exv10w2



 





EXHIBIT 10.2

FOIA Confidential Treatment Requested




EXECUTION VERSION




	 	 	 
	 

	 	 
	 






OPERATING AGREEMENT OF FLASH ALLIANCE, LTD.




Dated as of July 7, 2006




between




TOSHIBA CORPORATION




and




SANDISK (IRELAND) LIMITED




	 	 	 
	 

	 	 
	 






 









 






Table of Contents




	 	 	 	 	 
	 	 	Page
	1. DEFINITIONS, RULES OF CONSTRUCTION AND DOCUMENTARY CONVENTIONS
	 	 	1	 
	 
	 	 	 	 
	1.1 Certain Definitions
	 	 	1	 
	1.2 Additional Definitions
	 	 	1	 
	1.3 Rules of Construction and Documentary Conventions
	 	 	2	 
	 
	 	 	 	 
	2. GENERAL PROVISIONS
	 	 	2	 
	 
	 	 	 	 
	2.1 Ownership of Shares; Capital Increase
	 	 	2	 
	2.2 Name
	 	 	3	 
	2.3 Principal Office
	 	 	3	 
	2.4 Term; Extension
	 	 	3	 
	2.5 Scope of Activity
	 	 	3	 
	2.6 Powers
	 	 	3	 
	2.7 Articles of Incorporation
	 	 	3	 
	2.8 Company Actions
	 	 	3	 
	 
	3. BUSINESS OPERATIONS
	 	 	3	 
	 
	 	 	 	 
	3.1 Business Dealings with the Company
	 	 	3	 
	3.2 Other Activities
	 	 	4	 
	3.3 Personnel
	 	 	4	 
	3.4 Business Plans and Related Matters
	 	 	6	 
	3.5 Standard of Care
	 	 	7	 
	3.6 Use of Names
	 	 	7	 
	 
	 	 	 	 
	4. ACTIONS BY THE SHAREHOLDERS
	 	 	7	 
	 
	 	 	 	 
	4.1 Matters Requiring the Approval of the Shareholders
	 	 	8	 
	4.2 General Meetings of Shareholders
	 	 	10	 
	4.3 Restrictions on Shareholders
	 	 	10	 
	 
	 	 	 	 
	5. MANAGEMENT AND OPERATIONS OF COMPANY
	 	 	11	 
	 
	 	 	 	 
	5.1 Meetings of the Directors
	 	 	11	 
	5.2 Officers; Employees
	 	 	16	 
	5.3 Y4 Representatives; Y4 Operating Committee
	 	 	16	 
	5.4 Insurance
	 	 	17	 
	5.5 Records
	 	 	17	 
	 
	 	 	 	 
	6. CAPITAL CONTRIBUTIONS; DISTRIBUTIONS
	 	 	18	 
	 
	 	 	 	 
	6.1 Capital Contributions
	 	 	18	 
	6.2 Distributions
	 	 	18	 
	6.3 No Interest
	 	 	19	 
	6.4 Return of Capital Contributions
	 	 	19	 






 









 





Table of Contents





	 	 	 	 	 
	 	 	Page
	7. ADDITIONAL CONTRIBUTIONS
	 	 	19	 
	 
	 	 	 	 
	8. ACCOUNTING AND TAXATION
	 	 	19	 
	 
	 	 	 	 
	8.1 Financial Accounting Conventions
	 	 	19	 
	8.2 Maintenance of Books of Account
	 	 	20	 
	8.3 Financial Statements
	 	 	20	 
	8.4 Other Reports and Inspection
	 	 	22	 
	8.5 Characterization
	 	 	22	 
	8.6 Deposit of Funds
	 	 	22	 
	 
	 	 	 	 
	9. SHARES OF CONTRIBUTION; DISPOSITION OF SHARES
	 	 	22	 
	 
	 	 	 	 
	9.1 Restrictions on Transfer of Shares
	 	 	22	 
	9.2 Admission of New Shareholders
	 	 	24	 
	9.3 Withdrawal Prohibited
	 	 	24	 
	9.4 Purchase of Additional Interest
	 	 	24	 
	 
	 	 	 	 
	10. CERTAIN AGREEMENTS OF THE SHAREHOLDERS
	 	 	25	 
	 
	 	 	 	 
	10.1 Taxes and Charges; Governmental Rules
	 	 	25	 
	10.2 Further Assurances
	 	 	25	 
	10.3 Dispute Resolution; Deadlock
	 	 	25	 
	10.4 Remedies Upon Event of Default; Termination on Breach
	 	 	27	 
	10.5 Mechanics of Sale
	 	 	27	 
	 
	 	 	 	 
	11. DISSOLUTION
	 	 	28	 
	 
	 	 	 	 
	11.1 Events of Dissolution
	 	 	28	 
	11.2 Dissolution by Agreement
	 	 	28	 
	11.3 Dissolution Upon Event of Default
	 	 	28	 
	11.4 Dissolution by Unilateral Option
	 	 	29	 
	11.5 Dissolution upon Notice
	 	 	29	 
	11.6 Financing Defaults
	 	 	29	 
	11.7 Winding Up
	 	 	30	 
	11.8 Liquidation Proceeds
	 	 	30	 
	 
	 	 	 	 
	12. INDEMNIFICATION AND INSURANCE
	 	 	30	 
	 
	 	 	 	 
	12.1 Indemnification
	 	 	30	 
	12.2 Insurance
	 	 	31	 
	12.3 Indemnification by the Shareholders
	 	 	31	 
	12.4 Assertion of Claims
	 	 	32	 
	 
	 	 	 	 
	13. MISCELLANEOUS
	 	 	32	 
	 
	 	 	 	 
	13.1 Governing Law
	 	 	32	 
	13.2 Effectiveness
	 	 	32	 






 









 





Table of Contents
(continued)





	 	 	 	 	 
	EXHIBITS
	 	 	 	 
	 
	 	 	 	 
	Exhibit A

	 	-
	 	Articles of Incorporation of the Company
	 
	 	 	 	 
	SCHEDULES
	 	 	 	 
	 
	 	 	 	 
	Schedule 2.1(b)

	 	-
	 	Committed Additional Capital Contributions
	Schedule 5.3

	 	-
	 	Management and Operating Reports
	Schedule 6.1

	 	-
	 	Capital Contributions
	Schedule 8.3

	 	-
	 	Monthly Reports






 









 






EXECUTION VERSION




          OPERATING AGREEMENT of FLASH ALLIANCE, LTD., a Japanese limited liability company (tokurei
yugen kaisha), dated as of July 7, 2006, between TOSHIBA CORPORATION, a Japanese corporation
(“Toshiba”), and SANDISK (IRELAND) LIMITED, a company organized under the laws of the
Republic of Ireland (“SanDisk”).




          WHEREAS, Flash Alliance, Ltd. (the “Company”) is a Japanese limited liability company
(tokurei yugen kaisha);




          WHEREAS, pursuant to that certain Share Purchase Agreement, dated as of the date hereof, by
and between SanDisk and Toshiba, concurrently with the execution hereof, SanDisk has acquired from
Toshiba 1,497 shares in the Company (“Shares”), representing 49.9% of all issued and
outstanding Shares;




          WHEREAS, Toshiba holds the remaining 1,503 Shares, representing 50.1% of all issued and
outstanding Shares; and




          WHEREAS, SanDisk and Toshiba (each a “Shareholder”) desire to enter into this
Operating Agreement in order to provide, subject to the Companies Act and the Articles of
Incorporation of the Company (as amended from time to time, the “Articles”) for (i) the
business of the Company, (ii) the conduct of the Company’s affairs and (iii) the rights, powers,
preferences, limitations and responsibilities of the Company’s Shareholders, employees and
Directors.




          Accordingly, Toshiba and SanDisk agree as follows:





	1.	 	Definitions, Rules of Construction and Documentary Conventions 
	 
	1.1	 	Certain Definitions.
	 
	(a)	 	Capitalized terms used but not defined in the main body of this Agreement shall have the
respective meanings assigned to them in that certain Flash Alliance Master Agreement, dated as
of the date hereof, among SanDisk, SanDisk Corporation and Toshiba (the “Master
Agreement”) or in Appendix A to the Master Agreement.
	 
	(b)	 	As used herein, the term “Agreement” means this Operating Agreement together with any
Exhibits, Schedules, Appendices and Attachments hereto.
	 
	1.2	 	Additional Definitions. The following capitalized terms used in this Agreement shall
have the respective meanings assigned in the sections indicated below:




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EXECUTION VERSION












	 	 	 
	Term	 	Defined in
	“Appendix A”

	 	Recitals
	“Articles”

	 	Recitals
	“Bankruptcy Event”

	 	Section 11.1(f)
	“Claim”

	 	Section 12.4(a)
	“Company”

	 	Recitals
	“Deadlock”

	 	Section 10.3(c)
	“Deadlock Dissolution Notice”

	 	Section 10.3(e)
	“Defaulting Shareholder”

	 	Section 10.4
	“Designated Individuals”

	 	Section 10.3(b)
	“Director(s)”

	 	Section 3.5(a)
	“Executive Vice President”

	 	Section 5.2(a)
	“General Meeting of Shareholders”

	 	Section 4.1(b)
	“Indemnified Party”

	 	Section 12.4(a)
	“Indemnifying Party”

	 	Section 12.4(a)
	“Initiating Shareholder”

	 	Section 10.3(e)
	“Losses”

	 	Section 12.1(a)
	“Master Agreement”

	 	Section 1.1(a)
	“Nondefaulting Shareholder”

	 	Section 10.4
	“Notified Party”

	 	Section 11.5
	“Notifying Party”

	 	Section 11.5
	“Permissible Assignee”

	 	Section 9.1(c)
	“Permissible Assignment Agreement”

	 	Section 9.1(c)
	“President”

	 	Section 5.2(a)
	“Responding Shareholder”

	 	Section 10.3(e)
	“SanDisk Representative”

	 	Section 5.3(a)
	“Shares”

	 	Recitals
	“Shareholder”

	 	Recitals
	“Termination Date”

	 	Section 11.4
	“Toshiba Representative”

	 	Section 5.3(a)
	“Y4 Operating Committee”

	 	Section 5.3(a)







	1.3	 	Rules of Construction and Documentary Conventions. The rules of construction,
documentary conventions and general terms and conditions set forth in Appendix A shall
apply to, and are hereby incorporated in, this Agreement.




2









 










EXECUTION VERSION













	2.	 	General Provisions 
	 
	2.1	 	Ownership of Shares; Capital Increase.
	 
	(a)	 	The rights and obligations of the Shareholders shall be as set forth herein, subject to the
Articles and mandatory provisions of the Companies Act.
	 
	(b)	 	The Shareholders shall effect the capital increases in the amounts and at the times
stipulated in Schedule 2.1(b).
	 
	2.2	 	Name. The name of the Company is “Flash Alliance Yugen Kaisha,” which translates to
“Flash Alliance, Ltd.” in English, and all Company business shall be conducted in that name or
such other name as the Shareholders shall mutually agree.
	 
