**NEWMASTER PURCHASE AGREEMENT**

ThisNew Master Purchase Agreement ("**Agreement**") is entered into as of July 15,2003 (the "**Effective Date**") by and between **Toshiba Corporation**, aJapanese corporation having its principal place of business at 1-1 Shibaura1-chome, Minato-ku, Tokyo 105-8001, Japan ("**Toshiba**") and **M-SystemsFlash Disk Pioneers, Ltd.**, an Israeli corporation having its principalplace of business at 7 Atir Yeda St., Kfar Saba, 44425, Israel ("**M-Systems**").  Toshibaand M-Systems are also hereinafter referred to collectively as the "**Parties**"and each individually as a "**Party**".

**RECITALS**

**WHEREAS,** Toshiba America Electronic Components, Inc. ("**TAEC**")and M-Systems, Inc. were parties to a Master Purchase Agreement dated as ofAugust 10, 1998 (as previously amended, the "**Previous MPA**"); and

**WHEREAS,** the Previous MPA has been assigned by TAEC andM-Systems, Inc. to Toshiba and M-Systems, respectively; and

**WHEREAS,** the Parties wish to enter into this Agreementto provide for the terms and conditions of Toshiba`s supply to M-Systems ofStandard NAND Products, XDOC Products and Combo Units, and M-Systems` purchaseof such Products from Toshiba; and

**WHEREAS,** this Agreement shall amend, restate andreplace in their entirety the terms and conditions of the Previous MPA.

**NOW, THEREFORE,** for good and valuable consideration,the receipt and sufficiency of which are hereby acknowledged, the Partieshereby agree to amend, restate and replace in their entirety the terms andconditions of the Previous MPA as follows:

**AGREEMENT**

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

The following capitalized terms shall have thefollowing meanings for purposes of this Agreement: 

1.1*             *"**Business Day**" means any day except (a) aSaturday or Sunday, or (b) any other day on which commercial banks in Tokyo, Japan are authorized by law to close. 

1.2*             *"**Combo Unit**" means a multi‐chip packagedsemiconductor product which includes an XDOC Product (including in dieform) in addition to at least one semiconductor chip component that is not anXDOC Product.  

1.3*             ***"Delivery Point**" means the deliverydestination for Products identified in the Purchase Order for such Productsunder this Agreement.

 

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1.4*             *An "**Epidemic Failure**" occurs if the total units ofany Product delivered by Toshiba to M‐Systems hereunder (such units to beidentified as part of a Product production run, by Product number or otherreasonable method) violate the warranty contained in Section 10.1 at a rate equal to or exceeding the applicablerates set forth in Exhibit B-1, Exhibit B-2 or ExhibitB-3, as applicable.

1.5*             *"**Governmental Authority**" means any governmentalbody, agency or official of any country or political subdivision of any country,including, but not limited to, federal, state, county and local governments andadministrative agencies; any court, administrative hearing body,arbitrator, commission or other similar dispute resolving panel or body; andany other entity exercising executive, legislative, judicial, regulatory oradministrative functions of a government.

1.6*             *"**Lead Time**" means the amount of time in advance ofthe requested delivery date for Products that Toshiba must receive an M-SystemsPurchase Order in order to deliver such Products by the requested deliverydate, as set forth in Exhibits B‐1, B‐2 and B‐3.

1.7*             *[***].

1.8*             *"**MDOC D&L Agreements**" means the followingagreements between the Parties, collectively:  (i) an [***] Developmentand License Agreement, dated June 5, 1998, relating to the [***] (as defined insuch agreement), (ii) an [***] Development and License Agreement, datedJuly 4, 2000, relating to the [***] (as defined in such agreement),(iii) an [***] Development and License Agreement,datedas of October 25, 2001, relating to the [***] (as defined in such agreement),and (iv) an [***] Development and License Agreement, dated June 25, 2002,relating to the [***] (as defined in such agreement). 

1.9*             *"**Order Adjustment Schedule**" means the schedule forallowable increases or rescheduling of Purchase Order quantities, as set forthin Exhibit B-1, Exhibit B-2 or Exhibit B-3, as applicable.

1.10*         *"**Person**" means a natural individual,Governmental Authority, partnership, firm, corporation or other entity.

1.11*         *"**Preferred Carrier(s)**" means the carrier(s) setforth in Exhibit B-1, Exhibit B-2 and Exhibit B-3.

1.12*         *"**Products**" means Standard NAND Products, XDOCProducts and Combo Units.  

 

 

 

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1.13*         *"**Purchase Orders**" means purchase orders to Toshibafor the Products in accordance with this Agreement, including theProduct description, quantity, Delivery Point and requested delivery date."**StandardNAND Products**" means any single‐level cell or multi‐level cellNAND flash memory products, whether packaged or as dies or wafers, butexcluding any XDOC Products.  For the avoidance of doubt, any NANDwafers that are used with an ASIC to create an XDOC Product or with an ASIC andone or more component(s) to create a Combo Unit shall be considered as "XDOCProducts" as further provided in the definition of XDOC Products set forth in Section 1.16 below.

1.14*         *"**XDOC D&L Agreement**" means the XDOC Developmentand License Agreement entered into by and between the Parties as of theEffective Date. 

1.15*         *"**XDOC Product**" means any NAND-based memory device(whether single-chip and/or multi-chip, and whether developed jointly by theParties and/or their Subsidiaries or developed by a Party and/or itsSubsidiaries (solely or together with one or more third parties) without theinvolvement of the other Party) that is designed or manufactured by or forToshiba or its Subsidiaries and which has a capability of booting a CPU withoutother memory devices and that includes internal RAM for achieving the bootingcapability with the boot code executing in place in the RAM.

For the avoidance of doubt, XDOC Productsshall be deemed to include, without limitation the[***] Units, [***] Units and [***] Unitsdeveloped under the MDOC D&L Agreements

**2.*                 *****TERM OF AGREEMENT**

ThisAgreement shall come into force on the Effective Date and will remain in effectuntil [***], unless earlier terminated pursuant to Section 16.1 below; provided thatthe Parties may agree (each acting in its sole discretion) to extend the termof this Agreement beyond [***] in connection with an agreed extension of theterm of [***] beyond such date.

**3.*                 *****GENERAL**

3.1*             *Toshiba agrees to supply to M-Systems, and M-Systemsagrees to purchase from Toshiba Products on the terms and subject to theconditions contained herein, including with respect to pricing, terms ofdelivery and payment and other material terms and conditions.  

 

 

 

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3.2*             *M‐Systems shall have the right to purchase andToshiba shall have the obligation to supply all Products of Toshiba and itsSubsidiaries (including any new Products first offered to customers after theEffective Date ("New Products"), and such purchase and supply shall be governedby the terms of this Agreement; provided that Toshiba`s obligation tosupply any XDOC Products that are developed exclusively for a third partycustomer in accordance with such customer`s requirements shall be subject toany restrictions, limitations  or conditions on supply that areapplicable to M‐Systems (including prohibitions on such supply, asapplicable) imposed by such customer (the "Limited XDOC Products").  Subjectto the foregoing limitation on Toshiba`s obligation to supply Limited XDOCProducts, the Parties will discuss in good faith separate supply terms for suchLimited XDOC Products, with pricing terms to be reasonably determined based onthe pricing terms set forth in Exhibit B-2 or Exhibit B-3, asapplicable.

3.3*             *A list of all of Toshiba`s Products as of the EffectiveDate is set forth in Exhibit A hereto.  Consistent with Section ****3.2 and subject to the limitation contained thereinon Toshiba`s obligation to supply Limited XDOC Products:

3.3.1*       *Any New Products, as they are first offered to customersafter the Effective Date, shall be automatically deemed added to Exhibit Aof this Agreement and shall, without any further actions on the part of eitherParty, become subject to all terms and provisions of this Agreement.

3.3.2*       *Toshiba shall provide M-Systems with written notice within[***] days after such time as a New Product developed by Toshiba and itsSubsidiaries (by themselves or with any third party) without the involvement ofM-Systems is being offered by Toshiba to any of its customers.  Suchreport notice include such New Product`s specification and any otherinformation as may be reasonably requested by M-Systems.   

**4.*                 *****PRICING**

Pricing for Products supplied hereunder shall beas set forth in Exhibit B‐1 for Standard NAND Products, Exhibit B‐2for XDOC Products and Exhibit B‐3 for Combo Units,respectively. Any new Standard NAND Products, XDOC Products and Combo Unitsshall be subject to the pricing set forth in Exhibit B‐1, Exhibit B‐2or Exhibit B‐3, respectively, for any such New Products.  

 

 

 

 

 

 

 

 

 

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**5.*                    *****FORECASTS, COMMITMENT TO PURCHASE ANDSUPPLY, CAPACITY COMMITMENT, LOGISTIC TERMS AND ORDERING**

5.1*             *Forecasts.  M-Systems will deliver toToshiba forecasts with respect to its purchase of Standard NAND Products andXDOC Products as set forth in Exhibit B‐1 and Exhibit B‐2hereto, respectively.  A portion of each forecast shall be binding onM‐Systems, as set forth in such exhibits.  Toshiba shallprovide to M-Systems a reasonably detailed support plan (the form of which tobe discussed and agreed by the Parties) regarding each forecast by no laterthan [***] Business Days after the date of the applicable forecast; providedthat such support plans of Toshiba shall not by themselves affect Toshiba`sobligations to supply Products hereunder (which will be subject to all termsand conditions of this Agreement).

