Exhibit
10.7


 


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


 


TOSHIBA


 


Toshiba America
Electronic Components, Inc.


2950 Orchard
Parkway, San Jose, CA 95131


 


Design
and Production Agreement


 


Netlist
Inc.


 


This Design and
Production Agreement (“DPA”) effective July 31, 2008 (the “Effective Date”)
is between Toshiba America Electronic Components, Inc., with a principal
place of business at 19900 MacArthur Boulevard, Suite 400, Irvine, CA
92612 (“TAEC”) and Netlist Inc with a place of business at 51 Discovery, Suite 150,
Irvine, CA 92618 (“Customer”) and sets out the terms and conditions under which
TAEC will design the product identified herein for Customer.


 


1.             Project Name


 


ID ASIC


 


2.             Summary


 


This DPA is for the
development of ID ASIC for Customer.  The
quote is based on TAEC’s initial die size estimation.


 


3.             Design Specification


 


[***]


 


4.             Schedule


 


MAJOR PROJECT MILESTONES


 


	
  Event

  	
   

  	
  Target Date/Completed

  
	
  Development PO
  released & Design Initiation

  	
   

  	
  [***]

  
	
  Completion of
  Feasibility Study

  	
   

  	
  [***]

  
	
  Design Decision

  	
   

  	
  [***]

  
	
  Package selection
  finalized

  	
   

  	
  [***]

  
	
  Early netlist for
  “pipecleaning”

  	
   

  	
  [***]

  
	
  Final netlist
  (functionally correct)

  	
   

  	
  [***]

  
	
  Tapeout — Second
  Signoff GDSII transfer)

  	
   

  	
  [***]

  
	
  Delivery of Prototypes

  	
   

  	
  [***]

  
	
  System compliance phase
  - start

  	
   

  	
  [***]

  
	
  System compliance phase
  - complete

  	
   

  	
  [***]

  
	
  1st Risk Production
  shipment

  	
   

  	
  [***]

  



 

















 


Production turnaround
time:   16 working weeks


 


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


 


5.             Technology


 


[***]


 


6.             Package and Die Size Option


 


	
  Package

  	
   

  	
  Ball Pitch

  	
   

  	
  Body Size

  	
   

  	
  Substrate Layers

  	
   

  	
  Die Size

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  



 


7.             Internal/External IP


 


Internal IP:


[***]


 


External IP:


[***]


 


8.             Price


 


	
  First

  	
   

  	
  10M pieces: US$[***]

  
	
  Next

  	
   

  	
  20M pieces: US$[***]

  
	
  Next

  	
   

  	
  20M pieces: US$[***]

  
	
  After first

  	
   

  	
  50M pieces: US$[***]

  



 


Changes in die size will
affect the price quoted.


 


Prices do not include and
are subject to any applicable sales tax.


 


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


 


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


 


9.2           Additional NRE Charges in the event of Re-spin


 


	
  Metal Layer Re-spin
  Charges:

  	
   

  	
  US$[***]

  
	
  All-Layer Re-spin
  Charges (base and metal layers):

  	
   

  	
  US$[***]

  



 

















 


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


 


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


 


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


 


9.3           Internal IP Defects/Bugs


 


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


 


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


 


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


 


For a metal re-spin, this
cost will be calculated on the basis of the number of layers required for
Customer changes and whether those layers are implicated by the Internal IP
repairs. If the Customer-requested design changes require the same metal arid
via layers as would be necessary for the Internal IP Defect/Bug fix, the cost
to Customer will not exceed 50% of the additional re-spin NRE charges. If the
Customer-requested changes require additional mask layer changes, the NRE cost
associated with the additional layers will be solely the financial
responsibility of Customer.


 


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


 


10.          NRE Payment Schedule


 


	
  Decision:

  	
   

  	
  US$[***]

  
	
  Tape-out:

  	
   

  	
  US$[***]

  
	
  Delivery of Prototypes:

  	
   

  	
  US$[***]

  
					



 


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


 

















 


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


 


11.          NRE Services included


 


Engineering activities


 


[***]


 


Manufacturing activities


 


[***]


 






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


 


12.          Extra Engineering Samples


 


	
  1-100 pieces:

  	
   

  	
  [***] unit price of US$[***]

  
	
  101-500 pieces:

  	
   

  	
  [***] unit price of US$[***]

  
	
  501- 1000 pieces:

  	
   

  	
  [***] unit price of US$[***]

  



 


All extra engineering
samples are sold as Prototypes and are subject to, without limitation, Articles
18.2 and 19.1 of the Terms and Conditions.


