**CERTAININFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIESAND EXCHANGE COMMISSION.**

** **

**THE`[**]` SYMBOL INDICATES THAT INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILEDSEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2 AND THAT CONFIDENTIAL TREATMENTHAS BEEN REQUESTED WITH RESPECT TO SUCH OMITTED PORTIONS.**

* *

**___1___** 

 

 

DEVELOPMENT AND LICENSEAGREEMENT

 

ThisDevelopment and License Agreement ("Agreement") is entered into and iseffective as of June 19, 2002 (the "Effective Date"), by and between **ToshibaCorporation**, a Japanese corporation having its principal place of businessat 1-1 Shibaura 1-chome, Minato-ku, Tokyo 105-8001, Japan and its majorityowned subsidiaries ("Toshiba") and **M-Systems Flash Disk Pioneers Ltd.**,an Israeli corporation having its principal place of business at 7 Atir YedaSt., Kfar Saba, 44425, Israel, and its majority owned subsidiaries("M-Systems").

 

**RECITALS**

** **

WHEREAS,Toshiba is a leading designer and manufacturer of flash memory products; and

 

WHEREAS,M-Systems is a leading developer of flash disk controller and file systemtechnologies; and

 

WHEREAS,the parties have entered into (i) a Development and License Agreement (the"MDOC-64 D&L Agreement") dated June 5, 1998, defining the terms and conditionsfor a joint development and related license of the MDOC-64 (as defined in suchagreement), (ii) an additional Development and License Agreement (the "MDOC-256D&L Agreement") dated July 4, 2000 defining the terms and conditions for ajoint development and related license of the MDOC-256 (as defined in suchagreement), and (iii) an additional Development and License Agreement (the"MDOC-128 D&L Agreement") effective as of October 25, 2001, defining theterms and conditions for a joint development and related license of theMDOC-128 (as defined in such agreement) ; and

 

WHEREAS,M-Systems Inc. and Toshiba America Electronic Components, Inc. have enteredinto a Master Purchase Agreement dated August 10, 1998 (the "Master PurchaseAgreement"), which has been assigned to M-Systems Flash Disk Pioneers Ltd. andToshiba Corporation, respectively; and

 

WHEREAS,the parties further desire to combine their respective strengths to develop aproduct, referred to herein as MDOC-512, that combines Toshiba`s 512 Mbit binaryor MLC NAND flash design with M-Systems` flash file system and NAND Flash DiskController technologies in a

**___2___** 

 singleNAND flash chip that will be able to function as a linear Flash Disk; and

 

WHEREAS,the parties wish to add new exhibits to the Master Purchase Agreement and toinclude the MDOC-512 developed under this Agreement under the terms of suchMaster Purchase Agreement; and

 

WHEREAS,the cooperation under this Agreement is intended to provide both companies witha highly integrated and competitive product; and

 

WHEREAS,the parties further desire for Toshiba to manufacture the MDOC-512 Units andCombo Units (as hereinafter defined) for sale by M-Systems and Toshiba, and toundertake certain joint and independent marketing efforts to promote supportfor the MDOC-512 architecture. 

 

NOW, THEREFORE, in consideration of the foregoing premisesand the covenants and agreements set forth in this Agreement, the parties agreeas follows:

 

 

**AGREEMENT**

 

**1          DEFINITIONS**

1.1    "AffiliatedCompany" means a corporation or other entity: (a) of which Toshiba owns,directly or indirectly, more than 50% of the outstanding shares entitled tovote for the board of directors or other governing body, or, if there is nosuch outstanding shares, more than 50% of ownership interest representing theright to make decisions for such entities; (b) which owns, directly orindirectly, more than 50% of the outstanding shares entitled to vote for theboard of directors or other governing body of Toshiba; or (c) of which, morethan 50% of the outstanding shares entitled to vote for the board of directorsor other governing body, or, if there is no such outstanding shares, more than50% of ownership interest representing the right to make decisions for such entities,is owned, directly or indirectly, by a corporation or other entity described inclause (b) of this Section.

 

1.2    "Availabilityof Commercial Samples" means the first availability of MDOC-512 samples tocustomers where development is substantially complete and such samples areready for qualification testing of MDOC-512 for incorporation into otherproducts.

**___3___** 

 

 

"Combo Revenue" means the sum ofall payments invoiced by Toshiba and/or its Affiliated Companies (other thaninvoices issued to M-Systems) for Combo Units, provided that the calculatedamount per such Combo Unit shall be equal to the average selling price ofToshiba and/or its Affiliated Companies to its customers, in the applicableRoyalty Period, of the applicable MDOC-512 Unit contained in such Combo Unit, andprovided however that if Toshiba and/or its Affiliated Companies have not soldany such applicable MDOC-512 Unit, then the agreed invoiced amount per suchCombo Unit shall be the average price of MDOC-512 Units Toshiba has sold toM-Systems in the applicable Royalty Period.

 

In the case of a sale of Combo Unitsby Toshiba to an Affiliated Company which is then incorporated into anotherproduct with substantial additional value prior to being sold to a customer,the calculation of the "Combo Revenue" as set forth above will be based on aprice equal the greater of: (i) the average selling price charged by Toshiba tothe Affiliated Company, in the applicable Royalty Period, of the applicableMDOC-512 Unit contained in such Combo Unit, if any, or (ii) the average sellingprice paid to Toshiba for the applicable MDOC-512 Unit contained in such ComboUnit during the applicable Royalty Period by customers who are not AffiliatedCompanies, multiplied by the number of units sold to the Affiliated Company,provided however that if Toshiba and/or its Affiliated Companies have not soldany such applicable MDOC-512 Unit, then the agreed invoiced amount per suchCombo Unit shall be the average price of MDOC-512 Units Toshiba has sold toM-Systems in the applicable Royalty Period. 

 

1.4    "ComboUnit" means a multi chip package product which includes the MDOC-512 as one ofits components.  

 

1.5    "ConfidentialInformation" means: (a) the Specifications, the Deliverables, theMDOC-512`s, Toshiba Technology, the M-Systems Technology, the DevelopedTechnology and any trade secrets related to any of the foregoing; (b) anyinformation designated by the disclosing party as confidential in writing or,if disclosed orally, reduced to writing within thirty (30) days; (c) theterms and conditions of this Agreement, and (d) any third party intellectualproperty license agreements; provided, however that "ConfidentialInformation" shall not include information that: (i) is or becomesgenerally known or available by publication, commercial use or otherwisethrough no fault of the receiving party; (ii) can be shown by documentaryevidence to have been known and reduced to tangible form by the receiving partyat the time of disclosure and is not subject to restriction; (iii) can beshown by documentary evidence to have been independently developed or learnedby the receiving

**___4___** 

        party; (iv) can be shown by documentary evidence to have been lawfullyobtained from a third party who has the right to make such disclosure; or(v) is released for publication by the disclosing party in writing.

 

1.6    "Deliverable"means an item to be delivered by a party in order to achieve a Milestone andidentified as a deliverable in Exhibit C.

 

1.6A "DevelopedTechnology" means the results of the development works performed under thisAgreement, as described in Exhibit B.

 

1.7    "DevelopmentResponsibilities" means the respective responsibilities for development of theMDOC-512 described in Exhibit C.

 

1.8    "FiscalYear" means the period from January 1st to December 31st.

 

1.9    "Improvements"means with respect to patentable subject matter any improvement to such subjectmatter that would infringe one or more claims of the original patent, withrespect to copyrightable material any derivative work of such copyrightablematerial, with respect to trade secrets, any new design or implementation thatincorporates such trade secret; provided, however, that in no event will the M‐SystemsTechnology be considered an Improvement to the Toshiba Technology and in noevent will the Toshiba Technology be considered an Improvement to the M-SystemsTechnology.

 

1.10  "J&KMM"means Japanese and Korean mobile phone manufacturers which have bothheadquarters and mobile phone R&D facilities in Japan and/or Korea.  

 

1.11  "J&KMMRevenue" means the aggregate MDOC-512 Revenue and Combo Revenue invoiced byToshiba and/or its Affiliated Companies solely from J&KMM.

 

1.12  "MDOC-512Revenue" means the sum of all payments invoiced by Toshiba and/or itsAffiliated Companies (other than invoices issued to M-Systems) for MDOC-512Units. In the case of a sale of MDOC-512 Units by Toshiba to an AffiliatedCompany which is then incorporated into another product with substantialadditional value prior to being sold to a customer, the MDOC-512 Revenue willbe deemed to be the greater of: (i) the price invoiced by Toshiba to theAffiliated Company, or (ii) the average selling price paid to Toshiba for each MDOC-512Unit during the applicable Royalty Period by customers who are not 

**___5___** 

        AffiliatedCompanies, multiplied by the number of units sold to the Affiliated Company.  

 

1.13  "MDOC-512"means the 512 MBit Monolithic binary and/or Multi-Level-Cell ("MLC") DiskOnChipdie that combines Toshiba`s 512 Mbit binary or MLC NAND flash design withM-Systems` flash file system and NAND Flash Disk Controller technologies in asingle NAND flash die, as more fully described in Exhibit A hereto. 

 

1.14  "MDOC-512Unit" means any form of packaged MDOC-512, as more fully described in ExhibitA.

 

1.15  "Milestone"means completion of a phase of the development of the MDOC-512 identified as amilestone in Exhibit C.

 

1.16  "M-SystemsTechnology" means the DiskOnChip design and technology, including NFDC, andTrue Flash File System design and technology, as more fully described inExhibit B.

 

1.17  "[**]Revenue" means the aggregate MDOC-512 Revenue and Combo Revenue invoiced byToshiba and/or its Affiliated Companies solely from [**].