5.2*             *Toshiba`s commitment to supply.  Toshiba shallbe committed to supply Standard NAND Products and XDOC Products (includingthose to be incorporated in Combo Units) to M-Systems as set forth in Exhibit B‐1and Exhibit B‐2 hereto, respectively. Toshiba`s supplycommitment shall be subject to the applicable provisions set forth herein.

5.3*             *M-Systems` commitment to purchase from Toshiba.  M‐Systemsshall be committed to purchase Standard NAND Products and XDOC Products(including those to be incorporated in Combo Units) from Toshiba as set forthin Exhibit B‐1 and Exhibit B‐2 hereto,respectively.  M‐Systems` purchase commitment shall be subjectto the applicable provisions set forth herein.

5.4*             *Logistics terms.  Toshiba shall offerM-Systems certain logistic terms with respect to the supply of Products as set forthin Exhibit B‐1 (for Standard NAND Products) and Exhibit B‐2(for XDOC Products).  In addition:

5.4.1*       *The Products purchase price shall [***].

5.4.2*       *Toshiba will [***].

5.5*             *Ordering.  M-Systems shallissue Purchase Orders to Toshiba (or in the event that M-Systems has localpurchase capability, directly to Toshiba`s overseas sales companies) pursuantto the terms of this Agreement.  Each Purchase Order will be issuedby M-Systems in accordance with the applicable Lead Time(s) and other terms ofthis Agreement.  Subject to the applicable terms hereof, Toshiba orToshiba`s applicable overseas sales companies shall accept each Purchase Orderwithin [***] Business Days of receipt by sending a Purchase OrderAcknowledgement to M-Systems.  Purchase Orders and Purchase Order Acknowledgementsshall be addressed as agreed by the Parties.

 

 

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5.6*             *Lead Time Reduction Program.  The Partieswill meet periodically to discuss options to effect reductions in Lead Times toallow improved flexibility in ordering and delivery.  The Parties contemplatethat the agenda for such meetings will include identification of such options,schedules for determination of associated cost and schedules forimplementation.

5.7*             *Adjustments.  M-Systems may increase, orreschedule Product quantities under Purchase Orders prior to delivery, inaccordance with the Order Adjustment Schedule for the applicable Products setforth in Exhibits B-1, B-2 and B-3.

**6.*                 *****DELIVERY, CARRIER, AND RISK OF LOSS**

6.1*             *Carrier; Risk of Loss.  Toshiba shall usethe Preferred Carriers for Delivery.  If no carrier is designated byM-Systems, Toshiba will select a common carrier at its discretion.  Titleand risk of loss or damage to the Product will pass to M‐Systems upondelivery to the Preferred Carrier, "**FOB Shipping Point**" unless otherwiseseparately agreed by the local offices of the Parties.

6.2*             *Delivery Date and Notice of Late Delivery. Toshibashall deliver Purchase Order quantities accepted by Toshiba to the DeliveryPoint within the Lead Time for the Purchase Order as set forth in Exhibits B‐1,B‐2 and B‐3.  Without derogating from theprovisions of Section 6.3,Toshiba shall provide M-Systems with advance notice in the event that Toshibabelieves that it cannot meet the Lead Time for any of the Products orderedunder this Agreement, such notice to be provided to M-Systems at least [***]days prior to the scheduled delivery date of the applicable Product and shallset forth the expected delivery date and any other reasonable informationrequested by M-Systems; Notwithstanding the above, if Toshiba can not providethe abovementioned notice within the abovementioned [***] days because thereasons for such delay are not known to Toshiba [***] days or more before theapplicable delivery date, then Toshiba shall be entitled to provide M-Systemswith less than [***] days notice provided that Toshiba (i) shall provide suchnotice no more than one Business Day after it becomes aware that it can notmeet the applicable Lead Time, and (ii) shall provide M-Systems with a writtenreasonably detailed explanation setting forth the reason(s) for Toshiba`sinability to provide the notice within the abovementioned [***] days period.    

 

 

 

 

 

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6.3*             *Failure to Meet Delivery Date.  IfToshiba fails to timely deliver all or any portion of the Products covered byany Purchase Order, then M-Systems, without prejudice to any other rights orremedies available to M-Systems under law or otherwise, may terminate suchPurchase Order in whole or in part and procure from other sources the Productscovered by such Purchase Order and not accepted by M-Systems.  Toshibawill reimburse M-Systems for the difference in aggregate price between theprice of the Products specified in the Purchase Order and the price paid byM-Systems for substituted products purchased by M-Systems pursuant to thisSection.  With respect to the portion of such Purchase Order notterminated, if any, the Product price will not change and the Parties willotherwise continue performance under this Agreement.

**7.*                 *****PURCHASE ORDERS AND PURCHASE ORDERACKNOWLEDGMENTS**

Except for the quantities, Delivery Point, anddelivery dates specified on the M-Systems` Purchase Orders accepted by Toshiba,the terms governing the supply and purchase of Products hereunder will begoverned by the terms and conditions of this Agreement.  In the caseof conflict between this Agreement and any Purchase Order, the terms of thisAgreement will prevail.

**8.*                 *****PAYMENTS**

Toshiba will provide invoices to M-Systems for allProducts supplied hereunder identifying the applicable Purchase Order(s).  M-Systemswill pay each invoice not disputed in good faith not later than [***], provided that the Parties may agree on alternativepayment timing to accommodate local purchase arrangements and other agreedcircumstances.  Payment of invoices does not constitute finalacceptance of the Products and is subject to adjustments for errors, shortagesand defects in accordance with this Agreement.

Allpayments to Toshiba for Products under this Agreement shall be made by wiretransfer of immediately available funds to a bank account designated byToshiba.

**9.*                 *****ACCESS TO INFORMATION; QUALITY ANDINSPECTION**

9.1*             *Quality Control. Toshiba will establish andmaintain quality control procedures that comply with applicable ISO standards.  

 

 

 

 

 

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9.2*             *Product Inspection.  All Products aresubject to inspection by M-Systems and may be rejected and returned to Toshibaif the Products do not comply with the warranty contained in Section 10.1, if the Products are part ofan Epidemic Failure under Section 10.3, or if the Products are not delivered in accordancewith the accepted****Purchase Order.  If Products are so rejectedprior to payment, M‐Systems shall be relieved of any payment obligationin connection with such returned Products.  If Products are rejectedfor defects or non-conformance after payment, but within [***] days  ofdelivery, M-Systems will be entitled (in lieu of Toshiba`s obligations under Section10.2 but withoutotherwise limiting M-Systems` rights hereunder) to a credit for the full amountof the purchase price of such defective or non-conforming Products.

9.3*             *Site Inspections.  During the term ofthis Agreement, during normal business hours and upon reasonable notice toToshiba and its respective manufacturing site(s), M-Systems shall have theright to inspect and, to the extent practicable and at M‐Systems` soleexpense, test the Products at all Toshiba sites of manufacture of the Products.Such inspection and testing will not relieve Toshiba of liability regarding theProducts later found to be defective or liability regarding Toshiba`s failureto meet its obligations under this Agreement.

9.4*             *Electronic Access.  To the extentprovided by Toshiba to any of its third party customers, Toshiba shall provideM-Systems with reasonable electronic access to information about the status ofoutstanding Purchase Orders.

**10.*             *****LIMITED WARRANTIES**

10.1*         *Liens, Materials and Workmanship.  Toshibawarrants that each of the Products purchased and delivered hereunder:  (i)will be free and clear of all liens and encumbrances; (ii) will be free fromall defects in material and workmanship; and (iii) will conform to the agreedspecifications for such Products. This warranty shall run for [***] commencingfrom the date of delivery of the applicable Product.

10.2*         *Warranty Repair/Replacement.  If anyProduct is found to breach the warranty specified in Section 10.1, M-Systems may (within theapplicable warranty period) send a notice to Toshiba informing it of the breachof warranty.  Upon receipt of such notice, Toshiba will issue aReturn Material Authorization (RMA) authorizing M-Systems to return thedefective Products to Toshiba.  Upon return of the defectiveProducts, Toshiba shall, at Toshiba`s expense, and Toshiba`s sole discretion,promptly repair or replace such defective Products, and return the repaired orreplaced units to M-Systems.  Except as expressly otherwise providedherein, this Section 10.2shall constitute M-Systems` sole and exclusive remedy and Toshiba's sole andexclusive obligation with respect to any breach of the warranty specified in Section 10.1.

 

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10.3*         *Epidemic Failures.****Toshiba shall, atToshiba`s own****expense and at M-Systems` option, promptly repair orreplace or give M-Systems a credit for Products delivered under this Agreementwhich exhibit Epidemic Failures within one (1) year of the date of delivery ofthe applicable Products**.****  **

10.4*         *Freight and Incidental Costs. Toshiba will beresponsible for freight and incidental costs in connection with the repair orreplacement of Products under Sections 10.2 or 10.3, including reasonable costs forlabor, inspection and testing, freight charges from M-Systems to Toshiba, andfreight charges from Toshiba to M-Systems.

