Document:

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CONFIDENTIAL                                                       Exhibit 10.13
                                                               December 20, 2004

                                 BASIC AGREEMENT

                                       ON

                               DEVELOPMENT ORDERS
                              ("BASIC AGREEMENT")

                                 BY AND BETWEEN

                    SAIFUN SEMICONDUCTORS LTD. ("CONTRACTOR")

            Having its principal place of business in Netanya, Israel

                                       AND

                      INFINEON TECHNOLOGIES AG ("INFINEON")

          Having its principal place of business in St.-Martin-Str, 53,
                              81669 Munich, Germany

   - each hereinafter referred to as a "PARTY" and collectively as "PARTIES" -

                                       on

       REIMBURSEMENT OF DEVELOPMENT SERVICES IN THE FIELD OF SEMICONDUCTOR
                            TECHNOLOGIES AND PRODUCTS

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                                TABLE OF CONTEXT

1.   DEFINITIONS; REPLACEMENT

2.   CARRYING OUT OF THE DEVELOPMENT WORK

3.   COSTS OF THE DEVELOPMENT WORK

4.   OWNERSHIP OF AND RIGHTS IN DEVELOPMENT RESULTS; LICENSES UNDER INFORMATION

5.   WARRANTY AND LIABILITY

6.   SECRECY

7.   TERM AND TERMINATION

8.   ARBITRATION AND SUBSTANTIVE LAW

9.   MISCELLANEOUS

APPENDIX A COST REIMBURSEMENT

APPENDIX B CARD INTEGRATION TEAM

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1.   DEFINITIONS, REPLACEMENT

1.1  The term "LICENSE AGREEMENT" means the License Agreement entered into
     between Saifun Semiconductors Ltd., with offices at 45 Hamelacha St.
     Industrial Zone South, Netanya 42504, Israel ("Saifun"); and Infineon
     Technologies AG, with offices at St.-Martin-Str. 53, 81669 Munich, Germany
     ("Infineon"), dated January 13, 2005.

1.2  The term "TECHNOLOGIES AND SERVICES" means and comprises the semiconductor
     technologies, product designs, process development, software and firmware
     codes and other development services which CONTRACTOR agrees to develop
     based on a Statement of Work entered into subsequently to and based on the
     Basic Agreement,

     Each such Statement of Work is hereinafter referred to as "STATEMENT OF
     WORK".

1.3  The term "CUSTOMER" means Infineon Technologies AG and its SUBSIDIARIES.

1.4  The term "DEVELOPMENT WORK" means any and all development work to be
     performed by CONTRACTOR for TECHNOLOGIES AND SERVICES in accordance with
     Section 2 below and the relevant STATEMENT OF WORK.

1.5  The term "DEVELOPMENT RESULTS" means any and all results, whether
     patentable or not, in written or oral form, achieved by performing
     DEVELOPMENT WORK.

1.6  The term "INFORMATION" means written and/or oral technical information with
     regard to the relevant TECHNOLOGIES AND SERVICES, such information being
     available at CUSTOMER, or CONTRACTOR at any time during the term of this
     Basic Agreement and not resulting from performing DEVELOPMENT WORK. It is
     understood that the term "INFORMATION" shall include, without being limited
     to, patents, patent applications and other statutory protective rights
     which are based on INFORMATION.

1.7  The term "SUBSIDIARY/IES" shall mean any legal entity directly or
     indirectly controlled by a Party, for so long as such control lasts.
     Control of an entity shall exist through the direct or indirect:

     -    control of more than 50% of the nominal value of the issued equity
          share capital of the entity or more than 50% of the equity's shares
          entitling the

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          holders to vote for the election of directors or persons performing
          similar functions, or

     -    right by any other means to elect or appoint directors of the entity
          (or persons performing similar functions) who have a majority vote.

1.8  This Basic Agreement shall replace the Basic Agreement of Development
     Orders between Saifun and Infineon Technologies Flash Ltd. dated January 9,
     2003 as of the Effective Date hereof. The exercise of all rights and
     obligations incurred by either Party under the Basic Agreement, in
     particular the performance of any outstanding STATEMENT OF WORK entered
     into under the Basic Agreement, shall be governed by this Basic Agreement,
     and shall not be affected by its termination.

2.   CARRYING OUT OF THE DEVELOPMENT WORK

2.1. Order of Precedence. In the event of conflicts between the documents
     executed under this Basic Agreement, precedence in the following order
     shall apply, unless provided otherwise herein (listed in order of
     priority):

     (i)  This Basic Agreement including its Exhibits

     (ii) The relevant STATEMENT OF WORK including its Appendices and updates;

     In the event of conflicts between this Basic Agreement and its Exhibits,
     this Basic Agreement shall prevail. This shall apply mutatis mutandis for
     the STATEMENT OF WORK and its Appendices.

2.2  Procedure for Execution and Amendment of STATEMENTS OF WORK. In each case
     where CUSTOMER wishes CONTRACTOR to carry out a development order under
     this Basic Agreement and a relevant STATEMENT OF WORK, CUSTOMER shall
     furnish CONTRACTOR with the relevant technical and commercial
     specifications for the DEVELOPMENT WORK to be performed. Should CONTRACTOR
     wish to receive additional specifications then CONTRACTOR shall so inform
     CUSTOMER. Within four (4) weeks after receipt of such specifications - or,
     as the case may be, additional clarifying specifications - CONTRACTOR shall
     quote to CUSTOMER the terms and conditions for CONTRACTOR's acceptance of
     the relevant development order to be reflected in a STATEMENT OF WORK. Upon
     counter signature of the same by CUSTOMER, the relevant STATEMENT OF

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     WORK shall become effective and CONTRACTOR agrees to carry out the
     DEVELOPMENT WORK. CUSTOMER may initiate an ECO process (as defined below)
     in order to modify the specification which is part of an applicable
     STATEMENT OF WORK. Any substantial changes which might occur after signing
     of a respective STATEMENT OF WORK will be treated according to an ECO
     process which will result in an amendment to the respective STATEMENT OF
     WORK. Any and all such amendments to STATEMENTS OF WORK must be agreed upon
     and signed by both Parties, and shall update the terms of the STATEMENT OF
     WORK with respect to all issues affected from the requested engineering
     change (such as schedule and cost). For the avoidance of doubt, any
     specification and other substantial changes to a STATEMENT OF WORK, whether
     resulting in allocation of additional or less resources will be treated as
     ECO.

     For the purposes of this Basic Agreement "ECO" shall mean an Engineering
     Change Order which is a controlled process which is started when a
     specification or other substantial change is required to a respective
     STATEMENT OF WORK, which usually causes additional development effort. Such
     changes may include for example a tightening of the specification (i.e.
     faster device, smaller area), an addition of new features for the product
     (i.e. additional functionality, new interfaces), or change in manufacturing
     process that results in additional resources required by CONTRACTOR.
     Changes may also be required if the agreed upon features from the STATEMENT
     OF WORK in place can not be developed. All ECO result in an amendment to
     the STATEMENT OF WORK which lowers or increases the quotation, changes the
     respective schedule, etc.

2.3  DEVELOPMENT WORK For [***] Design Teams During the INITIAL TWO YEARS. The
     Parties undertake that in each of the initial two (2) years following the
     Effective Date of this Basic Agreement ("INITIAL TWO YEARS"), CONTRACTOR
     shall carry out for the CUSTOMER DEVELOPMENT WORK for [***] products in
     parallel using [***] design teams within CONTRACTOR based on or
     incorporating Saifun NROM Technology (as defined in the License Agreement)
     as required by CUSTOMER, specification of which to be agreed upon and
     defined under corresponding STATEMENTS OF WORK hereunder. Such DEVELOPMENT
     WORK shall be performed in accordance with the procedures, terms and
     conditions specified in this Basic Agreement and the respective STATEMENTS
     OF WORK.

