**Exhibit10.3**

 

**CERTAININFORMATION (INDICATED BY “[***]”) IN THIS EXHIBIT HAS BEEN OMITTED AND FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTEDWITH RESPECT TO THE OMITTED PORTIONS.**

 

TOSHIBA

 

Toshiba AmericaElectronic Components, Inc.

2950 OrchardParkway, San Jose, CA 95131

 

**Designand Production Agreement**

 

**NetlistInc.**

 

This Design andProduction Agreement (“DPA”) effective July 31, 2008 (the “Effective Date”)is between Toshiba America Electronic Components, Inc., with a principalplace of business at 19900 MacArthur Boulevard, Suite 400, Irvine, CA92612 (“TAEC”) and Netlist Inc with a place of business at 51 Discovery, Suite 150,Irvine, CA 92618 (“Customer”) and sets out the terms and conditions under whichTAEC will design the product identified herein for Customer.

 

**1.****            ****Project Name**

 

Register ASIC

 

**2.****            ****Summary**

 

This DPA is for thedevelopment of Register ASIC for Customer. The quote is based on TAEC’s initial die size estimation.

 

**3.****            ****Design Specification**

 

**[***]**

 

**4.****            ****Schedule**

 

**MAJOR PROJECT MILESTONES**

 
| **Event**                                             | ** ** | **Target Date/Completed** |
|-------------------------------------------------------|------------|---------------------------|
| Development PO  released & Design Initiation | ** ** | **[***]**                 |
| Completion of  Feasibility Study                      | ** ** | **[***]**                 |
| Design Decision                                       | ** ** | **[***]**                 |
| Package selection  finalized                          | ** ** | **[***]**                 |
| Early netlist for “pipecleaning”            | ** ** | **[***]**                 |
| Final netlist  (functionally correct)                 | ** ** | **[***]**                 |
| Tapeout — Second  Signoff GDSII transfer)        | ** ** | **[***]**                 |
| Delivery of Prototypes                                | ** ** | **[***]**                 |
| System compliance phase  — start                 | ** ** | **[***]**                 |
| System compliance phase  — complete              | ** ** | **[***]**                 |
| 1st Risk Production  shipment                         | ** ** | **[***]**                 |

 

Production turnaroundtime:              16 working weeks

 

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Schedule will befinalized in the SOW upon Design Decision. See Section 13.5.

 

**5.****            ****Technology**

 

**[***]**

 

**6.****            ****Package and Die Size Option**

 
| **Package** | ** ** | **Ball Pitch** | ** ** | **Body Size** | ** ** | **Substrate Layers** | ** ** | **Die Size** |
|-------------|------------|----------------|------------|---------------|------------|----------------------|------------|--------------|
| **[***]**   |       | **[***]**      |       | **[***]**     |       | **[***]**            |       | **[***]**    |

 

**7.****            ****Internal/External IP**

 

Internal IP:

**[***]**

 

External IP:

**[***]**

 

**8.****            ****Price**

 
| First       |   | 1M pieces: US$**[***]** |    ***[***]** |
|-------------|--------|-------------------------|------------------------------|
| Next        |   | 2M pieces: US$**[***]** |                         |
| Next        |   | 2M pieces: US$**[***]** |                         |
| After first |   | 5M pieces: US$**[***]** |                         |

 

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*Prices for 01Mpcsrepresent an addition of US$**[***]**per unitin amortized Total NRE cost.  See Section 10.

 

Changes in die size willaffect the price quoted.

 

Prices do not include andare subject to any applicable sales tax.

 

**9.****            ****Non-Recurring Engineering Charges(“NRE”)**

 

9.1           Total NRE Charges (not including re-spin charges asset out in Section 9.2): US$**[***]**

 

9.2           Additional NRE Charges in the event of Re-spin

 
| Metal Layer Re-spin  Charges:                       |   | US$**[***]** |
|-----------------------------------------------------|--------|--------------|
| All-Layer Re-spin  Charges (base and metal layers): |   | US$**[***]** |

 

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In the event a re-spininvolving only metal layers is required, TAEC will provide a firm quote foradditional re-spin NRE charges, which will be calculated on a cost per layerbasis including required engineering effort. In the event the implementation ofdesign changes affects all metal layers, including contact and vias, theadditional NRE cost will not exceed the Metal Layer Re-spin Charges amountstated above.

 

In the event an all-layerre-spin is required, the All-Layer Re-spin Charges will apply as stated above.

 

The charges set forth inthis Section 9.2 are based on the assumptions that (1) no MaterialChanges would be needed and (2) no changes whatsoever to the packagedesign would be required, whether Material Changes or not. If either of theseassumptions is incorrect, costs may vary.

 

9.3           Internal IP Defects/Bugs

 

Should Internal IP befound to have a Defect/Bug, as defined in the attached SLI Terms andConditions, TAEC will be responsible for the additional NRE re-spin chargesrequired to repair such Defect/Bug, subject to Section 9.4,

 

9.4           Customer Design Changes During Re-spin for Internal IPDefects/Bugs

 

If Customer requestsdesign changes during a re-spin to correct Internal IP Defects/Bugs, a portionof the additional re-spin cost will be shared by Customer.

 

For a metal re-spin, thiscost will be calculated on the basis of the number of layers required forCustomer changes and whether those layers are implicated by the Internal IPrepairs. If the Customer-requested design changes require the same metal aridvia layers as would be necessary for the Internal IP Defect/Bug fix, the costto Customer will not exceed 50% of the additional re-spin NRE charges. If theCustomer-requested changes require additional mask layer changes, the NRE costassociated with the additional layers will be solely the financialresponsibility of Customer.

 

If an all-layer re-spinis required in order to fix Internal IP Defects/Bugs, and Customer requestsadditional design changes at that time, Customer will not he charged more than50% of the All-Layer Re-spin Charges.

