Product Development & Distribution Agreement

PRODUCT DEVELOPMENT AND DISTRIBUTION AGREEMENT



This Agreement is made and entered into between Accent Color Sciences Inc., a corporation organized under the laws of the State of Connecticut, U. S. A., with an office in East Hartford, Connecticut (hereinafter referred to as "ACS"), and Xerox Corporation, a corporation organized under the laws of the State of New York, U.S.A., with an office in El Segundo, California (hereinafter "Xerox") and shall be effective as of the date the last signature is affixed hereto ("Effective Date") upon the terms and conditions set forth below.



I. DEFINITIONS



1.01 "ACS Preexisting Intellectual Property" shall mean any intellectual

property owned or licensed by ACS prior to the execution of this Agreement

which is not created or developed by ACS pursuant to this Agreement, and

which is used by ACS to create or develop, or is incorporated in or is a

part of, the Product.



1.02 "ACS 135 Spot Printer" shall mean the color spot printer which is to be

developed hereunder by ACS to be interoperable and compatible with the

Xerox 4890 and Xerox 4635 Printers, the Xerox Docutech 135 Production

Publishing System ("Docutech") and otherwise to conform to the



1.03 "Consumables" shall mean supplies which are consumed or used in connection

with the ACS 135 Spot Printer or other ACS Printers distributed by Xerox



1.04 "Day" shall mean, unless otherwise specified, a calendar day (as opposed to

a regular working day).



1.05 "Documentation" shall mean all written text including but not limited to

manuals, brochures, specifications and hardware or software descriptions,

in electronic, printed and/or camera ready form and related materials

customarily needed to use, provide service for, or otherwise support the

1.06 "Mandatory Retrofit" shall mean a retrofit to the Products necessary to

restore the Products to conformity to Specifications, to render the

Products safe for use or repair, or have the Products comply with the

requirements of applicable law current as of the date the affected unit of

Products was delivered to Xerox/Xerox Affiliated Companies.



1.07 "Loan Agreement and Promissory Note" shall mean that certain agreement

between the parties hereto dated____________, 1996 and styled "Loan

Agreement and Promissory Note."



1.08 "Production Month" shall mean the calendar month in which production occurs

of the ACS 135 Spot Printer or other ACS Products subject to this



1.09 "Products" shall mean the ACS 135 Spot Printer and other ACS Products

subject to this Agreement which meet the Specifications, together with

Spares and Consumables therefor, and all modifications, improvements,

enhancements, additions, updates, releases and versions thereof.



1.10 "Regulatory Agency" shall mean any regulatory agency or other body,

governmental or private, including but not limited to agencies regulating

product safety, and/or electromagnetic emissions, the approval of which is

required by Xerox, the government of the United States or any political

subdivision thereof, or the European Union or any member state thereof,

prior to development, delivery or marketing of the Products in the United

States, Puerto Rico, the territories and possessions of the United States,

the EEC, and any other country fisted on Exhibit A hereto. Examples of

standards of which ACS shall be obligated to have the Products meet shall

include Underwriters Laboratory ("UL") and the Canadian Standards

Association ("CSA").



1.11 "Security Agreement" shall mean that certain agreement between the parties

dated ________, 1996 and styled the "Security Agreement"



1.12 "Specifications" shall mean the engineering, operational and/or functional

description of the Products as set forth in Exhibit A hereto, as the same

may be amended by mutual agreement of the parties. 1.13 "Systemic Defect" shall mean a defect in the Products' materials and

workmanship which occurs in identical or substantially similar form or from

a substantially similar cause which occurs (i) in at least five per cent

(5%) of a field population of the ACS 135 Spot Printer or other model(s) of

ACS printers being distributed hereunder by Xerox or Xerox Affiliated

Companies provided the field population consists of at least one hundred-

fifty (150) units of the printer model at issue or (ii) in the event

subparagraph (i) of this section doesn't apply, such defect occurs in at

least seven units of the field population of the ACS 135 Spot Printer or

other model of ACS printer(s) being distributed hereunder by Xerox or Xerox

Affiliated Companies.



1.14 "Territory" shall mean the entire world.