_________________

*** Omitted pursuant to a confidential treatment request. The confidential
    information has been filed separately with the SEC.
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2.4  Option For A [***] Product. In any event, CUSTOMER has an option to request
     CONTRACTOR to carry out a DEVELOPMENT WORK for a [***] product to be
     developed in parallel to the [***] products as stated in Section 2.3 based
     on or incorporating Saifun NROM Technology, during each of the INITIAL TWO
     YEARS. To the extent such request is made reasonable time in advance,
     CONTRACTOR shall most favorably consider, and shall endeavor, to perform
     the required DEVELOPMENT WORK provided that its internal resources
     allocation in the given year, is not unreasonably affected by such
     DEVELOPMENT WORK. Where the Parties agree on the development of such [***]
     product, development specifications will be defined under corresponding
     STATEMENT OF WORK hereunder.

     If the resources for a [***] project are not available, the Parties may
     agree, when feasible, on a re-allocation and prioritization within the
     people of the design teams as stated in Section 2.3, which are working for
     other CUSTOMER projects hereunder, via a controlled ECO process.

2.5  Additional Services - Card Integration and MLC. In addition, CONTRACTOR
     shall provide card integration services performed by Infineon Technologies
     Flash Ltd in the past, for a period of two years following the Effective
     Date in accordance with Section 4.2 and MLC DEVELOPMENT WORK in accordance
     with Section 4.1.

2.6  Content of STATEMENTS OF WORK. It is especially agreed that

     -    any and all STATEMENT OF WORKS have to be in writing in order to be
          effective; the Parties agree that each STATEMENT OF WORK hereunder
          shall be signed, respectively, only at project release as determined
          by CUSTOMER. Before project release (prior to signature of the
          respective STATEMENT OF WORK), the PARTIES shall enter into a binding
          agreement regarding the feasibility of the DEVELOPMENT WORK. In the
          course of such agreement CUSTOMER may ask CONTRACTOR to provide inter
          alia, a resource and time plan and a feasibility study.

     -    In the event CUSTOMER is undertaking a patent search, CONTRACTOR will
          cooperate with CUSTOMER or a third party supporting CUSTOMER in such
          patent search at CUSTOMER'S cost and liability.

     -    Subject to the provisions of Section 2.3, 2.4 and 2.5 above, neither
          CUSTOMER nor CONTRACTOR is required or obligated to enter into any or
          any particular STATEMENT OF WORK.

_________________

*** Omitted pursuant to a confidential treatment request. The confidential
    information has been filed separately with the SEC.

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     Unless otherwise agreed in writing by the PARTIES, any STATEMENT OF WORK
     shall at least comprise the following elements:

          -    Product Specification

          -    Milestone Plan according to Infineon Methodology

          -    Project leader and project planned assignees;

          -    Following project release - personnel projected planning and
               their basic qualification according to Milestone Plan;

               Detailed deliverables from CUSTOMER;

               Detailed deliverables from CONTRACTOR;

          -    Agreed upon estimated delivery dates. Estimated duration of
               Services;

          -    Scheduled review meetings;

          -    Technology transfer mode;

          -    Cost per hour and per week/month, estimation of total cost and
               payment, travel regulations that are charged to CONTRACTOR;

          -    Special tools and testing equipment that CONTRACTOR requires from
               CUSTOMER for its performance of the DEVELOPMENT WORK.

          -    Deviations from criteria set forth within this Basic Agreement;

          -    Outsourcing services, expenses directly associated with the
               DEVELOPMENT WORK.

2.7  Use of Subcontractors. The DEVELOPMENT WORK may be partly delegated to a
     third party by CONTRACTOR upon CUSTOMER's prior written approval. This
     approval shall only be refused by CUSTOMER for reasonable reasons. If the
     development costs are reduced by CONTRACTOR decision to use a third party,
     the benefit will be shared 50%-50%. In all such cases, however, CONTRACTOR
     shall remain responsible for the proper execution of the DEVELOPMENT WORK
     and maintaining confidentiality.

2.8  DEVELOPMENT WORK Schedules. CONTRACTOR shall make best efforts that the
     DEVELOPMENT WORK shall be carried out in accordance with the estimated time
     schedule set forth in each STATEMENT OF WORK, or in accordance with
     schedule as amended via an ECO process.

2.9  Provision of INFORMATION. CUSTOMER, insofar as it lawfully may, shall make
     available to CONTRACTOR within a reasonable period of time following the
     coming into force of each STATEMENT OF WORK, and from time to time during

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     the DEVELOPMENT WORK, its INFORMATION necessary for CONTRACTOR to carry out
     the DEVELOPMENT WORK. CONTRACTOR will inform CUSTOMER in regular weekly
     project meetings whenever it needs INFORMATION of CUSTOMER and will specify
     the INFORMATION of CUSTOMER needed.

     Such INFORMATION shall be submitted in writing and the STATEMENT OF WORK
     will be amended respectively.

2.10 Approval of Additional Resources. Where additional resources, costs and
     time delays beyond [***] percent ([***]%) of the initial estimations and
     on-going forecasts are required to carry out DEVELOPMENT WORK such
     additional budget / capacity or moved due dates must be expressly approved
     by the Parties as part of the amendment to the respective STATEMENT OF
     WORK. Approval by CUSTOMER requires the signature of at least the
     CUSTOMER's VP Design, currently Ms. Keitel-Schulz.

2.11 On-going Reports. CONTRACTOR will inform CUSTOMER at regular agreed upon
     intervals, but at least once every other week about the status of the
     DEVELOPMENT WORK in writing and in a format to be mutually agreed by
     Parties. Those once every other week reports will at least comprise the
     following information:

     -    description of work performed within the last reporting period;

     -    explanation of changes if any;

     -    risk evaluation

     -    update of MS Project Plan (including time planning) once a month as
          well as resource planning as available at CONTRACTOR.

     Subject to and in accordance with Section 2.13 below, upon the finalization
     of the DEVELOPMENT WORK, or, if requested by CUSTOMER earlier, at such
     request from CUSTOMER, CONTRACTOR shall deliver to CUSTOMER the DEVELOPMENT
     RESULTS, including and without limitation all documentation and prototypes.
     CONTRACTOR shall explain the DEVELOPMENT RESULTS with an appropriate
     documentation (as defined in the STATEMENT OF WORK) and orally.

2.12 Project Leaders. Each Party shall appoint a project leader and respective
     experts who will act as a point of contact during the DEVELOPMENT WORK
     under each STATEMENT OF WORK.

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***  Omitted pursuant to a confidential treatment request. The confidential
     information has been filed separately with the SEC.
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     All INFORMATION and DEVELOPMENT RESULTS to be forwarded to a Party
     hereunder will be addressed to such appointed expert or project leader,
     respectively.

     Both Parties shall use reasonable efforts to answer questions and requests
     for information within a reasonable period of time in each case.

2.13 Share of Development Results. Except as otherwise agreed in this Basic
     Agreement, CONTRACTOR shall share with CUSTOMER and shall deliver to it,
     all DEVELOPMENT RESULTS, including without limitation the CAD-System (i.e.
     GDSII, schematics, simulation set ups, simulation results, VHDL/ Verilog
     Code, synthesis scripts, representations of any blocks and cells in the CAD
     system, views for the relevant tools, algorithms, software). The
     information thus transferred to CUSTOMER shall be used solely to enable
     CUSTOMER to affect its rights under the LICENSE AGREEMENT, shall be deemed
     INFORMATION of CONTRACTOR, and shall be subject to the secrecy and
     confidentiality provisions of this Basic Agreement and of the License
     Agreement. Notwithstanding anything to the contrary above CUSTOMER is
     entitled to forward such INFORMATION and DEVELOPMENT RESULTS to an assignee
     as part of an assignment under section 10.5 hereunder or as part of the
     Exit Event as described in Section 5 of the License Agreement.

