** **

#  DEVELOPMENT AND SUPPLY AGREEMENT

**FOR DISK ON KEY CBIC ASIC**

 

 

ThisDevelopment and Supply Agreement (this "Agreement") is made and entered into asof April 18, 2001 (the "Effective Date") by and between Atmel Rousset, withoffices located Zone Industrielle 13106, Rousset Cedex ,France   and  AtmelSarl, a Swiss corporation with offices at Route des Arsenaux 41, Case Postale80, CH-1705 Fribourg, Switzerland (hereafter collectively referred to as"Atmel"), and M-Systems, an Israeli corporation with principal officeslocated at Central Park 2000, 7 Atir Yeda St., Kfar  Saba 44425,Israel ("Company").

 

#  RECITALS

 

WHEREAS, Atmel Rousset is inthe business of designing, developing, and manufacturing  varioustypes of integrated circuits;

 

WHEREAS, Atmel Sarl is inthe business of supplying such integrated circuits;

 

WHEREAS, Company is in thebusiness of developing and marketing electronic disks for data storage based onflash memory for markets such as embedded systems, telecommunications, andInternet appliances; and

 

WHEREAS, Atmel and Companydesire to enter into this Agreement for the purpose of setting forth the termsand conditions under which Atmel will design, develop and manufacture thesemiconductor device described herein.

 

#  AGREEMENT

 

IN CONSIDERATION THEREOF ANDTHE MUTUAL PROMISES CONTAINED HEREIN, THE PARTIES HERETO AGREE AS FOLLOWS:

 

**1.     Statement of Work**

** **

a.         The specification of the Product shall  beconcluded between Company  and Atmel as described in  ExhibitA.******

 

b.         Atmel shall layout, develop, manufacture, testand supply, the Products described in Exhibit A. Atmel shall provide alltechnology, labor, material, tooling and facilities necessary for performingsuch services.  

**____ 1 ____** 

 

c.         Company shall provide ongoing consultationthroughout the design and development process.

 

d.         The parties shall mutually agree to a jointdevelopment flow to be attached as Exhibit F hereto.

**2.     Non-RecurringEngineering**  

 

Companyshall pay Atmel non-recurring engineering ("NRE") charges for all servicesrendered hereunder as set forth in Exhibit B attached hereto.   Thesecharges shall be billed and shall be payable within thirty (30) days of thedate of invoice.

******

**3.     Exclusivity**

 

TheProducts shall be sold to Company on an exclusive basis.  Atmel shallhave no right to manufacture for its own use or  to offer or sellProducts to any third party without the written consent of Company. 

 

**4.     Product Pricing andDelivery**

**           ** 

a. Company shall pay Atmel for the Products as setforth in Exhibit B attached hereto. 

 

b. All shipments covered by theseterms and conditions are F.C.A Atmel`s facility (Free Carrier - Incoterms2000).  Atmel`s liability for delivery shall cease upon Atmeldelivering the products to the common carrier at Atmel`s facility.  Titleand all risk of loss or damage to the products shall pass to Company upondelivery to the common carrier at Atmel`s facility.

 

c. Unless otherwise agreed to by theparties, the prices stated herein do not include customs duties or any sales,use, excise, or other similar taxes.  Company shall pay, in additionto the prices stated, the amount of any present or future customs duties or anysales, use, excise or other similar tax applicable  to the sale ofproducts or performance of services covered by these terms, or in lieu thereof,Company shall supply Atmel with an appropriate tax exemption certificate.

** **

**5.     Product Forecastingand Production Lead Time and Cancellations**

 

a.  Company shall provide Atmel with a  twelve(12)  month non- binding rolling forecast.

 

b.  Company shall be financiallyresponsible for all Products covered by purchase orders within the product leadtimes as defined in Exhibit C.

**____ 2 ____** 

 

c.  On time delivery is defined as not morethan three (3) days early, or five (5) days late.

 

d.  Reschedules or cancellations are detailed in Exhibit C.  

 

**6.     Risk orders**

 

IfCompany decides to release orders requiring fabrication or assembly of devicesprior to prototype acceptance such orders will be deemed to be a Risk Order.  Theprices for Risk Orders will be detailed in Exhibit B.  Company hasthe right to cancel Risk Orders per a liability schedule also detailed inExhibit B.

 

**7.     Upsides**

** **

Atmelcan respond to upsides as defined in Exhibit C.

 

**8.     End of Life**

** **

a.  In the event that Atmel decides todiscontinue the Product Atmel will provide Company with a written notificationsix (6) months in advance for last time buy orders to be placed by Company.  Companywill have the right to receive delivery for such orders for an additional six(6) months.