 

1.18  "NRE Costs"shall mean Toshiba`s out of pocket expenses relating to the masks, developmentlots and other hardware and equipment used for the development of the MDOC-512.    

 

1.19  "Royalty Period"means each fiscal quarter as follows: from January 1 to March 31, from April 1to June 30, from July 1 to September 30 and from October 1 to December 31.

 

1.20  "Schedule"means the development schedule set forth in Exhibit C.

 

1.21  "Specifications"means the specifications for the MDOC-512 attached hereto as Exhibit A.

 

1.22  Deleted.

 

1.23  "ToshibaMarket Share" means an amount equal to: (i) the aggregate number of  MDOC-512Units and Combo Units sold by Toshiba (except for sales to M-Systems, [**] andJ&KMM) during a Fiscal Year, divided by (ii) (a) the aggregate number ofMDOC-512 Units and Combo Units sold by Toshiba (other than to M-Systems), plus(b) the aggregate number of 

**___6___** 

        MDOC-512Units and Combo Units sold by M-Systems, minus (c) the aggregate number ofMDOC-512 Units and Combo Units sold by Toshiba and/or M-Systems to [**] /or toJ&KMM, combined over the same Fiscal Year, expressed as a percentage. Theparties shall discuss in good faith and may mutually agree in writing to furtherexclude certain other company or companies for purpose of calculating the ToshibaMarket Share as defined herein. 

 

1.24  "ToshibaTechnology" means the MDOC-512 design and maskwork, but not any M‐SystemsTechnology incorporated therein, and NAND flash technology as more fully describedin Exhibit B.

 

1.25  "WorldRevenue" means the aggregate MDOC-512 Revenue and Combo Revenue invoiced byToshiba and/or its Affiliated Companies to any third parties other thanJ&KMM or [**].

 

 

**2          DEVELOPMENT EFFORT**

** **

2.1       Development Responsibilities.Each of Toshiba and M-Systems will be responsible for their respectiveDevelopment Responsibilities, as outlined in Exhibit C. Each party willcomplete its Development Responsibilities and achieve its Milestones inaccordance with the Schedule.  For each day a party is late inachieving a Milestone, then in addition to any other remedies the other partymay have, the deadlines for the other party`s outstanding Milestones will beextended one day.  If for any reason the development does not proceedin accordance with the Schedule, either party may request a meeting to discussthe delay.  If such a meeting is requested, the parties shall meetand discuss in good faith mechanisms to expedite development and avoid furtherdelays, and will make necessary adjustments to the Schedule.  If aparty causes a delay in excess of one hundred twenty (120) days in achievingany Milestone, then the other party may terminate this Agreement pursuant toSection 11.  

 

2.2       Deliverables.  Whena party believes it has achieved a Milestone, it will deliver to the otherparty the corresponding Deliverable for evaluation and testing.  Ifthe other party identifies areas in which the Deliverable fails to conform withthe Specifications, it will provide written notice to the first partyspecifying with particularity such alleged non-conformities and the first partywill correct such non-conformities as soon as reasonably possible andre-deliver the corrected Deliverable for further evaluation and testing.  Thisprocess will be repeated until all non-conformities are corrected.  Aparty will be deemed to have achieved 

**___7___** 

          a Milestone only upon delivering a conforming Deliverable unless the otherparty accepts in writing a non-conforming Deliverable as having met theMilestone.

 

2.3       Progress Reports.  Each party will provide to the other written progress reports on a monthlybasis, and as requested by the other party, describing the status of eachMilestone for which the party supplying the report is responsible.  Eachreport shall indicate progress as follows:

 

(a)        Status of progress to currentscheduled Milestone;

 

(b)        Short description of anyproblems in meeting such Milestone, and proposed recovery method to correctsuch problems; 

 

(c)        Probability of meeting nextMilestone on Schedule; and

 

(d)        Any other informationpertaining to the development reasonably requested by the other party.

 

2.4Design Review. Inaddition to the design reviews specified in the Schedule, M-Systems is entitledto conduct periodic design reviews to ensure its satisfaction with thedevelopment effort.  Upon reasonable notice, Toshiba shall allowM-Systems, during Toshiba's normal business hours, to visit its places ofbusiness for development and manufacturing to discuss and inspect the status ofthe development of the MDOC-512.

 

2.5       Changesto the Specification. M-Systems is entitled to request modifications to theSpecifications at any time during the development of the MDOC-512.  Suchrequests shall be submitted by M-Systems to Toshiba in writing. If any suchmodification of the Specifications materially increases or decreases the costor time of performance of the development, the parties will negotiate anequitable adjustment to the Agreement.  Subject to Toshiba`s consentto such requested modifications, which shall not be unreasonably withheld, andupon receipt of M-Systems' written approval, Toshiba will proceed with the implementationof the prescribed changes, and the Specifications and other applicable Exhibitsto the Agreement shall be modified accordingly to reflect such agreed uponchanges.  In addition, Toshiba may at any time propose modificationsto the Specifications for the purpose of increasing performance or reducingcost of MDOC-512 during the development of MDOC-512.  Such changeswill be made only upon written agreement of

**___8___** 

            bothparties. The parties further understand that the Specifications can be modifiedupon the mutual agreement from time to time during the course of thedevelopment, if the development process requires such modification.

 

2.6* *Resource Commitment.  The partieswill commit appropriate resources for development, manufacturing and marketingof the MDOC-512 Units to meet their obligations under this Agreement.

 

**3          PAYMENTS**

** **

3.1       Development Payments by M-Systems. Each partyshall bear its own expenses in connection with completion of its DevelopmentResponsibilities. Notwithstanding the above, M-Systems will pay to Toshiba forthe development of the binary and MLC MDOC-512 a total amount of [**], suchamount to be paid in installments as set forth below, which shall be referredto as "M-Systems NRE Payments" (the parties acknowledge that the M-Systems NREPayments represent 50% of the estimated NRE Costs in connection with thedevelopment of the binary and MLC MDOC-512 hereunder). Each payment of theM-Systems NRE Payments shall be made by M-Systems within thirty (30) days of eachmilestone.  

 

 

 
| Milestone                                     | M-Systems NRE Payments for Binary MDOC-512

  | M-Systems NRE Payments for MLC MDOC-512

  |
|-----------------------------------------------|----------------------------------------------------|-------------------------------------------------|
| Execution of the Agreement

             | To be discussed                                    | [**]                                            |
| Sign off                                      | To be discussed

                             | [**]                                            |
| Shipment of the first customer sample

  | To be discussed                                    | [**]                                            |
| Start of the mass production                  | To be discussed                                    | [**]                                            |

 

Upon such time that Toshiba`s aggregate (i) MDOC-512 Revenueand the Combo Revenue 

**___9___** 

(to be calculated in accordance with the provisions of Sections1.12 and 1.3 above), plus (ii) any invoiced sales by Toshiba and its AffiliatedCompanies to M-Systems for the sale of MDOC-512 Units and Combo Units,calculated in accordance with the guidelines set forth in Sections 1.12 and 1.3above, reach US$100,000,000, Toshiba shall, within sixty (60) days from receiptof an invoice issued by M-Systems after such date, reimburse M-Systems for allaggregate M-Systems NRE Payments made by M-Systems in accordance with this Section3.1. M-Systems shall have a right to set off such M-Systems NRE Payments notrepaid to it by Toshiba as set forth above from any payments due from M-Systemsto Toshiba under the Master Purchase Agreement.

 

3.2       Royalty Payments by Toshiba. Toshiba willmake royalty payments to M-Systems in U.S. dollars in connection with the saleof MDOC-512 Units and Combo Units (except for sales to M-Systems) at the timesand royalty rates set forth in this Section 3.2.  The initial royaltypayment shall cover all of Toshiba`s MDOC-512 Revenue and the Combo Revenueduring the period beginning on the first commercial shipment of MDOC-512 Unitsor Combo Units and ending at the end of the Royalty Period immediatelypreceding Toshiba`s initial royalty payment. All royalty payments will be madewithin sixty (60) days following the close of each Royalty Period based on Toshiba`sMDOC-512 Revenue and the Combo Revenue within such Royalty Period. Each royaltypayment will be accompanied by a statement certified by Toshiba describing thenumber of units of MDOC-512 Units and Combo Units sold, the amount of MDOC-512Revenue and Combo Revenue, the allocation between World Revenue, J&KMMRevenue and [**] Revenue, the actual amounts received by Toshiba and/or itsAffiliated Companies in connection with MDOC-512 Revenue and/or Combo Revenue,a calculation of the amount of royalties, and the amount of royalties beingpaid. In the event that any MDOC-512 Revenue and/or Combo Revenue invoiced byToshiba and/or its Affiliated Companies is not received by such companieswithin 90 days from the payment date set forth in such invoice (such unpaidamount to be referred to as the "Unpaid Amount"), then the MDOC-512 Revenueand/or Combo Revenue for the next Royalty Period after such date shall bedecreased by the Unpaid Amount, provided that if the Unpaid Amount is receivedby Toshiba and/or its Affiliated Companies at any time thereafter, such UnpaidAmount shall be added to the MDOC-512 Revenue and/or Combo Revenue for theRoyalty Period during which such Unpaid Amount is received. MDOC-512 Revenueand Combo Revenue invoiced in currencies other than U.S. dollars will beconverted based on the exchange rate at the close of the last business day ofthe applicable Royalty Period in the foreign currency exchange market of Tokyo.  Eachroyalty statement will include a listing of each exchange rate used incalculating the 

**___10___** 

          royalty payment for the Royalty Period covered by such statement.Notwithstanding the above, Toshiba undertakes that any sale of MDOC-512 Unitsand/or Combo Units to an Affiliated Company shall be evidenced by an applicableinvoice of Toshiba. 