2.14 Hand-Over Sessions. CONTRACTOR shall provide at the request of CUSTOMER and
     at CUSTOMER's cost and expense, hand over sessions for CUSTOMER at a
     location to be agreed upon. The associated costs are to be included in the
     STATEMENT OF WORK. Separate workshops for M2, M3 and M4/5 have to be
     scheduled and included (including respective associated costs to be borne
     by CUSTOMER) in the respective STATEMENT OF WORK.

2.15 Participation of CUSTOMER's Engineers in DEVELOPMENT WORK. The Parties may
     jointly cooperate in the benefit of their mutual interests to enable the
     participation of CUSTOMER's engineers ("Designated Engineers") in
     CONTRACTOR's development teams performing the DEVELOPMENT WORK. CUSTOMER
     shall reimburse CONTRACTOR for any costs associated with such
     participation, such as work stations, software costs, etc. It is hereby
     clarified that Designated Engineers will continue to be employees of
     CUSTOMER and will not become employees or agents of, or consultants to,
     CONTRACTOR, and any and all costs and expenses associated with such
     Designated Employees (including

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     salaries, insurances, traveling, lodging etc.) will be fully borne by
     CUSTOMER. Each Designated Engineer shall comply with and be bound by
     CONTRACTOR's internal policies and procedures including confidentiality
     undertaking as being made available to the respective Designated Engineers
     prior to the start of the DEVELOPMENT WORK. CUSTOMER shall ensure, and
     shall be liable for the compliance of its Designated Engineers with said
     agreements, policies and procedures, it being understood that such internal
     policies and procedures do not prevail this Basic Agreement.

     Except for injury or damage caused by the gross negligence or willful
     misconduct of CONTRACTOR, or except for matters which are covered by
     CONTRACTOR's corporate insurance policies, CONTRACTOR shall not be liable
     under any circumstances for an injury or damage done to or suffered by the
     Designated Engineers or to their property while at CONTRACTOR's premises
     and CUSTOMER.

2.16 Clarification. It is clarified that the sharing of INFORMATION as set forth
     above, and/or the training of CUSTOMER employees, or participation of
     Designated Engineers and/or other CUSTOMER representatives does not entitle
     any Party to claim, use or embody any portion of Confidential Information
     of the other Party in a patent application filed by it or on its behalf
     without the prior written consent of the other Party.

     Unless otherwise agreed in this Basic Agreement, the terms and conditions
     of Section 5 regarding Ownership of IP shall also apply to sharing of
     INFORMATION as set forth above, and/or the training of CUSTOMER's employees
     or participation of Designated Engineers and/or other CUSTOMER
     representatives in the course of the DEVELOPMENT WORK.

2.17 Performance by Specific Employees. CONTRACTOR shall assign at least seventy
     percent (70%) of the engineers and other staff necessary for performing the
     DEVELOPMENT WORK on a full time basis, which are listed in Annex C to the
     relevant STATEMENT OF WORK in order to warrant a certain competence level
     of its personnel. In addition CONTRACTOR shall assign seventy percent (70%)
     of the managers on a full or part time basis which are listed in Annex D.
     For purposes of this Section, a project manager shall not be considered a
     manager.

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3.   COSTS OF THE DEVELOPMENT WORK (REMUNERATION)

3.1  Remuneration for DEVELOPMENT WORK and Mechanisms for Control of Costs
     DEVELOPMENT WORK.

     3.1.1 CUSTOMER shall reimburse CONTRACTOR for the DEVELOPMENT WORK in
     accordance with the monthly/hourly rate per employee as set forth in
     Appendix A hereto or as otherwise set forth in the relevant STATEMENT OF
     WORK.

     3.1.2 CONTRACTOR will provide a headcount forecast per month for each
     STATEMENT OF WORK, corresponding to the estimated total man month of the
     project specified under the respective STATEMENT OF WORK, as updated by any
     ECO ("ESTIMATED SOW COST").The Parties may mutually agree at any time to
     modify (increase or decrease) such headcount. CONTRACTOR shall notify
     CUSTOMER of any changes to the projected forecast as soon as the changes
     will be foreseeable.

     3.1.3 Consequences for Materially Exceeding ESTIMATED SOW COST. Where with
     respect to a specific STATEMENT OF WORK, CONTRACTOR exceeds the ESTIMATED
     SOW COST by more than [***] percent ([***]%), then all DEVELOPMENT WORK
     performed by CONTRACTOR employees under the respective STATEMENTS OF WORK
     following the point in time in which the ESTIMATED SOW COST was exceeded by
     more than [***] percent ([***]%), shall be charged at a [***]% discount.

     In the event CONTRACTOR has caused the update of the STATEMENT OF WORK,
     such update of the STATEMENT OF WORK shall not be taken into account when
     calculating the ESTIMATED SOW COST.

     3.1.4 Update of Rates. On the Effective Date, the Parties shall agree on
     the cost per hour and/or per week/month for the next twelve (12) months,
     for each of the levels of personnel performing the DEVELOPMENT WORK. The
     cost per hour and/or per week/month for the first twelve (12) months of
     DEVELOPMENT WORK is presented in Appendix A, as may be amended, in writing,
     by both Parties.

     3.1.5 Allocation of Personnel on Full or Partial Capacity. In accordance
     with the requirements of the DEVELOPMENT WORK to be performed hereunder,
     and subject to the provisions of Section 2.17, CONTRACTOR shall allocate
     the personnel performing the DEVELOPMENT WORK to the DEVELOPMENT WORK on a
     full or part time capacity. In the event DEVELOPMENT WORK is performed on a
     full time capacity, CONTRACTOR may, subject to Section 3.1, charge CUSTOMER
     for the

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*** Omitted pursuant to a confidential treatment request. The confidential
    information has been filed separately with the SEC.
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     costs of such personnel on a monthly basis. Notwithstanding the foregoing,
     the Parties may agree on special services to be provided on a per hour
     basis.

3.2  Payment Terms. CUSTOMER shall reimburse CONTRACTOR for the DEVELOPMENT WORK
     on a monthly basis. All payments shall be made by CUSTOMER within thirty
     (30) days after a receipt of invoice from CONTRACTOR subject to the
     provisions of Section 3.1.

3.3  Taxes. CUSTOMER shall also reimburse CONTRACTOR for the costs as per
     Section 3.1, above, and as set forth in the relevant STATEMENT OF WORK for
     Israeli value added tax "VAT" and German withholding tax to be remitted, if
     any. The Parties shall use their best efforts to support each other in
     obtaining the respective tax exemptions, if any.

3.4  Procurement/Reimbursement for Costs and Materials. In addition to
     reimbursement for DEVELOPMENT WORK as specified above, CUSTOMER is solely
     responsible to procure - and if so, to what extent - materials, wafers,
     test equipment and other tools and equipment ("DEVELOPMENT MATERIALS"),
     required for the DEVELOPMENT WORK hereunder. The parties shall mutually
     coordinate procedures for purchase and supply of DEVELOPMENT MATERIALS. If
     CUSTOMER decides to supply DEVELOPMENT MATERIALS to CONTRACTOR it shall
     bear the costs regarding such supply. Failure of CUSTOMER to provide
     DEVELOPMENT MATERIALS may result in a suspension or postponement of the
     relevant DEVELOPMENT WORK with no cost effect to CONTRACTOR.

     Designated equipment which has already or will be provided by CUSTOMER to
     CONTRACTOR and located at CONTRACTOR'S site will remain at CONTRACTOR at no
     additional charge and has to be used exclusively for and in connection with
     the DEVELOPMENT WORK without further charge. CUSTOMER shall remain the
     owner of such DEVELOPMENT MATERIALS.

     CUSTOMER shall also reimburse CONTRACTOR for any and all travel expense
     associated with the performance of the STATEMENT OF WORK incurred by
     CONTRACTOR in accordance with the travel regulations specified under the
     corresponding STATEMENT OF WORK.