10.5*         *No Liability. Toshiba`s warranty in Section 10.1 and its obligations underthis Section 10shall not apply with respect to any Product claims or non‐conformance ofProducts or spare parts relating to, arising from or caused by any of thefollowing: abuse, misuse, improper use, negligence, accident, alteration,modification,****tampering or improper repair or installation (in each caseincluding actions not in compliance with applicable Product specifications), byM‐Systems, any other party not authorized by Toshiba or otherwise.

10.6*         *No Waiver.  Neither M-Systems` approvalof Toshiba`s material or design for a Product or its acceptance of any Productsnot in compliance with Toshiba`s warranty obligations under Section 10.1 shall relieve Toshiba ofits obligations under this Section 10, unless otherwise specifically agreedin writing by M‐Systems.

10.7*         *NO OTHER WARRANTIES.  THE WARRANTIES ANDOBLIGATIONS OF TOSHIBA SET FORTH IN THIS SECTION 10 CONSTITUTE TOSHIBA`S SOLEWARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS AND PARTS SUPPLIEDBY TOSHIBA HEREUNDER.  THE WARRANTIES AND OBLIGATIONS SET FORTH INTHIS SECTION 10ARE IN LIEU OF, AND TOSHIBA EXPRESSLY DISCLAIMS AND WAIVES, ALL OTHERREPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR ARISING BYCOURSE OF DEALING OR PERFORMANCE, CUSTOM, USAGE IN THE TRADE OR OTHERWISE,INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR APARTICULAR USE.

 

 

 

 

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10.8*         *Limitation on Liability.  In no eventshall Toshiba`s liability with respect to any Products supplied hereunder forall causes of action of any kind (including, without limitation, tort,contract, negligence, strict liability and breach of warranty) exceed (a) withrespect to XDOC Products jointly developed by the Parties, the aggregateamounts paid by M-Systems hereunder and under the Previous MPA for suchProducts from and after August 10, 1998, and (b) with respect to all otherProducts, the aggregate amounts paid by M-Systems hereunder from and after theEffective Date; provided that the limitation on Toshiba`s liability containedin this Section 10.8 shall not apply to claims arising under Section 14 (Proprietary RightsIndemnity) or Section 27 (Confidentiality; Publicity).

**11.*             *****ENVIRONMENTAL COMPLIANCE**

Toshiba represents and warrants to M-Systems that, to thebest of its knowledge, it: (i) has been granted or issued all permitsrequired for the storage, handling and disposal of all hazardous materials orwaste used by Toshiba in the performance of this Agreement; and (ii) is incompliance with material legal requirements relating to environmentalprotection applicable to its performance hereunder.  Toshiba shallnotify M-Systems in writing promptly upon discovery of any regulatory actiontaken or initiated against Toshiba, whether or not such action relates to orarises out of this Agreement, that would have a materially adverse impact onToshiba`s ability to perform its obligations hereunder.  As betweenToshiba and M-Systems, regulatory compliance by Toshiba and management ofToshiba`s employees, facilities, and processes is the responsibility ofToshiba.  M-Systems has no express or implied responsibility for thesame.

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**12.*             *****DESIGN MODIFICATIONS**

In the event that Toshiba makes any modification toany Products that were designed together with M-Systems (such as the [***]and/or [***] andany other applicable Product) without M-Systems` prior written approval,Toshiba shall continue to offer to M-Systems such applicable Products in theirunmodified specifications and form, subject to Toshiba`s rights hereunder todiscontinue the production of Products under the applicable terms of thisAgreement and its Exhibits. 

**13.*             *****PACKAGING AND CUSTOMER DOCUMENTATION**

M-Systems shall provide specifications for packagingof XDOC Products and Combo Units jointly developed by the Parties, andreproducible copies of all customer documentation and other in-box materials.  Toshibashall comply with M-Systems` reasonable specifications for packaging theProducts.  Toshiba shall, as soon as reasonably possible, incorporateany updates to the customer documentation provided by M-Systems.

**14.*             *****PROPRIETARY RIGHTS INDEMNITY**

14.1*         *Representation and Warranty.  Toshibarepresents and warrants to M-Systems that for the term of this Agreement theProducts provided under this Agreement do not infringe or violate any patent, copyright,trade secret, mask work right or other intellectual property right of a thirdparty.

14.2*         *Toshiba`s Indemnity Obligation.  Toshibashall, at its expense and at M-Systems` request, defend any claim or actionbrought against M-Systems, and M-Systems` subsidiaries, affiliates, directors,officers, employees, agents and independent contractors (collectively, the "**M-SystemsIndemnified Parties**") to the extent it is based on a claim based on orresulting or arising from a breach of the representation contained in Section14.1,and Toshiba shall indemnify and hold the M-Systems Indemnified Parties harmlessfrom and against any costs, damages and fees reasonably incurred by the M‐SystemsIndemnified Parties, including but not limited to fees of attorneys and otherprofessionals, that are attributable to such claim; provided that:  (a) M‐Systemsgives Toshiba reasonably prompt notice in writing of any such suit and permitsToshiba, at its sole control and through counsel of its choice, to answer thecharge of infringement and defend and negotiate for settlement of such claim orsuit; (b) M-Systems provides Toshiba information, assistance and authorityat Toshiba`s expense to enable Toshiba to defend such suit; and(c) Toshiba shall not be responsible for any settlement made by M-Systemswithout Toshiba`s prior written permission.  In the event Toshibasettles any such suit, Toshiba agrees not to disclose to third parties theterms of the settlement nor to permit the party claiming infringement todisclose such terms without first obtaining M-Systems` written permission.

 

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14.3*         *Exceptions. Toshiba will not have liability underthis Section 14to the extent that: (a) any claimed infringement would not have occurredbut for****Toshiba`s incorporation of any M-Systems` Technology or anyDeveloped Technology (as such terms are defined in the XDOC D&L Agreement)into the Products; or (b) any claim or suit would have been avoided butfor M-Systems` combination, operation, or use of the Products with devices,parts, or software not supplied by Toshiba; or (c) any claimedinfringement is primarily attributable to any modification or addition to theProducts not authorized by Toshiba.

14.4*         *M-Systems` Indemnity Obligation.  In theevent Section 14.3applies, and Toshiba is a defendant in such claim or action, then M-Systemsshall, at its expense and at Toshiba`s request, defend any such claim or actionbrought against Toshiba, Toshiba Corporation and their****subsidiaries,affiliates, directors, officers, employees, agents and independent contractors,but not Toshiba`s customers (collectively, the "**Toshiba Indemnified Parties**"),to the extent it is based on a claim that the M-Systems Technology incorporatedin the Products provided under this Agreement infringes or violates any patent,copyright, trade secret, mask work right or other intellectual property rightof a third party, and M‐Systems shall indemnify and hold ToshibaIndemnified Parties harmless from and against any costs, damages and fees reasonablyincurred by Toshiba Indemnified Parties, including, but not limited to fees ofattorneys and other professionals that are attributable to such claim; providedthat:  (a) Toshiba gives M-Systems reasonably prompt notice inwriting of any such suit and permits M-Systems, through counsel of its choice,to answer the charge of infringement and defend such claim or suit;(b) Toshiba provides M-Systems information, assistance and authority atM-Systems` expense to enable M-Systems to defend such suit; and (c) M‐Systemsshall not be responsible for any settlement made by Toshiba without M-Systems`prior written permission.  In the event M-Systems agrees to settleany such suit, M-Systems agrees not to disclose to third parties the terms ofthe settlement nor to permit the party claiming infringement to disclose suchterms without first obtaining Toshiba`s written permission.

14.5*         *Duty to Correct.  In addition toits obligations under Section 14.2, should theuse, sale or other disposition of the Products be enjoined by a court or in theevent there is a final judicial determination that the Products infringe athird party`s proprietary right, Toshiba shall, at Toshiba`s  expenseand option:  (a) procure for M-Systems the past right to make, useand sell and the future right to continue to make, use and sell the Products;or (b) replace or modify the Products to make such Products non-infringing,provided that the replacement or modified Product is functionallyinterchangeable with and has at least the same performance as the replacedProduct; or (c) refund any moneys received by Toshiba from M-Systems hereunderfor the Products whose use, sale or other disposition was enjoined.

14.6*         *Exclusive Liability.  The Parties`obligations set forth in this Section 14 constitute the Parties` exclusiveliability and the Parties` sole remedy arising out of any third party`s claimof infringement.