 

The royalty rate for each Fiscal Yearwill be equal to (a) [**] of the World Revenue, (b) [**] of the [**] Revenue, and(c) [**] of the J&KMM Revenue, provided that such royalty rate shall bereduced to [**] for J&KMM Revenue above [**], with no limitation for suchFiscal Year.**

 

Provided, however, that if M-Systemsprovides written notice to Toshiba that the Toshiba Market Share in any FiscalYear exceeded 50%, then the royalty rate due to M-Systems for all MDOC-512Units and Combo Units sold in such Fiscal Year in excess of the 50% marketshare will be [**] of the average price of MDOC-512 Revenue and Combo Revenue,during such Fiscal Year  (the "Additional Royalties"). Such noticewill be accompanied by a certified statement from M-Systems stating the numberof MDOC-512 Units and Combo Units sold by M-Systems during such Fiscal Year,the number of MDOC-512 Units and Combo Units sold by Toshiba in excess of a 50%Toshiba Market  Share, and the amount of excess royalties owed to M-Systems.The actual payment to M-Systems of any aggregate Additional Royalties, if due,shall be made by Toshiba to M-Systems within thirty (30) days from M-Systems`invoice date. In the event of a dispute as to the outcome of the calculation ofthe Toshiba Market Share under this paragraph, the parties agree to cooperatein good faith and use best efforts to agree on the outcome of the calculationof the Toshiba Market Share.    

 

The purpose of this Section 3.2 is toencourage both parties to market MDOC-512 actively, to establish the healthybusiness model, and to expand the market share together.  If Toshibahas a good reason to believe that M-Systems has not actively marketed MDOC-512to its customers Toshiba is entitled to discuss in good faith with M-Systems onthe applicability of the calculation of the Additional Royalties set forth inthe paragraph above (for the avoidance of doubt, the royalty rates set forth inthe first two paragraph of this Section 3.2 shall not be subject to anyadjustment). 

 

3.3       Records and Audit.  Toshibaand M-Systems shall keep and maintain appropriate books and records necessaryfor verification that the applicable royalties have been paid.  Forfour (4) Fiscal Years after the end of each Fiscal Year, each of M-Systems andToshiba shall be entitled, not more than once annually to retain independentauditors at its own expense, to 

**___11___** 

          review the other party`s books and records for the purpose of verifying theaccuracy of the statements provided and amounts invoiced and paid pursuant tothis Section 3. Any underpayment or overpayment by a party determined as aresult of the audit will be reflected in the following Royalty Period`sstatement and payment.  If such audit verifies an underpayment errorof greater than seven and a half percent (7.5%) of the aggregate royalties paidfor the period being reviewed, the party subject to the review shall reimbursethe reviewing party for the cost of such audit. If the audit verifies anoverpayment error that exceeds the cost of the audit, the reviewing party shallreimburse the reviewed party for the amount of the error after deducting thecost of the audit. Each party shall pay all amounts when due, and any amountsnot paid when due (including any amounts found to be due as a result of anaudit) shall accrue interest at the annual rate of two percentage points higherthan the prime interest rate quoted by the head office of Citibank, N.A., NewYork, at the close of banking on such due date or on the first business daythereafter if such date falls on a non-business day, or the highest rateallowed by law, if lower, from the date when the payment should have been paidand ending when paid.

 

3.4 *           *Payment Account.  All paymentsunder this agreement from a party to the other party hereto shall be made by  telegraphictransfer to the following bank accounts;

 

 
| Payment  to Toshiba:                               | Payment  to M-Systems:                    |
|----------------------------------------------------|-------------------------------------------|
|                                               |                                      |
| Toshiba Corporation                                | M-Systems Flash Disk Pioneers Ltd.        |
| Sumitomo-Mitsui Banking Corporation                | Bank Hapoalim                             |
| Head Office                                        | Hadar-Yosef  branch (#610)      |
| Account No:    5187873         | Account No:    389300 |
| 1-1-2, Yurakucho, Chiyoda-ku                       | 27 Pinchas Rosen St.            |
| Tokyo, 100 Japan                                   | Tel Aviv, Israel                          |
| Telephone:     +81-3-3501-1111 |                                      |

 

3.5       Tax.  All amounts paid to M-Systemsunder this Agreement which are subject to tax withholding shall be net of ten(10) percent withholding which will be paid by Toshiba to the Japanese taxauthorities on behalf of M-Systems. Toshiba shall make all filings necessary towithhold taxes at such rate and shall provide M-Systems with the evidence thatsuch amounts have been withheld. 

**___12___** 

 

**4          OWNERSHIP, LICENSES AND SUPPORT**

 

4.1       Ownership and License to Improvements.  Toshibaowns the Toshiba Technology and all intellectual property rights incorporatedtherein, without derogating from M-Systems` ownershipof the M-Systems Technology and M-Systems` license rights as set forth inSection 4.2 below.  M-Systems owns the M-Systems Technologyand all intellectual property rights incorporated therein, without derogating from Toshiba`s ownership of the ToshibaTechnology and Toshiba`s license rights as set forth in Sections 4.3 and 4.4below.  The Developed Technology shall be jointly owned byM-Systems and Toshiba, and each party has the right to use, reproduce and otherwisedispose of such Developed Technology for any purpose, provided that the rightof Toshiba or M-Systems to grant license to any third party and have anyproducts manufactured by any third party using such Developed Technology shallbe subject to the conditions set forth in Sections 4.2, 4.3 and 4.4 below. Tothe extent employees or contractors of M-Systems develop any Improvements tothe Toshiba Technology in the course of development of the MDOC-512, M-Systemshereby grants to Toshiba a non-exclusive, irrevocable, perpetual, worldwide,paid-up license to make, have made, use, sell, offer for sale, import, copy anddistribute such Improvements including the right to sublicense any or all ofthese rights through multiple tiers. To the extent employees or contractors ofToshiba develop any Improvements to the M-Systems Technology in the course ofdevelopment of the MDOC-512, Toshiba hereby grants to M-Systems anon-exclusive, irrevocable, perpetual, worldwide, paid-up license to make, havemade, use, sell, offer for sale, import, copy and distribute such Improvementsincluding the right to sublicense any or all of these rights through multipletiers.

 

4.2       Rights and License Grant to M-Systems.  Toshibahereby grants to M-Systems an irrevocable, perpetual, worldwide, unlimited andunconditional (except for the condition set forth in the continuation of thissentence), paid-up license to make, have made, use, sell, offer for sale,import, copy and distribute the MDOC-512`s and products incorporating MDOC-512design and maskworks (including without limitation all related documentation,schematics, codes and all other relevant information), including the right tosublicense any or all of these rights through multiple tiers, subject only toM-Systems complying with its payment obligations with respect to the M-SystemsNRE Payments under Section 3.1 of this Agreement; provided that such licenseexpressly excludes Toshiba Technology including Toshiba NAND flash technology,as identified in Exhibit B, design or maskworks incorporated in the MDOC-512and further excludes the right to disclose or license the Developed Technologyto any third party.  In the event M-Systems desires to have a secondsource of MDOC-512 and have the second source use the Developed Technology,M-Systems and Toshiba shall upon a written request from M-Systems discuss ingood faith and agree upon the terms and conditions for the license of the DevelopedTechnology to any third party as such second source, including the grant ofsuch license by Toshiba to such third party and/or the extent of DevelopedTechnology to be disclosed by M-Systems to such third party.  

**___13___** 

In the event M-Systems disagrees withToshiba`s designation of any maskworks or designs as constituting Toshiba NANDflash technology, design or maskworks, M-Systems will send a written notice toToshiba describing the disputed technology, maskworks or designs.  

 

4.3       Rights and License Grant toToshiba: Production for M-Systems. M-Systems hereby grants to Toshiba anon-exclusive, worldwide, paid-up license under M‐Systems` intellectualproperty rights in the M-Systems Technology as and to the extent needed todevelop, make and have made the MDOC-512 Units and Combo Units for sale toM-Systems.

 

4.4       Rights and License Grant toToshiba: Production for Third Parties.  M-Systems hereby grantsto Toshiba a further non-exclusive, worldwide, royalty-bearing license underM-Systems` intellectual property rights in the M-Systems Technology as and tothe extent needed to make, have made, sell, offer for sale, import, copy, anddistribute the MDOC-512 Units and Combo Units to third parties either: (a)under a Toshiba trademark and/or tradename, and/or (b) for incorporation byToshiba`s customer into another product bearing such customer`s trademarkand/or tradename which adds substantial additional value. Toshiba shall nothave the right to sublicense any of these rights except in connection with thedistribution of MDOC-512 Units and Combo Units as specified in the precedingsentence.  The foregoing licenses under Section 4.3 above and thisSection 4.4 shall be subject to Toshiba complying with its payment obligationsunder Sections 3.2 and 4.6; no other fees or royalties will be payable inconnection therewith. 

 

4.5       M-Systems` Support.  Toensure that Toshiba`s rights granted under Section 4.4 is properly done,M-Systems agrees to the followings:

 

(a)        M-Systems will inform Toshibaof any upgrade or enhancement to the TrueFFS immediately after such upgrade orenhancement has been made available to its customers and without delay provideToshiba with tools for system functionality test; 

(b)       M-Systems will provide TrueFFSand necessary technical support to any and all Toshiba`s customers as requestedwith no discrimination, such technical support to be in consideration forAdditional Support Fees, as set forth in Section 4.6(b) below; and

 

 

 

 

**___14___** 

 

(c)        In the event that a customer ofToshiba shall return a malfunctioning MDOC-512 Unit or Combo Unit to Toshibawithin the earlier of (i) the warranty period provided to such customer by Toshiba,or (ii) 2 years after the date such unit has been sold to such customer, andthe parties agree that such unit is malfunctioning due to an error relating tothe design of the M-Systems Technology integrated in the malfunctioning unit,M-Systems shall, at its sole expense, use best reasonable efforts to cure sucherror and to amend such design as may be necessary so that such design shallcomply with the specification thereof, and, in the event that Toshiba shallhave to refund such customer the purchase price per such defected MDOC-512 Unitor Combo Unit, Toshiba shall be entitled to set-off from the next royaltypayment the payments already made to M-Systems in connection with such sale. 