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4.   SPECIAL DEVELOPMENT WORK:

     As of the Effective Date of this Basic Agreement CONTRACTOR had already
     offered to engage in certain DEVELOPMENT WORK as specified below, and
     CUSTOMER already accepted to engage CONTRACTOR in such DEVELOPMENT WORK
     under the following terms:

4.1  MLC DEVELOPMENT WORK

4.1.1 CONTRACTOR offered and CUSTOMER accepted to engage CONTRACTOR in
     DEVELOPMENT WORK for NROM MLC Product (as defined in Section 1.28 of the
     LICENSE AGREEMENT) based on CONTRACTOR proprietary NROM Technology.

4.1.2 Deferment of Payment. Notwithstanding the payment terms specified under
     Section 3 above, CONTRACTOR agrees that CUSTOMER will defer all payments
     related to CONTRACTOR's DEVELOPMENT WORK specified under Section 4.1.1
     above until the earliest of the shipment qualification by CUSTOMER of the
     MLC product (M9) specified under Section 4.1.1 or start sales of the NROM
     MLC Product (other than samples). In the event that the STATEMENT OF WORK
     relating to this MLC DEVELOPMENT WORK is terminated before such milestone
     M9 was achieved, CUSTOMER shall not be obliged to pay any of the
     aforementioned deferred payments. To the extent that the CUSTOMER accepts
     to engage the DEVELOPMENT WORK for NROM MLC Product, the procurement and
     reimbursement regarding DEVELOPMENT MATERIALS shall be handled as stated in
     Section 3.4.

4.1.3 Without derogating from the provisions of Section 8.4 below, in the event
     CUSTOMER decides not to proceed with MLC DEVELOPMENT WORK, it will inform
     CONTRACTOR hereof within a reasonable period of time.

4.2  CARD INTEGRATION DEVELOPMENT WORK

4.2.1 General. CONTRACTOR shall provide card integration DEVELOPMENT WORK which
     shall consist of on-going monthly services ("CARD INTEGRATION DEVELOPMENT
     WORK") to CUSTOMER. During the shorter of: (i) first two (2) years after
     the Effective Date; or (ii) from the Effective Date until termination of
     this Agreement; or (iii) from the Effective Date until full or Partial
     Termination of CARD INTEGRATION DEVELOPMENT WORK; CONTRACTOR shall provide
     CARD INTEGRATION DEVELOPMENT WORK exclusively to CUSTOMER and not to any
     other third party.

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     For the purpose of this Basic Agreement, "Partial Termination of CARD
     INTEGRATION DEVELOPMENT WORK" shall mean a reduction, following CUSTOMER
     request, in the headcount of the group performing CARD INTEGRATION
     DEVELOPMENT WORK of more than thirty percent (30%) of the employees
     assigned by CONTRACTOR to this specific CARD INTEGRATION DEVELOPMENT WORK.

4.2.2 Performance by Former Employees of Infineon Technologies Flash Ltd. Except
     as otherwise requested by CUSTOMER upon 90 days prior written notice, and
     subject to and in accordance with the relevant provisions of the
     Termination Agreement between the Parties dated December 20, 2004, subject
     to Section 4.2.3 CONTRACTOR shall perform such CARD INTEGRATION DEVELOPMENT
     WORK using personnel of the card integration group previously employed by
     Infineon Technologies Flash Ltd specified in Appendix B.

4.2.3 Pricing of CARD INTEGRATION DEVELOPMENT WORK. The CARD INTEGRATION
     DEVELOPMENT WORK will be performed for a fixed monthly price specified
     under Appendix A attached hereto. Such work shall be coordinated by the
     Parties on an on-going basis, by the group of personnel specified in
     Appendix B. In the event of termination of any member of the personnel
     specified under Appendix B, from its engagement with CONTRACTOR, CONTRACTOR
     will either: (i) make best efforts to replace such member of personnel with
     a replacement (either of employees or subcontractors) of comparable
     experience in the relevant field; or (ii) proportionally adjust the monthly
     payment.

     CUSTOMER shall be entitled, at its discretion and even prior to reaching an
     agreement with CONTRACTOR on detailed terms and conditions regarding the
     CARD INTEGRATION DEVELOPMENT WORK, but subject to timely payment of the
     abovementioned monthly fees and other related costs, to direct, at
     CUSTOMER's sole responsibility, CONTRACTOR to start/continue with the
     implementation of the said CARD INTEGRATION DEVELOPMENT WORK according to
     CUSTOMER instructions or to direct any other specific part of the
     DEVELOPMENT WORK ("CUSTOMER Directed Work"). CONTRACTOR agrees to commence
     reasonable efforts necessary to comply with any CUSTOMER Directed Work
     without undue delay.

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     The personnel engaged in the CARD INTEGRATION DEVELOPMENT WORK shall be
     integrated in a separate development unit and CUSTOMER shall have the
     right, upon prior written notice to CONTRACTOR, and during normal business
     hours to do a technical review, (including a capital review of the
     DEVELOPMENT MATERIALS purchased according to Section 4.2.7) regarding the
     CARD INTEGRATION DEVELOPMENT WORK on a frequent basis as it sees fit.

4.2.4 CARD INTEGRATION IP. Notwithstanding the provisions of Section 5 below,
     all IP developed during the term and in the course of performing CARD
     INTEGRATION DEVELOPMENT WORK under this Section 4.2 by CONTRACTOR shall be
     jointly owned by the Parties and the provisions of Section 11.2 of the
     License Agreement shall apply equally to all such jointly owned IP,
     provided however, that CONTRACTOR must not use the DEVELOPMENT RESULTS of
     the CARD INTEGRATION DEVELOPMENT WORK "AS IS" or in any other substantially
     similar form. For the avoidance of doubt, nothing in this Section shall be
     construed to grant CONTRACTOR any further rights than granted under the
     LICENSE AGREEMENT with regard to CUSTOMER INFORMATION.

4.2.5 Card Integration Non-Compete. During the shorter of: (i) first two (2)
     years after the Effective Date; or (ii) from the Effective Date until
     termination of this Agreement; or (iii) from the Effective Date until full
     or Partial Termination (as above defined) of CARD INTEGRATION DEVELOPMENT
     WORK; CONTRACTOR shall not engage in any card integration development
     activities regarding mass storage cards.

4.2.6 Transfer of Card Integration Know-How. Upon CUSTOMER's request, CONTRACTOR
     shall deliver to CUSTOMER the CARD INTEGRATION DEVELOPMENT WORK DEVELOPMENT
     RESULTS ("CARD INTEGRATION DEVELOPMENT RESULTS") including without
     limitation all documentation and prototypes, and related INFORMATION
     necessary to practically use the CARD INTEGRATION DEVELOPMENT RESULTS.
     CONTRACTOR shall explain the CARD INTEGRATION DEVELOPMENT RESULTS with an
     appropriate documentation (as defined in the SOW) and orally.

<PAGE>

CONFIDENTIAL
                                                               December 20, 2004

                                       -16

4.2.7 Procurement/Reimbursement for Costs and Materials. The terms and
     conditions of Section 3.4 shall apply to this Section 4.2.

4.3  Except as expressly stated under this Section 4.1 and 4.2, all terms and
     conditions of this Basic Agreement will govern such DEVELOPMENT WORK
     specified under this Section 4.1 and 4.2.

5.   OWNERSHIP OF AND RIGHTS IN DEVELOPMENT RESULTS; LICENSES UNDER INFORMATION

     Except as expressly specified under this Basic Agreement, the relevant
     provisions of Section 11 ("Ownership of IP") of the LICENSE AGREEMENT,
     dated [ ], between CONTRACTOR and CUSTOMER, shall apply to the DEVELOPMENT
     WORK AND DEVELOPMENT RESULTS hereunder.