 

**10.****         ****NRE Payment Schedule**

 
| Design Decision:        |   | US$**[***]** |
|-------------------------|--------|--------------|
| Tape-out:               |   | US$**[***]** |
| Delivery of Prototypes: |   | US$**[***]** |
| Amortized NRE:*         |   | US$**[***]** |

 

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*  TAEC agrees to charge and Customer agrees topay US$**[***]**in NRE amortized over the first **[***]** production units, at the additional price of US$**[***]** per piece (see Section 8).  In the even t that Customer has not paid thetotal owed sum of US$**[***]**throughthe amortized sales process within 15 months of the date of Delivery ofPrototypes, then Customer agrees to pay the entire balance owing upon invoiceby TAEC.  For the avoidance of doubt,Amortized NRE is considered part of NRE for all purposes including Sections 9and 10 of the attached SLI Terms and Conditions.

 

·      **[***]** Prototypes are included in NRE.

 

·      A prototype lot charge of $**[***]** is included in the Delivery of Prototypes payment.Prototype lot charge is subject to any applicable sales tax.

 

**11.****         ****NRE Services included**

 

Engineering activities

 

**[***]**

 

Manufacturing activities

 

**[***]**

 

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*Any additionalqualifications requested by Customer beyond the standard Toshiba qualificationare not covered by the Total NRE Charges and may incur additional fees.

 

**12.****         ****Extra Engineering Samples**

 
| 1-100 pieces:     |   | **[***]** unit price of US$**[***]** |
|-------------------|--------|--------------------------------------|
| 101-500 pieces:   |   | **[***]** unit price of US$**[***]** |
| 501- 1000 pieces: |   | **[***]** unit price of US$**[***]** |

 

All extra engineeringsamples are sold as Prototypes and are subject to, without limitation, Articles18.2 and 19.1 of the Terms and Conditions.

 

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**13.****         ****Project Specific Conditions**

 

13.1         **[***]**

 

13.2         **[***]**

 

13.3         **[***]**

 

13.4         **[***]**

 

13.5         **[***]**

 

**14.****         ****General Conditions**

 

14.1         Pricing stated in this DPA is based on Toshiba AmericaElectronic Components Inc. selling production parts directly to Customer.

 

14.2         Full specifications and responsibilities to be definedand agreed in a SOW. Customer and TAEC will work in good faith to finalize andsign the SOW within thirty (30) days of design initiation.

 

14.3         Schedule is provisional. Final schedule is still to beagreed.

 

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14.4         TAEC reserves the right to make extra charges up to **[***]** of the total NRE if Customer submits **[***]** Engineering Change Orders (ECOs) or changes to thelayout constraints file(s) after the acceptance of final netlist, unlessthese ECOs/changes are attributed to problems of TAEC implementing the design.

 

14.5         TAEC may, in its sole discretion, share a copy of thisDPA, and any applicable SOW with Toshiba Corporation Semiconductor Company andother Toshiba affiliates, on a need-to-know basis in order to implement orfurther Customer’s project.

 

14.6         TAEC may, upon written notice to Customer, shareCustomer’s information as it pertains to their design kit, library and userdocumentation with a supplier of EDA Tools for the sole purpose of resolvingany debugging issues that may arise during the term of this Agreement.

 

14.7         This DPA shall be governed by the attached Terms andConditions, which are incorporated herein by reference.

 

14.9         In the event of any conflict between the provisionsset forth in this DPA and the Terms and Conditions to which it is attached, thecontents of the DPA shall control.

 

14.10       This Agreement (as defined in the Terms andConditions) is the entire agreement between the parties and supersedes anyprior communications, representations, or agreements as to the subject matterhereof, whether written or oral.

 

14.11       Any changes to the DPA and/or the Terms and Conditionsafter the execution of the DPA must be mutually agreed upon in the form of awritten amendment signed by both parties.

 

 
| **Toshiba America Electronic  Components, Inc.**                          | ** ** | **NetList Inc.**                             |
|---------------------------------------------------------------------------|------------|----------------------------------------------|
|                                                                      |       |                                         |
| */s/ Takeshi Iwamoto*                                                     | * *   | */s/ James P. Perrott*                       |
| Signature                                                                 |       | Signature                                    |
|                                                                      |       |                                         |
|                                                                      |       | James P. Perrott, SVP  Sales & Marketing |
| Takeshi Iwamoto VP,  Customer SoC & Foundry Business Unit, System LSI |       | Printed Name and Title                       |
| Printed Name and Title                                                    |       | 8/15/08                                      |
|                                                                      |       | Date                                         |
| 8/22/08                                                                   |       |                                         |
| Date                                                                      |       |                                         |

 

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Toshiba America Electronic Components, Inc.

Design and Production Agreement Terms and Conditions

 

These Terms andConditions set out the terms and conditions under which TAEC will de theseterms are attached.

 

**1.****            ****DEFINITIONS**

 

1.1           “Agreement” shall refer to the agreement comprisingthe DPA (as hereinafter defined), the Terms and Conditions, the SOW, and anyother addenda specifically noted therein (all as defined herein).

 

1.2           “CEM “ means a contract manufacturer engaged byCustomer to purchase Product(s) from TAEC, which are then assembled intoproducts sold to Customer.

 

1.3           “Customer” means the customer identified on Page 1of the DPA.

 

1.4           “Defect/Bug” means a failure of any intellectualproperty to meet the mutually agreed upon chip level and system levelspecifications as provided at the time of development. Such failure ornonconformance includes, but is not limited to, the inability of the logic orinterface portion of either Internal and External IP to meet mutually agreedupon chip level and system level specifications.

 

1.5           “Design Initiation” means Customer has placed and TAEChas accepted a Development PO to proceed with Customer’s design.

 

1.6           “Development PO “ is the purchase order created by theCustomer to signify they have accepted the Specifications and have agreed toproceed with the development of Customer’s design.

 

1.7           “DPA” means the Design And Production Agreement towhich these terms and conditions are attached.

 

1.8           “Effective Date” shall mean the date reflected on thefirst page of the DPA, its date of execution notwithstanding.

 

1.9           “External IP” shall mean intellectual propertyacquired from a third party IP provider by TAEC or Customer for use in Customer’sdesign, which is so identified in the SOW and/or in the DPA.

 

1.10         “Internal IP “ means intellectual property ownedand/or provided by TAEC for use in Customer’s design, which is so identified inthe SOW and/or in the DPA.

