**Exhibit 10.7**

 

**CERTAIN INFORMATION (INDICATED BY “[***]”) IN THIS EXHIBIT HASBEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGECOMMISSION.  CONFIDENTIAL TREATMENT HASBEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.**

 

TOSHIBA

 

Toshiba America Electronic Components, Inc.

2950 Orchard Parkway, San Jose, CA 95131

 

**Design and Production Agreement**

 

**Netlist Inc.**

 

ThisDesign and Production Agreement (“DPA”) effective July 31, 2008 (the “EffectiveDate”) is between Toshiba America Electronic Components, Inc., with aprincipal place of business at 19900 MacArthur Boulevard, Suite 400, Irvine,CA 92612 (“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 which TAECwill design the product identified herein for Customer.

 

**1.****            ****ProjectName**

 

IDASIC

 

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

 

ThisDPA is for the development of ID ASIC for Customer.  The quote is based on TAEC’s initial die sizeestimation.

 

**3.****            ****DesignSpecification**

 

**[***]**

 

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

 

**MAJORPROJECT MILESTONES**

 
| **Event** | ** ** | **Target Date/Completed** |
|-----------|------------|--------------------------------|
| **[***]** | ** ** | **[***]**                      |
| **[***]** | ** ** | **[***]**                      |
| **[***]** | ** ** | **[***]**                      |
| **[***]** | ** ** | **[***]**                      |
| **[***]** | ** ** | **[***]**                      |
| **[***]** | ** ** | **[***]**                      |
| **[***]** | ** ** | **[***]**                      |
| **[***]** | ** ** | **[***]**                      |
| **[***]** | ** ** | **[***]**                      |
| **[***]** | ** ** | **[***]**                      |
| **[***]** | ** ** | **[***]**                      |

 

Productionturnaround time:  **[***]**working weeks

 

Schedulewill be finalized in the SOW upon Design Decision. See Section 13.5.

 

----

 

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

 

**[***]**

 

**6.****            ****Packageand Die Size Option**

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

 

**7.****            ****Internal/ExternalIP**

 

InternalIP:

**[***]**

 

ExternalIP:

**[***]**

 

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

 
| First        |       | [***] pieces: US$[***] |   |
|--------------|------------|----------------------------------|--------|
| Next         | ** ** | **[***]** pieces: US$**[***]**   |   |
| Next         | ** ** | **[***]** pieces: US$**[***]**   |   |
| After  first | ** ** | **[***]** pieces: US$**[***]**   |   |

 

Changesin die size will affect the price quoted.

 

Pricesdo not include and are subject to any applicable sales tax.

 

**9.****            ****Non-RecurringEngineering 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$**[***]** |
|-----------------------------------------------------|--------|--------------|
| All-Layer  Re-spin Charges (base and metal layers): |   | US$**[***]** |

 

Inthe event a re-spin involving only metal layers is required, TAEC will providea firm quote for additional re-spin NRE charges, which will be calculated on acost per layer basis including required engineering effort. In the event theimplementation of design changes affects all metal layers, including contactand vias, the additional NRE cost will not exceed the Metal Layer Re-spinCharges amount stated above.

 

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Inthe event an all-layer re-spin is required, the All-Layer Re-spin Charges willapply as stated above.

 

Thecharges set forth in this Section 9.2 are based on the assumptions that (1) noMaterial Changes would be needed and (2) no changes whatsoever to thepackage design would be required, whether Material Changes or not. If either ofthese assumptions is incorrect, costs may vary.

 

9.3           Internal IP Defects/Bugs

 

ShouldInternal IP be found to have a Defect/Bug, as defined in the attached SLI Termsand Conditions, 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 ChangesDuring Re-spin for Internal IP Defects/Bugs

 

IfCustomer requests design changes during a re-spin to correct Internal IPDefects/Bugs, a portion of the additional re-spin cost will be shared byCustomer.

 

Fora metal re-spin, this cost will be calculated on the basis of the number oflayers required for Customer changes and whether those layers are implicated bythe Internal IP repairs. If the Customer-requested design changes require thesame metal arid via layers as would be necessary for the Internal IP Defect/Bugfix, the cost to Customer will not exceed 50% of the additional re-spin NREcharges. If the Customer-requested changes require additional mask layerchanges, the NRE cost associated with the additional layers will be solely thefinancial responsibility of Customer.

 

Ifan all-layer re-spin is required in order to fix Internal IP Defects/Bugs, andCustomer requests additional design changes at that time, Customer will not hecharged more than 50% of the All-Layer Re-spin Charges.