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**15.*             *****PRODUCT LIABILITY**

Toshiba shall, at Toshiba`s expense, indemnify, holdharmless and, at M-Systems` request, defend the M-Systems Indemnified Partiesfrom and against any and all loss, cost, liability or expense (including costsand reasonable fees of attorneys and other professionals) arising out of or inconnection with a claim that any of the Products purchased by M-Systemshereunder caused injury or damage to persons or property to the extent causedby any defect in the design or manufacture of such Product when used in accordancewith Toshiba`s applicable specifications (including any usage guidelines orinstructions), provided that (a) M-Systems gives Toshiba reasonably promptnotice in writing of any such claim and permits Toshiba, at its sole controland through counsel of its choice, to answer, defend and negotiate forsettlement of such claim, (b) M‐Systems provides Toshibainformation, assistance and authority, at Toshiba`s expense, to enable Toshibato defend such claim; and (c) Toshiba shall not be responsible for anysettlement made by M‐Systems without Toshiba`s prior written permission.  ThisSection 15 shall not apply to any loss, cost,liability or expense arising out of (y) the negligence of M-Systems or anythird party (including any customer), or (z) Toshiba`s incorporation of M‐Systems`Technology into the Products.

**16.*             *****TERMINATION**

16.1*         *This Agreement may be terminated as follows:

16.1.1*   *Byconsent in writing of both Parties.

16.1.2*   *At the election of either Party, if the other Party commencesa voluntary Proceeding seeking liquidation, reorganization, or other reliefwith respect to itself or its debts under any bankruptcy, insolvency or othersimilar law now or hereafter in effect or seeking the appointment of a trustee,receiver, liquidator, custodian or other similar official of it or anysubstantial portion of its property or taking possession by any such officialin any involuntary Proceeding commenced against it, or makes a generalassignment for the benefit of creditors, or fails generally to pay its debts asthey become due, or takes any action to authorize any of the foregoing.

16.1.3*   *At the election of either Party, if an involuntaryProceeding is commenced against the other Party seeking liquidation,reorganization or other relief with respect to it or its debts under anybankruptcy, insolvency or other similar law now or hereafter in effect orseeking the appointment of a trustee, receiver, liquidator, custodian or othersimilar official for such Party or any substantial part of its property, andsuch involuntary Proceeding remains undismissed and unstayed for a period ofone hundred twenty (120) days.

 

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16.1.4*   *At the election of either Party, if there has been amaterial violation or breach by the other Party of any material covenant oragreement contained herein, which violation or breach shall not have been curedor corrected by the violating or breaching Party within [***] Business Daysafter receipt of notice thereof, describing such violation or breach inreasonable detail (or such longer period (not to exceed [***] Business Days) asis reasonably necessary to remedy such violation or breach, provided that theviolating or breaching Party shall commence such action to cure such violationor breach within such [***] Business Days and thereafter shall usecommercially reasonable efforts to pursue such cure until such violation orbreach is cured).

16.2*         *In the event of the termination of this Agreement pursuantto Section 16.1, thisAgreement shall cease to have further force or effect and neither Party shallhave any liability to the other Party in respect to this Agreement, providedthat:

16.2.1*   *Terminationof this Agreement for any reason shall not release either Party from anyliability which has already accrued as of the effective date of suchtermination, and shall not constitute a waiver or release of, or otherwise bedeemed to prejudice or adversely affect, any rights, remedies or claims,whether for damages or otherwise, which a Party may have hereunder, at law,equity or otherwise or which may arise out of or in connection with suchtermination.

16.2.2*   *Ifthis Agreement is terminated by M-Systems pursuant to Sections 16.1.2, 16.1.3 or 16.1.4, then M-Systems, in addition to any other rightsprovided herein but subject to its obligations hereunder to pay for thecompleted Products, may require Toshiba to transfer title and deliver to M-Systemsany completed Products and/or materials that Toshiba has produced or acquiredfor the completion of such Purchase Order(s).  Toshiba shall protectand preserve for M-Systems` benefit such property in the possession of Toshiba.

16.2.3*   *Ifthis Agreement is terminated by Toshiba pursuant to Sections 16.1.2, 16.1.3 or 16.1.4, then Toshiba, in addition to anyother rights provided herein, may require M-Systems to accept and pay for anycompleted Products that Toshiba has produced for the completion of any PurchaseOrder(s) accepted prior to such termination. 

16.2.4*   *Notwithstandingany termination of this Agreement, the provisions of  Sections10, 11, 14, 15, 16,22,26,27 and 28 shall remainin effect.

 

 

**_14_** 

16.3*         *Cancellation of Purchase Order WithoutCause. 

16.3.1*   *M-Systems may, for any reason or for no reason whatsoever,cancel any Purchase Order with respect to any Products, in whole or in part andwithout any further liability to Toshiba and/or its Subsidiaries with respectto such cancellation or the Products covered under such canceled PurchaseOrder, upon [***] days advance notice to Toshiba.

16.3.2*   *Inthe event M-Systems cancels a Purchase Order for Products less than [***] daysprior to a scheduled delivery, Toshiba may submit a written claim forcancellation charges within [***] days after the date of such cancellation.Toshiba shall submit its claim together with such reasonable evidence asM-Systems may reasonably request. Toshiba`s claim shall be based solely uponcosts incurred by Toshiba as a result of such cancellation, and no profit oropportunity cost shall be considered in calculating such claim.  UponM-Systems` request, Toshiba will make reasonably available to M-Systems relevantinformation for inspection and audit with respect to Toshiba`s claim forcancellation charges.  Failure to submit a claim for cancellationcharges within such [***] day period shall constitute a waiver of any suchclaim by Toshiba as a result of M-Systems` cancellation and (subject to Section16.3.5(b))M-Systems shall be released from all liability arising out of suchcancellation.

16.3.3*   *Toshibashall reasonably assess open orders, raw materials, work in process andsubassemblies to determine whether or not such items can reasonably be used byToshiba for the manufacture of other products or reasonably be diverted for anyother purpose, and Toshiba`s claim may not include any such usable items.

16.3.4*   *M-Systems`obligation for cancellation charges pursuant to this Section 16.3 will be limited to thefollowing:

(a)*            *The price for Products which Toshiba has completedmanufacture prior to the effective date of M-Systems` cancellation pursuant toan issued Purchase Order for Products and for which payment has not been made;

(b)*           *Toshiba`s costs incurred for raw materials, components,subassemblies and work in process at the time of the effective date of suchcancellation which were required to fill the Purchase Orders for Productscanceled by M-Systems; and

 

 

**_15_** 

(c)*            *Toshiba`s reasonable cancellation costs incurred forcomponents and subcontracted items which Toshiba had on order prior to theeffective date of such cancellation, which were necessary to fill the PurchaseOrders for Products canceled by M-Systems, and for which Toshiba is obligatedto pay charges or other amounts arising from M-Systems` cancellation.

16.3.5*   *Notwithstandinganything to the contrary in this Section 16.3:

(a)*            *In no event shall any payments made by M-Systems underthis Section 16.3exceed the aggregate purchase price hereunder for the applicable Productscovered by the canceled Purchase Order(s), less payments already made.  M-Systemswill have the right to exclude from any amounts payable to Toshiba under this Section 16.3 all amounts payable withrespect to M-Systems` property lost, damaged, stolen or destroyed prior todelivery to M-Systems and for which Toshiba is responsible.

(b)*           *Except as expressly set forth in this Section 16.3, M-Systems` cancellationof any Purchase Order for Products pursuant to this Section 16.3 shall not affect in anymanner the Parties` rights and obligations under this Agreement (including ExhibitB-1 and Exhibit B-2) or under any other Purchase Orders.  Withoutlimiting the generality of the foregoing sentence, M-Systems` cancellation ofany Purchase Order shall not affect in any manner any Commitment by M-Systemsto purchase XDOC Products pursuant to any XDOC Product Forecast, as provided inSection 2 of Exhibit B-2.  For the avoidance of doubt,M-Systems shall remain fully committed to purchase from Toshiba all XDOCProducts covered under any Commitments (including any Commitment that acancelled Purchase Order was intended to fulfill in whole or in part).

**17.*             *****AGENCY APPROVALS**

Toshiba shall obtain any government agency approvalsnecessary to sell the Products to M-Systems, and (subject as applicable toM-Systems` obligations contained in Section 5.4.1)will pay all application fees, costs of samples, and other reasonable expensesincurred in connection with obtaining such approvals.  M-Systemsshall sign any necessary documents and provide any necessary information toenable Toshiba to complete forms and otherwise obtain such approvals.

*** ***

*** ***

**_16_** 

**18.*             *****TAXES AND FOREIGN SHIPMENTS**

The pricesset forth in Exhibit B are in United States dollars and areexclusive of any and all state or local sales, use, excise or similar taxes,which, if applicable, shall be paid by M-Systems.

**19.*             *****CERTIFICATES OF DELIVERY**

Upon M-Systems` request and subject to M-Systems`reimbursement of Toshiba`s reasonable out-of-pocket expenses, Toshiba shall provide:  (a) Certificates ofDelivery (CD) to M-Systems for Products which were imported into the UnitedStates by Toshiba and sold directly toM-Systems as imported goods; or (b) Certificates of Manufacture andDelivery (CMD) for Products which wereimported and then further manufactured by Toshiba and sold directly to M-Systems. Toshiba shall also provide to M-Systems a Certificate ofCompliance (COC) with each shipment of Products shipped to M-Systems.  Descriptionsof merchandise on each CD, CMD or COC must reference both M-Systems` and Toshiba`s  part numbers.