 

4.6       Support Fees.

(a)        M-Systemswill provide Toshiba the following training and support in connection with theM-Systems Technology: (i) up to three (3) training sessions each of whichtotaling no more than three (3) days for Toshiba development and fieldengineers; (ii) providing Toshiba with source code and program flow chart ofIPL (Initial Program Loader); (iii) guidance and necessary information toproduce customer support documentation, such as MDOC-512 system specification,user guide, and application notes; and (iv) providing consulting support forToshiba engineers to resolve Toshiba MDOC-512 Units and Combo Units customerproblems. Support will be provided via e-mail and telephone from 9 AM to 5 PM(either Pacific Standard Time or Israel time). 

Inconsideration for the training and support to be provided by M-Systems toToshiba under this Section 4.6(a), Toshiba shall pay M-Systems, per each fiscalquarter, support fees (collectively, the "Support Fees") equal to the sum of(a) [**] of the World Revenue up to an aggregate World Revenue of [**] perFiscal Year (and [**] thereafter per each Fiscal Year), plus (b) [**] of [**]Revenue up to an aggregate [**] Revenue of $US[**] per Fiscal Year (and [**]thereafter per each Fiscal Year), plus (c) [**] of the J&KMM Revenue forall J&KMM Revenue up to [**] per Fiscal Year and [**] for any J&KMMRevenue above $[**] and up to [**] for such Fiscal Year 

**___15___** 

(and[**] thereafter per each Fiscal Year).  All Support Fees will be madewithin sixty (60) days following the close of each fiscal quarter based onToshiba`s applicable revenue for such fiscal quarter.   

 (b)       In theevent that Toshiba wishes to receive from M-Systems (i) additional support notdetailed in Section 4.6(a) above, or (ii) support set forth in Section 4.5(b)above, or (iii) subject to availability of M-Systems` engineers, on-sitesupport, the parties will negotiate additional appropriate support fees (on topof the Support Fees set forth in Section 4.6(a) above) for such additionalsupport (collectively, the "Additional Support Fees").  Toshiba willpay any travel, lodging, and other related pre-approved costs incurred byM-Systems in the event Toshiba requests on-site support or any training (exceptin connection with the training activities set forth in Section 4.6(a)(i)above) to take place at any location other than an M-Systems facility.M-Systems further agree to provide Toshiba`s customers with development supportservices relating to M-Systems Technology incorporated in MDOC-512 Units andCombo Units, provided however that the scope of such service and the additionalcompensation payable to M-Systems shall be mutually agreed between the parties.All Additional Support Fees and other payments under this Section 4.6(b) shallbe paid by Toshiba within sixty (60) days from M-Systems` invoice.  

(c)        In addition,in the event that Toshiba sells the MDOC-512 Units and Combo Units to [**],M-Systems shall undertake to provide full technical support to [**] on termsagreed upon by and between M-Systems and Toshiba, provided that Toshiba shallcompensate M-Systems for the Direct Costs (as defined below) of suchtech-support.  The "Direct Costs" shall include any out of pocketexpenses incurred by M-Systems at Toshiba`s request and travel expenses ofM-Systems` employees or consultants for trips taken per Toshiba`s request(including [**] per employee or consultant per each day of travel).  Allpayments under this Section 4.6(c) shall be paid by Toshiba within sixty (60)days from M-Systems` invoice.

 

4.7       Assistance. Each party will providereasonable assistance, including providing and executing any additionaldocumentation, necessary to enable the other party to exercise the rightsgranted to it under this Agreement and to record and protect its rights in andto its intellectual property. 

 

 

**___16___** 

4.8       Assistance in Failure Analysis; QualityAssurance.  The parties agree that if the MDOC-512 will bedefective in any manner (whether at Toshiba`s  or M-Systems` fault orrespective technologies) they shall both cooperate in any analysis that may berequired in connection with such failure.      Both parties will help eachother and cooperate with all quality assurance (QA) issues related to thedevelopment of the MDOC-512 under this Agreement.  The parties willmaintain a QA team in compliance with the requirements of ISO 9000 or alternativelyQS-9000, and will implement the best manufacturing and testing practices toinsure a very high level of workmanship.  All product relatedactivities shall be based on common well known industry standards and will bedocumented according to each party`s working processes.  

 

4.9       No Implied Licenses.  Except forthe rights expressly granted under this Agreement, no other rights, includingbut not limited to trade secrets, patents, mask work rights, copyrights,trademarks, Confidential Information or other intellectual property rights aregranted by this Agreement.  Toshiba expressly acknowledges and agreesthat it will not use, manufacture, sublicense or otherwise dispose of theM-Systems Technology, MDOC-512 design and maskworks except as expresslyprovided in Sections 4.3 and 4.4 of this Agreement.

 

4.10     Documentation and Updates.  Eachparty will provide to the other end user documentation and documentationnecessary to provide customer support for the MDOC-512 Units and updates tosuch documentation as they becomes available.

 

 

**5          MARKETINGACTIVITIES**

** **

5.1       M-Systems will continue to seek support for MDOC inleading operating systems, including but not limited to Windows CE, Windows NT,and VxWorks.

 

5.2       M-Systems will continueits efforts to obtain continued design-in of DOC sockets in motherboards andother applications.

 

5.3       Toshiba will participate asa strategic partner in M-Systems` marketing activities for MDOC-512Units and Combo Units and provide ongoing support for such activities as reasonablyrequested by M-Systems.

 

5.4       Toshiba will be entitled to include links toM-Systems` home page on Toshiba`s web site pages describing Toshiba`s flashmemory products after providing written notice to M-Systems. Toshiba will referto M-Systems in appropriate collateral and marketing materials regarding flashmemory products.

 

**___17___** 

**6          PRESS RELEASE**

 

6.1       Promptly upon M-Systems` request, Toshiba andM-Systems will issue a press release announcing the parties` agreement tocooperate in the area of flash data storage and Toshiba`s intent to become asecond source for DiskOnChip products.  

 

6.2       M-Systems will announce, with Toshiba`sparticipation if requested by M-Systems, the availability of MDOC-512 Units andCombo Units, and the parties` collaboration in developing and marketing theMDOC-512 Units and Combo Units.  

 

6.3       The press releases described in this Section 6 willnot be deemed to violate Section 8.

** **

**7          Warranties**

 

7.1       Toshiba Warranties.  Toshibawarrants that: (i) it has the right and authority to enter into thisAgreement; and (ii) to the best of its knowledge, Toshiba can complete itsDevelopment Responsibilities and deliver the Toshiba Deliverables withoutinfringing any copyright, trade secret, or mask work right of any third party.

 

7.2       M-Systems Warranties.  M-Systemswarrants that: (i) it has the right and authority to enter into thisAgreement; and (ii) to the best of its knowledge, M-Systems can complete itsDevelopment Responsibilities and deliver the M-Systems Deliverables withoutinfringing any copyright, trade secret, or mask work right of any third party.

 

 

**8****Confidentiality**

 

8.1       For eight (8)years from the date of receipt of the Confidential Information from the otherparty: (i) each party shall protect the confidence of the other's ConfidentialInformation and prevent its unauthorized dissemination and use using the samedegree of care that such         partyuses to protect its own like information; (ii) neither party shall use theother's

**___18___** 

Confidential Informationfor purposes other than those necessary to directly further the purposes ofthis Agreement; and (iii) neither party shall disclose to third parties theother's Confidential Information without prior written consent of the otherparty; provided that the foregoing confidentiality obligation shall not applyto any information which (i) is already known to the receiving party at thetime of its receipt from the disclosing party, as can be evidenced by writtenrecords; (ii) is or becomes publicly available without breach of this Agreementby the receiving party; (iii) is made available to a third party by the disclosingparty without restriction on disclosure; (iv) is rightfully received by the receivingparty from a third party without restriction and without breach of this Agreementor any agreement of such third party with a party hereof; (v) is independentlydeveloped by the receiving party; or (vi) is required to be disclosed by theorder of a governmental agency or legislative body or a court of competentjurisdiction, provided that prior to making any such disclosure the partysubject to such order shall use best efforts to coordinate such disclosure withthe other party to this Agreement.

 

8.2       Notwithstanding Section 8.1,M-Systems and Toshiba  may disclose to potential customers,distributors, and other interested third parties, under appropriatenon-disclosure agreements, information regarding MDOC-512 and M-Systems` andToshiba`s role in developing and selling MDOC-512 Units and Combo Units, priorto a general public announcement of MDOC-512 Units and Combo Units; provided,however, that M-Systems may not disclose Toshiba Confidential Informationregarding Toshiba Technology and Toshiba may not disclose M-Systems`Confidential Information regarding M-Systems Technology without the otherparty`s prior written consent, which consent shall not be unreasonablywithheld. 

 

**9          Notices**

 

9.1       Toshiba will cause the top levelmetal mask work layer of the MDOC-512`s to bear a mask work and copyrightnotice as follows: 

 

"(M) © Toshiba Corporation/M-Systems Flash 

Disk Pioneers, Ltd., 200X.  All Rights Reserved"

 

or such other notice thathas been approved in writing by M-Systems.