     Notwithstanding the above, the Parties may agree in writing on a
     case-by-case basis, prior to the commencement of any DEVELOPMENT WORK and
     signing of a STATEMENT OF WORK, that a specific DEVELOPMENT RESULT (or a
     portion thereof) would be based mainly on proprietary technology of
     Customer (for example a Microcontroller proprietary to CUSTOMER, under
     specifications fully provided by CUSTOMER) and that therefore (where so
     expressly agreed in advance and in writing by the Parties) such
     specifically designated DEVELOPMENT RESULT (or portion thereof) shall be
     owned by CUSTOMER.

6.   WARRANTY AND LIABILITY

6.1  CONTRACTOR shall use reasonable efforts, comparable to efforts for its own
     comparable development to achieve the goals of the DEVELOPMENT WORK, but
     CONTRACTOR shall be liable to CUSTOMER only in the event of wilfulness or
     gross negligence.

6.2  CONTRACTOR warrants that no third party has raised any claims of whatever
     nature against CONTRACTOR with regard to its INFORMATION on the date of
     effectiveness of the relevant STATEMENT OF WORK. CONTRACTOR also warrants
     as of the Effective Date, that it is not aware of any infringement of any
     patent or other intellectual property rights of a third party by any
     Licensed Saifun IP or any Licensed Product (as these terms are defined
     under the License Agreement) designed for

<PAGE>

CONFIDENTIAL
                                                               December 20, 2004

                                       -17

     CUSTOMER under this Basic Agreement, and that no such claim or allegation
     has been made by any third party.

     CONTRACTOR will inform CUSTOMER immediately as soon as it becomes aware
     that rights of third parties might have been infringed or that third
     parties do infringe upon CUSTOMER rights in any way with regard to
     INFORMATION of CONTRACTOR and/or DEVELOPMENT RESULTS and/or TECHNOLOGIES
     AND SERVICES.

     The sole obligation of CUSTOMER with respect to its INFORMATION shall be to
     forward same to CONTRACTOR as provided in this Basic Agreement, and, to
     correct errors that might have occurred in this INFORMATION without undue
     delay after such errors were made known to CUSTOMER. No other warranty of
     CUSTOMER of whatever kind and nature shall exist.

6.3  Either PARTY represents and warrants that it has sufficient power, right
     and authority to enter into this Agreement and to grant the rights and
     undertake the obligations set forth in this Agreement and there are no
     outstanding assignments, encumbrances, obligations or agreements to which
     it is a party or by which it is bound and which are inconsistent with this
     Agreement.

7.   SECRECY

     CONTRACTOR agrees that all INFORMATION which it receives from CUSTOMER and
     other information about CUSTOMER designated "confidential" shall be
     maintained by CONTRACTOR in confidence and shall be used only for carrying
     out of the DEVELOPMENT WORK, provided, however, that CONTRACTOR may
     disclose such information to its officers, and those of its employees and
     others under its control for the purposes of this Basic Agreement.

     The confidentiality obligations shall apply mutatis mutandis to CUSTOMER
     with regard to INFORMATION of CONTRACTOR.

     The Confidential Information (as defined in Section 7.1 and in the LICENSE
     AGREEMENT) which is disclosed under this Basic Agreement will be governed
     by the standards and principles set in the LICENSE AGREEMENT mutatis
     mutandis. The provisions of Section 13.4 of the LICENSE AGREEMENT regarding
     confidentiality of terms shall apply mutatis mutandis with regards to the
     terms of this Basic Agreement.

<PAGE>

CONFIDENTIAL
                                                               December 20, 2004

                                       -18

8.   TERM AND TERMINATION

8.1  This Basic Agreement shall become effective on the date it is signed by
     both parties ("Effective Date").

8.2  This Basic Agreement (unless terminated earlier under a relevant provision
     set forth in this Basic Agreement) shall terminate on the second
     anniversary of the Effective Date. This Basic Agreement shall be only
     extended for successive periods of one (1) year each upon mutual agreement
     by the Parties.

8.3  The STATEMENT(s) OF WORK shall have the term specified in the relevant
     STATEMENT(s) OF WORK. Unless otherwise provided in a STATEMENT OF WORK, the
     Initial Term and any subsequent term of a Statement of Work will be
     equivalent to the Initial Term and a subsequent term of this Agreement.

8.4  Termination for Convenience. CUSTOMER may terminate this Agreement and any
     STATEMENT OF WORK for convenience upon three (3) months prior written
     notice to CONTRACTOR without any additional costs.

8.5  Notwithstanding the foregoing, this Basic Agreement (unless terminated
     earlier under a relevant provision hereunder) shall also terminate upon 90
     days prior written notice in the event of termination of the License
     Agreement for material breach by either Party.

8.6  In addition, This Basic Agreement may be terminated at any time by either
     party upon the giving of not less than four weeks' prior written notice to
     the other party

     -    if the other Party hereto is declared bankrupt or otherwise cannot
          fulfill its financial obligations; or

     -    if the other Party hereto substantially defaults in the performance of
          this Basic Agreement and does not remedy the default within four (4)
          weeks after receipt of a relevant request of the one Party.

8.7  Sections 5, 6 and 7 shall survive termination of this Basic Agreement.

8.8  Should at the time this Basic Agreement terminates DEVELOPMENT WORK under
     an STATEMENT OF WORK not be completed then this Basic Agreement shall be

<PAGE>

CONFIDENTIAL
                                                               December 20, 2004

                                       -19

     regarded as remaining in force for the purposes of completion of such
     DEVELOPMENT WORK, provided, however, that this Section 8.8 shall not apply
     and the relevant STATEMENT OF WORK shall terminate at the date this Basic
     Agreement terminates if this Basic Agreement is terminated as per Section
     8.5.

8.9  CUSTOMER may terminate a STATEMENT OF WORK at any time, if CUSTOMER is of
     the reasonable opinion that the relevant development goal cannot be
     achieved or can only be achieved with significant additional expenditures.

     In case of such early termination CUSTOMER agrees to reimburse CONTRACTOR
     for its actual costs, as proved to exist before termination and which are
     directly related to the relevant STATEMENT OF WORK and which have not been
     included in previous payments. This shall be CONTRACTOR's exclusive remedy
     in the event of such early termination of a STATEMENT OF WORK.

     The Parties may agree in good faith to terminate a STATEMENT OF WORK for
     other reason than mentioned above.

8.10 On or before the termination of this Basic Agreement as per Section 8.3 and
     in each case an STATEMENT OF WORK expires or terminates CONTRACTOR shall
     deliver to CUSTOMER the DEVELOPMENT RESULTS which up till that point in
     time CUSTOMER has not yet received, subject to CUSTOMER's payment of all
     applicable fees which are due up to the point of such termination.

9.   ARBITRATION AND SUBSTANTIVE LAW

     The provisions regarding substantive law and dispute resolution of the
     LICENSE AGREEMENT, shall apply to this Basic Agreement.

10.  MISCELLANEOUS

10.1 This Basic Agreement and each STATEMENT OF WORK may not be released,
     discharged, abandoned, changed or modified in any manner, except by an
     instrument in writing signed on behalf of each of the Parties hereto by
     their duly authorized representatives.

<PAGE>

CONFIDENTIAL
                                                               December 20, 2004

                                       -20

10.2 The failure of any Party hereto to enforce at any time any of the
     provisions of this Basic Agreement or any STATEMENT OF WORK shall in no way
     be construed to be a waiver of any such provision, nor in any way to affect
     the validity of this Basic Agreement or the relevant STATEMENT OF WORK, or
     any part thereof; or the right of any Party thereafter to enforce each and
     every such provision. No waiver of any breach of this Basic Agreement or
     any STATEMENT OF WORK shall be held to be a waiver of any other or
     subsequent breach.