**20.*             *****PROPERTY FURNISHED BY M-SYSTEMS**

All tools,computer equipment and other materials furnished by M-Systems for use byToshiba in its performance hereunder will be identified by M-Systems in areasonably conspicuous manner and will remain the property of M-Systems andwill be used byToshiba only for purposes of this Agreement.  Allspecifications, drawings or other documents and data furnished by M-Systems andtools, dies, molds, jigs, fixtures, patterns, hobs, electrodes, punches,artwork, screens, tapes, templates, machinery, special test equipment, andgauges, which have been furnished, paid for, or charged against M-Systems, willbe deemed M-Systems` property and shall be maintained and preserved by Toshibafor M-Systems` during the term of this Agreement.  Such property willbe delivered, upon M-Systems` request and at its expense, to M-Systems in goodcondition, except for normal wear and tear and consumption in connection withits intended use.

**21.*             *****COMPLIANCE WITH LAWS**

Each partyshall comply with all applicable laws and regulations governing theiractivities under this Agreement, including, without limitation, the exportcontrol laws and regulations of the United States and Japan.  

 

 

 

**_17_** 

**22.*             *****LIMITATION OF LIABILITY**

EXCEPT ASEXPRESSLY PROVIDED IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLEWITH RESPECT TO THIS AGREEMENT FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVEOR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING, BUT NOT LIMITED TO, DAMAGES TOTHE OTHER PARTY`S BUSINESS REPUTATION HOWEVER CAUSED, AND ON ANY THEORY OFLIABILITY WHETHER IN AN ACTION FOR CONTRACT, STRICT LIABILITY OR TORT(INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THE FIRST PARTY HAS BEENADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 

**23.*             *****NO FINDERS OR BROKERS**

Each Partyhereby represents to the other Party that no finders, brokers or similar thirdparties have been used in connection with this Agreement or negotiations orother discussions culminating in this Agreement.

**24.*             *****GENERAL REPRESENTATIONS**

Each Party****represents and warrants to the otherParty****as follows:

24.1*         *Such Party is duly organized, validly existing and in goodstanding under the laws of the jurisdiction of its organization.  

24.2*         *Such Party has all requisite organizational power andorganizational authority to enter into and perform its obligations under this Agreement.  Theexecution, delivery and performance by such Party of this Agreement has beenduly authorized by all necessary corporate action.  This Agreementhas been duly executed and delivered by such Party.  This Agreementconstitutes the legal, valid and binding obligation of such Party, enforceableagainst such Party in accordance with its terms.

24.3*         *The execution and delivery by such Party of this Agreementdoes not, and the performance by such Party of its obligations hereunder willnot, conflict with, result in any violation of or default (with or withoutnotice or lapse of time or both) under, or give rise to a right of termination,cancellation or acceleration of any obligation (in each case by any thirdparty) or to the loss of any benefit by such Party under, (a) itsorganizational documents or (b) any judgment, injunction, applicable law,contract, agreement or approval to which such Party is a party or by which suchParty is bound, except for such matters that, individually or in the aggregate,would not have a material adverse effect on such Party`s performance of itsobligations hereunder.   

 

**_18_** 

**25.*             *****FURTHER COOPERATION**

Toshiba shall reasonably cooperate in order to enableM-Systems to have third parties test the XDOC Products die.  As partof such cooperation, Toshiba shall use reasonable efforts to support M-Systemsin order to enable M-Systems to have third parties test and burn-in the XDOCProducts for purpose of achieving Known Good Die.  The delivery of testing object codes (if necessary toeither M-Systems or the third parties) shall be discussed by the Parties ingood faith on a case-by-case basis.  In no event shall Toshiba beobligated to provide testing plan or other source code to M-Systems.

**26.*             *****RECORDS AND AUDIT**

26.1*         *Both Parties shall keep and maintain appropriate books andrecords reasonably necessary for verification that they have complied with theterms of this Agreement.  

26.2*         *For four (4) years after the end of each Fiscal Year, eachParty shall be entitled, not more than once annually, to retain independentauditors at such Party`s expense (subject to Section 26.4 below), to review theother Party`s books and records for the purpose of determining whether theapplicable amounts paid by the Parties (as applicable) meet the requirements ofthis Agreement.  

26.3*         *Any amounts hereunder due by a Party to the other Partywhich are determined, as a result of the audit, to be underpaid or overpaidwill promptly be corrected and paid to the applicable Party.  

26.4*         *In the event that an audit is requested by one of theParties (the "**Initiating Party**") and such audit shows underpaymentby the other Party (i.e., the non Initiating Party) of more than seven and ahalf percent (7.5%) of the aggregate payments due for the period beingreviewed, then the other Party shall bear the cost of such audit.

**27.*             *****CONFIDENTIALITY; PUBLICITY**

27.1*         *"**Confidential Information**"means, subject to the limitations set forth in Section 27.3, (i) any information of aParty with respect to which the other Party has a confidentiality obligation asof the date hereof pursuant to the express terms of a written confidentialityor nondisclosure agreement between the Parties, (ii) any informationregarding the disclosing Party or its business, including information whichrelates to research, product plans, designs, patents, trademarks, tradesecrets, know-how, products, pricing, services, customers, markets, forecasts,marketing or finance, which is (1) in written or other tangible form and markedwith a legend which identifies the information as confidential, or (2) in oralor visual form, identified as being confidential at the time of disclosure andthereafter summarized in a writing which identifies the information asconfidential and is transmitted to the receiving Party within thirty (30) daysafter such oral or visual disclosure.

**_19_** 

27.2*         *Confidentiality Obligation.During the period of eight (8) years from the date of receipt of anyConfidential Information, each Party agrees (i) to protect allConfidential Information received by such Party and not to disclose suchConfidential Information to any person or entity ("**Person**"), utilizingthe same degree of care the receiving Party utilizes to protect its ownconfidential information of a similar nature (and in no event less thanreasonable care), and (ii) not to utilize such Confidential Informationfor any purpose other than in connection with the transactions contemplated bythis Agreement.  Notwithstanding anything to the contrary in theforegoing, each Party may disclose Confidential Information to any employee,agent or representative who has a "need to know" such information for thepurposes of this Agreement, provided that such Person(s) shall be notified thatsuch disclosure is made and shall be kept in confidence.

27.3*         *Exceptions.  Notwithstanding theprovisions of Section 27.2,neither Party shall have any obligation to maintain the confidentiality of anyinformation, and Confidential Information shall not include any information,that (i) is or becomes generally available in the public domain other thanas a result of disclosure by the receiving Party (or any third party under aduty of confidentiality to the disclosing Party), (ii) was known by thereceiving Party prior to disclosure by the disclosing Party, as can beevidenced by written documents existing at the time of initial disclosure,(iii) was independently developed by the receiving Party without use of orreference to such information, as can be evidenced by written documents, or(iv) was received by the receiving Party from another Person without violationof any confidentiality obligations.

27.4*         *Ownership. All Confidential Information shallremain the sole property of the disclosing Party. No receiving Party shall haveany rights to the Confidential Information of the disclosing Party.

27.5*         *Disposal of Confidential Information. Within thirty(30) days of the termination of this Agreement, or at any time upon theapplicable disclosing Party`s request, the receiving Party shall return to thedisclosing Party or destroy all Confidential Information (including copies andelectronic records thereof).

27.6*         *Publicity.  Subject to applicable law andthe applicable rules or regulations of any stock exchange on which thesecurities of either Party are traded, no Party shall issue any press release,publicity statement, communication with stockholders, public notice or otherpublic disclosure relating directly to this Agreement or the transactionscontemplated hereby without prior notice to, consultation with, and the consentof the other Party.  The Parties shall issue a joint pressrelease with respect to the transactions under this Agreement and certain otherrelated agreements entered into between the Parties as of the Effective Date,in form to be mutually agreed by the Parties, shortly after the Effective Dateof this Agreement. 

** **

**_20_** 

**28.*             *****GENERAL**

28.1*         *Governing Law.  This Agreement shall beconstrued and interpreted in accordance with and governed by the laws of theState of New York, U.S.A. (without regard to the choice of law provisionsthereof). The Parties agree and consent thatservices of process may be made upon the Parties in any Proceedings relatinghereto by any means allowed under applicable law.

28.2*         *Dispute Resolution.

28.2.1*   *TheParties intend that all disputes between the Parties arising out of thisAgreement shall be settled by the Parties amicably through good faithdiscussions upon the written request of either Party.  In the eventthat any such dispute cannot be resolved thereby within a period of sixty (60)days after such notice has been given, such dispute shall be finally settled bybinding arbitration at the request of either Party.

