Preview | Purchase Agreement |

M-Systems Finance Inc.

U.S.$ 75,000,000 1% Convertible Senior Notes Due 2035*

Purchase Agreement

March 17, 2005

Citigroup Global Markets Inc.

CIBC World Markets Corp.

C.E. Unterberg, Towbin

Thomas Weisel Partners LLC

WR Hambrecht & Co. LLC

As Representatives of the Initial Purchasers
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013

Ladies and Gentlemen:

M-Systems Finance Inc., an exempted company limited by shares organized under the laws of the Cayman Islands (the "Company") and a direct wholly owned subsidiary of M-Systems Flash Disk Pioneers Ltd., a company organized under the laws of the State of Israel (the "Guarantor"), proposes to issue and sell to the several parties named in Schedule I hereto (the "Initial Purchasers"), for whom you (the "Representatives") are acting as representatives, U.S.$75,000,000 principal amount of its 1% Convertible Senior Notes Due 2035 (the "Firm Notes"), which are to be unconditionally guaranteed by the Guarantor (the "Firm Guarantees" and together with the Firm Notes, the "Firm Securities"). The Company also proposes to grant to the Initial Purchasers an option to purchase up to U.S.$25,000,000 additional principal amount of such Notes, if any (the "Option Notes") similarly guaranteed (the "Option Guarantees" and together with the Option Notes, the "Option Securities"). The Firm Securities and the Option Securities are referred to together as the "Securities." The Firm Notes and the Option Notes are referred to together as the "Notes." The Firm Guarantees and the Option Guarantees are referred to together as the "Guarantees." The Securities are convertible into ordinary shares, par value NIS 0.001 per share (the "Ordinary Shares"), of the Guarantor at the conversion price set forth in the Indenture (as defined below). The Securities are to be issued under an indenture (the "Indenture"), to be dated as of the Closing Date, between the Company, the Guarantor and The Bank of New York Trust Company, N.A., as trustee (the "Trustee").

* Plus an option to purchase up to U.S.$25,000,000 additional principal amount from the Company.

____ 1 ____

The Securities will have the benefit of a registration rights agreement (the "Registration Rights Agreement"), to be dated as of the Closing Date, between the Company, the Guarantor and the Initial Purchasers, pursuant to which the Company and the Guarantor will agree to register the Securities and the Ordinary Shares issuable upon conversion thereof under the Act subject to the terms and conditions therein specified. To the extent there are no additional parties listed on Schedule I other than you, the term Representatives as used herein shall mean you as the Initial Purchasers, and the terms Representatives and Initial Purchasers shall mean either the singular or plural as the context requires. The use of the neuter in this Agreement shall include the feminine and masculine wherever appropriate. Certain terms used herein are defined in Section 20 hereof.

The sale of the Securities to the Initial Purchasers will be made without registration of the Securities or the Ordinary Shares issuable upon conversion thereof under the Act in reliance upon exemptions from the registration requirements of the Act.

In connection with the sale of the Securities, the Company and the Guarantor have prepared a preliminary offering memorandum, dated March 17, 2005 (as amended or supplemented at the date thereof, including any and all exhibits thereto and any information incorporated by reference therein, the "Preliminary Memorandum"), and a final offering memorandum, dated March 17, 2005 (as amended or supplemented at the Execution Time, including any and all exhibits thereto and any information incorporated by reference therein, the "Final Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets forth certain information concerning the Company, the Guarantor, the Securities and the Ordinary Shares issuable upon conversion thereof. Each of the Company and the Guarantor hereby confirms that it has authorized the use of the Preliminary Memorandum and the Final Memorandum, and any amendment or supplement thereto, in connection with the offer and sale of the Securities by the Initial Purchasers. Unless stated to the contrary, any references herein to the terms "amend", "amendment" or "supplement" with respect to the Final Memorandum shall be deemed to refer to and include any information filed under the Exchange Act subsequent to the Execution Time that is incorporated by reference therein.

1. Representations and Warranties. The Company and the Guarantor, jointly and severally, represent and warrant to each Initial Purchaser as set forth below in this Section 1.

(a) The Preliminary Memorandum, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. At the Execution Time, on the Closing Date and on any settlement date on which the Initial Purchasers purchase Option Securities from the Company and the Guarantor, the Final Memorandum did not and will not (and any amendment or supplement thereto, at the date thereof, at the Closing Date and on any settlement date, will not) contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that neither the Company nor the Guarantor makes any representation or warranty as to the information contained in or omitted from the Preliminary Memorandum or the Final Memorandum, or any amendment or supplement thereto, in reliance upon and in conformity with information furnished in writing to each of the Company and the Guarantor by or on behalf of the Initial Purchasers through the Representatives specifically for inclusion therein.

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