	2.3	 	Principal Office. The principal office of the Company shall be located in Yokkaichi,
Mie, or such other place as the Shareholders shall mutually agree.
	 
	2.4	 	Term; Extension. The Company shall be terminated on December 31, 2021, unless
extended by mutual written agreement of all of the Shareholders or earlier terminated in
accordance with Section 11 (Dissolution). Any such extension shall be effective only upon the
written agreement of all of the Shareholders and shall be on such terms and for such period as
set forth in such agreement. The Shareholders agree to meet, no later than December 31, 2020,
to discuss the possible extension of the term of the Company.
	 
	2.5	 	Scope of Activity. The scope of activity of the Company shall be as set forth in
Section 3.1 (Purpose) and 6.7 (Capacity Sharing Arrangement) of the Master Agreement.
	 
	2.6	 	Powers. The Company shall have all the powers now or hereafter conferred by
applicable law on limited liability companies formed under the Companies Act and may do any
and all acts and things necessary, incidental or convenient to the purpose specified in
Section 2.5 (Scope of Activity).
	 
	2.7	 	Articles of Incorporation. On the date hereof and immediately following the execution
of this Agreement, the Shareholders shall hold a general meeting of the Shareholders and,
among other matters agreed between them, vote their Shares to amend the Articles so that they
will be in the form of Exhibit A. In the event of any conflict between this Agreement
and the Articles, the Shareholders confirm their intent that the terms of this Agreement shall
prevail, and on the request of either Shareholder, the Shareholders shall amend the Articles
to conform with this Agreement to the extent legally possible; provided that the inability to
implement such amendment shall not relieve any Shareholder from liability for any breach of
its obligations hereunder.
	 
	2.8	 	Company Actions. The Shareholders hereby authorize the Company, and ratify
(including for purposes of Section 4.1 (Matters Requiring the Approval of the Shareholders))
all action having been taken by or on behalf of the Company (including by its Shareholders and
Directors) prior to the date hereof, to execute and deliver the FA




3









 









EXECUTION VERSION







	 	 	Operative Documents to which it is a party, including all certificates, agreements and other
documents required in connection therewith.
	 
	3.	 	Business Operations 
	 
	3.1	 	Business Dealings with the Company. Subject to Sections 4.1(a) (Matters Requiring
the Approval of the Shareholders) and 5.1(d) (Matters Requiring the Approval of the Board of
Directors), the Company may enter into contracts or agreements, or otherwise enter into
transactions or dealings, with any Shareholder or any of their respective Affiliates, and
derive and retain profits therefrom. The validity of any such contract, agreement,
transaction or dealing or any payment or profit related thereto or derived therefrom shall not
be affected by any relationship between the Company and any Shareholder or any of their
respective Affiliates, subject to the Companies Act. The Shareholders agree that where
practicable and contractually allowable (based on competitive price, availability and other
material terms), the Board of Directors will consider whether to utilize any Shareholder or
any of their respective Affiliates as the preferred providers of products and services that
may be required in the manufacturing operations of the Company, subject to the ability of such
Shareholder or Affiliate to meet the Company’s manufacturing requirements on competitive
terms. Unless otherwise approved by the Shareholders or otherwise expressly provided in the
FA Operative Documents, all business dealings of the Company with any Shareholder or any of
their respective Affiliates shall be on the most beneficial standard commercial terms and
conditions, including volume, price and credit terms, currently offered or made available to
unaffiliated customers by such Shareholder or Affiliate, as the case may be, with respect to
the products and services to be offered and provided to the Company.
	 
	3.2	 	Other Activities. The provisions of Section 6.13 (Other Activities) of the Master
Agreement are hereby incorporated herein by reference.
	 
	3.3	 	Personnel. The provisions of Section 6.10 (FA Management Structure and Headcount) of
the Master Agreement are hereby incorporated herein by reference.
	 
	3.4	 	Business Plans and Related Matters.
	 
	(a)	 	Initial and Subsequent Business Plans. The initial Business Plan of the Company,
setting forth the Company’s products, pricing, operating budget, capital expenditures, expense
budgets, financing plans and other business activities of the Company through the
[*], will be agreed upon and certified by the Board of Directors as soon as
practicable after the Closing.






	 	(i)	 	The initial Business Plan and each successive Business Plan will, at the time
such Business Plan is in effect, represent the Company’s then-current forecast of the
proposed operations of the Company.







 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




4









 






EXECUTION VERSION











	 	(ii)	 	An updated Business Plan complying with Section 3.4(b) (Form and Scope) in
respect of each successive Fiscal Year after the [*] shall be prepared under the
direction of the Chief Executive Officer of the Company and submitted to the Board of
Directors for review and approval not later than the [*] preceding the commencement of
such Fiscal Year.
	 
	 	(iii)	 	When the proposed Business Plan in respect of a Fiscal Year is approved by the
Board of Directors, it shall constitute the Business Plan of the Company for such
Fiscal Year and the Company and its directors and employees shall implement such
Business Plan, which shall be the basis of the Company’s operations for such Fiscal
Year. Upon approval, the approved Business Plan shall constitute the approved
operational, financing and capital expenditure budget. The Board of Directors shall
have the authority pursuant to Section 5.1(d) (Matters Requiring the Approval of the
Board of Directors) to amend the most recently approved Business Plan, including the
operating budget contained therein, and any Shareholder may request that the Board of
Directors review the Company’s operating results and prospects, as well as market
conditions, and consider a proposal for amendment or review of the most recently
approved Business Plan at any regularly scheduled or special meeting of the Board of
Directors and upon such request, the Board of Directors shall in good faith make such
review and/or consider such proposal.






	(b)	 	Form and Scope. Each Business Plan shall contain a statement of long-range strategy
and short-range tactics detailing quantitative and qualitative goals for the Company and
relating the attainment of those goals to the Company’s manufacturing objectives, and shall
include such items as planned capital expenditures, planned product development, planned
product output and projected product cost, sales forecasts, total headcount, total spending
and revenue and profit projections, financing plans and tax planning. No Business Plan shall
be deemed to be an amendment of this Agreement. Any capital commitments made in any Business
Plan for a period after the Fiscal Year to which the Business Plan applies shall be considered
non-binding for purposes of any FA Operative Document.
	 
	(c)	 	Approval. Other than the initial Business Plan (which shall be approved in
accordance with Section 3.4(a)), the Board of Directors shall vote upon the proposed Business
Plan, with such modifications as it may deem necessary, before [*] preceding the
commencement of each Fiscal Year. Subject to Sections 10.3(c), (e) and (f) (Dispute
Resolution; Deadlock), pending approval by the Board of Directors of any proposed Business
Plan, the most recently approved Business Plan shall continue in effect; provided, however,
the Board of Directors may, by unanimous vote, adopt an amended interim business plan for the
Company’s operations until it is able to reach agreement on the proposed Business Plan for the
forthcoming year.
	 
	3.5	 	Standard of Care.







 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




5









 






EXECUTION VERSION











	(a)	 	Each Shareholder, and each director of the Company, as defined in the Companies Act (each, a
“Director”), shall be entitled to rely (unless such Person has knowledge or
information concerning the matter in question that makes reliance unwarranted) on information,
opinions, reports or statements, including financial statements and other financial data, if
prepared or presented by:






	 	(i)	 	one or more managers or employees of the Company who such Shareholder or
Director believes in good faith to be reliable and competent in the matters presented;
or
	 
	 	(ii)	 	legal counsel, public accountants or other Persons as to matters that such
Shareholder or Director believes to be within such Person’s professional or expert
competence.






	(b)	 	Each Shareholder shall also be entitled to rely upon information, opinions, reports or
statements, including financial statements and other financial data, prepared or presented by
the Board of Directors pursuant to the responsibilities delegated to the Board of Directors
pursuant to this Agreement.
	 
	3.6	 	Use of Names. Except as may be expressly provided in the FA Operative Documents,
nothing in this Agreement shall be construed as conferring on the Company or any Shareholder
the right to use in advertising, publicity or other promotional activities any name, trade
name, trademark or other designation of any other Shareholder or any of its Affiliates,
including any contraction, abbreviation or simulation of any of the foregoing.
	 
	4.	 	Actions by the Shareholders 
	 
	4.1	 	Matters Requiring the Approval of the Shareholders.
	 
	(a)	 	Notwithstanding any provision of the Articles to the contrary, no action shall be taken by or
on behalf of the Company in connection with any of the following matters without the prior
unanimous written approval of the Shareholders:






	 	(i)	 	any amendment, restatement or revocation of the Articles;
	 
	 	(ii)	 	any amendment to or renewal of any FA Operative Document between the Company
and any Shareholder or any of their respective Affiliates;
	 
	 	(iii)	 	any change in the scope of activity or strategic direction of the Company’s
business;
	 
	 	(iv)	 	any merger, consolidation or other business combination to which the Company or
any of its Subsidiaries is a party, or any other transaction to which the Company is a
party resulting in a Change of Control of the Company;
	 
	 	(v)	 	any sale, lease, pledge, assignment or other disposition of assets of the
Company in an amount (in terms of consideration to be received by the Company) in
excess of ¥5,000,000 in one transaction or a series of related transactions, other than
as




6









 






EXECUTION VERSION






	 	 	 	expressly provided for in the FA Operative Documents or as set forth in the most
recently approved Business Plan;
	 
	 	(vi)	 	the approval of any transaction or agreement between the Company and any
Shareholder or any of their respective Affiliates (other than transactions or
agreements expressly provided for or authorized by an FA Operative Document or the most
recently approved Business Plan) or any amendment thereto (including the waiver of any
material term thereof), other than any such transaction, agreement or amendment that
contains generally available, arm’s length commercial terms and is in an amount (in
terms of payments to be made or the value of services or products to be provided or
delivered) less than ¥5,000,000 for any single transaction or agreement or for
substantially identical transactions within a 24 month period (or a waiver that does
not materially adversely affect the rights and benefits of the Company), other than as
set forth in the most recently approved Business Plan;
	 
	 	(vii)	 	incurring Indebtedness in an amount in excess of ¥1,000,000 or an increase in
aggregate Indebtedness in excess of ¥1,000,000 in any calendar quarter, other than as
authorized by Section 5.1(d) (Matters Requiring the Approval of the Board of
Directors);
	 
	 	(viii)	 	with respect to the Company or any of its Subsidiaries, (A) the voluntary
commencement of any proceeding or the voluntary filing of any petition seeking relief
under Japanese or foreign bankruptcy, insolvency, receivership or similar law, (B) the
consent to the institution of, or the failure to contest in a timely and appropriate
manner, any involuntary proceeding or any involuntary filing of any petition of the
type described in clause (A) above, (C) the application for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar
official for the Company, or for a substantial part of its property or assets, (D) the
filing of an answer admitting the material allegations of a petition filed against the
Company in any such proceeding described above, (E) the consent to any order for relief
issued with respect to any such proceeding described above, (F) the making of a general
assignment for the benefit of creditors, (G) the admission in writing of the Company’s
inability, or the failure of the Company generally, to pay its debts as they become due
or (H) the taking of any action for the purpose of effecting any of the foregoing;
	 
	 	(ix)	 	subject to Section 9.1(a) and Appendix A, the granting of consent to
the transfer of any Shares;
	 
	 	(x)	 	the winding up, dissolution or liquidation of the Company or any of its
Subsidiaries (other than the dissolution of the Company pursuant to and as contemplated
by Section 11 (Dissolution));
	 
	 	(xi)	 	the acquisition of any business, entry into any joint venture or partnership,
or creation of any direct or indirect Subsidiary of the Company;




7









 






EXECUTION VERSION






	 	(xii)	 	the commitment of the Company to any development project;
	 
	 	(xiii)	 	the sale, license, assignment or other Transfer of any of the Company’s intellectual
property owned or in its possession (including any technology or know-how, whether or
not patented, any trademark, trade name or service mark, any copyright or any software
or other method or process);
	 
	 	(xiv)	 	any increase or decrease in the capital amount of the Company, whether by
increasing the number of the Shares or otherwise;
	 
	 	(xv)	 	any other matter material to the operation, staffing, business or financial
condition of the Company; and
	 
	 	(xvi)	 	any matter required by the Companies Act to be decided, in the case of a
limited liability company (tokurei yugen kaisha) by its shareholders.