10.3 All notices or other communications required or permitted hereunder with
     regard to the interpretation, validity etc. of the Basic Agreement and each
     STATEMENT OF WORK shall be in writing and shall be given by certified mail
     addressed, if to CONTRACTOR:

Saifun Semiconductors Ltd. Attn: CFO
45 Hamalacha St. Industrial Zone South
Zone South
Netanya 42504
Israel
Fax: +972 (9) 8928445

and, if to CUSTOMER:

Infineon Technologies AG
Memory Products Group
Attn: CFO
Gustav Heinemann Ring 212
81739 Munich, Germany
Fax.: +49 (89) 234 23048

with a copy to:
Infineon Technologies AG
Legal Department
Fax: +49 (89) 234 26983

     or to such other address that the Parties might identify to each other for
     this purpose and with reference to this Basic Agreement or the relevant
     STATEMENT OF WORK.

<PAGE>

CONFIDENTIAL                                                   December 20, 2004

                                       -21

10.4 No Party hereto shall issue any press release or public announcement or
     otherwise divulge the existence of this Basic Agreement and each STATEMENT
     OF WORK, or the transactions contemplated hereby, without the prior
     approval of the other Party hereto.

10.5 This Basic Agreement and each STATEMENT OF WORK shall be binding upon and
     inure to the benefit of the Parties hereto and the successors or assigns of
     the Parties hereto.

     CUSTOMER may, upon prior written notification to CONTRACTOR, assign its
     rights and obligations hereunder in the event of assignment of the LICENSE
     AGREEMENT under and in accordance with the provisions of Section 13.6 of
     the LICENSE AGREEMENT.

10.6 Titles and headings to Sections herein and in each STATEMENT OF WORK are
     inserted for the convenience or reference only and are not intended to be a
     part of or to affect the meaning or interpretation of this Basic Agreement
     and a STATEMENT OF WORK.

10.7 This Basic Agreement and each STATEMENT OF WORK may be executed in one or
     more counterparts, all of which shall be considered one and the same
     agreement.

IN WITNESS WHEREOF, the Parties have executed these presents on the dates
specified below.

Saifun Semiconductor Ltd.               Infineon Technologies AG

By:  Kobi Rozengarten                    By:   T. Seifert
    ---------------------------------        -----------------------------------
Name:  Kobi Rozengarten                 Name:  T. Seifert
      -------------------------------         ----------------------------------
Title: President                        Title: CEO
       ------------------------------          ---------------------------------
Date:  12/18/2004                       Date:  11/13/2005
      -------------------------------         ----------------------------------

Saifun Semiconductor Ltd.               Infineon Technologies AG

By:  Boaz Eitan                         By:    M. Majerus
    ---------------------------------        -----------------------------------
Name:  Boaz Eitan                       Name:   M. Majerus
      -------------------------------         ----------------------------------
Title: Chairman and CEO                 Title:  CFO
       ------------------------------          ---------------------------------
Date:  12/19/2004                       Date:   1/13/2005
      -------------------------------         ----------------------------------

<PAGE>
CONFIDENTIAL

                          APPENDIX A - PERSONNEL COSTS

<Table>
<Caption>
                                                            Cost
                                                            per    Yearly
                                        Hours     Hours     hour   cost    Monthly
                Qualification profile   per week  per year  in $   $       cost $
------------------------------------------------------------------------------------
<S>             <C>                     <C>       <C>       <C>    <C>     <C>
VP Development  More than 10 years      40        1880      [***]  [***]   [***]
= Fellow        experience in relevant
                field heading the R&D
                organization or
                Technical R&D
                activities
------------------------------------------------------------------------------------
Director =      More than 8 years       40        1880      [***]  [***]   [***]
Staff Eng.      design experience
                after graduation in
                relevant field
------------------------------------------------------------------------------------
Design Manager  More than 6 years       40        1880      [***]  [***]   [***]
= Principal     design experience
Eng.            after graduation in
                relevant field
------------------------------------------------------------------------------------
Lead Engineer   More than 4 years       40        1880      [***]  [***]   [***]
                design experience
                after graduation in
                relevant field
------------------------------------------------------------------------------------
Engineer        Between 1 and 4 years   40        1880      [***]  [***]   [***]
                design experience
                after graduation in
                relevant field
------------------------------------------------------------------------------------
Junior Engineer Less than 1 year        40        1880      [***]  [***]   [***]
                design experience
                after graduation in
                relevant field
------------------------------------------------------------------------------------
Layout team     More than 5 years       40        1880      [***]  [***]   [***]
Leader =        layout and design
Layout          experience after
Principal Eng.  graduation in relevant
                field
------------------------------------------------------------------------------------
Layout Engineer Between 1 and 4 years   40        1880      [***]  [***]   [***]
                layout experience
                after graduation in
                relevant field
------------------------------------------------------------------------------------
Junior Layout   Less than 1 year        40        1880      [***]  [***]   [***]
Engineer        layout experience
                after graduation in
                relevant field
------------------------------------------------------------------------------------
Test Operator   Technician              40        1880      [***]  [***]   [***]
------------------------------------------------------------------------------------
Student (full   Student from technical  40        1880      [***]  [***]   [***]
time)           field of electronics
                before final graduation
------------------------------------------------------------------------------------
</Table>

      All amounts in US Dollars.

      Without derogating from the provisions of Section 2.4 of the Agreement,
      unless otherwise agreed by the Parties, all amounts include customary and
      reasonable overhead directly connected to the Engineers' performance of
      the Development Work, such as design tools, software licenses, Engineers
      PC and space, used by the Engineers' in the performance of the Development
      Work.

*** Omitted pursuant to a confidential treatment request. The confidential
information has been filed separately with the SEC.

<PAGE>
CONFIDENTIAL

        APPENDIX B - CARD INTEGRATION GROUP

<Table>
<Caption>
       LAST NAME   FIRST NAME          REMARK
-------------------------------------------------
<S>    <C>         <C>            <C>
  1    [***]       [***]
-------------------------------------------------
  2    [***]       [***]
-------------------------------------------------
  3    [***]       [***]
-------------------------------------------------
  4    [***]       [***]
-------------------------------------------------
  5    [***]       [***]
-------------------------------------------------
  6    [***]       [***]
-------------------------------------------------
  7    [***]       [***]
-------------------------------------------------
  8    [***]       [***]
-------------------------------------------------
  9    [***]       [***]
-------------------------------------------------
  10   [***]       [***]
-------------------------------------------------
  11   [***]       [***]
-------------------------------------------------
  12   [***]       [***]
-------------------------------------------------
  13   [***]       [***]
-------------------------------------------------
  14   [***]       [***]
-------------------------------------------------
  15   [***]       [***]
-------------------------------------------------
  16   [***]       [***]
-------------------------------------------------
  17   [***]       [***]
-------------------------------------------------
  18   [***]       [***]
-------------------------------------------------
  19   [***]       [***]
-------------------------------------------------
  20   [***]       [***]
-------------------------------------------------
  21   [***]       [***]          (Subcontractor)
-------------------------------------------------
  22   [***]       [***]          (Subcontractor)
-------------------------------------------------
  23   [***]       [***]          (Subcontractor)
-------------------------------------------------
  24   [***]       [***]          (Subcontractor)
-------------------------------------------------
  25   [***]       [***]          (Subcontractor)
-------------------------------------------------
  26   [***]       [***]          (Subcontractor)
-------------------------------------------------
</Table>

      Total fixed monthly price for the card integration work for the first year
      as of the date hereof: $[***]. The fixed monthly price for the second year
      will be negotiated in good faith between the Parties. Failure to reach an
      agreement will cause the price to remain the same subject to adjustment in
      changes for headcount.

*** Omitted pursuant to a confidential treatment request. The confidential
information has been filed separately with the SEC.