 

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

 
| **[***]**: | US$**[***]** |   |
|------------|--------------|--------|
| **[***]**: | US$**[***]** |   |
| **[***]**: | US$**[***]** |   |

 

·      **[***]**Prototypes are included inNRE.

 

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

 

----

 

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

 

Engineeringactivities

 

**[***]**

 

Manufacturingactivities

 

**[***]***

 

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*Anyadditional qualifications requested by Customer beyond the standard Toshibaqualification are not covered by the Total NRE Charges and may incur additionalfees.

 

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

 
| **[***]**pieces:  | ** ** | **[***]**unit price of US$**[***]** |   |
|-------------------|------------|-------------------------------------|--------|
| **[***]** pieces: | ** ** | **[***]**unit price of US$**[***]** |   |
| **[***]** pieces: | ** ** | **[***]**unit price of US$**[***]** |   |

 

Allextra engineering samples are sold as Prototypes and are subject to, withoutlimitation, Articles 18.2 and 19.1 of the Terms and Conditions.

 

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

 

13.1         Final package selection to be based on **[***]**.**[***]**analysismay lead to changes in **[***]**or **[***]**. Details of the **[***]**and **[***]**analysis and the **[***]**need tobe defined and mutually agreed in the Statement of Work (“SOW”).

 

13.2         Details on the **[***]**andassociated **[***]** to be finalized in the SOWprior to **[***]**

 

13.3         Customer may order a commercially reasonable numberof **[***]** pieces, as determined by **[***]**in its sole discretion. **[***]**goodsare subject to, without limitation, Articles 18.2 and 19.2 of the attachedDesign and Production Agreement Terms and Conditions (“Terms and Conditions”).In the event that Customer wishes to order any **[***]**pieces, such order shall be placed no later than the date of **[***]**.

 

13.4         For the avoidance of doubt, the Specifications asagreed upon by the parties and incorporated into the SOW shall be based uponthe defined load models provided by Customer.

 

13.5         Upon **[***]**, TAECwill discuss the results of its tests assuring a path delay of **[***]** for the **[***]**providedby Customer (“**[***]**”). On or before **[***]**, Customer agrees to inform TAEC whether Customerintends to proceed with the ID design (“Design Decision”). If Customer choosesto proceed with the design, Customer agrees to accept **[***]**,provide a waiver, or alter its specifications to accommodate such results, andTAEC will **[***]**according to Section 10 ofthis Agreement. If Customer chooses to cancel the design upon completion of the**[***]**, Customer may terminate thisAgreement **[***]** and **[***]**.

 

----

 

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

 

14.1         Pricing stated in this DPA is based on ToshibaAmerica Electronic Components Inc. selling production parts directly toCustomer.

 

14.2         Full specifications and responsibilities to bedefined and agreed in a SOW. Customer and TAEC will work in good faith tofinalize and sign the SOW within thirty (30) days of design initiation.

 

14.3         Schedule is provisional. Final schedule is still tobe agreed.

 

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 ofthis DPA, and any applicable SOW with Toshiba Corporation Semiconductor Companyand other 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 andConditions after the execution of the DPA must be mutually agreed upon in theform of a written amendment signed by both parties.

 

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

 

----

 

Toshiba America ElectronicComponents, Inc.

Design and ProductionAgreement Terms and Conditions

 

TheseTerms and Conditions set out the terms and conditions under which TAEC will dethese terms 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 andTAEC has accepted a Development PO to proceed with Customer’s design.

 

1.6           “Development PO “ is the purchase order created bythe Customer to signify they have accepted the Specifications and have agreedto proceed 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 onthe first 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,however fixed or encoded; having or representing the predetermined, threedimensional pattern of metallic, insulating or semiconductor material presentor removed from the layers of a semiconductor chip product; and in which seriesthe relation of the images to one another is that each image represents apattern of the surface of one form of the resulting semiconductor chip product.

 

----

 

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 bothparties indicating 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.****            ****DEVELOPMENTWORK**

 

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 is reasonablypracticable after TAEC has agreed to the modification. For the avoidance ofdoubt, the parties expressly agree that TAEC shall have no obligation tocommence a modification unless and until the parties have agreed on adjustmentsin 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 testprogram resulting from the simulation database. Changes to the test programafter sample or production initiation may result in production lead-timedelays.