	(b)	 	Each Shareholder may exercise its vote by proxy; provided, that such proxy shall submit to
the Company, prior to the relevant General Meeting of Shareholders, as defined in the
Companies Act (the “General Meeting of Shareholders”), a power of attorney duly signed
by the Shareholder and/or other document establishing its power of representation; and
provided, further, that the conferment of the power of proxy for one General Meeting of
Shareholders shall not be deemed to be a conferment of the power of proxy for any subsequent
General Meeting of Shareholders.
	 
	(c)	 	Notwithstanding the requirements of Section 4.1(a) (Matters Requiring the Approval of the
Shareholders) relating to agreements between the Company and any Shareholder or any of their
respective Affiliates, any question regarding a material default or alleged material default
(including any question regarding a breach of representation or alleged breach of
representation) under any FA Operative Document between the Company and any Shareholder or any
of their respective Affiliates shall be subject to the dispute resolution process set forth in
Sections 10.3(a) and (b) (Dispute Resolution; Deadlock).
	 
	4.2	 	General Meetings of Shareholders.
	 
	(a)	 	An annual General Meeting of Shareholders shall be held within three (3) months from the date
immediately following the last day of each Fiscal Year of the Company. A special General
Meeting of Shareholders may be held at any time and may be called by a resolution of the Board
of Directors or in any other manner permitted by the Companies Act or the Articles. All
General Meetings of Shareholders shall be called and held in accordance with the Articles and
the Companies Act. The General Meetings of Shareholders may be held at the Company’s
principal office or at any other location, or, if all the Shareholders agree, and to the
extent then permitted by the Companies Act, by telecommunications conferences by means of
which all persons participating in the meeting can hear and be heard by each other, provided
that such communications equipment continues to be operational throughout the meeting. To the
extent then permitted by the Companies Act, the Shareholders may by unanimous written consent
effect any resolution that could otherwise be resolved at a meeting of the Shareholders.




8









 






EXECUTION VERSION






	(b)	 	Except as otherwise provided in this Agreement, each Shareholder shall be entitled to one
vote for each Share owned by such Shareholder.
	 
	(c)	 	The minutes of every General Meeting of Shareholders shall be kept with the Company’s records
referred to in Section 5.5 (Records).
	 
	(d)	 	The quorum necessary for any General Meeting of Shareholders shall be those Persons entitled
to cast all of the votes held by the Shareholders. A quorum shall be deemed not to be present
at any meeting for which notice was not properly given under the Articles or the Companies
Act, unless the Shareholder as to whom such notice was not properly given attends such meeting
without protesting the lack of notice or duly executes and delivers a written waiver of notice
or a written consent to the holding of such meeting.
	 
	4.3	 	Restrictions on Shareholders. No Shareholder may, without the prior written consent
of the other Shareholder:
	 
	(a)	 	confess any judgment against the Company;
	 
	(b)	 	enter into any agreement on behalf of or otherwise purport to bind the other Shareholder or
the Company;
	 
	(c)	 	do any act in contravention of this Agreement;
	 
	(d)	 	except as contemplated by Section 11 (Dissolution), dispose of the goodwill or the business
of the Company; or
	 
	(e)	 	assign the property of the Company in trust for creditors or on the assignee’s promise to pay
any Indebtedness of the Company.
	 
	5.	 	Management and Operations of Company 
	 
	5.1	 	Meetings of the Board of Directors.
	 
	(a)	 	General. The Shareholders agree to form a steering committee consisting of Directors
nominated by each of the Shareholders. The Shareholders acknowledge and agree that while
under the Companies Act a limited liability company (tokurei yugen kaisha) does not have a
board of directors, for convenience they will in this Agreement (and elsewhere in the FA
Operative Documents) refer to such committee as the “Board of Directors” (“yakuin kai”).
Except as otherwise provided herein, as between the parties the Board of Directors is vested
with complete and exclusive power to direct and control the Company and to manage the Company
as provided by the Articles and this Agreement, as it may be amended from time to time. The
Board of Directors shall have the power to delegate such responsibilities as it may deem
appropriate from time-to-time (including certain day-to-day responsibilities set forth in
Section 5.2 (Officers; Employees) and Section 5.3 (Y4 Operating Committee)). The Shareholders
shall cooperate in taking any necessary corporate steps under the Companies Act to attain the
purposes of this Section 5, including without limitation, approval by the Directors and
general meeting of shareholders with respect to decisions made by the Board of Directors.




9









 






EXECUTION VERSION






	(b)	 	Members of the Board of Directors; Voting; etc.






	 	(i)	 	The Board of Directors of the Company shall consist of six (6) Directors, three
(3) of which shall be nominated by Toshiba, and the other three (3) of which shall be
nominated by SanDisk; provided that the total number of Directors of the Company may be
changed by mutual agreement of the Shareholders. Each Shareholder shall vote its
Shares to elect as Directors those persons nominated by the other Shareholder.
	 
	 	(ii)	 	Directors shall be elected to serve until complete adjournment of the annual
meeting of Shareholders for the fiscal year last to end within one (1) year after his
or her assumption of the directorship, and shall be eligible for re-election.
	 
	 	(iii)	 	Subject to the fiduciary duty of Directors under the Companies Act, each
Director shall serve at the pleasure of the designating Shareholder and may be removed
as such, with or without cause, and his successor designated, by the designating
Shareholder. Each Shareholder shall have the right to designate a replacement Director
in the event of any vacancy among such Shareholder’s appointees. Each Shareholder
shall vote its Shares in favor of any such removal and in favor of any such replacement
Director.
	 
	 	(iv)	 	Each Shareholder shall bear any cost incurred by any Director nominated by it
to serve on the Board of Directors, and no Director shall be entitled to compensation
from the Company for serving in such capacity.
	 
	 	(v)	 	Each Shareholder shall notify the other Shareholder and the Company of the
name, business address and business telephone, e-mail address and facsimile numbers of
each Director that such Shareholder has nominated. Each Shareholder shall promptly
notify the other Shareholder and the Company of any change in such Shareholder’s
nominated or of any change in any such address or number.
	 
	 	(vi)	 	For purposes of any approval or action taken by the Board of Directors, each
Director shall have one vote. Unless otherwise required under Japanese law, unanimous
agreement of all Directors is required for valid action to be taken by the Board of
Directors.
	 
	 	(vii)	 	At any meeting of the Board of Directors, each Director may exercise his vote
by proxy; provided, that such proxy shall submit to the Company, prior to the relevant
meeting, a power of attorney duly signed by the Director and/or other document
establishing its power of representation; and provided, further, that the conferment of
the power of proxy for one meeting of the Board of Directors shall not be deemed to be
a conferment of the power of proxy for any subsequent meeting of the Board of
Directors.
	 
	 	(viii)	 	The quorum necessary for any meeting of the Board of Directors shall be those
Directors entitled to cast all of the votes held by the members of the Board of
Directors. A quorum shall be deemed not to be present at any meeting for which




10









 






EXECUTION VERSION






	 	 	 	notice was not properly given under Section 5.1(c) (Meetings, Notices, etc.), unless
the Director or Directors as to whom such notice was not properly given attend such
meeting without protesting the lack of notice or duly execute and deliver a written
waiver of notice or a written consent to the holding of such meeting.






	(c)	 	Meetings, Notice, etc. Meetings of the Board of Directors shall be held at such
location or locations as may be selected by the Board of Directors from time to time.






	 	(i)	 	Regular meetings of the Board of Directors shall be held on such dates and at
such times as shall be determined by the Board of Directors and shall be held at least
on a quarterly basis, unless otherwise agreed by the Directors.
	 
	 	(ii)	 	Notice of any regular meeting or special meeting pursuant to Section
5.1(c)(iii) shall be given to each Director at least ten (10) Business Days prior to
such meeting in the case of a meeting in person or at least five (5) Business Days
prior to such meeting in the case of a meeting by conference telephone or similar
communications equipment pursuant to Section 5.1(c)(vii), which notice shall state the
purpose or purposes for which such meeting is being called and include any supporting
documentation relating to any action to be taken at such meeting.
	 
	 	(iii)	 	Special meetings of the Board of Directors may be called by any Director by
notice given in accordance with the notice requirements set forth in Section
5.1(c)(ii); provided that the Directors appointed by the Shareholder that is not
represented by the Director calling such special meeting shall be entitled to select a
convenient location for the meeting and to suggest an alternative time or times if the
designated time is not convenient for them. No action may be taken and no business may
be transacted at such special meeting which is not identified in such notice unless (A)
such action or business is incidental to the action or business for which the special
meeting is called or (B) such action or business does not materially adversely affect
any Shareholder or the Company.
	 
	 	(iv)	 	Each Shareholder may invite a reasonable number of observers to all meetings of
the Board of Directors.
	 
	 	(v)	 	The minutes of each meeting of the Board of Directors shall be delivered to all
Directors within twenty (20) calendar days after such meeting. Material to be
presented at a Board of Directors meeting shall be delivered to all Directors ten (10)
Business Days prior to such meeting if feasible in light of the circumstances giving
rise to the need for such meeting, or in any event a minimum of five (5) Business Days
prior to such meeting.
	 
	 	(vi)	 	The actions taken by the Board of Directors at any meeting, however called and
noticed, shall be as valid as though taken at a meeting duly held after regular call
and notice if (but not until), either before, at or after the meeting, each Director as
to whom such meeting was improperly held duly executes and delivers a written waiver of
notice or a written consent to the holding of such meeting; provided,




11









 






EXECUTION VERSION






	 	 	 	however, any Director who is present at a meeting and does not protest the failure
of notice shall be deemed to have received adequate notice thereof. A vote of the
Board of Directors may be taken only (A) at a meeting of the members thereof duly
called and held or (B) without a meeting by the execution by the Directors eligible
to cast all the votes on the Board of Directors of a consent setting forth the
action so taken, and identified as a unanimous written consent of the Directors.
	 