 

     b.  In no event will Atmel end of life the Product (process AT57K/ 0.25um)  beforeDecember 31, 2003. Should Company requireProduct after December 31, 2003, Atmelwill offer favorable conditions to provide the Product on a new process  technologyprovided that production volumes exceed 400,000 units per year.    

*** ***

**9.     Purchase Orders**

 

a.     All purchase orders for Products shall be madeby written purchase order.  The purchase order shall specify the itemnumber, product description, quantity, requested delivery dates and deliveryinstructions. 

 

b.     Seller shall acknowledge the order within five(5) business days.

 

c.     The minimum order quantity is one hundredthousand dollars ($100,000.00) and the minimum delivery quantity is twentythousand dollars ($20,000.00).

 

**10.  DevelopmentMilestones**

** **

a.     Atmel shall use all reasonable efforts to meetthe schedule for each phase or milestone of the design and development as setforth in Exhibit B attached hereto. 

**____ 3 ____** 

 

b.  In the event that Atmel is unable tosupply Prototypes which meet the agreed upon specification, Company shall notbe liable for the payment due to Atmel hereunder for such milestone. 

** **

**11.  Changes**

** **

a. Company may, at any time during each design,propose changes to the Specifications set forth in the circuit design andlayout, or any other functional or performance specifications agreed to betweenAtmel and Company.  Such proposal shall be submitted by Company toAtmel in writing.  

 

b.  Atmel will then estimate in good faiththe amount of rework necessary and the additional  development timeand cost that would be incurred, and shall request Company`s approval of suchadditional cost and development time.  Upon written receipt of suchapproval, implementation of such changes will proceed.  

 

c.  The Agreement will be amended to reflectsuch changes and the schedules will be amended to reflect the new dates andadditional payments (if any) resulting from such changes.

 

**12. Quality**

** **

a.     Atmel agress to comply with ISO9000 qualitystandards for the duration of the agreement.  Each shipment willcontain a Certificate of Compliance.

 

b.     As required by ISO9002, Atmel agrees to keep onfile all records and data concerning acceptance and quality control testing.

 

c.     Reasonable quality assurance parameters such asAQL (Acceptance Quality Levels) and reliability test reports will be providedas requested by Company

 

d.     Company maintains a Supplier Rating System andshall grade Atmel based upon on time delivery and quality levels.

 

e.     The Company and Atmel hereby agree to theQuality and Reliability Requirements for M-System ASICs referenced in Exhibit Dattached hereto.

 

**13. Protection andSecurity of Design**

 

a.     "Confidential Information" shall mean thatinformation of either party which is disclosed to the other party ("ReceivingParty") by reason of the parties` relationship hereunder, either directly orindirectly in any written or recorded form, orally, or by drawings orinspection of parts or equipment, and, either in writing and marked asconfidential or proprietary, or if oral, reduced to writing similarly markedwithin thirty (30) days of disclosure.

**____ 4 ____** 

 

b.     Receiving Party covenants and agrees that itwill receive and use the Confidential Information only as expressly permittedin this Agreement, and will not otherwise employ such Confidential Information,and shall not disclose such Confidential Information to any person or personswho do not need to have knowledge of such Confidential Information in thecourse of their employment.

 
    - It     is expressly understood that Receiving Party shall not be liable for     disclosure of any Confidential Information if the same:

 
|   | i.   | is or becomes part of the public domain without  violation of this Agreement;                                                            |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------|
|   | ii.  | is known and on record at the Receiving Party prior  to disclosure by the Disclosing Party;                                              |
|   | iii. | is lawfully obtained by the Receiving Party from a  third party;                                                                         |
|   | iv.  | is furnished to others by the Disclosing Party  without similar restrictions to those herein contained as to use or  disclosure thereof; |
|   | v.   | is developed by the Receiving Party completely independently  of any such disclosure by the Disclosing Party;                            |
|   | vi.  | is ascertainable from a commercially available  product; or                                                                              |
|   | vii. | is disclosed pursuant to the order or requirement  of a government body, court or  administration agency.                      |

 

**14. Warranty**

 

a.  Atmel warrants that it has title to allmaterial to be furnished to Company and that all prototypes delivered toCompany hereunder will conform to the logic diagram, specifications and (ifany) breadboard herein set forth, or which are otherwise agreed upon betweenthe parties.

 

b.  Any Product or service sold or providedpursuant to this Agreement, shall be deemed accepted by Company upon delivery,subject to the warranty provisions set forth in this Section. Atmel warrantsthat Product delivered hereunder shall comply with the Specifications and shallbe free from defects in material and workmanship under normal use and servicefor a period of one (1) year from the applicable date of invoice.  Productswhich are "samples", "design verification units", and/or "prototypes" are sold"AS IS," "WITH ALL FAULTS," and with no warranty whatsoever.

