, joint venture, trust or
other enterprise, arising from any action alleged to have been taken in any such
capacity or by reason of any liability or obligation of the Company, against any
and all losses, damages, liabilities, costs, charges, expenses (including
interest, penalties and reasonable attorneys’ fees and expenses), judgments,
fines and amounts paid in settlement (collectively, “Losses”) actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom. Without limiting the generality of the
foregoing, any of such Losses shall be deemed to arise out of a Company
liability or obligation if it arises out of or is based upon the conduct of the
business of the Company (or any of its Subsidiaries) or the ownership of the
property of the Company (or any of its Subsidiaries).   (b)   The
indemnification provided under this Section 12.1 shall inure to the benefit of
the successors, heirs and personal representatives of any Person entitled to the
benefit of such indemnification. Such indemnification shall be a contract right
and shall include the right to be paid advances of reasonable expenses incurred
by any such Person in connection with such action, suit or proceeding.   (c)  
The indemnification provided under this Section 12.1 shall not inure to the
benefit of any Person in respect of Losses to the extent that such Losses
(i) arise out of or are based upon the gross negligence or willful misconduct of
such Person or (ii) constitute a tax, levy or similar governmental charge not
imposed upon the Company (or any of its Subsidiaries) or on their respective
properties. The indemnification provided under this Section 12.1 shall also not
be available to any Person in respect of any Losses if a judgment or other final
adjudication adverse to such Person establishes (x) that such Person’s acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated or (y) that such Person
gained in fact a financial profit or other advantage to which such Person was
not legally

30

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EXECUTION VERSION

    entitled. It is understood and agreed that, for the purposes of this
Section 12.1, Losses shall be deemed not to arise out of or be based upon the
gross negligence or willful misconduct of a Person solely because it arises out
of or is based upon the gross negligence, willful misconduct, bad faith or
active and deliberate dishonesty of a director, officer or employee of such
Person if at the time of such gross negligence, willful misconduct, bad faith or
active and deliberate dishonesty, such director, officer or employee was also a
member of the SanDisk Team or a Director acting in his capacity as such.   (d)  
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the indemnified Person did not meet
the standard set forth in Section 12.1(c) (Indemnification).   12.2   Insurance.
The Company may, to the fullest extent permitted by law, purchase and maintain
insurance against any liability that may be asserted against any Person entitled
to indemnity pursuant to Section 12.1.   12.3   Indemnification by the
Shareholders.   (a)   Each Shareholder agrees to, and does hereby, indemnify and
hold harmless the Company and the other Shareholder from and against any and all
Losses arising out of, or based upon, the gross negligence or willful misconduct
of such Shareholder under this Agreement or such Shareholder exceeding its
authority under this Agreement.   (b)   The provisions of this Section 12.3
shall survive each of the termination of this Agreement, the dissolution of the
Company and the withdrawal of any Shareholder.   12.4   Assertion of Claims.  
(a)   In the event that a Person (the “Indemnified Party”) desires to assert its
right to indemnification from a Person (an “Indemnifying Party”) required to
indemnify such Indemnified Party under this Section 12, the Indemnified Party
will give the Indemnifying Party prompt notice of the claim giving rise thereto
(a “Claim”), and the Indemnifying Party shall undertake the defense thereof
(unless the Claim is asserted against or related to or results from any action
or failure to take action by such Indemnifying Party). The failure to promptly
notify the Indemnifying Party hereunder shall not relieve the Indemnifying Party
of its obligations hereunder, except to the extent that the Indemnifying Party
is actually prejudiced by the failure to so notify promptly.   (b)   The
Indemnified Party shall not settle or compromise any Claim without the written
consent of the Indemnifying Party unless the Indemnified Party agrees in writing
to forego any and all claims for indemnification from the Indemnifying Party
with respect to such Claim. However, if the Indemnifying Party, within a
reasonable time after notice of any such Claim, fails to defend such Claim, the
Indemnified Party shall have the right to undertake the defense, compromise or
settlement of such Claim on behalf of and for the account and risk of the
Indemnifying Party, subject to the right of the Indemnifying Party

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EXECUTION VERSION

    to assume the defense of such Claim at any time prior to settlement,
compromise or final determination thereof.   13.   If the Indemnifying Party has
undertaken the defense of a Claim and (i) if there is a reasonable expectation
that (x) a Claim may materially and adversely affect the Indemnified Party other
than as a result of money damages or other money payments or (y) the Indemnified
Party or Shareholders may have legal defenses available to it or them that are
different from or additional to the defenses available to the Indemnifying
Party, or (ii) if the Indemnifying Party shall not have employed counsel
reasonably satisfactory to the Indemnified Party, the Indemnified Party shall
nevertheless have the right, at the Indemnifying Party’s cost and expense, to
defend such Claim. Miscellaneous   13.1   Governing Law. Notwithstanding
anything to the contrary in Appendix A, this Agreement shall in all respects be
governed by and construed in accordance with the laws of Japan, without regard
to the conflict of laws principles.   13.2   Effectiveness. This Agreement shall
be effective as of the date first written above and shall remain in effect until
the Termination Date. Sections 7, 11.7, 11.8 and 13 shall survive the
Termination Date.

[REST OF PAGE INTENTIONALLY LEFT BLANK]

32

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EXECUTION VERSION
     IN WITNESS WHEREOF, this Agreement has been executed and delivered by each
party as of the date first above written.

                      TOSHIBA CORPORATION        
 
               
 
  By:                          
 
      Name:   Masashi Muromachi    
 
      Title:   President and CEO    
 
          Semiconductor Company    
 
          Corporate Executive Vice President    
 
                    SANDISK (IRELAND) LIMITED    
 
               
 
  By:                          
 
      Name:   Sanjay Mehrotra    
 
      Title:   Director    

[Signature Page to Flash Alliance Operating Agreement]

 

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EXHIBIT A
ARTICLES OF INCORPORATION OF THE COMPANY
[*]
      
      
      
      
      
 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

1

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Unofficial English Translation
ARTICLES OF INCORPORATION
OF
FLASH ALLIANCE, LTD.
[*]
      
      
      
      
      
      
      
      
 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

1

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Unofficial English Translation
Schedule 2.1(b)
[*]
      
      
      
      
      
      
 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

 

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Schedule 5.3
Management and Operating Reports
[*]
      
      
      
      
      
      
 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

 ii 

 

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Schedule 6.1
Capital Contributions
[*]
      
      
      
      
      
      
 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

 iii 

 

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Schedule 8.3
[*]
      
      
      
      
      
      
 

*   Indicates that certain information contained herein has been omitted and
filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.

 iv