	 	(vii)	 	Upon the consent of both Representative Directors, meetings of the Board of
Directors may be held by conference telephone or similar communications equipment by
means of which all Directors participating in the meeting can be heard by all other
participants; provided that such communications equipment continues to be operational
throughout the meeting. Any Director may elect to participate in a meeting by
conference telephone or similar communications equipment upon sufficient advance notice
to permit arrangements therefor to be made.
	 
	 	(viii)	 	At each meeting, the Board of Directors shall consider (A) any of the items set forth
in Section 5.1(d) (Matters Requiring the Approval of the Board of Directors) that may
require the Board of Directors’ attention, (B) any items added to the Board of
Directors’ agenda for discussion by any Shareholder and (C) such other matters as the
Board of Directors decides to review; provided, however, that the Directors shall not
be required to vote or take other action (other than carrying on discussions) on
matters that were not placed on the meeting agenda at least five (5) Business Days in
advance of the time set for the meeting unless such action or business is incidental to
the action or business which was otherwise properly on the agenda and considered at
such meeting.
	 
	 	(ix)	 	The Board of Directors shall, from time to time, elect one of its members to
preside at its meetings. The Board of Directors may establish reasonable rules and
regulations to (A) require officers to call meetings and perform other administrative
duties, (B) limit the number and participation of observers, if any, and require them
to observe confidentiality obligations and (C) otherwise provide for the keeping and
distribution of minutes and other internal Board of Directors governance matters not
inconsistent with the terms of this Agreement.
	 
	 	(x)	 	Subject to the Companies Act, the Board of Directors shall have the authority
to establish subcommittees and to delegate to any such subcommittee any of the Board of
Directors’ responsibilities; provided, however, the power of the Board of Directors to
approve the matters set forth in Section 5.1(d) (Matters Requiring the Approval of the
Board of Directors) may not be delegated to a subcommittee.






	(d)	 	Matters Requiring the Approval of the Board of Directors. Notwithstanding any
provision of the Articles to the contrary, no action may be taken by or on behalf of the
Company in connection with any of the following matters without the unanimous written approval
of the Board of Directors:




12









 






EXECUTION VERSION












	 	(i)	 	any sale, lease, pledge, assignment or other disposition of assets of the
Company in an amount (in terms of consideration to be received by the Company) in
excess of ¥1,000,000 in one transaction or a series of related transactions, other than
as set forth in the most recently approved Business Plan;
	 
	 	(ii)	 	the approval of any transaction or agreement between the Company and any
Shareholder or any of their respective Affiliates (other than transactions or
agreements expressly provided for or authorized by an FA Operative Document or the most
recently approved Business Plan) or any amendment thereto (including the waiver of any
material term thereof), other than any such transaction, agreement or amendment that
contains generally available, arm’s length commercial terms and is in an amount (in
terms of payments to be made or the value of services or products to be provided or
delivered) less than ¥1,000,000 for any single transaction or agreement or for
substantially identical transactions within a 24 month period (or a waiver that does
not materially adversely affect the rights and benefits of the Company), other than as
set forth in the most recently approved Business Plan;
	 
	 	(iii)	 	the purchase, lease, license or other acquisition of (A) personal property or
services or (B) any list of capital equipment approved by the Shareholders, in each
case in an amount (in terms of payments to be made or the value of services of products
to be provided or delivered) exceeding ¥1,000,000 in any one transaction or a series of
related transactions, other than as provided for in the most recently approved Business
Plan;
	 
	 	(iv)	 	the selection of attorneys, accountants, auditors and financial advisors;
	 
	 	(v)	 	the adoption of accounting and tax policies, procedures and principles;
	 
	 	(vi)	 	incurring any Indebtedness;
	 
	 	(vii)	 	the hiring or termination of any employees referenced in Section 5.2(a)
(Officers; Employees) who are not members of the SanDisk Team, if any;
	 
	 	(viii)	 	the adoption of or changes to the forms of confidentiality, assignment or disclosure
of intellectual property or employment agreements to be entered into between the
Company and its employees;
	 
	 	(ix)	 	the adoption of or changes to any employee benefit plan, including any
incentive compensation plan;
	 
	 	(x)	 	the amount and timing of any distributions;
	 
	 	(xi)	 	the commencement or settlement of litigation by or against the Company;
	 
	 	(xii)	 	the purchase, sale or lease (as lessor or lessee) of any real property;
	 
	 	(xiii)	 	any acquisition of securities or any other ownership interest in any entity;




13









 






EXECUTION VERSION






	 	(xiv)	 	the making of any public announcements by or on behalf of the Company;
provided, that in any case any such public announcements must otherwise comply with the
requirements of Section 5.2 (Public Announcements) of the Master Agreement, if
applicable;
	 
	 	(xv)	 	the entry into or amendment of any collective bargaining arrangements or the
waiver of any material provision or requirement thereof;
	 
	 	(xvi)	 	the approval of a proposed Business Plan, or the amendment to the most
recently approved Business Plan, in each case including the operating budget contained
therein;
	 
	 	(xvii)	 	the incurrence of capital expenditures in excess of those provided for in the most
recently approved Business Plan or the commitment of the Company to any development
projects other than as provided for in the most recently approved Business Plan;
	 
	 	(xviii)	 	subject to Section 5.1(c)(x), the establishment of any subcommittees or delegation
of authority of the Board of Directors;
	 
	 	(xix)	 	the authorization and approval of any filing with, public comments to, or
negotiation/discussion with, any Governmental Authority (excluding regular operating
filings and other routine administrative matters);
	 
	 	(xx)	 	the approval of Unique Activities to be performed by the Company at the request
of any Shareholder, in connection with which the Board of Directors shall be satisfied
that such Shareholder has reached agreement with the Company as to the payment by such
Shareholder of all costs incurred in connection with such Unique Activities and that
adequate provision has been made by such Shareholder for the funding of any additional
required capital expenditures required in conjunction with such Unique Activities;
	 
	 	(xxi)	 	the decision of the Company to negotiate external sources of additional wafer
fabrication capacity for NAND Flash Memory Products;
	 
	 	(xxii)	 	any dispute referred to the Board of Directors by the Y4 Operating Committee pursuant
to Section 5.3(b); and
	 
	 	(xxiii)	 	such other matters as the Board of Directors decides, in its sole discretion, to
review.






	5.2	 	Officers; Employees.






	(a)	 	Unless otherwise mutually agreed by the Shareholders, the Directors of the Company with
specific titles shall be designated as: the Representative Director/President/Chief Executive
Officer (“President”) and the Representative Director/Executive Vice President
(“Executive Vice President”). The President and Executive Vice President shall be
elected by the Board of Directors and serve three successive one-year terms, with the first




14









 






EXECUTION VERSION






	 	 	such set of terms ending at complete adjournment of the annual meeting of Shareholders for
the fiscal year last to end within one (1) year after his or her assumption of the
officership. Toshiba shall have the right to nominate the first President and SanDisk shall
have the right to nominate the first Executive Vice President, and then the Shareholders
will then alternate such nominating rights for each three year term for such positions. Each
nominee for the President and for the Executive Vice President shall be subject to the
consent of the non-nominating Shareholder, which consent shall not unreasonably be withheld.
In addition to the President and Executive Vice President, the Board of Directors may
appoint such other officers from time to time as it deems necessary or advisable in the
conduct of the business and affairs of the Company. Any individual may hold more than one
office.






	(b)	 	The President shall have the authority to retain other senior management of the Company,
subject to the prior approval of the Board of Directors.






	(c)	 	The Company shall have agreements with and policies applicable to each of its officers,
employees and consultants who are not members of the SanDisk Team, in forms acceptable to each
Shareholder, and shall also have appropriate arrangements with its members of the SanDisk
Team, in each case with respect to (i) protection of confidential information, (ii) patent and
copyright assignment, (iii) invention disclosure (including improvements and advances) and
assignments thereof and (iv) in respect of certain employees who are not members of the
SanDisk Team, non-competition.






	5.3	 	Y4 Representatives; Y4 Operating Committee.
	 
	(a)	 	The Company shall have an Operating Committee for Y4 Facility operations (the “Y4
Operating Committee”) consisting of a senior executive designated by each of SanDisk and
Toshiba (each such individual the “SanDisk Representative” and the “Toshiba
Representative,” respectively) each of whom shall represent the designating Party on a
day-to-day basis at the Y4 Facility. Each Shareholder shall notify the other Shareholder in
advance of any replacement of its representative. If a Shareholder requests in good faith
that the other Shareholder’s representative be replaced with another person from the other
Shareholder’s organization, the other Shareholder shall consider and discuss in good faith
with the requesting Shareholder such request, provided that such replacement, if any, shall be
determined solely by such other Shareholder. [*]
	 
	(b)	 	The Y4 Operating Committee shall work together and endeavor to make the Y4 Facility the most
advanced and competitive memory fabrication facility in the world. The Y4 Operating Committee
shall have the authority to determine all matters concerning the day-to-day operations of the
Company and the Y4 Facility [*] subject to those matters reserved herein to the Board of
Directors or the Shareholders as well as to the requirements of this Agreement, the Articles
and the Companies Act. The Y4 Operating Committee shall communicate on a day-to-day basis with
respect to the status of Y4 Facility operations and any other issues that may arise, and shall
meet in person no less than two (2) times per week, or such other times and frequency as may
be agreed upon by all members of such committee. If the members of the Y4 Operating Committee
are unable to agree on any issue after thirty (30) days, they shall submit such matter
together







 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.





15









 






EXECUTION VERSION






	 	 	with their respective recommendations to the Board of Directors, which shall endeavor to
immediately resolve the issue. If the Board of Directors is unable to agree on any such
issue after ten (10) days, such issue shall be submitted to the Management Committee for
final resolution.
	 
	(c)	 	The Y4 Operating Committee shall hold a monthly review meeting in English at the Yokkaichi
Facility on [*] of each calendar month, unless otherwise agreed by the Shareholders
or the Y4 Operating Committee. The Y4 Operating Committee shall prepare and distribute to
each Shareholder (at least three Business Days in advance of the monthly review meetings)
monthly reports in English with respect to the engineering activities, operations and
financial affairs of the Company and the Y4 Facility.
	 
	(d)	 	Upon the request of either Shareholder, the Y4 Operating Committee shall provide the
Shareholders with (i) any management or operation reports of the Company related to the Y4
Facility (which neither Shareholder shall have an obligation to translate) and (ii)
simultaneously in Japanese and English, those management and operating reports identified on
Schedule 5.3 as mutually agreed upon from time to time by the Parties. Upon reasonable
request from SanDisk, Toshiba employees shall explain such reports to SanDisk’s employees and
respond to questions from SanDisk’s employees; provided, however that SanDisk acknowledges and
agrees that Toshiba shall not be responsible for SanDisk’s failure to understand any such
reports.
	 