9.2       Toshiba willinclude on the outside packaging of MDOC-512 Units and Combo Units the name"M-Systems" and, on units sold to M-Systems, the part number specified byM-Systems, and other identification as approved by M-Systems.

 

**___19___** 

**10        Term**

 

ThisAgreement will commence on the Effective Date and will continue for eight (8)years thereafter unless terminated as provided in this Agreement.  Toshibashall have an option to extend the term of this Agreement for one (1)additional year by providing written notice to M-Systems prior to the end ofthe initial term of this Agreement.  In the event demand still existsfor MDOC-512 Units and Combo Units beyond this nine (9) year period, theparties will discuss in good faith further extensions of the Agreement.

 

 

**11        Termination**

 

11.1     Termination for Convenience.  M-Systemsmay terminate this Agreement for its convenience at any time prior toM-Systems' final acceptance of the Deliverables, for any reason or for noreason by giving Toshiba written notice of termination.  Terminationwill become effective upon receipt of such notice by Toshiba.

 

11.2     Terminationfor Cause By Either Party.  Either party will have the right toterminate this Agreement, immediately upon written notice at any time if:

 

(a)        The other party is in materialbreach of any warranty, term, condition or covenant of this Agreement otherthan a breach covered by Section 11.2(b), and fails to cure that breach withinthirty (30) days after written notice of that breach and of the first party'sintention to terminate;

 

(b)        The other party has caused morethan one hundred twenty (120) days delay in achieving any Milestone ordelivering a Deliverable as provided in Section 2.1;    

 

(c)        The other party: (i)admits in writing its insolvency or inability to pay its debts or perform itsobligations as they mature, or (ii) makes an assignment for the benefit ofcreditors; or

 

(d)        The Master Purchase Agreement (insofar asit relates to the MDOC-512 Units and Combo Units) is terminated by such party forcause.

 

 

**___20___** 

11.3     Effect of Termination. 

 

(a)        Upon any termination of thisAgreement by M-Systems under any of the subsections of Section 11.2, (i)Toshiba shall immediately deliver to M-Systems all work in process on theDeliverable, (ii) the payment obligations by M-Systems shall expire and be ofno further force and effect, and (iii) any license granted by a party to the othershall terminate and be of no force and effect. Provided however, that any andall payment obligations incurred by Toshiba in connection with the sale ofMDOC-512 Units and/or Combo Units prior to the termination date shall survivethe termination of this Agreement and that Toshiba shall be required to makesuch payments as they become due.   

 

(b)        If the Agreement is terminatedby Toshiba under Sections 11.2(a), 11.2(c) or 11.2(d), (i) M-Systems shallimmediately  deliver to Toshiba all work in process on theDeliverables, and (ii) the licenses granted by M-Systems to Toshiba under thisAgreement shall continue to be in full force and effect, subject to thecontinuance payments of the royalties to M-Systems for each Royalty Periodafter the termination date, all as set forth in Section 3 of this Agreement.For the avoidance of doubt, (i) the license granted to Toshiba under thisSection 11.3(b) shall be limited to the manufacture of the MDOC-512 Units andCombo Units under this Agreement only, and Toshiba shall not be entitled to usethe M-Systems Technology and/or any other intellectual property rights ofM-Systems for any other purpose whatsoever, and (ii) in the event of thetermination of this Agreement by Toshiba under this Section 11.3(b), Toshiba shallnot be required to pay the Support Fees set forth in Section 4.6 hereof.  

**___21___** 

(c)        If this Agreement isterminated (i) by Toshiba prior to acceptance of the final Deliverables underSection 11.2(b) above, or (ii) by M-Systems prior to acceptance of the finalDeliverables under Section 11.1 above M-Systems will pay Toshiba the lesser of(a) the actual mask costs, development lot costs, and other hardware costsincurred by Toshiba as of the date of termination in developing prototypes andsamples of the MDOC-512 in connection with the development effort (as evidencedto M-Systems` reasonable satisfaction) less the M-Systems NREPaymentsmade by M-Systems as of the date of termination hereunder, or (b) the double ofthe remaining M-Systems NREPayments hereunder atthe termination in addition to the M-Systems NREPaymentsreceived by Toshiba as of the date of termination hereunder.  Ifpayments already made by M-Systems as of the date of termination exceed theactual mask costs, development lot costs and other hardware costs (as definedin 1.18) incurred by Toshiba as of the date of termination, then Toshiba willreimburse M-Systems for the payments received in excess of such costs.  Inthe event M-Systems makes the payment required by this Section 11.3(c), M-Systemswill not be required to make the remaining M-Systems NREPaymentsunder Section 3.1.  If M-Systems terminates this Agreement for causeprior to the final acceptance of the Deliverables, declines to accept deliveryof any complete or partially completed Deliverables and returns to Toshiba anypreviously accepted Deliverables, Toshiba shall immediately refund to M-Systemsall payments previously received by Toshiba from M-Systems hereunder. ThisSection 11.3(c) states the entire monetary obligation of either M-Systems orToshiba in connection with any termination of this Agreement by M-Systemspursuant to Section 11.1 above and/or the termination of this Agreement byToshiba pursuant to Section 11.2(b) above. 

 

 

 

 

**___22___** 

(d)        Upon any termination of thisAgreement, for any reason, each party will return all Confidential Informationof the other party, except for Confidential Information which it may beentitled to retain by virtue of licenses that survive termination of thisAgreement, if such licenses survive the termination in accordance with theabove.  Each party will be released from all obligations andliabilities to the other occurring or arising after the date of suchtermination other than as set forth above. Notwithstanding any of the above,the provisions of Sections 1, 3.2, 3.3, 3.4, 4.1, 4.7, 7, 8, 11, 12, 13, 14,15 and 16 and any liability arising from any breach of this Agreement willsurvive termination of this Agreement.  Neither party will be liableto the other for damages of any sort solely as a result of terminating thisAgreement in accordance with its terms other than as set forth in thisAgreement.  Subject to the provisions of Section 13, termination ofthis Agreement will be without prejudice to any other right or remedy of eitherparty. All licenses granted hereunder shall not survive the termination of thisAgreement unless expressly set forth otherwise.   

 

###  11A     TOSHIBA`S FAVORABLE TERMS

###   

(a)        M-Systems acknowledges that during the term of thisAgreement it shall not license to any third party, for  [**], theM-Systems Technology licensed hereunder for the purpose of designing and/ormanufacturing an MDOC-512 equivalent together with third party`s NANDtechnology.

 

(b)        Without derogating from the above, M-Systems shall grantToshiba a priority to manufacture for M-Systems MDOC-512 Units for similarterms (including prices, lead time, capacity commitments, etc.) relative to theterms offered by such third party.  

 

(c)        In addition, the parties agree that in the event thatM-Systems shall desire to develop new NAND based monolithic DiskOnChipproduct(s) together with any third party, it shall first approach Toshiba withan offer to develop such product(s) and try to get to an understanding andreach an agreement with Toshiba, if applicable, with respect to the developmentof such new product(s).

 

**___23___** 

**12        Rightto Develop Independently**

 

Nothingin this Agreement will impair either party`s right to acquire, license,develop, manufacture or distribute for itself, or have others develop,manufacture or distribute for it, similar technology performing the same orsimilar functions as the technology contemplated by this Agreement, or tomarket and distribute such similar technology in addition to, or in lieu of,the MDOC-512, provided that in doing so the party does not violate the confidentialityor license provisions of this Agreement or infringe the other party`sintellectual property rights.

 

 

**13        DISCLAIMER OF CONSEQUENTIAL DAMAGES**

 

EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, IN NO EVENTSHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY OTHER PERSON FOR ANY SPECIAL,INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDINGBUT NOT LIMITED TO, LOSS OF PROFITS OR DAMAGES TO THE OTHER PARTY`S BUSINESSREPUTATION HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER IN AN ACTIONFOR CONTRACT, STRICT LIABILITY OR TORT (INCLUDING NEGLIGENCE) OR OTHERWISE,WHETHER OR NOT THE FIRST PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCHDAMAGE AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.

 

###  14        INTELLECTUAL PROPERTY MUTUAL INDEMNIFICATION

 

Each of the parties hereto (in this Section, the"Indemnifying Party") agrees to defend, at its  expense, any actionbrought against the other party (in this Section, the "Indemnified Party")based upon a claim that the intellectual property rights of the IndemnifyingParty, as they relate to the MDOC-512, infringe any copyright, trademark ortrade secret of any third party, provided that (i) the Indemnified Partypromptly notifies the Indemnifying Party in writing of any such action orproceeding that has been brought or which is threatened, and (ii) theIndemnified Party cooperates fully in the defense or settlement of any suchaction. Subject to the limitations above, the Indemnifying Party agrees toindemnify the Indemnified Party against costs, expenses and damages finallyawarded in an action described above, provided that the Indemnified Partygrants the Indemnifying Party sole control of the defense of any such actionand all related negotiations for settlement. Notwithstanding the above, in noevent shall a liability of a party under this Agreement exceed the aggregateamounts actually received by such party under this Agreement. 

 

**___24___** 

**15        COMPLIANCE WITH LAWS**

 

Each party will comply with all applicable laws andregulations governing their activities under this Agreement, including but notlimited to the export control laws and regulations of the United States andJapan.  In addition, the parties agree that no technology furnishedto the other will be used for any purpose to develop and/or manufacturenuclear, chemical, or biological weapons and/or missiles (hereinafter "Weaponsof Mass Destruction").  Each party further agrees that it will notsell semiconductor products using technology received from the other partyhereunder, to any party if it knows that the end-user of such products will usethem for the development and/or manufacture of Weapons of Mass Destruction.  Eachparty will defend, indemnify, and hold the other party harmless for any loss,cost, or expense resulting as a direct result of the first party's violation ofany law, rule, or ordinance of any country, state, or any other governmentalagency in the performance of this Agreement.  