 

1.11         “Mask Work” means a series of related images, howeverfixed or encoded; having or representing the predetermined, three dimensionalpattern of metallic, insulating or semiconductor material present or removedfrom the layers of a semiconductor chip product; and in which series therelation of the images to one another is that each image represents a patternof the surface of one form of the resulting semiconductor chip product.

 

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1.12         “Material Changes” means any changes inCustomer-provided specification or netlist that (1) lead to an increase inblock size or die size of 1% or more; (2) increase the nominal performanceof the block or chip or both by 1 % or more; (3) alter the testingrequirements after the Second Signoff; (4) in the case of I/O limiteddesigns, lead to any increase in pin out; or (5) in the case of non-I/Olimited designs, lead to an increase in pin out of 1 % or more.

 

1.13         “NRE “ means the non-recurring engineering feescharged for specific phases of work as set forth in the DPA.

 

1.14         “Product” means the resulting product based on thedesign specified in the DPA and shall be defined by mutually agreed uponspecifications embodied in the documents contained within the Customer Part NumberFile and TAEC published Quality and Reliability Standards

 

1.15         “Prototype” means pre-production engineering samplesof Products, which have been manufactured before the completion of thePrototype Approval Signoff by both parties. Prototypes are provided forevaluation purposes only. Prototypes may also be called “Engineering Samples”or “KS,” “ES, “ or “HS “ for invoicing or other purposes, but other types ofreference to a Prototype shall not change the status as the Prototype.

 

1.16         “Prototype Approval Signoff” shall mean the formsigned by the Customer when the Prototype meets the required Specification andthe design is suitable for transfer in to production.

 

1.17         “Risk Production” means TAEC’s commencing productionof goods before the completion of the Prototype Approval Signoff by bothparties.

 

1.18         “Second Signoff” means the form signed by both partiesindicating the design is ready for Tape-out.

 

1.19         “SOW “ means the Statement of Work attached to theDPA, or which is executed separately by the parties if not attached thereto.The parties expressly agree that the SOW may be modified from time to time ontheir mutual agreement, and that the project schedule and other records of theTAEC Program Manager shall be the record of the parties’ modifications to theSOW.

 

1.20         “Specifications” means the specifications agreed bythe parties for the Product and Prototype, as applicable and incorporated intothe SOW.

 

1.21         “System Level Verification “ shall mean theperformance of the External IP on the silicon in varying Customer applicationsystems as stated on the third party IP provider specification.

 

1.22         “TAEC “ means Toshiba America Electronic Components, Inc.

 

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1.23         “Tape-out” means TAEC has released final database toJapan to begin the prototype fabrication (mask making and wafer fabrication).

 

1.24         “Terms and Conditions” means these Design andProduction Agreement Terms and Conditions.

 

**2.****            ****DEVELOPMENT WORK**

 

2.1           Details of the development are set forth in the SOW.Design requirements may be changed by mutual written agreement of the Parties;however, Customer understands and agrees that such changes may result inadditional charges.

 

2.2           The development shall be completed when Customernotifies TAEC that the Prototype received by Customer meets the Specifications,when Customer executes the Prototype Approval Signoff.

 

2.3           If the Prototypes do not conform to the agreedspecification and TAEC agrees that the nonconformance is due to TAEC’s error,TAEC will make all commercially-reasonable efforts to expedite delivery ofconforming Prototypes.

 

2.4           If Customer requests any modifications to theSpecifications, TAEC agrees to complete the modification as soon as isreasonably practicable after TAEC has agreed to the modification. For theavoidance of doubt, the parties expressly agree that TAEC shall have no obligationto commence a modification unless and until the parties have agreed onadjustments in schedule, costs, or other applicable provisions.

 

2.5           If TAEC assembles and manufactures any goods atCustomer’s request before Customer has issued its written approval viaPrototype Approval Signoff, Customer understands and agrees that they will bedone on a Risk Production order basis, with Customer responsible for allassembly and production costs.

 

2.6           Products will be tested to the developed test programresulting from the simulation database. Changes to the test program aftersample or production initiation may result in production lead-time delays.

 

2.7           Each delivery of Products shall be initiated byCustomer’s written or electronic notification that a Purchase Order (“PurchaseOrder”) will be forthcoming. Customer shall send a written Purchase Order toTAEC within five (5) working days of the verbal notice. Each PurchaseOrder shall identify the Products ordered; indicate the requested quantity anda mutually agreed upon price; and specify the requested delivery date.

 

2.8           Design initiation shall commence when Customer issuesa Purchase Order for the NRE charge. The Purchase Order shall refer to theapplicable DPA, and shall include the words: “This Purchase Order representsacceptance of the terms and conditions in the Design And Production Agreementbetween the issuer and Toshiba America Electronic Components, Inc.”

 

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2.9           TAEC shall supply Products to Customer based onproduction Purchase Orders that support a six (6) month rolling forecast.

 

**3.****            ****DEVELOPMENT TERM**

 

**[***]**

 

**4.****            ****COMPENSATION**

 

4.1           **[***]**

 

4.2           **[***]**

 

4.3           **[***]**

 

**5.****            ****RE-SPIN NRE CHARGES**

 

Re-spin NRE charges willbe based on engineering and manufacturing services as well as on the extent ofthe modification, which may be done as either a metallization or a diffusionchange. Metallization changes may be implemented by regenerating the metal andvia masks only. Diffusion modifications, on the other hand, require theregeneration of all masks. The extent of the engineering and manufacturingservices required for re-design shall be considered in determining totalcharges for a re-spin of the design which shall be specified in the DPA or anAmendment thereto.

 

**6.****            ****ACKNOWLEDGMENT**

 

6.1           TAEC shall process Customer’s Purchase Orderssubmitted in accordance with Article 2.7 within ten (10) working daysof TAEC’s receipt thereof. Purchase Orders shall only be binding as of the dateof TAEC’s acknowledgment and acceptance thereof.

 

6.2           TAEC shall only accept Purchase Orders with requesteddelivery dates no more than six (6) months from the Purchase Order date.Any requests for a shipment beyond that six-month period shall be reviewed andacknowledged only after the requested delivery date moves within the six (6) monthperiod.