	5.4	 	Insurance. The Company shall maintain insurance against such liabilities and other
risks associated with the conduct by the Company of its business and in such amounts and
against such risks as agreed by the Shareholders, and in any event as is generally maintained
by companies engaged in a business similar to that of the Company.
	 
	5.5	 	Records. The Company shall maintain the following records at its principal office:
	 
	(a)	 	a current list of the full name set forth in alphabetical order and last known business
address of each Shareholder and Director;
	 
	(b)	 	a copy of the Articles, and all articles of amendment thereto;
	 
	(c)	 	a copy of this Agreement and all amendments hereto;
	 
	(d)	 	a copy of all financial statements of the Company for the three most recent Fiscal Years;
	 
	(e)	 	a copy of the Company’s income tax or information returns and reports, if any, for the three
most recent years;
	 
	(f)	 	a copy of all indentures, loan agreements, lease agreements, guarantees, security agreements,
promissory notes, licensing or other intellectual property agreements, agreements that relate
to the payment or receipt by the Company of amounts in excess of ¥5,000,000 or that are not
terminable by the Company upon ninety (90) days notice,







 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




16









 






EXECUTION VERSION











	 	 	documents, if any, evidencing employee compensation arrangements, employee pension or other
benefit arrangements, and similar documents and instruments executed and delivered by the
Company;
	 
	(g)	 	a list of all contributions made to the Company by the Shareholders; and
	 
	(h)	 	a record of all distributions by the Company to each Shareholder.




The Shareholders and/or the Directors and/or their respective designees (which shall be limited to
its employees or professional advisers subject to appropriate confidentiality obligations) shall
have reasonable access to the records during normal business hours upon reasonable request. Copies
of records shall be made available and delivered to the Shareholders and/or the Directors promptly
after reasonable request for same, provided the requesting party pays for copy and delivery
charges.





	6.	 	Capital Contributions; Distributions 
	 
	6.1	 	Capital Contributions.
	 
	(a)	 	The Shareholders shall be deemed to have made Capital Contributions to the Company in the
amounts set forth opposite their respective names on Schedule 6.1.
	 
	(b)	 	Except as provided in Section 2.1(b), no Shareholder shall be obligated to make any
additional Capital Contributions to the Company, unless otherwise mutually agreed upon by the
Shareholders in writing, in which case such additional Capital Contributions shall be made in
proportion to the Shareholders’ respective Percentages as of the date of such additional
Capital Contribution.
	 
	6.2	 	Distributions.
	 
	(a)	 	General. Notwithstanding any provision of the Articles to the contrary, and subject
to Section 11.8 (Liquidation Proceeds), unless otherwise agreed by the Shareholders, no
distributions of cash (or in the case of Section 11.8, other property) shall be made by the
Company to the Shareholders for a period of three (3) years from the date of this Agreement,
and thereafter all distributions of cash (or, in the case of Section 11.8, other property) by
the Company to the Shareholders shall be made in Japanese Yen at the times and in the amounts
determined by the Board of Directors. Except as provided in Section 11.8, each distribution
to the Shareholders shall be made on a pro rata basis based upon the respective Percentages of
the Shareholders as of the date of such distribution.
	 
	(b)	 	Distribution for Taxes. Notwithstanding Section 6.2(a), subject to the Companies Act
and other applicable law, the Company shall make, in respect of each Fiscal Year in which
SanDisk must recognize taxable income of the Company in SanDisk’s US federal, state and local
income and franchise tax returns, a distribution to SanDisk to the extent necessary to meet
SanDisk’s aggregate US tax liability with respect to such taxable income, with such liability
calculated at the highest US, state and local corporate tax rates as may be then applicable to
SanDisk. SanDisk will make a request upon the Company




17









 






EXECUTION VERSION






	 	 	for such distribution as soon as is practicable after the filing of SanDisk Corporation’s
applicable US tax returns. Following receipt of such request, the Company shall make the
requested distribution on the next date on which the Company is permitted to make
distributions pursuant to the Companies Act. Simultaneously therewith, the Company shall
also make a distribution to Toshiba in an amount equal to the amount of the per Share
distribution made to SanDisk pursuant to this Section 6.2(b). Any such prior distributions
shall be taken into account upon any purchase and sale of Shares under Section 10 (Certain
Agreements of the Shareholders) or dissolution of the Company under Section 11 (Dissolution)
hereof. If necessary, the Board of Directors shall consider capital reductions to the
extent that any such capital reduction will not adversely affect the Y4 Facility’s
operations.
	 
	6.3	 	No Interest. No interest shall be payable to the Shareholders on their Capital
Contributions or otherwise in respect of the capital of the Company.
	 
	6.4	 	Return of Capital Contributions. Except as expressly provided herein, no Shareholder
shall be entitled to the return of any part of such Shareholder’s Capital Contributions.
	 
	7.	 	Additional Contributions
	 
	 	 	No Shareholder shall be obligated under this Agreement or the Articles to contribute any
additional amounts to the Company or otherwise to be liable for the debts and obligations of
the Company.
	 
	8.	 	Accounting and Taxation 
	 
	8.1	 	Financial Accounting Conventions.
	 
	(a)	 	The Company shall adopt and follow Japanese GAAP.
	 
	(b)	 	Notwithstanding anything to the contrary in Appendix A, the first Fiscal Year shall
begin on the date of formation of the Company and end on March 31, 2007.
	 
	(c)	 	The Company shall in principle (but subject to applicable Law) utilize a five-year straight
line depreciation method for manufacturing equipment.
	 
	8.2	 	Maintenance of Books of Account. The Company shall keep or cause to be kept at its
principal office, or such other location as the Board of Directors shall designate, full and
complete books of account. The books of account shall be maintained in a manner that provides
sufficient assurance that transactions of the Company are recorded so as to comply with all
applicable laws and to permit (a) the preparation of the Company’s consolidated financial
statements in accordance with Japanese GAAP and (b) the Shareholders to account for their
interest in the Company in accordance with Japanese GAAP.
	 
	8.3	 	Financial Statements.




18









 






EXECUTION VERSION






	(a)	 	Annual Statements. As soon as practicable following the end of each Fiscal Year (and
in any event not later than fifty-two (52) days after the end of such Fiscal Year), the
Company shall prepare and deliver to each Shareholder and each Director, audited consolidated
and consolidating balance sheets of the Company as of the end of such Fiscal Year and the
related audited consolidated and consolidating statements of operations, the Shareholders’
capital accounts and cash flows of the Company for such Fiscal Year (or similar statements if
such statements change as the result of changes in Japanese GAAP), together with appropriate
notes to such consolidated financial statements, and in each case setting forth in comparative
form the corresponding figures for the preceding Fiscal Year and for the budget for the Fiscal
Year just completed. Such financial statements shall be accompanied by (i) the report of the
Accountants to the effect that such financial statements (except for the comparison to the
budget) have been prepared in conformity with Japanese GAAP (except as otherwise specified in
such report) and that the audit of such financial statements has been performed in accordance
with Japanese GAAP and (ii) a report as to all transactions (including the nature, type and
amount) between the Company and each Shareholder and their respective Affiliates. The Company
shall conduct its business such that the report of the Accountants shall not contain any
qualifications as to the scope of the audit or with respect to the Company’s compliance with
Japanese GAAP, except for changes in methods of accounting in which such Accountants concur
and except that the foregoing shall not be deemed to obligate any Shareholder to contribute
any capital to the Company. The Company shall also provide SanDisk with an English version of
such report, which shall contain sufficient data to enable SanDisk to prepare a reconciliation
of the Company’s financial reports from Japanese GAAP to United States GAAP. The Company
shall deliver to SanDisk, at SanDisk’s request and expense, any other financial information
related to the Company that is reasonably requested by SanDisk for US Federal, state, and
local income or franchise tax purposes.
	 
	(b)	 	Quarterly Statements.






	 	(i)	 	As soon as practicable following the end of each Fiscal Quarter (and in any
event not later than ten (10) days after the end of such Fiscal Quarter), the Company
shall prepare and deliver to each Shareholder and each Director unaudited consolidated
and consolidating balance sheets of the Company as of the end of such Fiscal Quarter
and the related unaudited consolidated and consolidating statements of operations, the
Shareholders’ capital accounts and cash flows of the Company for such Fiscal Quarter
and for the Fiscal Year to date (or similar statements if such statements change as the
result of changes in Japanese GAAP), in each case setting forth in comparative form the
corresponding figures for the preceding Fiscal Quarter, for the corresponding Fiscal
Quarter of the preceding Fiscal Year and for the budget for the Fiscal Quarter just
completed and for the Fiscal Year to date.
	 
	 	(ii)	 	The financial statements for such Fiscal Quarter shall be accompanied by a
certificate of the principal accounting or financial officer of the Company to the
effect that such financial statements have been prepared under such officer’s




19









 






EXECUTION VERSION






	 	 	 	supervision and that, although such financial statements do not contain the
footnotes and other disclosures required to be presented in interim financial
statements by Japanese GAAP, such financial statements, in such officer’s judgment,
fairly present the financial condition and results of operations of the Company as
of the date and for the periods indicated, subject to normal recurring year-end
audit adjustments. The Company shall deliver to SanDisk, at SanDisk’s request and
expense, any other financial information related to the Company that is reasonably
requested by SanDisk for US financial reporting or Federal, state, and local income
or franchise tax purposes.






	(c)	 	The Company shall obtain a professional tax audit from a qualified accountant complying with
Japanese GAAP by May 22 of each year (including an English translation thereof). As part of
its engagement of its auditors, the Company shall cause its auditors to provide such English
language financial statements, audit reports, US GAAP reconciliations and consents as are
required (or reasonably requested by SanDisk) in connection with SanDisk Corporation’s filings
with the United States Securities and Exchange Commission; provided that SanDisk shall pay for
all the costs relating to such auditors’ work. SanDisk may also request that the Company
provide SanDisk with “comfort letters” in the manner customary for Japanese auditors in
connection with public offerings in the United States, at SanDisk’s own expense.






	(d)	 	Monthly Reports. Each month, the Company shall prepare and deliver to each
Shareholder and each Director the reports and other information set forth on Schedule
8.3. Such reports and other information will become available at the respective times set
forth on Schedule 8.3.






	(e)	 	Business Plan. Subject to Sections 10.3(c), (e) and (f), and provided that the most
recently approved Business Plan does not provide for the next Fiscal Year, the Company shall,
not later than [*] prior to the commencement of each Fiscal Year, deliver to each
Shareholder a copy of the Business Plan, including the Company’s monthly budgets, for the
upcoming Fiscal Year, as approved by the Board of Directors.






	(f)	 	Legal Proceedings. The Company shall promptly inform each Shareholder and each
Director with regard to litigation, governmental investigations, material government notices
and threatened legal proceedings.