 

 

**16        GENERAL**

** **

16.1     Force Majeure.  Neitherparty shall be liable for any failure or delay in its performance under thisAgreement due to causes, including, but not limited to, acts of God, acts ofcivil or military authority, fires, epidemics, floods, earthquakes, riots,wars, sabotage, labor shortages or disputes, and governmental actions, whichare beyond its reasonable control; provided that the delayed party:(i) gives the other party written notice of such cause promptly, and inany event within fifteen (15) days of discovery thereof; and (ii) uses itsreasonable efforts to correct such failure or delay in its performance.  Thedelayed party's time for performance or cure under this Section 16.1 shallbe extended for a period equal to the duration of the cause or sixty (60) days,whichever is less.

 

16.2     Relationship of Parties.  Theparties to this Agreement are independent contracting parties and thisAgreement does not create a partnership, joint venture, agency or otherwiseauthorize one party to represent, act on behalf of, or obligate the otherparty.

 

16.3     Deleted. 

 

16.4     No Value Added, Sales or UseTax.  The purpose of development of the Deliverables under thisAgreement is to demonstrate that the MDOC-512 developed hereunder will conformto the Specifications.  The Deliverables have no intrinsic value asan item.  As such, no value added, sales, or use taxes have beenassessed or are anticipated to be required as a result of the servicesperformed under this Agreement.  To the extent any such taxes areultimately assessed to Toshiba as a retailer, M-Systems shall haveresponsibility to discharge the claim with the assistance of Toshiba.

**___25___** 

16.5     Assignment.  Therights and liabilities of the parties hereto will bind and inure to the benefitof their respective successors, executors and administrators, as the case maybe; provided that neither party may assign or delegate its obligations underthis Agreement either in whole or in part, without the prior written consent ofthe other party, except in the event of a merger or acquisition of all orsubstantially all of a party`s assets.  Any attempted assignment inviolation of the provisions of this Section 16.5 will be void.

 

16.6     Equitable Relief.  Becausethe parties will have access to and become acquainted with ConfidentialInformation of the other party, the unauthorized use or disclosure of whichwould cause irreparable harm and significant injury which would be difficult toascertain and which would not be compensable by damages alone, each partyagrees that the other party will have the right to enforce the confidentialityprovisions of this Agreement by injunction, specific performance or otherequitable relief without prejudice to any other rights and remedies that theparties may have for breach of this Agreement.

 

16.7     ApplicableLaw;.  This Agreement will begoverned by and construed in accordance with the laws of the United States andthe State of California as applied to agreements entered into and to beperformed entirely within California between California residents.

 

16.8     Dispute Resolution.  Theparties shall attempt to resolve any disputes by discussions betweenappropriate management representatives of each party.  In the eventthe parties are unable to resolve disputes through such mechanism, except asprovided below, any claim, dispute or controversy arising out of or inconnection with or relating to this Agreement shall be submitted by the partiesto arbitration by the American Arbitration Association under the commercialarbitration rules then in effect for that association except as providedherein.  The proceedings will be held in California.  Theparties shall choose, by mutual agreement, one arbitrator within thirty (30)days of receipt of notice of the intent to arbitrate.  If noarbitrator is appointed within such thirty (30) day period or any extension oftime which is mutually agreed upon, the AAA shall make such appointment withinthirty (30) days after the time for a mutually agreed appointment has expired.  Allproceedings shall be held in English.  The arbitrator will determine,in consultation with the parties, a schedule for preparation and hearing topermit an orderly and expeditious resolution of the matter. Within thirty (30)days of the selection of the arbitrator, each party will provide to the otherand to the arbitrator, copies of documents and a list of witnesses, with asummary of their expected testimony, that the party intends to rely on at thehearing.  The parties will provide additional documents and updatethat list as they become aware of additional documents and witnesses that theyintend to rely on at the hearing.  A party will not be permitted tointroduce at the hearing a document or witness that has not been identified byone of the parties at least seven (7) days before commencement of the hearing,unless leave

**___26___** 

of the arbitrator is obtained for goodcause shown.  The parties will be entitled to request, by category,relevant documents in the possession of the other party.  Requestedrelevant documents may be provided in the language in which they wereoriginally prepared.  The arbitrator will issue a written decisioncontaining findings of fact and conclusions of law within thirty (30) days ofthe close of the hearing.  The failure of the arbitrator`s decisionto be in accordance with applicable law will be grounds for appeal.  Exceptas provided herein and by applicable law, the award rendered by the arbitratorshall be final.  The award shall include costs of arbitration.  Judgmenton such award may be entered in any court having jurisdiction thereof.  Unlessordered otherwise by the arbitrator, each party shall bear its own costs ofappearance, presentation, and participation in the arbitration process,including but not limited to fees of attorneys and expert witnesses. Nothing inthis Agreement shall be deemed as preventing either party from instituting,prosecuting or defending an action in a court of competent jurisdiction in aclaim: (i) seeking injunctive relief (or any other provisional remedy), (ii)involving the infringement of the intellectual property rights of either party,or (iii) for breach of the provisions of this Agreement which relate to thegrant of license of intellectual property rights or to confidentiality.  Anylitigation between the parties relating to this Agreement shall take place inthe Northern District of California.  The parties consent to thepersonal jurisdiction of and venue in the state and federal courts within thatDistrict.

 

16.9     Severability.  Iffor any reason a court of competent jurisdiction or the arbitrator referred toin the preceding subsection finds any provision of this Agreement, or portionthereof, to be unenforceable, that provision of the Agreement shall be enforcedto the maximum extent permissible so as to effect the intent of the parties,and the remainder of this Agreement shall continue in full force and effect.

 

16.10*     *Notices.  All notices required orpermitted under this Agreement shall be in writing, reference this Agreementand be deemed given when:  (i) delivered personally;(ii) when sent by confirmed facsimile; (iii) two (2) days afterdeposit with a commercial courier, with written verification of receipt.  Allcommunications will be sent to the addresses set forth below.  Eitherparty may change its address by giving notice pursuant to this Section 16.10.

 

 

 

 

**___27___** 

 
| M-Systems:                                                  

General Counsel and VP Business Development                                                                        

M-Systems Flash  Disk Pioneers Ltd.    

7 Atir Yeda St.                                    

Kfar Saba, 4442                                  

Israel    

Tel: +972-9-764-5000                        

Fax: +972-3-5488-666 | Toshiba

General Manager

Legal Affairs and  Contracts Div.

Semiconductor Company

Toshiba  Corporation

1-1-1, Shibaura,  Minato-ku, Tokyo,

105-8001 Japan

Tel: +81-3-3457-3452

Fax: +81-3-5444-9342 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                      |

16.11   No Waiver.  Failureby either party to enforce any provision of this Agreement shall not be deemeda waiver of future enforcement of that or any other provision.

 

16.12   No Rights in Third Parties.This Agreement is made for the benefit of Toshiba and M-Systems and theirrespective subsidiaries and affiliates, if any, and not for the benefit of anythird parties.

 

16.13   Counterparts.  ThisAgreement may be executed in one or more counterparts, each of which shall bedeemed an original, but collectively shall constitute but one and the sameinstrument.

 

16.14   Headings and References.  Theheadings and captions used in this Agreement are used for convenience only andare not to be considered in construing or interpreting this Agreement.

 

16.15   Construction.  ThisAgreement has been negotiated by the parties and their respective counsel.  ThisAgreement will be fairly interpreted in accordance with its terms and withoutany strict construction in favor of or against either party.

 

16.16   Complete Agreement.  ThisAgreement, including all Exhibits, constitutes the entire agreement between theparties with respect to the subject matter hereof, and supersedes and replacesall prior understandings or agreements, written or oral, regarding such subjectmatter. For avoidance of doubt, it is confirmed that this Agreement, unlessotherwise stated, does not supersede the terms of the MDOC-64 D&LAgreement, the MDOC-256 D&L Agreement, the MDOC-128 D&L Agreement orthe Master Purchase Agreement.  No amendment to or modification ofthis Agreement shall be binding unless in writing and signed by a dulyauthorized representative of both parties.  To the extent any termsand conditions of this Agreement conflict with the terms and conditions of anyinvoice, purchase order or purchase order acknowledgment placed hereunder, theterms and conditions of this Agreement shall govern and control.

 

**___28___** 

 

16.17 Addition of new exhibits to theMaster Purchase Agreement. The parties agree to add four new exhibits(designated as exhibits A-4, B-4, C-4 and D-4) to the Master PurchaseAgreement, such exhibits to be as set forth in Exhibit D of this Agreement.

 

16.18 Future Opportunities: Theparties agree to discuss in good faith future opportunities (on a case by casebasis) to develop and/or market joint products, under the general terms andconditions set forth in this Agreement. 

 

 

 

 

 

 

 

 

 

 

 

 

**___29___** 

**IN WITNESS WHEREOF**, the partieshave caused this Agreement to be executed by their duly authorizedrepresentatives.

 

**M-Systems                                                    ToshibaCORPORATION**

**FLASH DISKPIONEERS LTD.**

** **

 

 
| BY:    | _______________________       | BY:    | ____________________________                                      |
|--------|-------------------------------|--------|-------------------------------------------------------------------|
| NAME:  | Dov Moran______________       | NAME:  | Masashi  Muromachi____________                                    |
| TITLE: | President &  CEO_________ | TITLE: | Vice President, Memory  Division__  Semiconductor Company________ |
| DATE:  | _______________________       | DATE:  | ____________________________                                      |

 

 

 

**___30___** 

**Exhibit A**

** **

**MDOC-512SPECIFICATIONS**

** **

** **

See Design Specification document from October 25, 2002 (Design Spec MDOC512 021025.doc).