 


13.          Project Specific Conditions


 


13.1         [***]


 

















 


13.2         [***]


 


13.3         [***]


 


13.4         [***]


 


13.5         [***]


 


14.          General Conditions


 


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


 


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


 


14.3         Schedule is provisional. Final schedule is still to be
agreed.


 


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


 


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


 

















 


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


 


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


 


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


 


14.10       This Agreement (as defined in the Terms and
Conditions) is the entire agreement between the parties and supersedes any
prior communications, representations, or agreements as to the subject matter
hereof, whether written or oral.


 


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


 


	
  Toshiba America Electronic
  Components, Inc.

  	
   

  	
  NetList Inc.

  
	
   

  	
   

  	
   

  
	
  /s/ Takeshi Iwamoto

  	
   

  	
  /s/ James P. Perrott

  
	
  Signature

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  James Perrott, SVP
  Sales & Marketing

  
	
  Takeshi Iwamoto VP,
  Customer SoC &

  	
   

  	
  Printed Name and Title

  
	
   Foundry Business Unit, Systems LSI

  	
   

  	
   

  
	
  Printed Name and Title

  	
   

  	
  8/15/08

  
	
   

  	
   

  	
  Date

  
	
  8/22/08

  	
   

  	
   

  
	
  Date

  	
   

  	
   

  



 

















 


Toshiba America Electronic Components, Inc.


Design and Production Agreement Terms and Conditions


 


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


 


1.             DEFINITIONS


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


1.11         “Mask Work” means a series of related images, however
fixed or encoded; having or representing the predetermined, three dimensional
pattern of metallic, insulating or semiconductor material present or removed
from the layers of a semiconductor chip product; and in which series the
relation of the images to one another is that each image represents a pattern
of the surface of one form of the resulting semiconductor chip product.


 

















 


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


 


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


 


1.14         “Product” means the resulting product based on the
design specified in the DPA and shall be defined by mutually agreed upon
specifications embodied in the documents contained within the Customer Part Number
File and TAEC published Quality and Reliability Standards


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 

















 


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


 


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


 


2.             DEVELOPMENT WORK


 


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


 


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


 


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


 


2.4           If Customer requests any modifications to the
Specifications, TAEC agrees to complete the modification as soon as is
reasonably practicable after TAEC has agreed to the modification. For the
avoidance of doubt, the parties expressly agree that TAEC shall have no
obligation to commence a modification unless and until the parties have agreed
on adjustments in schedule, costs, or other applicable provisions.


 


2.5           If TAEC assembles and manufactures any goods at
Customer’s request before Customer has issued its written approval via
Prototype Approval Signoff, Customer understands and agrees that they will be
done on a Risk Production order basis, with Customer responsible for all
assembly and production costs.


 


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


 


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


 


2.8           Design initiation shall commence when Customer issues
a Purchase Order for the NRE charge. The Purchase Order shall refer to the
applicable DPA, and shall include the words: “This Purchase Order represents
acceptance of the terms and conditions in the Design And Production Agreement
between the issuer and Toshiba America Electronic Components, Inc.”


 

















 


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


 


3.             DEVELOPMENT TERM


 


[***]


 


4.             COMPENSATION


 


4.1           [***]


 


4.2           [***]


 


4.3           [***]


 


5.             RE-SPIN NRE CHARGES


 


Re-spin NRE charges will
be based on engineering and manufacturing services as well as on the extent of
the modification, which may be done as either a metallization or a diffusion
change. Metallization changes may be implemented by regenerating the metal and
via masks only. Diffusion modifications, on the other hand, require the
regeneration of all masks. The extent of the engineering and manufacturing
services required for re-design shall be considered in determining total
charges for a re-spin of the design which shall be specified in the DPA or an
Amendment thereto.