 

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**7.****            ****PRODUCT LEADTIME**

 

7.1           Prototypes: TAEC will use all commercially reasonableefforts to provide Prototypes within the total turnaround time defined in theappropriate DPA and expressed as working weeks from Tape-out.

 

7.2           Production: TAEC will use all commercially reasonableefforts to provide production lead-time as defined in the appropriate DPA orother document issued by TAEC, from the date of TAEC’s acknowledgment andacceptance of a Purchase Order.

 

**8.****            ****SHIPMENT AND DELIVERY**

 

8.1           Shipments shall be F.C.A. shipping point. Risk of lossor damage shall pass from TAEC to Customer upon delivery of the Products to thecommon carrier for shipment to Customer; title to all Products releasedhereunder shall pass to Customer upon full payment by Customer therefor.

 

8.2           Unless otherwise specified by Customer, TAEC shallship Products according to TAEC’s standard method. Freight and insurance willbe prepaid by TAEC and invoiced to Customer.

 

8.3           TAEC shall not be liable for any damages or penaltiesfor delay in delivery, or for failure to give notice of delay when such delayis due to an act of Customer or any cause beyond the reasonable control ofTAEC, including, but not limited to, the causes specified in Article 28.FORCE MAJEURE clause herein. For any delay excusable under Article 28, thedelivery date shall be deemed extended for the duration of the force majeureevent.

 

**9.****            ****PAYMENT TERMS**

 

9.1           Customer shall pay to TAEC all amounts due hereunderwithin thirty (30) days of the date of TAEC’s invoice therefor.

 

9.2           Customer may have a third party distributor or otherentity (each, a “Designated Payor”) pay the NRE charges on Customer’s behalfsubject to the following conditions:

 

a.             Customer will so inform TAEC and will give TAECinstructions on to whom and where the NRE invoice(s) should be sent;

 

b.             Upon TAEC’s request, Customer will provide reasonableevidence to TAEC of such Designated Payor s agreement to pay the NRE charges;

 

c.             Customer remains primarily liable for the payment ofthe NRE charges, and understands and agrees that it shall be fully responsibletherefor if the Designated Payor fails to pay such charges within thirty (30)days of the date of TAEC’s invoice; and

 

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d.             The payment of the NRE charges by a Designated Payorshall not affect any of the rights and obligations of the parties hereunder,and such Designated Payor shall not be deemed a third party beneficiary of thisAgreement, nor shall the Designated Payor have any rights in or to Products,Prototypes, Mask Works, or any other item relating to the subject matter hereofor any right to place or enforce a lien against TAEC relating to the subjectmatter of this Agreement, and Customer shall indemnify and hold harmless TAECfrom any damages or claims TAEC may suffer as a result of Customer’s engagementof a Designated Payor.

 

9.3           TAEC may withhold or suspend shipment or otherperformance hereunder, in whole or in part, if Customer or its DesignatedPayor, as applicable, fails to make any payment in accordance with Article 9.1,or otherwise fails to perform its obligations under these Terms and Conditions.

 

9.4           TAEC reserves the right to monitor Customer’s or theDesignated Payor’s creditworthiness periodically during the course of the work.If, in TAEC’s reasonable opinion, Customer’s or the Designated Payor’s,creditworthiness declines, TAEC shall so notify Customer or the DesignatedPayor, and as a condition to the performance of any obligation under thisAgreement, TAEC reserves the right in its sole discretion to require Customeror the Designated Payor to provide security for payment of any amounts dueunder this Agreement, including, but not limited to, opening an irrevocableletter of credit to support Customer’s payment obligations hereunder, or suchother means as TAEC may determine appropriate.

 

**10.****          ****CANCELLATION/DELAY OFDEVELOPMENT:**

 

10.1         In the event that Customer unilaterally delays adesign milestone for longer than four (4) weeks beyond the schedulespecified in the SOW, TAEC reserves the right to charge Customer up to a totalof **[***]**of the Total NRE charge specifiedin the DPA.

 

10.2         If Customer wishes to discontinue the project afterTAEC has accepted the Development PO from Customer, the Customer or theDesignated Payor shall be responsible to pay TAEC for the NRE charges as setforth below (“Cancellation Fee”), unless otherwise agreed in writing betweenTAEC and the Customer:

 
| **Time**  | ** ** | **Cancellation Fee** |
|-----------|------------|----------------------|
|      | ** ** | ** **           |
| **[***]** | ** ** | **[***]**% of NRE    |
| **[***]** | ** ** | **[***]**% of NRE    |
| **[***]** | ** ** | **[***]**% of NRE    |
| **[***]** | ** ** | **[***]**% of NRE    |

 

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10.3         In the event that Customer unilaterally delays adesign milestone for longer than **[***]**beyondthe schedule specified in the SOW, TAEC reserves the right to deem the designcancelled and assess the Cancellation Fee specified in Section 10.2. Insuch case, the Agreement will terminate upon payment of the Cancellation Fee.

 

10.4         For the avoidance of doubt, NRE already invoiced toCustomer per the milestones and NRE payment schedule set forth in the DPA (“PaidNRE”) shall offset the Cancellation Fee assessed in Sections 10.2 and 10.3 above.To the extent that the Paid NRE exceeds the Cancellation Fee as assessed, TAECshall not charge an additional Cancellation Fee; however, Paid NRE will not berefunded upon cancellation of the design.

 

**11.****          ****CANCELLATION/RESCHEDULE OFPRODUCTION  ORDERS**

 

11.1         Requests for cancellation must be made in writing, andthe following terms shall apply unless otherwise agreed in writing between TAECand the Customer. Cancellation fees will be assessed based on the length oftime from the date a written notice is received by TAEC to the first scheduledshipment date.

 
| **Days  from scheduled shipment** | ** ** | **Cancellation Fees** |
|-----------------------------------|------------|-----------------------|
| 0 - 30 days                       | ** ** | **[***]**             |
| 31- 60 days                       | ** ** | **[***]**             |
| 61- 90 days                       | ** ** | **[***]**             |
| 91-120 days                       | ** ** | **[***]**             |

 

11.2         Re-schedule requests must be made in writing sixty(60) days before the original delivery date. Any order may be re-scheduled onlyonce. Requests to delay shipments may not exceed ninety (90) days from theoriginal committed delivery date. The re-scheduled order may not be canceled orfurther modified, and Customer will be liable for full payment of the sellingprice.

 
| **Days  before Shipment** | ** ** | **Terms** |
|---------------------------|------------|-----------|
| Within next 60 days       | ** ** | **[***]** |
| Within 60-120 days        | ** ** | **[***]** |
| Over 120 days             | ** ** | **[***]** |

 

**12.****          ****INTELLECTUAL PROPERTY RIGHTS ANDOWNERSHIP**

 

12.1         Customer retains all right, title and interest in andto all proprietary rights, including without limitation, patent, copyright,trade secrets, mask work rights, in and to: (i) all designs and designfeatures of the Products, and (ii) all patterns, drawings, and other dataconcerning the Products’ design features including, but not limited to, theProducts’ database, and (iii) all Mask Work produced by TAEC for themanufacturing of Products.