 

 

[** - 95 pages omitted]

 

 

 

 

 

 

 

 

 

 

 

 

**___31___** 

**Exhibit B**

** **

**M-SYSTEMS` TECHNOLOGY; TOSHIBA`S TECHNOLOGY; DEVELOPEDTECHNOLOGY**

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**M-SYSTEMS` TECHNOLOGY**

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The following is a description of the M-Systems` proprietarytechnology being integrated into the MDOC-512:

 

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**[**]**

**TOSHIBA`S TECHNOLOGY**

 

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**DEVELOPED TECHNOLOGY**

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**EXHIBIT C**

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**DEVELOPMENT SCHEDULEAND RESPONSIBILITIES**

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| **Milestone**                           | **Deliverables**                               | **Date Due**   | **Party Responsible** |
|-----------------------------------------|------------------------------------------------|----------------|-----------------------|
| Spec Completion                         | Spec Document                                  | June 19th,2002 | M-Systems             |
| 1st Net-List                            | Netlist File                                   | Aug 24th, 2002 | M-Systems             |
| 1st Floor Plan                          | Floor Plan File                                | Aug 19th, 2002 | Toshiba               |
| Sign-Off                                | Signature page                                 | Oct 26st, 2002 | M-Systems / Toshiba   |
| Mask Ready                              | Mask                                           | Nov 1st,2002   | Toshiba               |
| 1st Silicon                             | Silicon                                        | Feb 28th,2003  | Toshiba               |
| Ceramic Package                         | Ceramic package MDOC-512 (untested)            | Mar 5th, 2003  | Toshiba               |
| Center lot Characterization             | Report File                                    | Mar 25th,2003  | Toshiba               |
| ES (TSOP I)                             | TSOP I packaged MDOC-512                       | Apr 2nd,2003   | Toshiba               |
| ES (7x10 BGA)                           | 7x10x1.2mm BGA packaged MDOC-512               | Mar 26th,2003  | Toshiba               |
| Device Evaluation (ceramic package)     | Report File                                    | Mar 25th,2003  | M-Systems             |
| Corner lot verification                 | Report File                                    | May 26th,2003  | Toshiba               |
| CS (168)                                | Report +

MDOC-512 Devices (TSOP I, 7x10 BGA)  | May 26th,2003  | Toshiba               |
| Device Documentation (TSOP I, 7x10 BGA) | Product`s Documentation, specs & Reports   | Jun 5th,2003   | Toshiba               |
| MP  (1000h)                   | Report + 

MDOC-512 Devices (TSOP I, 7x10 BGA) | Jun 26th,2003  | Toshiba               |

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** **

1st Net-List means a preliminary net-list fortentative file generation.

But it was too tentative and useful just for areaestimation.

 

2nd net-list which was really useful for timingcheck was arrived on Oct.17th,2002.

The date of spec completion was just for Rev.0.0 (firstrevision).

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**___35___** 

**Exhibit D**

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**ADDITIONAL EXHIBITSTO THE MASTER PURCHASE AGREEMENT**

* *

* *

The following exhibits shall be added as exhibits tothe Master Purchase Agreement (the "MPA") dated August 10, 1998, by and betweenM-Systems Inc. ("M-Systems") and Toshiba America Electronic Components, Inc.("Toshiba"), and shall be considered, for allintents and purposes, as original exhibits to the MPA: 

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**___36___** 

**EXHIBIT A-4**

**DATED DECEMBER 5,2002**

**TO A MASTERPURCHASE AGREEMENT**

**DATED AUGUST 10,1998**

** **

ThisExhibit A-4 to the Master Purchase Agreement (the "MPA") dated August 10, 1998between M-Systems Inc. (together with its affiliates "M-Systems") and ToshibaAmerica Electronic Components, Inc. (together with its affiliates "Toshiba")sets forth the terms relating to the purchase by M-Systems from Toshiba ofMDOC-512 (as defined in a separate agreement between the parties). 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**___37___** 

 

**EXHIBIT B-4**

**DATED DECEMBER 5,2002**

**TO A MASTERPURCHASE AGREEMENT**

**DATED AUGUST 10,1998**

** **

ThisExhibit B-4 to the Master Purchase Agreement (the "MPA") dated August 10, 1998between M-Systems Inc. (together with its affiliates "M-Systems") and ToshibaAmerica Electronic Components, Inc. (together with its affiliates "Toshiba") setsforth the terms relating to the purchase by M-Systems from Toshiba of MDOC-512Units (as defined below).   

** **

** **

##### 1.*     *Product

 

1.1.*                *MDOC-512 Units (as defined in the Development and LicenseAgreement dated December 5, 2002).

1.2.*                *Combo Units (as defined in the Development and LicenseAgreement dated December 5, 2002).

 

The MDOC-512Units may be also referred to below as MDOCs Units

 

 

##### 2.*     *Prices

##### * *

##### The prices of MDOCs Units shall be calculated on a separatebasis for MDOC-512, in accordance with the guidelines set forth below.

 

##### 2.1.*              *BinaryMDOCs:

2.1.1. The price of thebinary MDOCs Units to be purchased by M-Systems from Toshiba shall be the lowerof the following: (i) Toshiba`s average selling price to [**] of binary NAND ofthe same capacity, multiplied by the Binary Die Size Factor (as defined belowand subject to Section 2.4) for that capacity, (ii) Toshiba`s average sellingprice to [**] of MLC NAND of the same capacity, multiplied by the Hybrid DieSize Factor (as defined below and subject to Section 2.4) for that capacity,(iii) Toshiba`s Best Selling Price (as defined in Section 2.5 below), excludingsales to [**], of such MDOCs Units to any of its customers minus [**], (iv)Toshiba`s selling price to [**], or (v) With respect to a sale of products byM-Systems to [**] only, Toshiba`s selling price of such binary MDOC Units to[**], minus [**].

**___38___** 

  

2.1.2. For the purpose ofthis Section the term "Binary Die Size Factor" of a capacity shall mean the diesize of the binary MDOC Units of that capacity divided by the die size of thesame process binary NAND of that capacity, and the term "Hybrid Die SizeFactor" of a capacity shall mean the die size of the binary MDOC Units of thatcapacity divided by the die size of the same process MLC NAND of that capacity.

2.2.*              *MLC MDOCs:

2.2.1. The price of the MLCMDOCs Units to be purchased by M-Systems from Toshiba shall be the lower of thefollowing: (i) Toshiba`s average selling price to [**] of binary NAND of thesame capacity, multiplied by the Hybrid Reverse Die Size Factor,provided that such Hybrid Reverse Die Size Factor shall not be more than one(1) as will be determined by mutual agreement of the parties based on thoseitems including final die size, yield and testing time, plus half of thebenefit accrued from the application of such Hybrid Reverse Die Size Factor,and provided further that, in the event of such Hybrid Reverse Die Size Factorbeing more than one (1), Toshiba and M-Systems will discuss in good faith anyreasonable terms and conditions (ii) Toshiba`s average selling price to [**] ofMLC NAND of the same capacity, multiplied by the MLC Die Size Factor (asdefined below and subject to Section 2.4) for that capacity, (iii) Toshiba`sBest Selling Price (as defined in Section 2.5 below) of such MDOCs Units to anyof its customers, excluding sales to [**], minus [**], (iv) Toshiba`s sellingprice to [**], or (v) With respect to a sale of products by M-Systems to [**]only, Toshiba`s selling price of such MLC MDOC Units to [**], minus [**].

**___39___** 

 

2.2.2. For the purpose ofthis Section the term "MLC Die Size Factor" of a capacity shall mean the diesize of the MLC MDOC Units of that capacity divided by the die size of the sameprocess MLC NAND Units of that capacity, and the term "Hybrid Reverse DieSize Factor" of a capacity shall mean the die size of the MLC MDOC of thatcapacity divided by the die size of the same process binary NAND of thatcapacity. 

2.3*             *Combo Units:

2.3.1.The prices of Combo Units shall be calculated to be equal to Toshiba`s BestSelling Price (as defined in Section 2.5 below) of such Combo Units to [**],minus [**].

2.4        DieSize Price Penalty Limitation:

Foreach of the Die Size Factors used in the calculations of Sections 2.1 and 2.2,there will be a calculated "Die Size Price Penalty" which reflects the amountin dollars contributed to the MDOC Unit price calculation by the relevant DieSize Factor. For each Die Size Factor, once the Die Size Price Penalty is setit will remain in effect also with respect to future sales, unless replaced bya lower value.

Forexample, if initially Toshiba`s average selling price to [**] of binary NAND is[**] and the Binary Die Size Factor is [**], then the corresponding Die SizePrice Penalty shall be equal to [**] and the price calculated according toSection 2.1.1.(a) shall be [**]. If at a later time the average NAND price willbe [**], then the Binary Die Size Price Penalty shall remain at a value of [**]and therefore the price calculated according to clause 2.1.1.(a) shall be [**].Both parties will discuss and agree upon schedules (such as timing and frequency)relating to the calculation of the Die Size Price Penalty.

2.5        The"Best Selling Price" shall be defined as the lowest price charged by Toshibafor MDOCs Units, Combo Units or NAND flash as applicable, and will remain ineffect until replaced by a lower price. The above formula will be appliedseparately to each shipment of Binary MDOCs Units, MLC MDOCs Units, Combo Unitsor NAND flash at the time of the shipment and notwithstanding any differentprice stated on the purchase order.