	8.4	 	Other Reports and Inspection. The Company shall furnish promptly to each Shareholder
such other reports, financial data and information relating to the Company as such Shareholder
may reasonably request and shall require the Accountants to provide to each Shareholder copies
of any document related to the Company in the possession of the Accountants as such
Shareholder may reasonably request. The Company shall, upon reasonable prior notice and
during normal business hours, make available to each Shareholder and their respective
professional advisors, from time to time as requested by such Shareholder, all properties,
assets, books of account, corporate records, contracts and documentation, if any, relating to
employee benefits of the Company, and any other







 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




20









 






EXECUTION VERSION










    
     material requested by such Shareholder for inspection and, in the case of books of account,
corporate records, contracts and documentation, if any, relating to employee benefits,
copying, and shall use reasonable efforts to make available to such Shareholder the
Accountants and the key employees of the Company for interviews to verify any information
furnished or to enable such Shareholder otherwise to review the Company and its operations.
The Company may condition such availability upon the entering into of reasonable and
appropriate confidentiality agreements. Notwithstanding the foregoing, the Company will not
make available to any Shareholder information provided to the Company on a confidential
basis by any other Shareholder without the consent of such other Shareholder.



     8.5 Deposit of Funds. All funds of the Company and its Subsidiaries not otherwise
employed shall be deposited from time to time to its credit in such banks, trust companies or
other depositories, or invested in such other investments held as cash equivalents, as the
Board of Directors shall authorize. The funds of the Company and its Subsidiaries shall not
be commingled with the funds of any Shareholder or any of their respective Affiliates.



     9. Shares of Contribution; Disposition of Shares 



     9.1 Restrictions on Transfer of Shares.



     (a) No Shareholder (nor any permitted transferees of any Shareholder) may Transfer any interest
in the Company, including any of such Shareholder’s Shares, to any Person, except by a Change
of Control; provided, that any Shareholder may Transfer all of its interest in the Company,
including all of its Shares, subject to the Companies Act, to any one (1) of their respective
Affiliates, with the prior written consent of every other Shareholder, which consent shall not
be unreasonably withheld; and provided, further, that (i) the transferee agrees in writing to
become a party hereto and assumes all the obligations of the transferring Shareholder
hereunder and under each other FA Operative Document to which the transferring Shareholder is
a party (except to the extent the express terms of the Patent Indemnification Agreement
condition its transferability on the consent of the non-transferring Shareholder and such
Shareholder has not consented to Transfer thereof), and (ii) immediately after giving effect
to such Transfer, no Event of Default or an event or condition that with the giving of notice
or lapse of time or both would constitute an Event of Default with respect to the transferee
Shareholder shall exist. Following the effectiveness of any such Transfer, the transferring
Shareholder shall no longer have the transferred right, title or interest in the Company or
any rights under this Agreement and the transferee shall be substituted as a Shareholder for
all purposes of this Agreement. The transferring Shareholder shall, however, remain
responsible for all obligations under this Agreement and the other FA Operative Documents for
any transferee which is an Affiliate of the transferring Shareholder and shall not be released
or discharged from any existing liability or obligation to any Person. Any subsequent
Transfer of an ownership interest in such Affiliate by the transferring Shareholder shall be
deemed to constitute a Transfer of Shares requiring compliance with this Section 9.1.



21









 






EXECUTION VERSION





     (b) If a Shareholder Transfers its entire interest in the Company pursuant to Section 9.1(a), the
transferee shall succeed to all the rights and obligations of such Shareholder under this
Agreement.



     (c) Any Shareholder may agree to pay amounts equal to distributions received by such Shareholder
from the Company to a third party in its sole discretion pursuant to a Permissible Assignment
Agreement. “Permissible Assignment Agreement” means an agreement between a
Shareholder and another Person (the “Permissible Assignee”) which:




	 	(i)	 	provides for the grant by such Shareholder to the Permissible Assignee of the
right to receive amounts equal to distributions received by such Shareholder from the
Company pursuant to Section 6 or 11 of this Agreement, but does not give the
Permissible Assignee any Shares or any other rights whatsoever with respect to the
Company;
	 
	 	(ii)	 	provides that under no circumstances (including any Bankruptcy Event in respect
of such Shareholder) may any claim be made by the Permissible Assignee against the
Company or any such Shareholder or any Affiliate of any such Shareholder or any of
their respective assets, under or in connection with such agreement, even if such
Shareholder defaults in performance thereunder;
	 
	 	(iii)	 	provides that the rights of the Permissible Assignee under such agreement may
not be transferred without the prior written consent of each Shareholder and that any
such Transfer without such consents shall be null and void;
	 
	 	(iv)	 	may not be amended, nor any provision thereof waived, in a manner that would
cause it not to be a Permissible Assignment Agreement, without the prior written
consent of the non-assigning Shareholder;
	 
	 	(v)	 	provides that the assigning Shareholder is authorized to Transfer its entire
interest in the Company pursuant to Section 9.1(a) free and clear of any interest of
the Permissible Assignee and without any liability on the part of the transferee
thereunder to the Permissible Assignee; and
	 
	 	(vi)	 	contains an express acknowledgment by the Permissible Assignee, for the benefit
of the non-assigning Shareholder and the Company, to the effect of clauses (i)-(v)
above.






	 	 	The assigning Shareholder shall ensure that any payment due to a Permissible Assignee
pursuant to or in connection with a Permissible Assignment Agreement shall be made in full
to such Permissible Assignee when due.
	 
	9.2	 	Admission of New Shareholders. No Person shall have the right to become a
Shareholder unless and until all the following conditions are satisfied:




22









 






EXECUTION VERSION






	(a)	 	except in the case of a Transfer of all of a Shareholder’s Shares to an Affiliate of such
Shareholder in accordance with Section 9.1(a) (Restrictions on Transfer of Shares), such
Person, the terms and conditions of such Person’s admission as a Shareholder and the rights
appurtenant to the Shares to be issued or Transferred, as applicable, to such Person are
approved by all existing Shareholders and, if applicable, the creation of any new class or
group of Shares in the Company having different rights, powers and duties is reflected in
amendments to the Articles and to this Agreement;
	 
	(b)	 	such Person executes a counterpart of this Agreement and such other instrument or instruments
as the Company and a non-transferring Shareholder may reasonably deem appropriate to affirm
that the representations and warranties contained in the Master Agreement are true and correct
with respect to such Person and that such Person agrees to be bound as a Shareholder by this
Agreement and all of the covenants and agreements herein; and
	 
	(c)	 	if requested by the Company, an opinion of counsel, a purchaser representation letter or
other appropriate documentation is furnished to the Company establishing that the issuance or
Transfer, as applicable, of Shares to the new Shareholder will comply with the Companies Act.
	 
	 	 	Except to the extent required by law, the Company shall have no obligation to recognize or
to furnish information or make distributions to any new Shareholder or any transferee of a
Shareholder who does not become a Shareholder in accordance with Section 9.1 (Restrictions
on Transfer of Shares) or this Section 9.2.
	 
	9.3	 	Withdrawal Prohibited. Except as otherwise expressly permitted by this Agreement,
(i) no Shareholder may withdraw from the Company and (ii) no Shareholder may effect or cause a
termination or dissolution of the Company without the prior written consent of all other
Shareholders (which consent may be withheld in such other Shareholder’s sole discretion).
	 
	9.4	 	Purchase of Additional Interest. At any time during the term of this Agreement and
so long as SanDisk is a Shareholder, SanDisk shall have the right to purchase from Toshiba
that number of Shares which is equal to 0.1% of the total number of Shares then issued and
outstanding in the event that (i) Toshiba’s patent umbrella does not adequately protect the
Company or (ii) dissolution of the Company is commenced pursuant to Section 11 hereof. The
purchase price of such Shares shall equal [*] as of the date of such transaction.
	 
	10.	 	Certain Agreements of the Shareholders
	 
	10.1	 	Taxes and Charges; Governmental Rules. Each Shareholder shall (a) promptly pay all
applicable Taxes and other governmental charges imposed against such Shareholder except to the
extent any such Taxes or other charges are being contested in good faith by appropriate
proceedings and (b) comply with all applicable Governmental Rules, in each







 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




23









 






EXECUTION VERSION











	 	 	case except to the extent that nonpayment or noncompliance will not have a material adverse
effect on the Company.
	 
	10.2	 	Further Assurances. Following the Closing, each Shareholder shall, and shall cause
its Affiliates and the Company to take all reasonable actions necessary or appropriate to,
effectuate the transactions contemplated by this Agreement, and to obtain (and cooperate with
the other Shareholder in obtaining) any Governmental Action or third party consent required to
be obtained or made by it in connection with the transactions contemplated by this Agreement;
provided, that no Burdensome Condition shall be made to exist with respect to such Shareholder
or any of its Affiliates in connection therewith.
	 
	10.3	 	Dispute Resolution; Deadlock.
	 
	(a)	 	The Shareholders shall endeavor to settle, through their respective designees to the Board of
Directors, any disputes which may arise between them, including without limitation, failure by
the Board of Directors to reach agreement (or failure to take a vote) on any matter requiring
Directors approval pursuant to Section 5.1(d) (Matters Requiring the Approval of the Board of
Directors). The Shareholders shall attempt to resolve the issue or proposed action in
question, to the extent practicable, in a manner consistent with the Company’s most recently
approved Business Plan, unless the issue in dispute is the adoption of a new Business Plan, in
which case the provisions of Sections 10.3(c), (e) and (f) shall apply.
	 
	(b)	 	If (i) the Shareholders are unable to agree on any matter requiring the approval of the
Shareholders pursuant to Section 4.1(a) (Matters Requiring the Approval of the Shareholders),
(ii) the Board of Directors is unable to agree on any matter requiring the approval of the
Board of Directors pursuant to Section 5.1(d) (Matters Requiring the Approval of the Board of
Directors) (other than the approval of any Business Plan, with respect to which the failure to
agree shall be governed by Sections 10.3(c), (e) and (f)) or (iii) the Shareholders or the
Board of Directors are otherwise unable to resolve a dispute on any other item (other than the
approval of any Business Plan, with respect to which the failure to agree shall be governed by
Sections 10.3(c), (e) and (f)), then any Shareholder may bring the matter to the attention of
the General Manager Memory Division, Semiconductor Company of Toshiba, and the Chief Operating
Officer of SanDisk (the “Designated Individuals”), who will attempt to find a
resolution. If the matter has not been resolved within thirty (30) days of referral to the
Designated Individuals, the matter will be referred to the Management Committee for a final
decision, which decision will be final and binding on the Company and the Shareholders with
respect to any matter specified in Sections 10.3(b)(i) and (ii) above. If an agreement is
reached by the Management Committee, the mutually agreed resolution shall be implemented by
the Company. Should no solution be agreed upon within thirty (30) days after submission of
the matter to the Management Committee with respect to the matters specified in (iii) above,
such matter shall be submitted to arbitration in accordance with Section 2.5 of the Appendix
A. Should no solution be agreed upon within sixty (60) days after submission of the matter to
the Management Committee with respect to the matters specified in Sections 10.3(b)(i) and (ii)
above, then the action for which approval was




24









 






EXECUTION VERSION






	 	 	requested will not occur, unless it is already included in the most recently approved
Business Plan.
	 