28.2.2*   *Eacharbitration hereunder shall be conducted in the English language in New York,New York, U.S.A. in accordance with the Commercial Arbitration Rules of theAmerican Arbitration Association then in effect (the "**Rules**").  However,in all events, these arbitration provisions shall govern over any conflictingrules that may now or hereafter be contained in the Rules.  EachParty may demand arbitration by filing a written demand with the other Partywithin one hundred twenty (120) days after the expiration of the sixty (60) dayperiod described above.  Each Party shall select one (1) arbitratorand the two (2) arbitrators selected by the Parties shall jointly select athird arbitrator, which arbitrators shall conduct the arbitration of suchdispute.  In the event the two (2) arbitrators are unable to select athird arbitrator, such selection shall be made pursuant to the Rules.  Judgmentupon an award rendered in an arbitration hereunder may be entered in any courthaving jurisdiction or application may be made to such court for judicialacceptance of any award and an order of enforcement, as the case may be.  Thearbitrators shall have the authority to grant any equitable and legal remediesthat would be available in any judicial proceeding intended to resolve adispute.  The arbitrators shall also have the authority to allocatebetween the Parties the costs of the arbitration in such equitable manner asthe arbitrators may determine.  The prevailing Party in the arbitrationshall be entitled to receive reimbursement of its reasonable expenses incurredin connection therewith.  Notwithstanding the foregoing, either Partyshall be entitled to seek preliminary injunctive relief from any court ofcompetent jurisdiction, pending the final decision or award of the arbitrators.  Theaward rendered in an arbitration hereunder shall be final and non‐appealable.  

 

**_21_** 

28.3*         *Notices and Other Communications.  Anyand all notices, requests, demands and other communications required or otherwisecontemplated to be made under this Agreement shall be in writing and in theEnglish language and shall be provided by one or more of the following meansand shall be deemed to have been duly given (i) if delivered personally,when received, (ii) if transmitted by facsimile, on the first (1st)Business Day following receipt of a transmittal confirmation, or (iii) ifby international courier service, on the fourth (4th) Business Day followingthe date of deposit with such courier service, or such earlier delivery date asmay be confirmed in writing to the sender by such courier service.  Allsuch notices, requests, demands and other communications shall be addressed asfollows:

If to Toshiba:Toshiba Corporation1-1 Shibaura 1- chome, Minato-ku,   Tokyo 105-8001  JapanAttention:          General Manager                        Legal Affairs and Contracts Division                        Semiconductor Company                      Telephone:        +81-3-3457-3452Facsimile:         +81-3-5444-9342

If to M-Systems:General Counsel; and 

VP CorporateDevelopment and Legal AffairsM-Systems Flash Disk Pioneers Limited7 Atir Yeda St. Kfar Saba, 44425, IsraelTelephone:        +972-9-764-5000Facsimile:         +972-3-548-8666

 

or to such other address or facsimile number as a Party mayhave specified to the other Party in writing delivered in accordance with thisSection 28.3.

 

28.4*         *Severability.  If any provision of thisAgreement shall be held to be illegal, invalid or unenforceable, the Partiesagree that such provision will be enforced to the maximum extent permissible soas to effect the intent of the Parties, and the validity, legality andenforceability of the remaining provisions of this Agreement shall not in anyway be affected or impaired thereby.  If necessary to effect theintent of the Parties, the Parties will negotiate in good faith to amend thisAgreement to replace the unenforceable language with enforceable language whichas closely as possible reflects such intent.

**_22_** 

28.5*         *Force Majeure.  Neither Party shall beliable in any manner for failure or delay in fulfilling all or part of thisAgreement, to the extent caused by forces beyond such Party`s control, whichmay include acts of God, governmental orders or restrictions, war, threat ofwar, warlike conditions, terrorist actions, hostilities, sanctions,mobilization, blockade, embargo, detention, revolution, riot, looting, strike,lockout, plague or other epidemics, fire, flood or any other such causes orcircumstances beyond its control.

28.6*         *Amendments.  This Agreement may beamended or modified only by a written instrument signed by each Party.

28.7*         *Waiver.  Any waiver by a Party of aninstance of the other Party`s noncompliance with any obligation orresponsibility herein contained shall be in writing and signed by the waivingParty and shall not be deemed a waiver of any other instance of the otherParty`s noncompliance hereunder.

28.8*         *No Assignment.  This Agreement shall bebinding upon and inure to the benefit of and be enforceable by the respectivesuccessors and permitted assigns of the Parties.  No Party may assignthis Agreement or its rights hereunder to any Person without the writtenconsent of the other Party.  No assignment by any Party of thisAgreement or of any of such Party`s rights hereunder (as agreed to by the otherParty) shall release such assigning Party from any of its obligationshereunder.  Any attempted assignment of this Agreement in violationof this Section 28.8shall be void and of no effect.

28.9*         *No Third-Party Beneficiaries.  The termsand provisions of this Agreement are intended solely for the benefit of theParties and their respective successors and permitted assigns, and the partiesdo not intend to confer third-party beneficiary rights upon any other person.

28.10*     *Expenses.  Each Party shall bear all of itsout-of-pocket costs and expenses incurred in connection with the negotiationand execution of this Agreement. 

28.11*     *Construction.  This Agreement has beennegotiated by the Parties and their respective counsel and shall be fairlyinterpreted in accordance with its terms and without any strict construction infavor of or against any Party.

 

 

 

 

**_23_** 

28.12*     *Interpretation and Construction of this Agreement.  Unlessthe context shall otherwise require, any pronoun shall include thecorresponding masculine, feminine and neuter forms, and words using thesingular or plural number shall also include the plural or singular number,respectively.  The words "include," "includes" and "including" shallbe deemed to be followed by the phrase "without limitation".  Allreferences herein to Articles, Sections, Annexes, Exhibits and Schedules shallbe deemed to be references to Articles and Sections of, and Annexes, Exhibitsand Schedules to, this Agreement unless the context shall otherwise require.  AllExhibits and Schedules attached hereto are hereby incorporated by referenceinto, and made a part of, this Agreement.  The headings of theArticles and Sections hereof are inserted for convenience of reference only andare not intended to be a part of, or to affect the meaning or interpretationof, this Agreement.  Unless the context shall otherwise require, anyreference to any agreement or other instrument or statute or regulation is tosuch agreement, instrument, statute or regulation as amended and supplementedfrom time to time (and, in the case of a statute or regulation, to anysuccessor provision).  Any reference in this Agreement to a "day" ora number of "days" (without the explicit qualification of "Business") shall beinterpreted as a reference to a calendar day or number of calendar days.  Ifany action or notice is to be taken or given on or by a particular calendarday, and such calendar day is not a Business Day, then such action or noticeshall be deferred until, or may be taken or given, on the next Business Day.

28.13*     *Language.  The Parties have negotiatedthis Agreement in the English language, which shall be the governing languageof this Agreement.

28.14*     *Specific Performance.  The Parties agreethat each other Party shall be entitled to obtain an injunction or injunctionsin accordance with the dispute resolution procedures contained in Section 28.2 to prevent breaches of theprovisions of this Agreement or any agreement contemplated hereunder, and toenforce specifically the terms and provisions hereof.

28.15*     *Cumulative Remedies.  Except as otherwise expressly providedherein, any and all remedies herein expressly conferred upon a Party will bedeemed cumulative with, and not exclusive of, any other remedy conferred herebyor by Law or otherwise on such Party, and the exercise of any one remedy willnot preclude the exercise of any other remedy.

28.16*     *Relationship of the Parties.  Nothing contained inthis Agreement is intended to, or shall be deemed to, create a partnershipamong the Parties for any purpose, including tax purposes.  Neitherof the Parties will take a position contrary to the foregoing.

 

**_24_** 

28.17*     *Entire Agreement.  The provisions of thisAgreement and the Exhibits and Schedules hereto set forth the entire agreementand understanding among the Parties as to the subject matter hereof andsupersede all prior agreements, oral or written, and all other priorcommunications among the Parties relating to the subject matter hereof.  

28.18*     *Counterparts.  This Agreement may be executed in twoor more counterparts, each of which shall be binding as of the date firstwritten above, and all of which shall constitute one and the same instrument.  Eachsuch counterpart shall be deemed an original, and it shall not be necessary inmaking proof of this Agreement to produce or account for more than one suchcounterpart. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**_25_** 

INWITNESS WHEREOF, the parties have caused this Agreement to be executed by theirduly authorized representatives as of the Effective Date.

 

** **

**M-Systems                                                        ToshibaCORPORATION**

**FLASHDISK PIONEERS LTD.**

** **

** **

BY:                  BY:            **

 

NAME:      Dov Moran      NAME:      MasashiMuromachi**

                                                                                             VicePresident, Memory Division

TITLE:       President& CEO                              TITLE:       Semiconductor Company**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**_26_** 

**Exhibit A**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**_27_** 

**Exhibits B1, B2 and B3**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**_28_** 

 

**Exhibit A**

 

List of Products as of the Effective Date: 

 

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**_29_** 

**EXHIBIT B-1**

**StandardNAND Products Purchase Terms**

**1.*                 ***The Purchase Price. Starting as of theEffective Date and subject to Section 1.3 of Exhibit B-2 below, the pricing forStandard NAND Products supplied hereunder shall be:

1.1*             *Toshiba`s [***].

1.2*             *Notwithstanding the above, in the event that the [***].

               The Standard NAND Products supplied to M-Systems at thepricing under this Section 1.2 shall be [***].