**____ 5 ____** 

c. If, during such warranty period, (I) Atmel isnotified promptly in writing upon discovery of any defect in the Product,including a detailed description of such defect; (ii) such goods are returnedto Atmel, DDP Atmel`s facility accompanied by Atmel`s Returned MaterialAuthorization form; and (iii) Atmel`s examination of such goods discloses thatsuch Products are defective and such defects are not caused by accident, abuse,misuse, neglect, alteration, improper installation, repair, improper testing,or use contrary to any instructions issued by Atmel, Atmel shall (at Company`soption) either repair, replace, 

or credit Company the purchase price of such goods.  NoProducts may be returned to Atmel without Atmel`s Returned MaterialAuthorization form.

d.   Prior to any return of Products byCompany pursuant to this Section, Company shall afford Atmel the opportunity toinspect such Products at Company`s location, and any such goods so inspectedshall not be returned to Atmel without its prior written consent.

 

e  Atmel shall return any Products repairedor replaced under this warranty to Company transportation prepaid, andreimburse Company for the transportation charges paid by Company for suchgoods.  The performance of this warranty does not extend the warrantyperiod for any Products beyond that period applicable to the Productsoriginally delivered.

 

f. THE FOREGOING WARRANTY CONSTITUTES ATMEL`SEXCLUSIVE LIABILITY, AND THE EXCLUSIVE REMEDY OF COMPANY, FOR ANY BREACH OF ANYWARRANTY OR OTHER NONCONFORMITY OF THE PRODUCTS COVERED BY THIS AGREEMENT.  THISWARRANTY IS EXCLUSIVE, AND IN LIEU OF ALL OTHER WARRANTIES. ATMEL MAKES NOOTHER WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING WITHOUT LIMITATIONANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.  THESOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THIS WARRANTY SHALL BE AS EXPRESSLYPROVIDED IN THIS SECTION.

 

**15.  IntellectualProperty Ownership**

 
    - Atmel     shall retain all patent, copyright, trade secrets and other intellectual     property rights it possesses with regard to any gate array or other     integrated circuit design or process. The design, development or     production of the product hereunder shall not be deemed to be a work made     for hire. 

 
    - Any     derivative works specifically paid for by Company shall be owned     exclusively by Company as referenced in Exhibit E.  The masks     and design database files developed specifically for Company under this Agreement     shall be owned by Company, but shall remain in the possession of Atmel.  Both     the mask sets and design database files shall remain at Atmel`s facility     and will be destroyed upon Company`s request.  All patents,     copyrights or other intellectual property rights related solely to the     technical information and specifications generated by Company shall remain     the sole and exclusive property of Company.

**____ 6 ____** 

c.  Each party`s proprietary informationmay, if required by the parties, be further defined and protected by separateConfidential Disclosure Agreement to be executed by the parties, and eachparty`s sole and exclusive obligations with regard to such proprietaryinformation shall be as set forth in such Confidential Disclosure Agreement.

 

d.  Except as set forth or on the front ofthis Agreement, any circuits, cells, devices or processes that are developed byAtmel concurrently with the work performed under this agreement shall be thesole and exclusive property of Atmel, and Atmel reserves the right to use suchcells for other circuits for other customers, or license the use thereof toothers.

** **

**16.  DesignTermination**

 

a.     If the design isterminated by Company, Company shall be liable to Atmel for full payment forthe milestone during which such termination occurs, regardless of the amount ofwork actually performed by Atmel for such milestone.  In any event,Company shall be liable for payment not already made by Company for anyprevious milestone. 

 

b.     During performanceof the design or development, either party may terminate the design in theevent of material breach by the other party (except for non-payment which doesnot require notice) upon thirty (30) days prior written notice specifying suchbreach to the breaching party.  If during such thirty (30) day periodthe breaching party cures such breach (or, if the cure cannot be effectedwithin such thirty (30) day period, the breaching party commences to cure), nosuch termination shall occur.  If terminated by Atmel for breach,Company shall be liable to Atmel for the full payment of the developmentmilestone during which such termination occurs, regardless of the amount ofwork actually performed by Atmel for such milestone.  If terminatedby Company for Atmel`s breach, Company shall not be liable for any servicesperformed by Atmel under such Agreement.  The provisions of thisSection constitute the sole liability and responsibility of each party, and thesole and exclusive remedy of each party, in the event of a breach of thisAgreement by the other party during the design and development.