 


6.             ACKNOWLEDGMENT


 


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


 


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


 
















 


7.             PRODUCT LEADTIME


 


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


 


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


 


8.             SHIPMENT AND DELIVERY


 


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


 


8.2           Unless otherwise specified by Customer, TAEC shall
ship Products according to TAEC’s standard method. Freight and insurance will
be prepaid by TAEC and invoiced to Customer.


 


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


 


9.             PAYMENT TERMS


 


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


 


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


 


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


 


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


 


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


 

















 


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


 


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


 


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


 


10.           CANCELLATION/DELAY OF
DEVELOPMENT:


 


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


 


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


 


	
  Time

  	
   

  	
  Cancellation Fee

  
	
   

  	
   

  	
   

  
	
  [***]

  	
   

  	
  [***]% of NRE

  
	
  [***]

  	
   

  	
  [***]% of NRE

  
	
  [***]

  	
   

  	
  [***]% of NRE

  
	
  [***]

  	
   

  	
  [***]% of NRE

  



 

















 


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


 


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


 


11.           CANCELLATION/RESCHEDULE OF
PRODUCTION  ORDERS


 


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


 


	
  Days from scheduled shipment

  	
   

  	
  Cancellation Fees

  	
   

  
	
  0 - 30 days

  	
   

  	
  [***]

  	
   

  
	
  31- 60 days

  	
   

  	
  [***]

  	
   

  
	
  61- 90 days

  	
   

  	
  [***]

  	
   

  
	
  91-120 days

  	
   

  	
  [***]

  	
   

  



 


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


 


	
  Days
  before Shipment

  	
   

  	
  Terms

  	
   

  
	
  Within next 60 days

  	
   

  	
  [***]

  	
   

  
	
  Within 60-120 days

  	
   

  	
  [***]

  	
   

  
	
  Over 120 days

  	
   

  	
  [***]

  	
   

  



 


12.           INTELLECTUAL PROPERTY RIGHTS AND
OWNERSHIP


 


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


 

















 


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


 


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


 


12.4         The party who desires to assert its Mask Work rights
against any third party for infringement (the “Asserting Party”) shall give
prior written notice to the other party to allow such other party to decide
whether or not to participate in such dispute. If the other party decides not
to participate, it shall provide all commercially reasonable assistance to the
Asserting Party in connection with such dispute, at the Asserting Party’s
expense.


 


12.5         If an invention is made solely by the employees of
either party in connection with the development of the Prototype or Products,
all right, title, and interest in and to such items shall belong solely to the
party whose employees made such invention. If an invention is jointly made by
the employees of both Customer and TAEC, Customer and TAEC shall jointly own
all right, title, and interest thereto. Each party shall be entitled to use and
exploit such jointly owned invention and intellectual property rights without
notice or accounting to the other party.


 


13.           MASK WORKS REGISTRATION


 


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


 


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


 

















 


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


 


14.           MASK WORK NOTICE


 


Upon written request by
Customer, and subject to packaging constraints, TAEC will place a Mask Work
notice on the outside package of the Product which shall consist of the letter
M in a circle and the names of Customer and TAEC.


 


15.           BUSINESS RELATIONSHIPS


 


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


 


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


 


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


 


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


 


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


 


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


 


16.           SUBCONTRACTING


 


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


 


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


 

















 


provided that (a) each
such Permitted Party agrees in writing to comply with provisions of these terms
and conditions, (b) the Permitted Party is not a semiconductor competitor
to TAEC, and (c) Customer has given TAEC permission to share information
with such Permitted Party as may be required for Permitted Party to carry out
its duties.


 


17.           CONFIDENTIAL INFORMATION


 


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


 


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


 


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


 


18.           WARRANTY


 


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


 


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


 


18.3         PRODUCT WARRANTY


 


a.             TAEC warrants that:


 

















 


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


 


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


 


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


 


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


 


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


 


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


 

















 


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


 


19.           PROTOTYPES/RISK PRODUCTION


 


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


 


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


 


20.           PRODUCT APPLICATION


 


20.1         This design is intended for general commercial
applications such as but not limited to telecommunications, information
technology equipment, computer equipment, office equipment, test and
measurement instrumentation, or domestic appliances. The design is not intended
for use in, nor is it intended to be incorporated into the Product for use in,
nor will TAEC knowingly sell such items for use in equipment which requires
extraordinarily high quality or reliability, and/or in equipment which may
involve life threatening, life support, life sustaining, or life critical
applications, including, but not limited to such uses as atomic energy
controls, airplane or spaceship instrumentation, traffic signals, biomedical or
medical instrumentation, combustion control, offensive weapon systems, or safety
devices.