 

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12.2         Notwithstanding the above provision, TAEC retains allright, title and interest in and to its processes and all patent, trade secret,and other intellectual property rights therein, and any associated technologyand know-how. For the purposes of this Agreement, “processes” shall mean TAEC’smanufacturing processes, including, but not limited to the process controlmonitor contained in the Mask Work. TAEC reserves the right to perform similarwork for its other customers.

 

12.3         Both parties understand that any and all Mask Worksproduced by TAEC for the manufacturing of the Products contain both parties’Confidential Information (as hereinafter defined), and that such Mask Worksshall not be used in any manner except as necessary for the performance of thisAgreement.

 

12.4         The party who desires to assert its Mask Work rightsagainst any third party for infringement (the “Asserting Party”) shall giveprior written notice to the other party to allow such other party to decidewhether or not to participate in such dispute. If the other party decides notto participate, it shall provide all commercially reasonable assistance to theAsserting Party in connection with such dispute, at the Asserting Party’sexpense.

 

12.5         If an invention is made solely by the employees ofeither party in connection with the development of the Prototype or Products,all right, title, and interest in and to such items shall belong solely to theparty whose employees made such invention. If an invention is jointly made bythe employees of both Customer and TAEC, Customer and TAEC shall jointly ownall right, title, and interest thereto. Each party shall be entitled to use andexploit such jointly owned invention and intellectual property rights withoutnotice or accounting to the other party.

 

**13.****          ****MASK WORKS REGISTRATION**

 

13.1         If Customer desires to register the Mask Work for theProducts under the Semiconductor Chip Protection Act of 1984 (the “Act”),Customer shall make registration by itself; however, Customer shall includeTAEC’s name in such registration. Customer shall have sole responsibility forobtaining registrations for the Mask Work. Upon Customer’s request, TAEC agreesto supply Customer or its designee with any reasonable identifying materialrequired for deposit under the Act in order to register a Mask Work in thenames of Customer and TAEC. All expenses and charges for registration andupkeep on Mask Work shall be borne by Customer.

 

13.2         Customer shall use its best efforts to comply with allsemiconductor protection laws and applicable regulations in connection withsuch application. If possible, Customer shall expressly identify in the “natureof contribution” column of the U.S. mask work registration form (and applicablecolumns of the application form of other countries) that the portion of theMask Work for the Products and any intellectual property rights including MaskWork related thereto remain the sole and exclusive property of TAEC.

 

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13.3         Customer shall furnish TAEC with a copy of theapplication form of Mask Work for TAEC’s prior to filing, and shall give TAECreasonable time and opportunity to suggest changes and edits.

 

**14.****          ****MASK WORK NOTICE**

 

Upon written request byCustomer, and subject to packaging constraints, TAEC will place a Mask Worknotice on the outside package of the Product which shall consist of the letterM in a circle and the names of Customer and TAEC.

 

**15.****          ****BUSINESS RELATIONSHIPS**

 

15.1         Except as may be specifically provided in thisAgreement, no right or license either expressed or implied is granted to eitherparty under any patent, patent application or any other intellectual propertyright as a result of this Design Agreement. The rights and obligations of theparties to these Terms and Conditions are limited to those expressly set forthherein.

 

15.2         This Design Agreement is not intended to constitute orcreate a joint venture, partnership or formal business entity of any kind.Customer and TAEC shall be independent contractors and neither party shall actas the agent for or partner of the other party without prior written agreement.

 

15.3         Nothing in these terms and conditions shall giveeither party the right to use the other’s name, trademark or logo except wherespecifically authorized in writing by such other party.

 

15.4         Customer understands and agrees that a CEM’s purchasesand other information relating to its business relationship with TAEC areconfidential information that TAEC may not disclose without the CEM’s expresspermission (the “CEM Information”). Consequently, if Customer requests TAEC toprovide such CEM Information, TAEC shall do so only if:

 

a.             Customer provides to TAEC proof of the CEM’spermission; or

 

b.             Customer defends, indemnifies, and holds TAEC harmlessfrom and against any and all claims and damages that TAEC may suffer as aresult of such disclosure of CEM Information.

 

**16.****          ****SUBCONTRACTING**

 

16.1         TAEC may subcontract all or part of the development ofthe Products to Toshiba Corporation or one or more of TAEC’s affiliates orsubcontractors, provided that each such subcontracting party agrees in writingto comply with provisions of these terms and conditions.

 

16.2         Customer may subcontract all or part of itsobligations hereunder with respect to the Products to one of its affiliates orsubcontractors (each, a “Permitted Party”), 

 

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provided that (a) eachsuch Permitted Party agrees in writing to comply with provisions of these termsand conditions, (b) the Permitted Party is not a semiconductor competitorto TAEC, and (c) Customer has given TAEC permission to share informationwith such Permitted Party as may be required for Permitted Party to carry outits duties.

 

**17.****          ****CONFIDENTIAL INFORMATION**

 

17.1         “Confidential Information” as used in this Agreementwill mean any and all technical and non-technical information including patent,copyright, trade secret, and proprietary information, techniques, models,inventions, know-how, processes, apparatus, equipment, algorithms, softwareprograms, and formulae related to the current, future and proposed products andservices of each of the parties and/or its customers and/or vendors, including,without limitation, information concerning product or process research anddevelopment, design details and specifications, engineering, financial data,manufacturing, customer lists, business forecasts, sales and merchandising, andmarketing plans.