**___40___** 

2.6         Inthe event that in any Fiscal Year M-Systems is realizing more than [**] Gross Margin(revenue less COGS) on the MDOCs Units and Combo Units collectively, thenToshiba shall be entitled to receive from M-Systems an amount  equalto [**] of the Gross Margin in excess of such [**] realized by M-Systems onMDOCs Units and Combo Units collectively during such Fiscal Year  (collectively,the "Gross Margin Amounts"). In connection with the calculation under thisSection 2.6, M-Systems shall provide Toshiba within no later than 60 days afterthe end of each Fiscal Year, with a letter signed by M-Systems` CFO, certifyingthat either (i) M-Systems has realized [**] or less Gross Margin on the MDOCsUnits and Combo Units collectively for the previous Fiscal Year, or (ii)M-Systems has realized more than [**] Gross Margin on the MDOCs Units and ComboUnits collectively for the previous Fiscal Year, and the exact Gross Margin (inpercentage) realized by M-Systems on the MDOCs Units and Combo Unitscollectively for the previous Fiscal Year. The Gross Margin Amounts, ifapplicable, shall be paid by M-Systems to Toshiba within no later than 30 daysfrom the date of Toshiba`s invoice.  

 

 

###### 3.*     *Discontinuing Product

 

3.1.*              *Toshiba may send written notice to M-Systems afterdiscussing the issue first with M-Systems, of Toshiba`s intent to discontinueproduction of MDOC-512 Units (only after the production of such product hascommenced), which discontinuance shall take effect no earlier than one yearfrom such notice, or at such other time as the parties may agree in writing.

 

3.2.*              *M-Systems may order any quantities it requires prior todiscontinuance of production for delivery no more than six (6) months from thedate production ceases.  In the event of such discontinuance ofproduction, Toshiba`s rights under Sections 4.3 and 4.4 of the applicableDevelopment and License Agreement shall cease.

 

3.3.*              *Toshiba will not sell the MDOC-512 Units and/or ComboUnits to any other customer after discontinuing sales of such MDOCs (asapplicable) to M-Systems, unless M-Systems has discontinued placing purchaseorders for such MDOCs Units and has declined to purchase any remaining inventoryafter being given at least sixty (60) days notice of Toshiba`s intent to sellsuch inventory.

 

**___41___** 

 

**4.*     *****Capacity Requirements; Forecasts**

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4.1.*              *M-Systems will provide Toshiba, on a monthly basis and nolater than 35 days prior to the first date of the first month of each forecast,with a 12 months rolling forecast with respect to the purchase of MDOCs Unitsby M-Systems. Such forecasts shall detail the amount of MDOCs Units M-Systemsexpects to purchase in each month of the forecast. The first three monthscontained in each forecast shall be considered as committed purchase order ofMDOCs Units, and months 4 to 12 contained in each forecast shall be consideredas purchase orders of MDOCs Units, subject to following adjustments which maybe made in future forecasts: (i) M-Systems shall be committed to 66% of theaggregate amount for month 4, (ii) M-Systems shall be committed to 58% of theaggregate amount for month 5, (iii) M-Systems shall be committed to 50% of theaggregate amount for month 6, (iv) M-Systems shall be committed to 33% of theaggregate amount for months 7 to 9, (v) M-Systems shall be committed to 10% ofthe aggregate amount for months 10 to 12. The table set forth in Section 4.8below is intended to illustrate the above commitment rates.

 

4.2.*              *MDOC-512: following the release of the MDOC-512 Units (the"Release date"), Toshiba will guaranty sufficient capacity to manufacture forM-Systems a number of  MDOC-512 Units in an amount of (i) at least[**] of the amounts detailed in M-Systems` forecast for months 1 and 2, (ii)  atleast [**] of the amounts detailed in M-Systems` forecast for months 3 and 4,and (iii) at least [**] of the amounts detailed in M-Systems forecasts formonths 5 to 12. The table set forth in Section 4.8 below is intended toillustrate the above capacity guarantee rates. 

 

4.3.*              *Deleted.

 

4.4.*              *Without derogating from Section 4.2 above, in the eventthat M-Systems` forecast for months 7 to 9 or 10 to 12, relative to theforecast for months 1 to 3 and/or 4 to 6, represents a substantial and uncommonincrease (as the parties will agree to in good faith negotiations), then theparties agree to have further discussions with respect to Toshiba`s guaranty ofcapacity with respect to months 7 to 9 and/or 10 to 12 of the forecast. 

 

4.5.*              *In addition to Toshiba`s****obligation to guaranteecapacity as set forth above, in the event that demand for the MDOCs Unitsexceeds available supply, Toshiba will make  reasonable efforts toprovide M-Systems with an equitable allocation of MDOCs Units.

**___42___** 

 

4.6.*              *Toshiba will make  reasonable efforts toallocate Combo Units to M-Systems as requested by M-Systems. 

4.7.*              *Notwithstanding the other provisions of this Section 4,M-Systems undertakes that it shall purchase from Toshiba products (which shallinclude any and all products sold by Toshiba to M-Systems under this Agreementor any other agreement, including MDOC-128, MDOC-256, MDOC-512, Combo Units ofany kind of MDOC, NAND flash (which such NAND flash shall be purchased byM-Systems for the Best Selling Price) and/or any other products, at theallocation of which shall be determined by M-Systems in its sole discretion) inthe following minimum aggregate amounts: (i) for 2002 - $US13,000,000, (ii) for2003 - $US19,500,000, and (iii) for 2004 - $US27,000,000, provided that Toshibawill guaranty competitive pricing, reasonable lead time and sufficient capacity(with reasonable prior demand forecast by M-Systems) for M-Systems forproducts, the allocation of which shall be determined by M-Systems in its solediscretion, in an aggregate amount as follows: (a) for 2002 - [**], (b) for2003 - [**], and (iii) for 2004 - [**]. 

    

4.8         The table set forth below is intendedto illustrate the percentages detailed in Sections 4.2 and 4.4 above:       

* *
| Month

* *                 | 1    | 2    | 3    | 4   | 5   | 6   | 7   | 8   | 9   | 10  | 11  | 12  |
|---------------------------------|------|------|------|-----|-----|-----|-----|-----|-----|-----|-----|-----|
| M-Systems` Commitment

* * | 100% | 100% | 100% | 66% | 58% | 50% | 33% | 33% | 33% | 10% | 10% | 10% |

 

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

 

**___43___** 

**5.*     *****General**

* *

5.1.*              *Toshiba shall keep and maintain appropriate books andrecords necessary for verification that prices charged for MDOCs Units meet therequirements of this Exhibit B-4. For four (4) years after the end of eachRoyalty Period, M-Systems shall be entitled, not more than once annually toretain independent auditors at M-Systems` expense, to review Toshiba`s booksand records for the purpose of determining whether the prices paid by M-Systemsfor the MDOCs Units meet the requirements of this Exhibit B-4. Any prices paidby M-Systems to Toshiba which are determined as a result of the audit to beincorrect will immediately be corrected by Toshiba**.**Toshiba will sendout an amended price schedule and reimburse M-Systems for any overpayment. Inthe event the overpayment was more than seven and a half percent (7.5%) of theaggregate payments made for the period being reviewed, Toshiba shall pay thecost of such audit.

 

5.2.      Theparties agree to discuss and cooperate in good faith in the implementation ofthe understandings and the processes set forth in this Exhibit B-4, including,as an example, the process relating to the purchase of NAND Flash by M-Systems.

 

 

 

 

 

 

 

 

**___44___** 

 

**EXHIBIT C-4**

**DATED****DECEMBER 5, 2002**

**TO A MASTERPURCHASE AGREEMENT**

#  DATED AUGUST 10, 1998

 

** **

This Exhibit C-4 to the Master Purchase Agreement (the"MPA") dated August 10, 1998 between M-Systems Inc. and Toshiba ElectronicComponents, Inc. ("TAEC") sets forth the terms relating to the purchase byM-Systems from Toshiba of MDOC-512 Units.

** **

##### 1.*     *Warranty Period

 

Two (2) years commencing uponDelivery of Product.

 

##### 2.*     *Replacement Turn-Around Time

 

●*      *Failure report within fourteen (14) days of Toshibafactory receiving defective units.

●*      *Replacement product shipped within thirty (30) daysof TAEC receiving defective units.

 

##### 3.*     *Epidemic Failure Rates

 

●*      *Single root cause rate: [**]

●*      *Multiple cause rate: [**]

 

 

 

 

 

 

 

 

 

 

**___45___** 

**EXHIBIT D-4**

**DATED****DECEMBER 5, 2002**

**TO A MASTERPURCHASE AGREEMENT**

#  DATED AUGUST 10, 1998

 

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This Exhibit D-4 to the Master Purchase Agreement (the"MPA") dated August 10, 1998 between M-Systems Inc. and Toshiba ElectronicComponents, Inc. sets forth the terms relating to the purchase by M-Systemsfrom Toshiba of MDOC-512 Units.

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##### 1.*     *Lead Times

 

[**]

 

##### 2.*     *Order Adjustment Schedule

 

For the purpose of the OrderAdjustment Schedule, the following Definitions apply:

 

●*      *"Days" means the number of days from receipt ofwritten notification of the requested adjustment by M-Systems until theschedule Delivery of the Products.

●*      *"Adjustment" means the allowable percentage ofunits ordered that may be either increased over the original purchase orderquantity or rescheduled for a later delivery (up to one hundred and eighty(180) days) from the original purchase order delivery date.

 
| Days  | Adjustment |
|-------|------------|
| 91+   | [**]       |
| 61-90 | [**]       |
| 31-60 | [**]       |
| 0-30  | [**]       |

 

**___46___** 

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| **Design Specification** |
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