<PAGE>

                         APPENDIX C - LIST OF ENGINEERS

<Table>
<S>                 <C>
-----------------------------------------------------
[***]               Lead Engineer
-----------------------------------------------------
[***]               Lead Engineer
-----------------------------------------------------
[***]               Lead Engineer
-----------------------------------------------------
[***]               Lead Engineer
-----------------------------------------------------
[***]               Lead Engineer
-----------------------------------------------------
[***]               Lead Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Engineer
-----------------------------------------------------
[***]               Junior Engineer
-----------------------------------------------------
[***]               Junior Engineer
-----------------------------------------------------
[***]               Junior Engineer
-----------------------------------------------------
[***]               Junior Engineer
-----------------------------------------------------
[***]               Junior Engineer
-----------------------------------------------------
[***]               Junior Engineer
-----------------------------------------------------
[***]               Junior Engineer
-----------------------------------------------------
[***]               Layout Engineer
-----------------------------------------------------
[***]               Student
-----------------------------------------------------
[***]               Student
-----------------------------------------------------
[***]               Student
-----------------------------------------------------
[***]               Student
-----------------------------------------------------
[***]               Student
-----------------------------------------------------
[***]               Student
-----------------------------------------------------
[***]               Student
-----------------------------------------------------
</Table>

*** Omitted pursuant to a confidential treatment request. The confidential
information has been filed separately with the SEC.

<PAGE>

                          APPENDIX D - LIST OF MANAGERS

<Table>
<Caption>
<S>                      <C>
---------------------------------------------------
Eduardo Maayan           VP Development
---------------------------------------------------
Boaz Eitan               CEO
---------------------------------------------------
[***]                    Fellow
---------------------------------------------------
[***]                    Director
---------------------------------------------------
[***]                    Director
---------------------------------------------------
[***]                    Director
---------------------------------------------------
[***]                    Director
---------------------------------------------------
[***]                    Principal Eng.
---------------------------------------------------
[***]                    Design Manager
---------------------------------------------------
[***]                    Principal Eng.
---------------------------------------------------
[***]                    Design Manager
---------------------------------------------------
[***]                    Design Manager
---------------------------------------------------
[***]                    Design Manager
---------------------------------------------------
[***]                    Principal Eng.
---------------------------------------------------
[***]                    Principal Eng.
---------------------------------------------------
[***]                    Principal Eng.
---------------------------------------------------
</Table>

*** Omitted pursuant to a confidential treatment request. The confidential
information has been filed separately with the SEC.<PAGE>

                                                                   Exhibit 10.14

                            SAIFUN SEMICONDUCTORS LTD

                            SHARE OPTION PLAN (1997)

                               A. NAME AND PURPOSE

1.    Name: This plan, as amended from time to time, shall be known as the
      Sayfun Semiconductors Ltd. Employee Share Option Plan (1997) (the "Plan").

2.    Purpose: The purpose and intent of the Plan is to provide incentives to
      employees of Sayfun Semiconductors Ltd. (the "Company"), by providing them
      with opportunities to purchase shares in the Company, pursuant to the Plan
      that was approved by the Board of Directors of the Company.

                   B. GENERAL TERMS AND CONDITIONS OF THE PLAN

3.    Administration:

3.1   The Plan will be administered by a Share Option Committee (the
      "Committee"), which will consist of such number of Directors of the
      Company (not less than two in number), as may be fixed from time to time
      by the Board of Directors of the Company. The Board of Directors shall
      appoint the members of the Committee, may from time to time remove members
      from, or add members to, the Committee and shall fill vacancies in the
      Committee however caused.

3.2   The Committee shall select one of its members as its Chairman and shall
      hold its meetings at such times and places as it shall determine. Actions
      at a meeting of the Committee at which a majority of its members are
      present or acts reduced to or approved in writing by all members of the
      Committee, shall be the valid acts of the Committee. The Committee may
      appoint a Secretary, who shall keep records of its meetings and shall make
      such rules and regulations for the conduct of its business as it shall
      deem advisable.

3.3   Subject to the general terms and conditions of this Plan, the Committee
      shall have full authority in its discretion, from time to time and at any
      time, to determine (i) the persons to whom Option Awards (as hereinafter
      defined) shall be granted ("Grantees"), (ii) the number of shares to be
      covered by each Option Award, (iii) the time or times at which the same
      shall be granted, (iv) the schedule and conditions on which such Option
      Awards may be exercised and on which such shares shall be paid for, and/or
      (v) any other matter which is necessary or desirable for, or incidental
      to, the administration of the Plan. In determining the number of shares
      covered by the Option Awards to be granted to each Grantee, the Committee
      shall consider, among other things, the Grantee's salary and the duration
      of the Grantee's employment by the Company.

3.4   The Committee may from time to time adopt such rules and regulations for

                                       1

<PAGE>

      carrying out the Plan as it may deem best. No member of the Board of
      Directors or of the Committee shall be liable for any action or
      determination made in good faith with respect to the Plan or any Option
      Award granted thereunder.

3.5   The interpretation and construction by the Committee of any provision of
      the Plan or of any Option Award thereunder shall be final and conclusive
      unless otherwise determined by the Board of Directors.

4.    Eligible Grantees:

      Subject to this limitation and any restriction imposed by applicable law,
      Option Awards may be granted to any officer, key employee or other
      employee of the Company, whether or not a Director of the Company. The
      grant of an Option Award to a Grantee hereunder, shall neither entitle
      such Grantee to participate, nor disqualify him from participating, in any
      other grant of options pursuant to this Plan or any other share incentive
      or share option plan of the Company or any of its related companies.

5.    Trustee: The Option Awards and/or shares in the Company which will be
      issued upon the exercise of the Option Awards may be held in trust, by
      Advocate Doron Latzer, of A. Tally Eitan Zeev Pearl, D. Latzer & Co. as
      trustee (the "Trustee"). The Trustee shall hold the same pursuant to the
      Company's instructions from time to time. The Trustee shall not use the
      voting rights vested in such shares, unless it is instructed to do so in
      writing by any of the Grantees. In such event, the Trustee shall use the
      voting rights vested in the Grantee's shares according to the majority
      vote of the ordinary shareholders, in that Company's shareholders meeting.

6.    Reserved Shares: The Company has reserved 260,000 authorized but unissued
      ordinary shares (nominal value NIS 0.01 per share) of the Company for
      purposes of the Plan, subject to adjustment as provided in paragraph 11
      hereof. Any shares under the Plan, in respect of which the right hereunder
      of a Grantee to purchase the same shall for any reason terminate, expire
      or otherwise cease to exist, shall again be available for grant through
      Option Awards under the Plan.

7.    Option Awards:

7.1   The Committee in its discretion may award to Grantees options to purchase
      shares in the Company available under the Plan ("Option Awards"). The Plan
      is intended to be a Section 102 Employee Option Plan within the meaning of
      the Israel Income Tax Ordinance (New Version). Option Awards may be
      granted at any time after this Plan has been approved by the Board of
      Directors of the Company (or prior to this Plan being so approved,
      provided that the grant of such Option Awards is made subject to such
      approval) and the shares reserved for the Plan have been effectively
      created. The date of grant of each Option Award shall be the date
      specified by the Committee at the time such award is made.

                                       2

<PAGE>

7.2   The instrument granting an Option Award shall state, inter alia, the
      number of shares covered thereby, the dates when it may be exercised
      (subject to paragraph 9.1), the exercise price, the schedule on which such
      shares may be paid for and such other terms and conditions as the
      Committee in its discretion may prescribe, provided that they are
      consistent with this Plan.

8.    Option Prices: The price per share covered by each Option Award shall be
      determined by the Committee on the date of grant.

9.    Exercise of Option Award:

9.1   Option Awards shall be exercisable pursuant to the terms under which they
      were awarded and subject to the terms and conditions of this Plan;
      provided, however, that in no event shall an Option Award be exercisable
      after the expiration of ten (10) years from the date such Option Award is
      granted.