 

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 Customerissues a Purchase Order for the NRE charge. The Purchase Order shall refer tothe applicable DPA, and shall include the words: “This Purchase Orderrepresents acceptance of the terms and conditions in the Design And ProductionAgreement between 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.****            ****DEVELOPMENTTERM**

 

**[***]**

 

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

 

4.1           **[***]**

 

4.2           **[***]**

 

4.3           **[***]**

 

**5.****            ****RE-SPINNRE CHARGES**

 

Re-spinNRE charges will be based on engineering and manufacturing services as well ason the extent of the modification, which may be done as either a metallizationor a diffusion change. Metallization changes may be implemented by regeneratingthe metal and via masks only. Diffusion modifications, on the other hand,require the regeneration of all masks. The extent of the engineering andmanufacturing services required for re-design shall be considered indetermining total charges for a re-spin of the design which shall be specifiedin the DPA or an Amendment 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 withrequested delivery dates no more than six (6) months from the PurchaseOrder date. Any requests for a shipment beyond that six-month period shall bereviewed and acknowledged only after the requested delivery date moves withinthe six (6) month period.

 

**7.****            ****PRODUCTLEADTIME**

 

7.1           Prototypes: TAEC will use all commerciallyreasonable efforts to provide Prototypes within the total turnaround timedefined in the appropriate DPA and expressed as working weeks from Tape-out.

 

7.2           Production: TAEC will use all commerciallyreasonable efforts to provide production lead-time as defined in theappropriate DPA or other document issued by TAEC, from the date of TAEC’sacknowledgment and acceptance of a Purchase Order.

 

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**8.****            ****SHIPMENTAND DELIVERY**

 

8.1           Shipments shall be F.C.A. shipping point. Risk ofloss or damage shall pass from TAEC to Customer upon delivery of the Productsto the common 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 orpenalties for delay in delivery, or for failure to give notice of delay whensuch delay is due to an act of Customer or any cause beyond the reasonablecontrol of TAEC, 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.****            ****PAYMENTTERMS**

 

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 willso inform TAEC and will give TAEC instructions on to whom and where the NREinvoice(s) should be sent;

 

b.             Upon TAEC’srequest, Customer will provide reasonable evidence to TAEC of such DesignatedPayor s agreement to pay the NRE charges;

 

c.             Customerremains primarily liable for the payment of the NRE charges, and understandsand agrees that it shall be fully responsible therefor if the Designated Payorfails to pay such charges within thirty (30) days of the date of TAEC’sinvoice; and

 

d.             The payment ofthe NRE charges by a Designated Payor shall not affect any of the rights andobligations of the parties hereunder, and such Designated Payor shall not bedeemed a third party beneficiary of this Agreement, nor shall the DesignatedPayor have any rights in or to Products, Prototypes, Mask Works, or any otheritem relating to the subject matter hereof or any right to place or enforce alien against TAEC relating to the subject matter of this Agreement, andCustomer shall indemnify and hold harmless TAEC from any damages or claims TAECmay suffer as a result of Customer’s engagement of a Designated Payor.

 

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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 **[***]** weeksbeyond the schedule specified in the SOW, TAEC reserves the right to chargeCustomer up to a total of **[***]**of theTotal NRE charge specified in 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         |

 

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 10.3above. To the extent that the Paid NRE exceeds the Cancellation Fee asassessed, TAEC shall not charge an additional Cancellation Fee; however, PaidNRE will not be refunded upon cancellation of the design.

 

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

 

11.1         Requests for cancellation must be made in writing,and the following terms shall apply unless otherwise agreed in writing betweenTAEC and the Customer. Cancellation fees will be assessed based on the lengthof time from the date a written notice is received by TAEC to the firstscheduled shipment date.

 
| **Days from scheduled shipment** | ** ** | **Cancellation Fees** |
|-------------------------------------------------|------------|----------------------------|
| **[***]**days                                   | ** ** | **[***]**                  |
| **[***]**days                                   | ** ** | **[***]**                  |
| **[***]** days                                  | ** ** | **[***]**                  |
| **[***]**days                                   | ** ** | **[***]**                  |

 

11.2         Re-schedule requests must be made in writing **[***]**days before the original delivery date. Any order maybe re-scheduled only once. Requests to delay shipments may not exceed **[***]** days from the original committed delivery date. There-scheduled order may not be canceled or further modified, and Customer willbe liable for full payment of the selling price.

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

 

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

 

12.1         Customer retains all right, title and interest inand to 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.

 

12.2         Notwithstanding the above provision, TAEC retainsall right, title and interest in and to its **[***]**andall **[***]**and other **[***]**rightstherein, and any associated **[***]**and **[***]**. For the purposes of this Agreement, **[***]**shall mean **[***]**,including, but not limited to the process control monitor contained in the **[***]**. TAEC reserves the right to perform similar work forits 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.

 

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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 forthe Products 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 withall semiconductor 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.

 

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**

 

Uponwritten request by Customer, and subject to packaging constraints, TAEC willplace a Mask Work notice on the outside package of the Product which shallconsist of the letter M 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.