 

17.2         The parties agree that Confidential Informationexchanged by them under this Agreement shall be protected by the provisions ofthe Nondisclosure Agreement (“NDA”) signed between them, and made effective asof             , mutatis mutandis.

 

17.3         Notwithstanding the expiration or termination of theNDA, the provisions of this Article 17 shall remain in effect for a periodof ten (10) years from the date of this Agreement.

 

**18.****          ****WARRANTY**

 

18.1         Customer acknowledges and agrees that the success ofthe development of the custom product contemplated by this Agreement cannot beassured. TAEC gives no representation or warranty that it will be successful indeveloping a design for such custom product or that the development willprogress according to the milestones set forth in the Statement of Work. TAECwill under no circumstances be liable for any damages arising from its failureto develop a design for such custom product or for failing to meet themilestones set forth in the SOW. Any expenditures or commitments by Customer inanticipation of TAEC’s success in developing such custom product or meeting themilestones set forth in the SOW will be at Customer’s sole risk and expense.

 

18.2         PROTOTYPES/RISK PRODUCTION-NO WARRANTY CUSTOMERACKNOWLEDGES AND AGREES THAT ANY PROTOTYPE AND/OR RISK PRODUCTION GOODSDELIVERED HEREUNDER ARE DELIVERED ON AN “AS IS “ BASIS WITH ALL FAULTS AND WITHNO WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED.

 

18.3         PRODUCT WARRANTY

 

a.             TAEC warrants that:

 

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i]              for a period of one (1) year from the date of thedelivery of each Product, the Product shall: (a) conform to theSpecifications; (b) be free from defects in material or workmanship undernormal use and service; and

 

ii]             at the time of delivery, the Products will be free andclear of all liens, encumbrances, and other claims except for TAEC’sreservation of a security interest in the Products prior to receipt of paymentin full therefor.

 

b.             TAEC’s responsibility and the sole and exclusiveremedy of Customer under this warranty is, at TAEC’s option, to repair,replace, or credit Customer’s account for any defective Products which arereturned by Customer during the applicable warranty period set forth above insub-Article 18.3a.i], provided that: (a) Customer promptly notifiesTAEC in writing with a detailed description of any alleged deficiencies upondiscovery by Customer that such Products fail to conform to the specifications;(b) such Products are returned to TAEC, F.C.A. TAEC’s plant; and (c) TAEC’sexamination of such Products establishes to TAEC’s satisfaction that suchalleged deficiencies actually existed and were not caused by Customer’s misuse,neglect, alteration, improper installation, repair, or improper testing of theProduct(s).

 

c.             TAEC SHALL WARRANT EXTERNAL IP SOLELY TO THE EXTENTSET FORTH IN THE APPLICABLE SOW. IF THE SOW IS SILENT ON WARRANTY,VERIFICATION, TESTING OR MAINTENANCE OF THE EXTERNAL IP, CUSTOMER UNDERSTANDSAND AGREES THAT TAEC SHALL NOT WARRANT ANY EXTERNAL IP, EXPRESSLY OR IMPLIEDLY,INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULARPURPOSE.

 

18.4         FOR THE AVOIDANCE OF DOUBT, THE PARTIES EXPRESSLYAGREE THAT THE WARRANTIES SET FORTH IN THIS ARTICLE SHALL NOT APPLY TO (i) ANYEXTERNAL IP, AND (ii) NON-CONFORMANCE CAUSED BY (A) IMPROPER USE,INSTALLATION, MISUSE, NEGLECT, MODIFICATION, ALTERATION, REPAIR, OR IMPROPERTESTING OF THE PROTOTYPES OR PRODUCTS BY CUSTOMER OR ANY PARTY; (B) THEPROTOTYPES OR PRODUCTS HAVING BEEN SUBJECTED TO UNUSUAL PHYSICAL OR ELECTRICALSTRESS; OR (C) INTERFERENCE FROM APPLICATIONS, SOFTWARE, OR OTHER PRODUCTSPROVIDED BY THIRD PARTIES.

 

18.5         EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE, TAECDISCLAIMS AND CUSTOMER WAIVES ALL OTHER WARRANTIES OR LIABILITIES OF TAEC,EXPRESS, IMPLIED, OR ARISING OUT OF COMMON LAW OR COURSE OF DEALING, RELATINGTO TAEC’s 

 

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PERFORMANCE HEREUNDER,INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND OFFITNESS FOR A PARTICULAR PURPOSE. THIS WARRANTY IS FOR THE SOLE BENEFIT OFCUSTOMER AND NOT FOR ANY THIRD PARTY.

 

**19.****          ****PROTOTYPES/RISK PRODUCTION**

 

19.1         Customer acknowledges that any Prototype will beprovided for evaluation purposes only and not for any other purposes and shallnot be offered to any of its customers, directly or indirectly, for purposesother than evaluation. Customer shall defend, indemnify, and hold TAEC and itsaffiliates harmless from and against all damages, obligations, causes ofaction, suits, or injuries of any kind arising from or in relation to Customer’suse or other disposition of the Products in violation of this Agreement and/orCustomer’s supply of the Prototype to any of its customers.

 

19.2         Customer acknowledges that Risk Production goods areprovided prior to Prototype Approval Signoff. Customer agrees to defend,indemnify, and hold TAEC and its affiliates harmless from and against alldamages, obligations, causes of action, suits, or injuries of any kind arisingfrom or in relation to Customer’s supply of the Risk Production goods to any ofits customers.

 

**20.****          ****PRODUCT APPLICATION**

 

20.1         This design is intended for general commercialapplications such as but not limited to telecommunications, informationtechnology equipment, computer equipment, office equipment, test andmeasurement instrumentation, or domestic appliances. The design is not intendedfor use in, nor is it intended to be incorporated into the Product for use in,nor will TAEC knowingly sell such items for use in equipment which requiresextraordinarily high quality or reliability, and/or in equipment which mayinvolve life threatening, life support, life sustaining, or life criticalapplications, including, but not limited to such uses as atomic energycontrols, airplane or spaceship instrumentation, traffic signals, biomedical ormedical instrumentation, combustion control, offensive weapon systems, orsafety devices.