9.2   An Option Award, or any part thereof, shall be exercisable by the
      Grantee's signing and returning to the Company at its principal office
      (and to the Trustee, where applicable), a "Notice of Exercise" in such
      form and substance as may be prescribed by the Committee from time to
      time.

9.3   Notwithstanding anything herein to the contrary, but without derogating
      from the provisions of paragraph 10 hereof, if any Option Award, or any
      part thereof, has not been exercised and the shares covered thereby not
      paid for within ten (10) years after the date of grant (or any other
      period set forth in the instrument granting such Option Award pursuant to
      paragraph 7), such Option Award, or such part thereof, and the right to
      acquire such shares shall terminate, all interests and rights of the
      Grantee in and to the same shall expire, and, in the event that in
      connection therewith any shares are held in trust as aforesaid, such trust
      shall expire and the Trustee shall thereafter hold such shares in an
      unallocated pool until instructed by the Company that some or all of such
      shares are again to be held in trust for one or more Grantees.

9.4   Each payment for shares under an Option Award shall be in respect of a
      whole number of shares, shall be effected in cash or by a cashier's or
      certified check payable to the order of the Company, or such other method
      of payment acceptable to the Company as determined by the Committee, and
      shall be accompanied by a notice stating the number of shares being paid
      for thereby.

10.   Termination of Employment:

10.1  In General: Subject to the provisions of paragraph 10.2 hereof, if a
      Grantee should, for any reason, cease to be employed by the Company, all
      of his rights, if any, in respect of all Option Awards granted to him
      under the Plan, other than those which are exercisable at the date of
      cessation of employment or may be exercised within four weeks of cessation
      of employment, shall terminate, and all of his rights in respect of Option
      Awards which are exercisable at the date of

                                       3

<PAGE>

      cessation of employment or may be exercised within four weeks of cessation
      of employment and which are not exercised within four weeks of cessation
      of employment, shall terminate upon the expiration of such four-week
      period. In the event of resignation or discharge of a Grantee from the
      employ of the Company or a related company thereof, his or her employment
      shall, for the purposes of this paragraph 10.1, be deemed to have ceased
      upon the delivery to the employee of notice of discharge, as the case may
      be, irrespective of the effective date of such resignation or discharge.
      In the event the employment of a Grantee is terminated by the Company for
      cause, such Grantee shall not be entitled to exercise the Option Awards
      subsequent to the time of delivery of the notice of discharge.

10.2  Death, Disability, Retirement: Notwithstanding anything herein to the
      contrary, if a Grantee should die, or if a Grantee is unable to continue
      to be employed by the Company by reason of becoming incapacitated while in
      the employ of the Company as a result of an accident or illness or other
      cause which is approved by the Committee, or if a Grantee should retire,
      such Grantee shall, subject to approval of the Committee (which shall not
      be unreasonably withheld), continue to enjoy rights under the Plan on such
      terms and conditions as the Committee in its discretion may determine.

11.   Adjustments: Upon the happening of any of the following described events,
      a Grantee's rights to purchase shares under the Plan shall be adjusted as
      hereinafter provided.

11.1  In the event that the ordinary shares of the Company are subdivided or
      combined into a greater or smaller number of shares or if, upon a merger,
      consolidation, reorganization, recapitalization or the like, the ordinary
      shares of the Company are exchanged for other securities of the Company or
      of another corporation, each Grantee shall be entitled, subject to the
      conditions herein stated, to purchase such number of ordinary shares or
      amount of other securities of the Company or such other corporation as
      were exchangeable for the number of ordinary shares of the Company which
      such Grantee would have been entitled to purchase except for such action,
      and appropriate adjustments shall be made in the purchase price per share
      to reflect such subdivision, combination or exchange.

11.2  In the event that the Company issues any of its ordinary shares or other
      securities as bonus shares upon or with respect to any shares which are at
      the time subject to a right of purchase by a Grantee hereunder, each
      Grantee upon exercising such right shall be entitled to receive (if he so
      elects), in addition to the shares as to which he is exercising such
      right, the appropriate number of bonus shares, on the same terms and
      conditions as offered to the other shareholders, which he would have
      received had he been the holder of the shares as to which he is exercising
      his right at all times between the date of the granting of such right and
      the date of its exercise.

                                       4

<PAGE>

11.3  Upon the happening of any of the foregoing events, the class and aggregate
      number of ordinary shares issuable pursuant to the Plan (as set forth in
      paragraph 6 hereof), in respect of which Option Awards have not yet been
      granted, shall also be appropriately adjusted to reflect the events
      specified in paragraphs 11.1 and 11.2 above.

11.4  The Committee shall determine the specific adjustments to be made under
      this paragraph 11, and its determination shall be conclusive.

12.   Assignability and Sale of Shares:

12.1  No shares purchasable hereunder which were not fully paid for, shall be
      assignable or transferable by the Grantee. For avoidance of doubt, the
      foregoing shall not be deemed to restrict the transfer of a Grantee's
      rights in respect of Option Awards or shares purchasable pursuant to the
      exercise thereof upon the death of such Grantee to his estate or other
      successors by operation of law or will, whose rights therein shall be
      governed by paragraph 10.2 hereof.

12.2  No Option Award may be transferred other than by will or by the laws of
      descent and distribution, and during the Grantee's lifetime an Option
      Award may be exercised only by him.

13.   Securities Act of 1933; Israel Securities Law, 1967: By his exercise of an
      Option Award hereunder, the Grantee agrees not to sell, transfer or
      otherwise dispose of any of the shares so purchased by him except in
      compliance with the United States Securities Act of 1933, as amended, and
      the rules and regulations thereunder and the Grantee further agrees that
      all certificates evidencing any of such shares shall be appropriately
      legend to reflect such restriction. The Company does not obligate itself
      to register any shares under the United States Securities Act of 1933, as
      amended. However, the securities being offered and/or issued hereby have
      been issued in compliance with the Israel Securities Law, 1967.

14.   Term and Amendment of the Plan:

14.1  The Plan was adopted by the Board of Directors of the Company on
      February 17, 1997, and shall expire on February 16, 2002 (except as to
      Option Awards outstanding on that date).

14.2  The Board of Directors may, at any time and from time to time, terminate
      or amend the Plan in any respect except that, without the prior approval
      of the shareholders of the Company: (i) the total number of ordinary
      shares which may be issued under the Plan may not be increased (except by
      adjustment pursuant to paragraph 11 hereof) and (ii) the provisions of
      paragraph 4 regarding eligibility may not be modified. In no event may any
      action of the Company alter or impair the rights of a Grantee, without his
      consent, under any Option Award previously granted to him.

                                       5
<PAGE>

15.   Continuance of Employment: Neither the Plan nor the Agreement shall impose
      any obligation on the Company or a related company thereof, to continue
      any Grantee in its employ, and nothing in the Plan or in any Option Award
      granted pursuant thereto shall confer upon any Grantee any right to
      continue in the employ of the Company or a related company thereof or
      restrict the right of the Company or a related company thereof to
      terminate such employment at any time.

16.   Governing Law: The Plan and all instruments issued thereunder or in
      connection therewith, shall be governed by, and interpreted in accordance
      with, the laws of the State of Israel.

17.   Application of Funds: The proceeds received by the Company from the sale
      of shares pursuant to Option Awards granted under the Plan will be used
      for general corporate purposes of the Company or any related company
      thereof.

18.   Tax Consequences: Any tax consequences arising from the grant or exercise
      of any Option Award, from the payment for shares covered thereby or from
      any other event or act (of the Grantee or the corporation that employs the
      Grantee) hereunder, shall be borne solely by the Grantee. Furthermore, the
      Grantee shall agree to indemnify the corporation that employs the Grantee
      and the Trustee and hold them harmless against and from any and all
      liability for any such tax or interest or penalty thereon, including
      without limitation, liabilities relating to the necessity to withhold, or
      to have withheld, any such tax from any payment made to the Grantee.

                                       6

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