 

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15.2         This Design Agreement is not intended to constituteor create 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’spurchases and other information relating to its business relationship with TAECare confidential information that TAEC may not disclose without the CEM’sexpress permission (the “CEM Information”). Consequently, if Customer requestsTAEC to provide such CEM Information, TAEC shall do so only if:

 

a.             Customerprovides to TAEC proof of the CEM’s permission; or

 

b.             Customer defends,indemnifies, and holds TAEC harmless from and against any and all claims anddamages that TAEC may suffer as a result of such disclosure of CEM Information.

 

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

 

16.1         TAEC may subcontract all or part of the developmentof the 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 its obligationshereunder with respect to the Products to one of its affiliates orsubcontractors (each, a “Permitted Party”), provided that (a) each suchPermitted Party agrees in writing to comply with provisions of these terms andconditions, (b) the Permitted Party is not a semiconductor competitor toTAEC, and (c) Customer has given TAEC permission to share information withsuch Permitted Party as may be required for Permitted Party to carry out itsduties.

 

**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.

 

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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          , mutatismutandis.

 

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 warrantsthat:

 

i]              for a period ofone (1) year from the date of the delivery of each Product, the Productshall: (a) conform to the Specifications; (b) be free from defects inmaterial or workmanship under normal use and service; and

 

ii]             at the time of delivery, the Products will be freeand clear 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’sresponsibility and the sole and exclusive remedy of Customer under thiswarranty is, at TAEC’s option, to repair, replace, or credit Customer’s accountfor any defective Products which are returned by Customer during the applicablewarranty period set forth above in sub-

 

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Article 18.3a.i],provided that: (a) Customer promptly notifies TAEC in writing with adetailed description of any alleged deficiencies upon discovery by Customerthat such Products fail to conform to the specifications; (b) suchProducts 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 SHALLWARRANT EXTERNAL IP SOLELY TO THE EXTENT SET FORTH IN THE APPLICABLE SOW. IFTHE SOW IS SILENT ON WARRANTY, VERIFICATION, TESTING OR MAINTENANCE OF THEEXTERNAL IP, CUSTOMER UNDERSTANDS AND AGREES THAT TAEC SHALL NOT WARRANT ANYEXTERNAL IP, EXPRESSLY OR IMPLIEDLY, INCLUDING THE WARRANTIES OFMERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

 

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 IMPROPER TESTING OF THEPROTOTYPES OR PRODUCTS BY CUSTOMER OR ANY PARTY; (B) THE PROTOTYPES ORPRODUCTS HAVING BEEN SUBJECTED TO UNUSUAL PHYSICAL OR ELECTRICAL STRESS; OR (C) INTERFERENCEFROM APPLICATIONS, SOFTWARE, OR OTHER PRODUCTS PROVIDED 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,RELATING TO TAEC’s PERFORMANCE HEREUNDER, INCLUDING BUT NOT LIMITED TOIMPLIED WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE.THIS WARRANTY IS FOR THE SOLE BENEFIT OF CUSTOMER AND NOT FOR ANY THIRD PARTY.

 

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

 

19.1         Customer acknowledges that any Prototype will be providedfor evaluation purposes only and not for any other purposes and shall not beoffered to any of its customers, directly or indirectly, for purposes otherthan 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.

 

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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,LIABILITY FOR ANY DAMAGES, WHICH MAY ARISE FROM THE USE OF TAEC PRODUCTSUSED IN SUCH EQUIPMENT OR APPLICATION AS SET FORTH HEREINABOVE. CUSTOMER SHALLDEFEND, INDEMNIFY, AND HOLD TAEC FREE AND HARMLESS FROM AND AGAINST ANYAND ALL CLAIMS, LIABILITIES, PROCEEDINGS, COSTS, LOSSES, DAMAGES, AND EXPENSESOF EVERY KIND AND NATURE WHATSOEVER ARISING OUT OF OR IN CONNECTION WITH USE OFPRODUCTS IN ANY SUCH EQUIPMENT OR APPLICATION.

 

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

 

Customershall inspect Products at its own expense in accordance with the inspectionstandard agreed upon by the parties. Unless Customer provides TAEC with writtennotice of rejection within thirty (30) days after TAEC’s delivery of theProducts to the carrier, together with sufficient evidence of the causethereof, Products shall be deemed finally and irrevocably accepted. If TAECreceives notice of rejection within that thirty (30) days, then TAEC shall, atits option, repair or replace the defective Products or credit Customer’saccount, if TAEC has breached 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.

 

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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 through Customer’saccounting system for such nonconforming Product, pending resolution of theinvestigation. 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 noticeof its 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.