 


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


 

















 


21.           INSPECTION


 


Customer shall inspect
Products at its own expense in accordance with the inspection standard agreed
upon by the parties. Unless Customer provides TAEC with written notice of
rejection within thirty (30) days after TAEC’s delivery of the Products to the
carrier, together with sufficient evidence of the cause thereof, Products shall
be deemed finally and irrevocably accepted. If TAEC receives notice of
rejection within that thirty (30) days, then TAEC shall, at its option, repair
or replace the defective Products or credit Customer’s account, if TAEC has
breached its warranty under Article 18.


 


22.           ISSUANCE OF RETURN MATERIAL
AUTHORIZATION  NUMBER


 


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


 


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


 


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


 


22.4         Transportation charges for Products returned from
Customer to TAEC or from TAEC to Customer under this Article shall be at
TAEC’s expense, provided that Customer shall reimburse TAEC for any
transportation charges paid by TAEC for returned Products which are
subsequently found to be conforming.


 


23.           MATERIAL AVAILABILITY


 


23.1         TAEC shall give Customer reasonable advance notice of
its intent to discontinue the manufacture of those Products included in this
Agreement. Such notice shall be no less than twelve (12) months in advance of
the last order date. Customer shall have a twelve (12) month order placement
period and must take receipt of the Products within eighteen (18) months of
notification of the discontinuance.


 

















 


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


 


24.           LIABILITY


 


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


 


25.           INTELLECTUAL PROPERTY RIGHTS
INDEMNIFICATION


 


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


 


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


 


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


 


c.             Customer shall provide all reasonably necessary
authority, information, and assistance to TAEC and its counsel for the defense
of such claim.


 


25.2         Notwithstanding the foregoing, TAEC shall have no
liability or obligation to Customer with respect to any intellectual property
results infringement or claims thereof based on:


 


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


 

















 


b.             Use of the Prototypes or Products in combination with
devices or products not purchased hereunder where the Products would not in
themselves be infringing;


 


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


 


d.             Modifications or additions to Prototypes or Products
by Customer;


 


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


 


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


 


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


 


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


 


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


 


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


 


26.           NON-INFRINGEMENT OF RIGHTS


 


Customer represents and
warrants that the circuit design and other information furnished by Customer to
TAEC, with respect to the design portion of the Prototypes or Products does not
infringe any copyright, trade secret, United States, Canada, Mexico, Japan and
European Community patent or other intellectual property right of any third
party. Customer shall defend, indemnify and hold harmless TAEC against any claims,
damages, and expense (including attorney fees), arising out of or in connection
with Customer’s breach of the foregoing representation and warranty.


 


27.           TERMINATION


 


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


 


27.2         Either party may terminate any development or Purchase
Order, effective upon written notice to the other party should any of the
following events occur:


 

















 


a.             The other party files a voluntary petition in
bankruptcy;


 


b.             The other party is adjudicated bankrupt;


 


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


 


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


 


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


 


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


 


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


 


28.           FORCE MAJEURE


 


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


 


29.           GOVERNMENT INTERVENTION


 


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


 


30.           EXPORT REGULATIONS


 


This Agreement involves
products and/or technical data that may be controlled under the U.S. Export
Administration Regulations and that may be subject to the approval of the
United States Department of Commerce prior to export. Any export or re-export
by either 


 

















 


party, directly or
indirectly in contravention of the U.S. Export Administration Regulations, is
prohibited.


 


31.           GENERAL


 


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


 


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


 


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


 


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


 


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


 


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


 


31.7         This Agreement may be executed in several identical
counterparts, each of which when executed by the parties hereto and delivered
shall be an original, but all of which together shall constitute a single
instrument.


 


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