	(c)	 	Except as provided below, if by [*] of any calendar year during the term of this
Agreement, commencing [*], the Board of Directors and the Shareholders have not approved and
agreed upon a Business Plan for the upcoming Fiscal Year, then any Shareholder may refer the
dispute to the Management Committee for a decision, which decision shall be final and binding
on the Company and the Shareholders. If a decision is reached by agreement of the Management
Committee, such decision shall be implemented by the Company. Should no decision be reached
within ninety (90) days after submission of the matter to the Management Committee, and unless
the Shareholders have agreed to continue operations under the most recently approved Business
Plan until a new Business Plan is approved, then within ten (10) Business Days thereafter any
Shareholder may elect by written notice to all other Shareholders to declare a deadlock
(“Deadlock”), except with respect to any issue where the Master Agreement expressly
prohibits declaration of a Deadlock.
	 
	(d)	 	If demand for both Shareholder’s NAND Flash Memory Products is significantly below
expectations, they shall address the matter as contemplated in Section 6.7(b)(ii) of the
Master Agreement.
	 
	(e)	 	Within thirty (30) days after a Shareholder has notified the other Shareholder of a Deadlock,
either Shareholder (the “Initiating Shareholder”) may submit to the other Shareholder
(the “Responding Shareholder”) a written irrevocable notice (the “Deadlock
Dissolution Notice”) to the effect that the Initiating Shareholder offers to sell to the
Responding Shareholder or its designee the Initiating Shareholder’s Shares for a cash payment,
by wire transfer of immediately available Japanese Yen, in an amount equal to the [*] as of
the date of such transaction multiplied by the Initiating Shareholder’s Percentage as of such
date.
	 
	(f)	 	The Responding Shareholder may accept such offer by written response to the Initiating
Shareholder within forty-five (45) days of receipt of the Deadlock Dissolution Notice
indicating that the Responding Shareholder elects to purchase the Shares of the Initiating
Shareholder. If the Responding Shareholder declines to exercise its right to purchase the
Shares of the Initiating Shareholder pursuant to this Section 10.3 or fails to respond to such
Deadlock Dissolution Notice (or if both Shareholders submit Deadlock Dissolution Notices), the
Company shall be dissolved pursuant to Section 11.1(d) (Events of Dissolution), at the end of
a one-year period for the wind-down of operations commencing with the receipt of the Deadlock
Dissolution Notice by the Responding Shareholder. During such one-year period, the Company’s
business shall be conducted in accordance with the most recently approved Business Plan except
that additional capital expenditures will not be made except as required for line maintenance.
	 
	10.4	 	Remedies Upon Event of Default; Termination on Breach. If there has occurred and is
continuing an Event of Default with respect to a Shareholder (upon such occurrence, such







 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




25









 






EXECUTION VERSION











	 	 	Shareholder is referred to herein as the “Defaulting Shareholder”), in addition to
all other remedies available to the Company or the other Shareholder (the “Nondefaulting
Shareholder”), whether under any of the FA Operative Documents or other agreements or by
law, the Nondefaulting Shareholder shall have the option to take one or more of the
following actions:
	 
	(a)	 	give written notice to the Defaulting Shareholder of its intention to acquire all of the
Shares of the Defaulting Shareholder for a cash payment, by wire transfer of immediately
available Japanese Yen, in an amount equal to the [*] as of the date of such
transaction multiplied by the Defaulting Shareholder’s Percentage as of such date; and/or
	 
	(b)	 	elect to dissolve the Company pursuant to Section 11.3 (Dissolution Upon Event of Default),
in which case the affairs of the Company shall be wound up and the Company shall be dissolved
in accordance with Section 11 (Dissolution).
	 
	10.5	 	Mechanics of Sale.
	 
	(a)	 	The closing of any purchase and sale of Shares pursuant to Section 10.3 (Dispute Resolution;
Deadlock), 10.4 (Remedies Upon Event of Default; Termination on Breach), 11.4 (Dissolution by
Unilateral Option) or 11.5 (Dissolution Upon Notice) shall take place not later than the
thirtieth (30th) Business Day after notice of the purchase is given, as the case may be,
except that such period shall be extended as necessary in order to comply with any
Governmental Rule. The purchasing Shareholder shall pay for the Shares being acquired by wire
transfer of immediately available funds in Japanese Yen to an account specified by the selling
Shareholder. The selling Shareholder shall execute all documents necessary to effect the
conveyance of its Shares, free and clear of all Liens, to the purchasing Shareholder. In
addition, the Shareholders shall enter into an indemnity and release agreement, in a form
reasonably satisfactory to each Shareholder, indemnifying and holding harmless the selling
Shareholder and its Affiliates for liabilities or claims made after the date of the purchase
and sale under any guarantees or other agreements supporting the obligations of the Company
which may have been extended by the selling Shareholder or any of its Affiliates. The
Shareholders shall also reach agreement on a reasonable transition plan of up to six months in
connection with services provided to the Company by members of the SanDisk Team assigned to
the Company by the Selling Shareholder.
	 
	(b)	 	If a Shareholder elects to acquire all of the Shares of the other Shareholder pursuant to
Section 10.3 (Dispute Resolution; Deadlock), 10.4 (Remedies Upon Event of Default; Termination
on Breach), 11.4 (Dissolution by Unilateral Option) or 11.5 (Dissolution Upon Notice), such
Shareholder shall be obligated to take all actions required of it to consummate the applicable
purchase and sale on the date determined pursuant to this Section 10.5 (Mechanics of Sale).
If any Shareholder has the right to purchase the Shares of any other Shareholder, such
Shareholder shall have the right to assign such right to purchase to any other Person.







 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




26









 






EXECUTION VERSION











	11.	 	Dissolution 
	 
	11.1	 	Events of Dissolution. The Company shall be dissolved and shall commence winding up
its affairs upon the first to occur of the following. The Shareholders shall cooperate in
taking any necessary corporate steps under the Companies Act to attain the purpose of this
Section 11:
	 
	(a)	 	the expiration of the term of the Company pursuant to Section 2.4 (Term; Extension);
	 
	(b)	 	the agreement of the Shareholders to dissolve the Company pursuant to Section 11.2
(Dissolution by Agreement);
	 
	(c)	 	the election of the Nondefaulting Shareholder pursuant to Section 11.3 (Dissolution Upon
Event of Default);
	 
	(d)	 	the first anniversary of the receipt by either Shareholder of a Deadlock Dissolution Notice
submitted with respect to a failure of the Shareholders to approve and agree upon a Business
Plan pursuant to Section 10.3 (Dispute Resolution; Deadlock) if either (i) the Responding
Shareholder declines to exercise its right to purchase the Shares of the Initiating
Shareholder or fails to respond to such Deadlock Dissolution Notice, or (ii) both Shareholders
submit Deadlock Dissolution Notices with respect to such failure to agree;
	 
	(e)	 	the election by Toshiba to dissolve the Company pursuant to Section 11.4 (Dissolution by
Unilateral Option);
	 
	(f)	 	the bankruptcy, death, dissolution, expulsion or incapacity of a Shareholder or the
occurrence of any other event which terminates the membership of a Shareholder in the Company
(“Bankruptcy Event”); or
	 
	(g)	 	the election of the Notifying Party to dissolve the Company pursuant to Section 11.5
(Dissolution Upon Notice) unless the Notified Party elects to purchase the Shares of the
Notifying Party pursuant to Section 11.5 (Dissolution Upon Notice).
	 
	11.2	 	Dissolution by Agreement. The Company may be dissolved at any time by the unanimous
written consent of the Shareholders.
	 
	11.3	 	Dissolution Upon Event of Default. During the occurrence and continuation of an
Event of Default (other than a Bankruptcy Event) with respect to a Shareholder, the
Nondefaulting Shareholder may elect, by written notice to the Defaulting Shareholder, to
dissolve the Company, in which event the Company shall be dissolved and the Shareholders shall
take all actions necessary to wind up the affairs of the Company in accordance with Section
11.7 (Winding Up). This Section 11.3 shall not be construed to limit the rights of the
Nondefaulting Shareholder under Section 10.4 (Remedies Upon Event of Default) or to seek
damages from the Defaulting Shareholder or any other Person for the breach of its obligations
under any of the FA Operative Documents.




27









 






EXECUTION VERSION






	11.4	 	Dissolution by Unilateral Option. At any time between April 1, 2009 and March 31,
2010, SanDisk may, by giving written notice to Toshiba, elect to withdraw from the Company, in
which case Toshiba must, directly or through any of its Affiliates, either (i) purchase from
SanDisk all of SanDisk’s Shares within one (1) year following SanDisk’s notice to withdraw for
a cash payment, by wire transfer of immediately available Japanese Yen, in an amount equal to
the [*] as of the FA Termination Date multiplied by SanDisk’s Percentage as of the Termination
Date (the estimated [*] as of the Termination Date to be agreed by the Shareholders in good
faith and any necessary true up payments promptly after the actual [*] as of the Termination
Date is determined), or (ii) cooperate with SanDisk to dissolve the Company within one (1)
year of the notice of withdrawal and to wind-up its affairs in accordance with Section 11.7
(Winding Up) (the date as of which any Shareholder, itself or together with its Affiliates,
holds all Shares of the Company or the date the Company is dissolved in accordance with
applicable Law, the “Termination Date,” but in no event shall the Termination Date
occur later than one (1) year following SanDisk’s notice to withdraw).
	 
	11.5	 	Dissolution upon Notice. At any time between April 1, 2013 and March 31, 2014, any
Shareholder (the “Notifying Party”) may elect, by giving notice to all other
Shareholders (the “Notified Party”), to dissolve the Company, in which event the
Company will be dissolved and, within the one (1) year period following the giving of such
notice, the Shareholders shall mutually agree upon a plan for winding up the affairs of the
Company in accordance with Section 11.7 (Winding Up), unless the Notified Party, directly or
through any of its Affiliates, elects in writing within three (3) months of receiving such
notice, to purchase from the Notifying Party all of its Shares for a cash payment, by wire
transfer of immediately available Japanese Yen, in an amount equal to the [*] as of the date
of such transaction multiplied by the Notifying Party’s Percentage as of such date.
	 
	11.6	 	Financing Defaults.
	 
	(a)	 	If pursuant to Section 6.5(c)(i) of the Master Agreement either Party, as the Investing
Party, exercises its election to terminate this Agreement, the Shareholders shall cooperate in
good faith to effect the purchase by Toshiba (or its designated Affiliate) and sale by SanDisk
of all of SanDisk’s Shares, at a price equal to SanDisk’s percentage share of the issued and
outstanding Shares in the Company multiplied by the [*] as of the date such transaction is
closed (with estimated [*] as agreed by the Shareholders in good faith paid on the closing of
such transaction and any true-up payment made by the appropriate Party promptly after
determination of the actual [ * ] as of the closing of such purchase and sale
transaction).
	 