               Notwithstanding the foregoing, Toshiba`s commitment tosupply M-Systems with Standard NAND Products for the prices set forth in thisSection 1.2 will be subject to the following limitations:

               (a)        such commitment shall apply only during theperiod [***] (the "**Section 1.2 Period**");

               (b)        for each of the [***] periods during theSection 1.2 Period described in the next paragraph (and subject to theadditional limitations contained in such paragraph), Toshiba's supplycommitment shall be limited to a quantity of Standard NAND Products (the "BaseCommitment") equal to [***]

 

 

 

 

 

 

 

 

 

 

**_30_** 

[***]; and

               (c)        Toshiba shall be committed to supply toM-Systems [***]% of the Base Commitment during the [***] period following theTermination Date, [***]% of the Base Commitment during the [***] periodfollowing the Termination Date, and [***]% of the Base Commitment during the [***]period following the Termination Date.         

For theavoidance of doubts, any Standard NAND Products purchased by M-Systems for itsDiskOnKey Products that exceed the above capacity shall be sold by Toshiba toM-Systems under the pricing model set forth in Section 1.1above. 

1.3*             *In addition, and only in connection with Standard NANDProducts purchased by M-Systems for its DiskOnKey Products for the pricingscheme set forth in Section 1.2above, from and after the Termination Date, [***].

[***]

[***]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**_31_** 

[***].

**2.*                 ***Forecasts. By no later than [***] days prior tothe end of each calendar month, M-Systems will provide Toshiba with a forecast(each, a "Standard NAND Product Forecast") expressed in aggregate Megabytes ofM-Systems` estimated aggregate purchases of Standard NAND Products from Toshibafor the rolling [***] month period following such month.  In additionto the foregoing aggregate estimate, each Standard NAND Product Forecast shallinclude [***].  [***] by M-Systems for its purchase of Standard NANDProducts from Toshiba.  Notwithstanding the foregoing [***],M-Systems shall not be bound by allocations of its Megabyte commitments toparticular geographic regions or to particular Standard NAND Products.

[***].

**3.*                 ***Buffer Supply. Toshiba will maintain a[***]-week buffer supply of Standard NAND Products, based on M-Systems` mostrecent monthly Standard NAND Product Forecast.

**4.*                 ***Toshiba`s commitment to supply Standard NANDProducts. For each fiscal quarter, Toshiba will commit to supply M‐Systemswith a quantity of Standard NAND Products equal to [***]% of the aggregateStandard NAND Products expressed in aggregate Megabytes and allocated asrequested by M-Systems as contemplated by Section 2 above to which M-Systems has committed forthe previous fiscal quarter, in accordance with M-Systems` purchase commitmentwith respect to Standard NAND Product Forecasts as set forth in Section 2 above.

**5.*                 ***M-Systems` commitment to purchase from Toshiba.  (a)Subject to the compliance of Toshiba with the terms set forth in Sections 1, 3 and 4 above and Section 5.5 of the Agreementand (b) in addition to and without affecting Toshiba`s rights under Section 5Abelow, M-Systems will purchase at least [***]% of its annual Standard NANDProducts requirements from Toshiba; provided that M-Systems` purchases ofStandard NAND Products from third parties shall be excluded from thecalculation of its total Standard NAND Product requirements for purposes ofM-Systems` [***]% annual commitment to Toshiba if:

5.1*             *[***]

 

 

 

 

 

**_32_** 

[***].

AtToshiba`s election, certifications or quotes set forth above shall be subjectto verification in writing by an independent auditor of internationalreputation mutually approved by the Parties, provided that such verificationshall not be deemed to derogate from Section 5.1(iii)above.   

5.2*             *Toshiba`s Standard NAND Products offered to M-Systems donot reasonably meet M-Systems` technology and specification requirements forits products; or

5.3*             *Toshiba`s Standard NAND Product wafers offered toM-Systems are not reasonably competitive with respect to Known Good Die (KGD). 

**5A**.        Notwithstanding Section 5 above, in the event that Section 1.2 above is triggered pursuant to itsterms and as long as M-Systems is entitled to purchase from Toshiba StandardNAND Products under the pricing terms set forth in Section 1.2 above, Toshiba shall be the exclusivesupplier of Standard NAND Products to M-Systems for its DiskOnKey Products;provided that M-Systems shall be entitled to purchase Standard NAND Productsfrom third parties for M-Systems` DiskOnKey Products (i) to the extent thatToshiba`s Standard NAND Products offered to M-Systems do not reasonably meetM-Systems` technology and specification requirements with respect to itsDiskOnKey Products, or (ii) if Toshiba is unable to timely supply Standard NANDProducts for M-Systems` DiskOnKey Products for the prices set forth in Section 1.2 above (whether for reasons ofavailable capacity or for any other reasons) in accordance with the terms ofthe Agreement.  

**6.*                 ***For purposes of clarification, this Exhibit B-1does not apply to [***], which shall be governed exclusively by the [***].

**7.*                 ***Toshiba shall notify M-Systems of anydiscontinuance of production of Standard NAND Products at least [***] months inadvance.  

Upon receipt of any such notice and prior to the cessationof production (the date of such notice, "Notice Date") of such Standard NANDProducts, (i) [***]

 

 

 

 

 

 

**_33_** 

[***].

Notwithstanding any other provision to the contrary in thisAgreement but subject to Toshiba`s notification requirements in thisSection 7 of this ExhibitB-1, M-Systems will not be permitted to cancel or reschedule, in whole or inany part, any Purchase Orders for Standard NAND Products scheduled to bedelivered within [***].

**8.*                 ***Lead Time. The Lead Time for any Standard NANDProducts shall be:

8.1*             *[***] days, if M-Systems has already submitted to Toshibaa Standard NAND Forecast for such Standard NAND Products; or 

8.2*             *[***] days, if M-Systems has not already submitted toToshiba a Standard NAND Forecast for such Standard NAND Products.

**9.*                 ***Order Adjustment Schedule.  Subjectto Toshiba`s supply commitment as set forth in Section 4 above and M-Systems` purchase commitment asset forth in Section 5 above,M-Systems may increase or decrease the quantities of Standard NAND Productsand/or reschedule the delivery dates for any Purchase Order without liability,if it provides written notice to Toshiba at least [***] days prior to thescheduled delivery date for such Purchase Order.  M-Systems may nototherwise increase or decrease the quantities of Standard NAND Products and/orreschedule the delivery dates for any Purchase Order.

**10.*             ***Epidemic Failure Rates for Standard NANDProducts shall be as follows:

10.1*         *Single root cause rate:  [***]%

10.2*         *Multiple cause rate:  [***]%

**11.*             ***Preferred Carriers.  To be mutuallyagreed by the Parties. 

 

 

 

 

 

 

 

 

 

**_34_** 

**EXHIBITB-2**

**XDOCProducts Purchase Terms**

1.         The Purchase Price.  Startingas of the Effective Date, the pricing for XDOC Products supplied hereundershall be as follows:

1.1       Subject to the capacitylimitation set forth in Section 6 below, XDOC Products` pricing will be"[***].

[***].[***].

[***].

1.2       Notwithstanding Section1.1, any XDOC Products supplied by Toshiba that exceed the capacitylimitations set forth in Section 6 below shall be priced as follows: 

(a)        [***].[***]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**_35_** 

[***].

(b)        [***].

            [***].

(c)        The price of NAND wafersthat are used or assembled (i) with an ASIC to create an XDOC, or (ii) with anASIC and one or more component(s) to create a Combo Unit (i.e. NAND wafers thatare incorporated into any multi-chip XDOC Products or Combo Units), shall be [***].

(d)        The price of XDOC Productsthat are composed of multiple monolithic XDOC dies shall be [***].

(e)        The price of XDOC Productsthat are composed of a NAND die and a controller

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**_36_** 

die shall be [***].

(f)         [***]. 

[***].

(g)        [***].

1.3       For the purpose of this Section1 only, any NAND wafers that are used and/or assembled(whether by M-Systems, its Subsidiaries and/or their contractors or by Toshibaor its Subsidiaries) with an ASIC to create an XDOC Product, or with an ASICand one or more component(s) to create a Combo Unit, shall be considered forall intents and purposes as XDOC Products and shall be purchased by M-Systemsand supplied by Toshiba for the applicable prices set forth in this Section1.

2.         Forecasts.  By no later than [***] days prior to the end of each calendar month,M-Systems will provide Toshiba with a forecast (the "XDOC Product Forecast") ofM-Systems` estimated purchases of XDOC Products from Toshiba for the rolling [***]month period following such month; [***].  

M-Systems` aggregateCommitment (as defined below) for the purchase of XDOC Products with respect toeach XDOC Product Forecast shall be as follows (subject to the other terms Section2A, Section 2B and Section 2C): (i) the first [***]contained in each XDOC Product Forecast shall beconsidered as Committed purchase orders for the XDOC Products specified therein(i.e. M-Systems must purchase 100% of the XDOC Products identified for [***]of the applicable XDOC Product Forecast) and(ii) [***] contained in each XDOCProduct Forecast shall be considered as 

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

**_37_** 

purchase orders for the XDOCProducts specified therein, subject to following adjustments which may be madein future XDOC Product Forecasts: [***].  Forthe purpose of this Exhibit B-2, M-Systems "Commitment" under any XDOCProduct Forecasts means an obligation to purchase the applicable percentage ofXDOC Products included in the XDOC Product Forecasts for the applicable months,subject to paragraphs (A), (B) and (C) below.  