** **

**17.  ForceMajeure**

 

Atmel shall not be liable for any failureto deliver, or delay in the delivery of, any Products or services due to anycause beyond its control, including but not limited to acts of God, acts ofcivil or military authority, fires, epidemics, floods, riots, wars, sabotage,or labor disputes.  In the event of any such delay, the date ofdelivery or performance hereunder shall be extended by a reasonable period oftime.  

**____ 7 ____** 

 

**18.  Limitation of Liability**

 

IN NO EVENT SHALL EITHER PARTY BE LIABLEFOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES RESULTING FROMITS PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, WHETHER BASED UPONCONTRACT, NEGLIGENCE, STRICT LIABILITY IN TORT, WARRANTY OR ANY OTHER BASISWHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESSPROFITS).  NOTWITHSTANDING ANY PROVISION HEREIN TO THE CONTRARY,ATMEL SHALL NOT UNDER ANY CIRCUMSTANCES BE LIABLE FOR EXCESS COSTS OFREPROCUREMENT.  

** **

**19.   General**

 
    - Neither party may assign     its rights or obligations under this Agreement without the prior written     consent of the other, and any purposed assignment without such consent     shall have no force or effect.  Subject to the foregoing, this     Agreement shall bind and inure to the benefit of the respective parties     hereto and their successors and assigns.

 
    - Neither party is     authorized to act for or on the behalf of the other party under this     Agreement.  Without limiting the generality of the foregoing,     each party is an independent contractor, and no principal/agent or     partnership relationship is created between them by this Agreement.

 
    - No failure or delay by     either party to enforce or take advantage of any provision or right under     this Agreement shall constitute a subsequent waiver of that provision or     right, nor shall it be deemed to be a waiver of any of the other terms and     conditions of this Agreement.

 
    - Upon termination of this     Agreement the provisions of Sections 3, 12, 13, 14, 15, 18, and 19 shall     survive termination.

 
    - Each of the parties hereto     agree that they will comply with all applicable export regulations.

 
    - The validity, performance     and construction of this Agreement shall be governed by the laws of the     State of California, USA (excluding its conflict of laws provisions).  Santa Clara County, California shall be the appropriate venue and jurisdiction     for the resolution of disputes hereunder.  Customer hereby     expressly consents to (I) personal jurisdiction of the state and federal     courts of Santa Clara County, California and (ii) service of process being     effected upon it by certified or registered mail sent to its principle     address.
    **____ 8 ____** 
    - The prevailing party in     any legal action arising out of, or related to this Agreement shall be     entitled, in addition to any other rights and remedies it may have, to     reimbursement for its expenses incurred in such action, including court     costs and reasonable attorney`s fees.

 
    - Unless otherwise stated     herein, amounts stated as payable under this Agreement do not include     customs duties or sales, use, excise or other similar taxes payable     hereunder, and the same shall be the responsibility of Company.

 
    - All notices or     communications to be given under this Agreement shall be in writing and     shall be deemed delivered upon hand delivery, upon acknowledged telex or     facsimile communication, or three (3) days after deposit in the United     States mail, postage prepaid by certified registered or first class mail,     addressed to the parties at their principle address.

 
    - In the event that any     provision of this Agreement is prohibited by any law governing its     construction, performance or enforcement, such provision shall be     ineffective to the extent of such prohibition without invalidating thereby     any of the remaining provisions of the Agreement.  The captions of     sections herein are intended for convenience only, and the same shall not     be interpretive of the content of such section.

 
    - The terms and conditions     of this Agreement may not be superseded, modified, or amended except in     writing which states that it is such a modification, and is signed by an     authorized representative of each party hereto.

 

l.  This Agreement, including exhibits, constitutes the entire Agreement betweenthe parties as to the subject matter hereof, and supersedes and replaces allprior or contemporaneous agreements, written or oral, regarding such subjectmatter, and shall take precedence over any additional or conflicting termswhich may be contained in either party`s purchase orders or orderacknowledgment forms.

 
| **Atmel Rousset**                                                                                                                                                                          | **Company**                                                                                                                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| By:                    /s/ Mike Ross           | By:                  /s/  Dov Moran                     |
| Title:            Mike  Ross, Director                                                                                         | Title:              President                 |
|                                                                                                                                                                                       | ** **                                                                                                                                                                                |
| Atmel Sarl                                                                                                                                                                                 | ** **                                                                                                                                                                                |
| By:        /s/  Graham Turner                                                                                                                      |                                                                                                                                                                                           |
| Graham  Turner                                                                                                                                                                             |                                                                                                                                                                                      |
| Vice  President and General Manager                                                                                                                                                        |                                                                                                                                                                                      |
|                                                                                                                                                                                            |                                                                                                                                                                                           |  |

 

**____ 9 ____**