	(b)	 	[*]
	 
	(c)	 	If pursuant to Section 6.12(d)(ii)of the Master Agreement either Party, as the Non-Defaulting
Party, exercises its election to terminate this Agreement, the Non-Defaulting Party shall have
the same rights as provided in Section 11.6(a) and the Shareholders shall cooperate in good
faith to effect the purchase by the Non-Defaulting Party (or its







 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




28









 






EXECUTION VERSION











	 	 	designated Affiliate) and sale by the Defaulting Party of all of the Defaulting Party’s Shares.
	 
	11.7	 	Winding Up.
	 
	(a)	 	Upon the dissolution of the Company, the Shareholders shall proceed as promptly as
practicable to (i) wind-up the affairs of the Company and satisfy the Company’s liabilities,
(ii) dispose of the Company’s assets as quickly as possible consistent with obtaining the full
fair market value of the Company, preferably, to the extent it is commercially practicable to
do so, by selling the Company as a going concern (provided, however, no Shareholder shall be
under any obligation to extend the terms of any FA Operative Document or to offer to enter
into any other agreement with a prospective purchaser of the Company for the purchase or sale
of goods or services or the use of facilities or any other business arrangement), and (iii)
distribute any net proceeds to the Shareholders in accordance with Section 11.8 hereof and
applicable Law. In connection with a sale of the Company’s assets under clause (ii), each
Shareholder or any of their respective Affiliates shall have a right of first offer to acquire
the Company’s tangible personal property in the liquidation process and may also acquire such
property through participation at auction except in the event of a dissolution pursuant to
Section 11.3 (Dissolution Upon Event of Default), in which event the Defaulting Shareholder
and its Affiliates shall not have such right of first offer to acquire the Company’s tangible
personal property. Each of the Shareholders shall be furnished with a statement setting forth
the assets and liabilities of the Company as of the date of the complete liquidation of the
Company. The Accountants shall review the final accounting and shall render their opinion
with respect thereto.
	 
	(b)	 	During the period of winding-up, the Company shall continue to operate and all the provisions
of this Agreement shall remain in effect, except as otherwise expressly provided herein. The
Company shall notify all known creditors and claimants of the dissolution of the Company in
accordance with applicable law.
	 
	11.8	 	Liquidation Proceeds.
	 
	(a)	 	In the case of the dissolution and liquidation of the Company, the Company may make a
distribution in kind. Any cash and all distributions in kind that are to be distributed shall
be distributed to the Shareholders, on a pro rata basis based upon the respective Percentages
of the Shareholders as of the date of such distribution.
	 
	(b)	 	Unless otherwise agreed by the Shareholders, and to the extent permitted under any agreements
with third parties, all assets to be distributed upon the dissolution and liquidation of the
Company shall be distributed as follows:






	 	(i)	 	first, to creditors, including Shareholders who are creditors, to the extent
permitted by law, in satisfaction of liabilities of the Company, other than for
distributions to Shareholders pursuant to Section 6.2 (Distributions); and




29









 






EXECUTION VERSION






	 	(ii)	 	second, to the Shareholders on a pro rata basis based upon the respective
Percentages of the Shareholders as of the date of such distribution.




For purposes of this Section 11.8, instruments of transfer and other documents reasonably requested
by the distributee shall be executed by the Company or the other Shareholder, or both.





	(c)	 	Any distribution made pursuant to this Section 11.8 shall be made as soon as practicable
under and in accordance with applicable Japanese law.
	 
	12.	 	Indemnification and Insurance 
	 
	12.1	 	Indemnification.
	 
	(a)	 	Subject to Section 12.1(c), the Company shall indemnify each Person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including an action by
or in the right of a Shareholder or the Company), by reason of the fact that such Person is or
was a Shareholder or is or was or has agreed to become a Director or is or was serving or has
agreed to serve at the request of the Company as a director, officer, employee or agent of the
Company or of another partnership, corporation, joint venture, trust or other enterprise,
arising from any action alleged to have been taken in any such capacity or by reason of any
liability or obligation of the Company, against any and all losses, damages, liabilities,
costs, charges, expenses (including interest, penalties and reasonable attorneys’ fees and
expenses), judgments, fines and amounts paid in settlement (collectively, “Losses”)
actually and reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom. Without limiting the generality of the foregoing, any
of such Losses shall be deemed to arise out of a Company liability or obligation if it arises
out of or is based upon the conduct of the business of the Company (or any of its
Subsidiaries) or the ownership of the property of the Company (or any of its Subsidiaries).
	 
	(b)	 	The indemnification provided under this Section 12.1 shall inure to the benefit of the
successors, heirs and personal representatives of any Person entitled to the benefit of such
indemnification. Such indemnification shall be a contract right and shall include the right
to be paid advances of reasonable expenses incurred by any such Person in connection with such
action, suit or proceeding.
	 
	(c)	 	The indemnification provided under this Section 12.1 shall not inure to the benefit of any
Person in respect of Losses to the extent that such Losses (i) arise out of or are based upon
the gross negligence or willful misconduct of such Person or (ii) constitute a tax, levy or
similar governmental charge not imposed upon the Company (or any of its Subsidiaries) or on
their respective properties. The indemnification provided under this Section 12.1 shall also
not be available to any Person in respect of any Losses if a judgment or other final
adjudication adverse to such Person establishes (x) that such Person’s acts were committed in
bad faith or were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated or (y) that such Person gained in fact a financial profit or
other advantage to which such Person was not legally




30









 






EXECUTION VERSION






	 	 	entitled. It is understood and agreed that, for the purposes of this Section 12.1, Losses
shall be deemed not to arise out of or be based upon the gross negligence or willful
misconduct of a Person solely because it arises out of or is based upon the gross
negligence, willful misconduct, bad faith or active and deliberate dishonesty of a director,
officer or employee of such Person if at the time of such gross negligence, willful
misconduct, bad faith or active and deliberate dishonesty, such director, officer or
employee was also a member of the SanDisk Team or a Director acting in his capacity as such.
	 
	(d)	 	The termination of any action, suit or proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption
that the indemnified Person did not meet the standard set forth in Section 12.1(c)
(Indemnification).
	 
	12.2	 	Insurance. The Company may, to the fullest extent permitted by law, purchase and
maintain insurance against any liability that may be asserted against any Person entitled to
indemnity pursuant to Section 12.1.
	 
	12.3	 	Indemnification by the Shareholders.
	 
	(a)	 	Each Shareholder agrees to, and does hereby, indemnify and hold harmless the Company and the
other Shareholder from and against any and all Losses arising out of, or based upon, the gross
negligence or willful misconduct of such Shareholder under this Agreement or such Shareholder
exceeding its authority under this Agreement.
	 
	(b)	 	The provisions of this Section 12.3 shall survive each of the termination of this Agreement,
the dissolution of the Company and the withdrawal of any Shareholder.
	 
	12.4	 	Assertion of Claims.
	 
	(a)	 	In the event that a Person (the “Indemnified Party”) desires to assert its right to
indemnification from a Person (an “Indemnifying Party”) required to indemnify such
Indemnified Party under this Section 12, the Indemnified Party will give the Indemnifying
Party prompt notice of the claim giving rise thereto (a “Claim”), and the Indemnifying
Party shall undertake the defense thereof (unless the Claim is asserted against or related to
or results from any action or failure to take action by such Indemnifying Party). The failure
to promptly notify the Indemnifying Party hereunder shall not relieve the Indemnifying Party
of its obligations hereunder, except to the extent that the Indemnifying Party is actually
prejudiced by the failure to so notify promptly.
	 
	(b)	 	The Indemnified Party shall not settle or compromise any Claim without the written consent of
the Indemnifying Party unless the Indemnified Party agrees in writing to forego any and all
claims for indemnification from the Indemnifying Party with respect to such Claim. However,
if the Indemnifying Party, within a reasonable time after notice of any such Claim, fails to
defend such Claim, the Indemnified Party shall have the right to undertake the defense,
compromise or settlement of such Claim on behalf of and for the account and risk of the
Indemnifying Party, subject to the right of the Indemnifying Party




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EXECUTION VERSION






	 	 	to assume the defense of such Claim at any time prior to settlement, compromise or final
determination thereof.
	 
	13.	 	If the Indemnifying Party has undertaken the defense of a Claim and (i) if there is a
reasonable expectation that (x) a Claim may materially and adversely affect the Indemnified
Party other than as a result of money damages or other money payments or (y) the Indemnified
Party or Shareholders may have legal defenses available to it or them that are different from
or additional to the defenses available to the Indemnifying Party, or (ii) if the Indemnifying
Party shall not have employed counsel reasonably satisfactory to the Indemnified Party, the
Indemnified Party shall nevertheless have the right, at the Indemnifying Party’s cost and
expense, to defend such Claim. Miscellaneous
	 
	13.1	 	Governing Law. Notwithstanding anything to the contrary in Appendix A, this
Agreement shall in all respects be governed by and construed in accordance with the laws of
Japan, without regard to the conflict of laws principles.
	 
	13.2	 	Effectiveness. This Agreement shall be effective as of the date first written above
and shall remain in effect until the Termination Date. Sections 7, 11.7, 11.8 and 13 shall
survive the Termination Date.





[REST OF PAGE INTENTIONALLY LEFT BLANK]




32









 






EXECUTION VERSION








     IN WITNESS WHEREOF, this Agreement has been executed and delivered by each party as of the
date first above written.



	 	 	 	 	 	 	 	 	 
	 	 	TOSHIBA CORPORATION	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Masashi Muromachi	 	 
	 

	 	 	 	Title:
	 	President and CEO	 	 
	 

	 	 	 	 	 	Semiconductor Company	 	 
	 

	 	 	 	 	 	Corporate Executive Vice President	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	SANDISK (IRELAND) LIMITED	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Sanjay Mehrotra	 	 
	 

	 	 	 	Title:
	 	Director	 	 






[Signature Page to Flash Alliance Operating Agreement]





 









 








EXHIBIT A




ARTICLES OF INCORPORATION OF THE COMPANY




[*]




      



      



      



      



      





 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




1









 










Unofficial English Translation




ARTICLES OF INCORPORATION

OF

FLASH ALLIANCE, LTD.




[*]




      



      



      



      



      



      



      



      





 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




1









 










Unofficial English Translation




Schedule 2.1(b)

[*]




      



      



      



      



      



      





 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.




 









 










Schedule 5.3




Management and Operating Reports

[*]




      



      



      



      



      



      





 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.





 ii 




 









 








Schedule 6.1




Capital Contributions 




[*]




      



      



      



      



      



      





 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.





 iii 




 









 








Schedule 8.3




[*]




      



      



      



      



      



      





 




			
	*	 	Indicates that certain information
contained herein has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to
the omitted portions.





 iv