 

20.2         TAEC DOES NOT ACCEPT, AND HEREBY DISCLAIMS, LIABILITYFOR ANY DAMAGES, WHICH MAY ARISE FROM THE USE OF TAEC PRODUCTS USED INSUCH EQUIPMENT OR APPLICATION AS SET FORTH HEREINABOVE. CUSTOMER SHALL DEFEND,INDEMNIFY, AND HOLD TAEC FREE AND HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,LIABILITIES, PROCEEDINGS, COSTS, LOSSES, DAMAGES, AND EXPENSES OF EVERY KINDAND NATURE WHATSOEVER ARISING OUT OF OR IN CONNECTION WITH USE OF PRODUCTS INANY SUCH EQUIPMENT OR APPLICATION.

 

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**21.****          ****INSPECTION**

 

Customer shall inspectProducts at its own expense in accordance with the inspection standard agreedupon by the parties. Unless Customer provides TAEC with written notice ofrejection within thirty (30) days after TAEC’s delivery of the Products to thecarrier, together with sufficient evidence of the cause thereof, Products shallbe deemed finally and irrevocably accepted. If TAEC receives notice ofrejection within that thirty (30) days, then TAEC shall, at its option, repairor replace the defective Products or credit Customer’s account, if TAEC hasbreached its warranty under Article 18.

 

**22.****          ****ISSUANCE OF RETURN MATERIALAUTHORIZATION  NUMBER**

 

22.1         All Products which Customer returns to TAEC must beaccompanied by a Return Material Authorization (RMA) number. Unless furtherverification is required by TAEC, TAEC shall provide Customer with an RMAnumber within three (3) working days of Customer’s request for return ofthe nonconforming Product to TAEC.

 

22.2         If it is determined that the failure is electrical,mechanical, or of any other nature requiring further verification by TAEC,Customer shall return to TAEC an agreed upon number of data-logged samples ofthe Product lot, whereupon TAEC shall issue a Failure Analysis (FA) number.Customer may, at its option, suspend the processing of invoices throughCustomer’s accounting system for such nonconforming Product, pending resolutionof the investigation. TAEC shall analyze the samples and report its findings toCustomer within thirty (30) days after receipt of the samples and shall adviseCustomer of a schedule to complete the failure analysis and take correctiveaction.

 

22.3         An RMA shall be issued within three (3) workingdays following verification of the failure, if, after testing, the sample hasbeen found to be nonconforming. Upon mutual agreement, TAEC shall replace,repair, or credit the purchase price of any Product which has been found to benonconforming. If the returned Product is subsequently determined by Customerand TAEC to be in conformance, Customer shall immediately complete payment.

 

22.4         Transportation charges for Products returned fromCustomer to TAEC or from TAEC to Customer under this Article shall be atTAEC’s expense, provided that Customer shall reimburse TAEC for anytransportation charges paid by TAEC for returned Products which aresubsequently found to be conforming.

 

**23.****          ****MATERIAL AVAILABILITY**

 

23.1         TAEC shall give Customer reasonable advance notice ofits intent to discontinue the manufacture of those Products included in thisAgreement. Such notice shall be no less than twelve (12) months in advance ofthe last order date. Customer shall have a twelve (12) month order placementperiod and must take receipt of the Products within eighteen (18) months ofnotification of the discontinuance.

 

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23.2         After receipt of such notice of discontinuance,Customer may determine its Life Time Buy (LTB) quantity under the followingconditions: (a) the quantity shall be by mutual agreement and (b) theprice shall be negotiated at the time TAEC gives notice of the discontinuance.

 

**24.****          ****LIABILITY**

 

TAEC WILL UNDER NOCIRCUMSTANCES BE LIABLE FOR INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL,SECONDARY, PUNITIVE OR EXEMPLARY LOSS OR DAMAGES OR ECONOMIC LOSS ARISING OUTOF OR RELATING TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT FOR ANYREASON WHATSOEVER REGARDLESS OF THE FORM OF ACTION, EVEN IF TAEC HAD BEENADVISED OF THE LIKELIHOOD OF SUCH LOSS OR DAMAGES OCCURRING AND EVEN IF ANEXCLUSIVE REMEDY FAILS OF ITS ESSENTIAL PURPOSES. TAEC SHALL NOT BE LIABLE FORANY DAMAGES OR CLAIMS ARISING MORE THAN ONE (1) YEAR PRIOR TO THEINSTITUTION OF A LEGAL PROCEEDING THEREON. IN NO EVENT WILL TAEC’s LIABILITY TOCUSTOMER FOR ANY ACTION OR CLAIM ARISING OUT OF OR IN CONNECTION WITH THISAGREEMENT EXCEED THE AMOUNT ACTUALLY PAID BY CUSTOMER TO TAEC FOR THEPROTOTYPES OR PRODUCTS THAT ARE THE SUBJECT OF SUCH CLAIM.

 

**25.****          ****INTELLECTUAL PROPERTY RIGHTSINDEMNIFICATION**

 

25.1         Subject to the provisions set forth hereinafter and inArticle 26. NON-INFRINGEMENT OF RIGHTS clause herein, TAEC shall defend,indemnify, and hold Customer harmless from and against all damages,obligations, causes of action, suits, or injuries of any kind arising from anyactual or claimed infringement of United States, Canada, Mexico, Japan andEuropean Community patents, mask work rights, or copyrights with respect toTAEC’s design or TAEC’s manufacturing of the Prototypes or Products; providedthat:

 

a.             Customer shall promptly notify TAEC in writing of anyclaim of infringement; and

 

b.             TAEC shall have sole control of both the defense ofany action on such claim and all negotiations for its settlement or compromise;and

 

c.             Customer shall provide all reasonably necessaryauthority, information, and assistance to TAEC and its counsel for the defenseof such claim.