 

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**

 

TAECWILL UNDER NO CIRCUMSTANCES 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 THE INSTITUTIONOF A LEGAL PROCEEDING THEREON. IN NO EVENT WILL TAEC’s LIABILITY TO CUSTOMERFOR ANY ACTION OR CLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENTEXCEED THE AMOUNT ACTUALLY PAID BY CUSTOMER TO TAEC FOR THE PROTOTYPES ORPRODUCTS THAT ARE THE SUBJECT OF SUCH CLAIM.

 

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

 

25.1         Subject to the provisions set forth hereinafter andin Article 26. NON-INFRINGEMENT OF RIGHTS clause herein, TAEC shalldefend, 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 shallpromptly notify TAEC in writing of any claim of infringement; and

 

b.             TAEC shall havesole control of both the defense of any action on such claim and allnegotiations for its settlement or compromise; and

 

c.             Customer shallprovide all reasonably necessary authority, information, and assistance to TAECand its counsel for the defense of 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’scompliance with designs, plans, specifications, or other information providedby Customer;

 

b.             Use of thePrototypes or Products in combination with devices or products not purchasedhereunder where the Products would not in themselves be infringing;

 

c.             Use of thePrototypes or Products in an application or environment for which such Productswere not designed or contemplated;

 

d.             Modificationsor additions to Prototypes or Products by Customer;

 

e.             Any claims ofinfringement of a patent in which Customer, or any affiliate or customer ofCustomer, has an interest or a license; or

 

f.              Should theowner of such intellectual property rights wish to grant a license to Customerwith respect to a claim of patent infringement when the claimant declines tooffer a license to TAEC but insists upon dealing only with Customer,notwithstanding TAEC’s good faith efforts to resolve the claim.

 

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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 forCustomer the right to continue using such Product royalty-free; or

 

b.             Replace suchProduct to Customer’s reasonable satisfaction with non-infringing product ofequivalent quality and performance; or

 

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

 

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

 

Customerrepresents and warrants that the circuit design and other information furnishedby Customer to TAEC, with respect to the design portion of the Prototypes orProducts does not infringe any copyright, trade secret, United States, Canada,Mexico, Japan and European Community patent or other intellectual propertyright of any third party. Customer shall defend, indemnify and hold harmlessTAEC against any claims, damages, and expense (including attorney fees),arising out of or in connection with Customer’s breach of the foregoingrepresentation and warranty.

 

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

 

27.1         This Agreement will become effective on theEffective Date 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 orPurchase Order, effective upon written notice to the other party should any ofthe following events occur:

 

a.             The other partyfiles a voluntary petition in bankruptcy;

 

b.             The other partyis adjudicated bankrupt;

 

c.             The other partymakes an assignment for the benefit of its creditors;

 

d.             A court assumesjurisdiction of the assets of the other party under any bankruptcy; or

 

e.             A party isunable 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.

 

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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**

 

Neitherparty shall be responsible or liable in any way for failure or delay inperforming its obligations under these terms and conditions, other thanobligations to make payment, when such failure or delay is directly orindirectly due to an act of God, war, threat of war, war-like conditions,hostilities, sanctions, mobilization, blockade, embargo, detention, revolution,riot, looting, striking, lockout, accident, fire, explosion, flood, inabilityto obtain fuel, power, raw materials, labor, container or transportationfacilities, breakage of machinery or apparatus, government order orregulations, or any other cause beyond its reasonable control.

 

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

 

TAECreserves the right to adjust prices or quantities to equitably compensate forincreases in tariffs or similar charges, or for other government actionsresulting in curtailment, prevention, or taxation of imports. Unless otherwiserequired by law, all prices will be quoted and billed exclusive of Federal,state, and local excise, sales, and similar taxes, but inclusive of importduties.

 

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

 

ThisAgreement involves products and/or technical data that may be controlled underthe U.S. Export Administration Regulations and that may be subject to theapproval of the United States Department of Commerce prior to export. Anyexport or re-export by either party, directly or indirectly in contravention ofthe U.S. Export Administration Regulations, is prohibited.

 

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

 

31.1         Neither party shall assign its rights andobligations under this Agreement without the prior written consent of the otherparty, 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.

 

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31.3         All modifications to this Agreement must be inwriting and signed by both parties. Failure or delay of either party toexercise any right or remedy hereunder shall not constitute a waiver of rightsor remedies under this Agreement.

 

31.4         This Agreement is the exclusive statement of theTerms and 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 writingto the other party’s business address set forth on the cover page hereof,or to 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, 30and 31 shall survive the termination or expiration of this Agreement.

 

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