In addition to theforegoing:

(A)       [***];

(B)       [***]

(C)       [***].

3.         Buffer Supply.Toshiba will maintain a [***]‐week buffer supply of XDOC Products basedon M-Systems` most recent monthly XDOC Product Forecast.

4.         Toshiba`s commitment tosupply XDOC Products. For each calendar month, Toshiba will commit tosufficient capacity to manufacture for M-Systems a number of XDOC Products inan amount of (i) at least [***]% of the amounts detailed in M-Systems` XDOCProduct Forecast for [***], (ii) at least [***]% of the amounts detailed inM-Systems` XDOC Product Forecast for [***], and (iii) at least [***]% of theamounts detailed in M-Systems` XDOC Product Forecasts for each of [***] inclusive.

            Thetable set forth below is intended to illustrate the percentages detailed inthis Section 4 and in Section 2 above:            
| Month

* * | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 |
|-----------------|---|---|---|---|---|---|---|---|---|----|----|----|

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**_38_** 

 
| M-Systems`  Commitment

* * | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] |
|----------------------------------|-------|-------|-------|-------|-------|-------|-------|-------|-------|-------|-------|-------|
| Toshiba`s  capacity guarantee    | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] | [***] |

 

            Without derogating fromthis Section 4, in the event that [***]. 

5.         [***] 

5.1          [***];

5.2       [***]

5.3       [***].

6.         Limitationon Toshiba`s supply commitment of XDOC Products. Toshiba`s supplycommitment of XDOC Products for the pricing set forth in Section 1.1above (whether as single-chip, multi-chip or Combo Units) to M-Systems will belimited to certain wafer

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

**_39_** 

volume limitations eachyear, to be determined based on [***].

Toshiba undertakes that nolater than [***] of each calendar year itshall inform M-Systems of its expected worldwide NAND production for the nextcalendar year, and shall update M-Systems in the event of any material changesto such capacities.  

In addition to the above supply commitment and withoutderogating from Toshiba`s commitment under this Section 6, in the eventthat M-Systems` demand for XDOC Products exceeds the above Toshiba commitment,Toshiba will make commercially reasonable efforts to provide M-Systems with anadditional equitable allocation of XDOC Products, subject to Toshiba`scommitments to other customers and other relevant factors.

7.         Notwithstandingthe foregoing provisions of this Exhibit B-2, the Parties will discussin good faith separate supply terms for XDOC Products which are developed byToshiba for its customers and which are subject to any restrictions orlimitations imposed by such customers, provided that the pricing terms will bereasonably determined based on the pricing terms set forth in Section 1above or Exhibit B-3 below, as the case may be.

8.         [***]. 

[***]

 

 

 

 

 

 

 

 

 

 

 

 

.*  M-Systems Confidentiality Treatment Requested
**_40_** 
[***].

9.         Toshibashall notify M-Systems of any discontinuance of XDOC Products at least [***] inadvance.  

Upon receipt of any such notice and prior to the cessationof production (the date of such notice, "Notice Date") of such XDOC Products,(i) M-Systems may order at any time prior to the date production ceases ("EOLDate") for delivery no later than the EOL Date, any quantity of such XDOCProducts, subject to the terms of the Agreement, and (ii) M-Systems may orderuntil the EOL Date for delivery after the EOL Date but no more than [***] fromthe EOL Date up to but not more than twice the quantity of the applicable XDOCProducts that M-Systems ordered from Toshiba during the [***] prior to NoticeDate. 

Toshiba shall not sell any jointly developed XDOC Productsto any other customer after discontinuing sales of such XDOC Products toM-Systems, unless M-Systems has discontinued placing purchase orders for suchXDOC Products and has declined to purchase any remaining inventory after beinggiven at least [***] days notice of Toshiba`s intent to sell such inventory.

Notwithstanding any other provision to the contrary in thisAgreement but subject to Toshiba`s notification requirements in this Section 9of this Exhibit B-2, M-Systems will not be permitted to cancel orreschedule, in whole or in any part, any Purchase Orders for XDOC Productsscheduled to be delivered within [***] months from the date production ceases.

10.       Lead Time.  TheLead Time for any XDOC Products shall be [***] days.  Provided (i)that beginning from a time to be mutually agreed by the Parties and continuingthereafter, in addition to any initial Purchase Order that M-Systems issues toToshiba for XDOC Products, M‐Systems shall issue a subsequent PurchaseOrder to the applicable Toshiba overseas sales company (covering the same XDOCProducts as the initial Purchase Order but which identifies the final regionalallocation for such XDOC Products) and the Lead Time for such Purchase Ordershall be [***] days, and (ii) that in no event shall the Lead Time offered toM-Systems for an XDOC Product exceed the Lead Time offered by Toshiba and/orany of its Subsidiaries for such product to any third party.

11.       Order Adjustment Schedule.  M-Systemsshall be entitled to increase the quantity or reschedule the delivery of XDOCProducts ordered on a binding Purchase Order in accordance with the tablesbelow.  Provided that to the extent that there is any inconsistencybetween Section 4 above and this Section 11 of this ExhibitB-2, the terms of Section 4 shall prevail. 

Order Quantity IncreaseOrderRescheduled

 

**_41_** 

DaysAdjustmentDaysAdjustment

[***]                [***]                            [***]                [***]

*           "Days" means the number ofdays from receipt of written notification of the requested adjustment byM-Systems until the scheduled delivery date of the Products.

*           "Adjustment" means theallowable percentage of units ordered that may be either increased over theoriginal purchase order quantity or rescheduled for later delivery ([***]) fromthe original Purchase Order delivery date.

12.       Epidemic Failure Rates forXDOC Products shall be as follows:

*           Single root cause rate:  [***]%

*           Multiple cause rate: [***]%

13.       Preferred Carriers.  Tobe mutually agreed by the Parties. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**_42_** 

 

**EXHIBITB-3**

**ComboUnits**

1.         Thepurchase price for any Combo Units from Toshiba hereunder shall be calculatedaccording to the following cost: 

1.1       M-Systems` cost for theStandard NAND Products and XDOC Products manufactured by Toshiba shall bedetermined pursuant to the provisions of Exhibits B-1 and B-2, asapplicable, on the same basis as the other Standard NAND Products and XDOCProducts supplied by Toshiba under these arrangements; 

1.2       M-Systems` cost for memorydevices other than Standard NAND Products and XDOC Products (such as forexample, PSRAM) manufactured by Toshiba (collectively, "Memory Devices") shallbe [***].  [***].

1.3       M-Systems` cost for productspurchased by Toshiba from third parties shall be Toshiba`s actual purchaseprice plus any handling charge in the range of [***]% to [***]%, depending onthe volume to be mutually agreed by the Parties; and

1.4       If relevant, reasonablepackaging assembly and testing costs (that are reasonably competitive comparedto the industry`s packaging assembly and testing costs).

2.         Toshiba shall notifyM-Systems of any discontinuance of Combo Units at least [***] months inadvance.  

Upon receipt of any such notice and prior to the cessationof production (the date of such notice, "Notice Date") of such Combo Units, (i)M-Systems may order at any time prior to the date production ceases ("EOLDate") for delivery no later than the EOL Date, any quantity of such ComboUnits, subject to the terms of the Agreement, and (ii) M-Systems may orderuntil the EOL Date for delivery after the EOL Date but no more than [***] fromthe EOL Date up to but not more than twice the quantity of the applicable ComboUnits that M-Systems ordered from Toshiba during the [***] months prior toNotice Date. 

Toshiba shall not sell any jointly developed Combo Units toany other customer after discontinuing sales of such Combo Units to M-Systems,unless M-Systems has discontinued placing purchase orders for such Combo Unitsand has declined to purchase any remaining inventory after being given at least[***] days notice of Toshiba`s intent to sell such inventory.

 

**_43_** 

 

Notwithstanding any other provision to the contrary in thisAgreement but subject to Toshiba`s notification requirements in this Section 2of this Exhibit B-3, M-Systems will not be permitted to cancel orreschedule, in whole or in any part, any Purchase Orders for Combo Unitsscheduled to be delivered within [***] months from the date production ceases.

3.         [***].[***].

[***]. 

4.         Lead Time. The LeadTime for any Combo Unit shall be [***].

5.         Order Adjustment Schedule.  M-Systemsshall be entitled to increase the quantity or reschedule the delivery of ComboUnits ordered on a binding Purchase Order in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**_44_** 

accordance with the tables below.   

OrderQuantity IncreaseOrder Rescheduled

[***]                [***]                [***]                [***]    

*           "Days" means thenumber of days from receipt of written notification of the requested adjustmentby M-Systems until the scheduled delivery date of the Products.

*           "Adjustment"means the allowable percentage of units ordered that may be either increasedover the original purchase order quantity or rescheduled for later delivery ([***])from the original Purchase Order delivery date.

6.         Epidemic Failure Rates forCombo Units shall be as follows:

*           Single root cause rate: [***]%

*           Multiple cause rate: [***]%

7.         PreferredCarriers.  To be mutually agreed by the Parties. 

 

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