 

25.2         Notwithstanding the foregoing, TAEC shall have noliability or obligation to Customer with respect to any intellectual propertyresults infringement or claims thereof based on:

 

a.             TAEC’s compliance with designs, plans, specifications,or other information provided by Customer;

 

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b.             Use of the Prototypes or Products in combination withdevices or products not purchased hereunder where the Products would not inthemselves be infringing;

 

c.             Use of the Prototypes or Products in an application orenvironment for which such Products were not designed or contemplated;

 

d.             Modifications or additions to Prototypes or Productsby Customer;

 

e.             Any claims of infringement of a patent in whichCustomer, or any affiliate or customer of Customer, has an interest or alicense; or

 

f.              Should the owner of such intellectual property rightswish to grant a license to Customer with respect to a claim of patentinfringement when the claimant declines to offer a license to TAEC but insistsupon dealing only with Customer, notwithstanding TAEC’s good faith efforts toresolve the claim.

 

25.3         If any Product is held to constitute an infringementor its use is enjoined, TAEC, at its option and at its own expense, may:

 

a.             Procure for Customer the right to continue using suchProduct royalty-free; or

 

b.             Replace such Product to Customer’s reasonablesatisfaction with non-infringing product of equivalent quality and performance;or

 

c.             If (a) and/or (b) above are impracticable,accept the return of such Product for credit, allowing for a reasonablededuction for depreciation.

 

**26.****          ****NON-INFRINGEMENT OF RIGHTS**

 

Customer represents andwarrants that the circuit design and other information furnished by Customer toTAEC, with respect to the design portion of the Prototypes or Products does notinfringe any copyright, trade secret, United States, Canada, Mexico, Japan andEuropean Community patent or other intellectual property right of any thirdparty. Customer shall defend, indemnify and hold harmless TAEC against anyclaims, damages, and expense (including attorney fees), arising out of or inconnection with Customer’s breach of the foregoing representation and warranty.

 

**27.****          ****TERMINATION**

 

27.1         This Agreement will become effective on the EffectiveDate and will remain in full force and effect for a period of three (3) yearsfrom the Effective Date, unless terminated pursuant to this Article 27.

 

27.2         Either party may terminate any development or PurchaseOrder, effective upon written notice to the other party should any of the followingevents occur:

 

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a.             The other party files a voluntary petition inbankruptcy;

 

b.             The other party is adjudicated bankrupt;

 

c.             The other party makes an assignment for the benefit ofits creditors;

 

d.             A court assumes jurisdiction of the assets of theother party under any bankruptcy; or

 

e.             A party is unable to pay its debts as they become due.

 

27.3         Either party shall have the right to terminate anydevelopment or Purchase Order for breach of a material term or condition ofthis Agreement, if such breach continues for a period of thirty (30) days afterwritten notice thereof to the other.

 

27.4         If Customer defaults in the payment of any sum dueunder this Agreement and does not cure such default within thirty (30) days ofwritten notice thereof from TAEC, then TAEC shall, without further notice, havethe immediate right to repossess and remove the Product. Customer’s obligationto pay all charges which shall have accrued and compensation, if any, whichcovers the actual costs incurred by TAEC as a result of such termination, shallsurvive any termination of this Agreement.

 

**28.****          ****FORCE MAJEURE**

 

Neither party shall beresponsible or liable in any way for failure or delay in performing itsobligations under these terms and conditions, other than obligations to makepayment, when such failure or delay is directly or indirectly due to an act ofGod, war, threat of war, war-like conditions, hostilities, sanctions,mobilization, blockade, embargo, detention, revolution, riot, looting,striking, lockout, accident, fire, explosion, flood, inability to obtain fuel,power, raw materials, labor, container or transportation facilities, breakageof machinery or apparatus, government order or regulations, or any other causebeyond its reasonable control.

 

**29.****          ****GOVERNMENT INTERVENTION**

 

TAEC reserves the rightto adjust prices or quantities to equitably compensate for increases in tariffsor similar charges, or for other government actions resulting in curtailment,prevention, or taxation of imports. Unless otherwise required by law, allprices will be quoted and billed exclusive of Federal, state, and local excise,sales, and similar taxes, but inclusive of import duties.

 

**30.****          ****EXPORT REGULATIONS**

 

This Agreement involvesproducts and/or technical data that may be controlled under the U.S. ExportAdministration Regulations and that may be subject to the approval of theUnited States Department of Commerce prior to export. Any export or re-exportby either 

 

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party, directly orindirectly in contravention of the U.S. Export Administration Regulations, isprohibited.

 

**31.****          ****GENERAL**

 

31.1         Neither party shall assign its rights and obligationsunder this Agreement without the prior written consent of the other party,except that TAEC may assign the performance of any of its obligations,including the manufacture of Prototypes or Products, to Toshiba Corporation orits affiliates.

 

31.2         These Terms and Conditions shall be interpreted andgoverned by the laws of the State of California without regard for itsconflicts of laws principles, regardless of where any action may be brought.The parties agree to submit to the exclusive jurisdiction of the state andfederal courts of the State of California. The parties expressly agree that theUN Convention for the International Sale of Goods shall not apply hereto.

 

31.3         All modifications to this Agreement must be in writingand signed by both parties. Failure or delay of either party to exercise anyright or remedy hereunder shall not constitute a waiver of rights or remediesunder this Agreement.

 

31.4         This Agreement is the exclusive statement of the Termsand Conditions between the parties with respect to the matters set forthherein, and supersedes all other prior or contemporaneous agreements,negotiations, representations, tender documents, and proposals, written andoral. Any additional or conflicting provisions contained in Customer’s purchaseorder, or any purchase order acknowledgment issued by TAEC shall not apply.

 

31.5         If any provision of this Agreement is heldunenforceable or inoperative by any court of competent jurisdiction, either inwhole or in part, the remaining provisions shall be given full force and effectto the extent not inconsistent with the original terms of this Agreement.

 

31.6         Any notice given hereunder shall be sent in writing tothe other party’s business address set forth on the cover page hereof, orto such other party and address as such part shall have designated mostrecently in writing. Notices directed to TAEC shall be sent “Attention: LegalDepartment.”

 

31.7         This Agreement may be executed in several identicalcounterparts, each of which when executed by the parties hereto and deliveredshall be an original, but all of which together shall constitute a singleinstrument.

 

31.8         Articles 9, 12, 13, 15, 17, 19, 20, 24, 25, 26, 30 and31 shall survive the termination or expiration of this Agreement.

 

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