1.15 "Xerox Affiliated Companies" shall mean Fuji Xerox Co., Ltd., Rank Xerox

Limited, Xerox Canada, Inc., any entity which is owned or controlled

jointly by Xerox Corporation and The Rank Organization PLC, and any entity

which is owned or controlled directly or indirectly, by any of the

foregoing, but shall not include Xerox.



1.16 "Agreement" shall mean this Agreement together with Exhibits A through

C which are attached hereto and made a part hereof.



II. ACS DEVELOPMENT WORK



2.01 (a) ACS shall, unless otherwise agreed in writing, at its sole expense use

all commercially reasonable efforts to develop the ACS 135 Spot Printer to

conform to the Specifications of Exhibit A and timely complete the

deliverables, and achieve the milestones and program schedule, set forth in

Exhibit B hereto. The Specifications with respect to enabling the ACS 135

Spot Printer to be interoperable and compatible with the Xerox 4635 and

4890 Printers must be finalized by February 15, 1996. The Specifications

with respect to enabling the ACS 135 Spot Printer to be interoperable and

compatible with the Docutech will be finalized as soon as practicable after

the Effective Date.

(b) ACS shall provide Xerox with progress reports, in accordance with the

schedule set forth in Exhibit B hereto. Each such report shall

reflect/indicate:



i. Status of progress to current date/milestone;

ii. Short description of problems in meeting such milestones;

iii. Proposed recovery method to meet next milestone, if needed;

iv. Probability of meeting next milestone.



The parties agree to conduct regular program reviews as shown on the program schedule to ensure their mutual satisfaction with the performance of the development work. In addition, upon reasonable notice, the parties agree to mutually agreeable times and locations to discuss and inspect the status of the development work. The schedule for developing the ACS 135 Spot Printer to be interoperable and compatible with the Docutech will be finalized as soon as reasonably practicable after the Effective Date.



2.02 The parties will jointly develop in accordance with the milestones set

forth in Exhibit B a SCSI II interface specification which shall also form

part of the Specifications.



2.03 Xerox reserves the right to request in writing changes to the

Specifications at any time prior to delivery of the ACS 135 Spot Printer or

other Products to be developed hereunder by ACS. If ACS reasonably

determines that such changes are feasible, the parties will agree to such

changes in writing and ACS will develop the ACS 135 Spot Printer or other

products to be developed hereunder by ACS to conform to such modified

Specification and to be delivered in accordance with any modified

milestones. Xerox and ACS agree to negotiate in good faith an equitable

adjustment in Products prices or time schedule, as necessary, for all

changes to the Specification and ACS shall not be required to continue with

the development of the ACS 135 or other Products to be developed hereunder

by ACS until such adjustment is agreed to.



2.04 (a) ACS shall timely deliver to Xerox both the Alpha Software Development

units and up to ten (10) BO units for testing and acceptance by Xerox. The

Alpha Software Development unit shall be a unit sufficiently developed to

enable Xerox to ascertain if the ACS 135 Spot Printer or any other Products

to be developed hereunder win be capable of

meeting the Specifications, and the manufacturing cost targets, although

such Alpha Software Development unit may not be fully functional or

manufactured with actual production tooling The BO units shall be completed

units with all required functionality and performance for final product

test purposes. ACS shall sell Xerox up to ten (10) of the initial BO units

of the ACS 135 Spot Printer or other printer to be developed hereunder by

ACS at a price of one hundred fifty thousand ($150,000) dollars per unit.

Delivery will be F.O.B. ACS' manufacturing facility. With respect to such

BO units Xerox will pay ACS fifty (50%) percent of the applicable purchase

price contemporaneously with Xerox' order for such units, fifty (50%)

percent upon delivery.



(b) ACS shall supply Xerox preliminary data on the On Going Maintenance Rate

("OGMR") and Mean Time To Repair ("MTTR") for the ACS 135 Spot Printer or

other printers distributed hereunder by Xerox/Xerox Affiliated Companies as

soon as practical 3 in their development cycle. Final OGMR and MT-FR data

shall be provided as soon as design maturity of such printers is

demonstrated but in no case later than thirty(30) days prior to general

availability of the printers. Such OGMR data shall include failure data on

all major subassemblies of such printers. Further, should any revisions or

modifications to such printers or component parts thereof affect the OGMR

or MTTR of such printers, ACS shall supply revised OGMR and MTTR data

within thirty (30) days of such revisions or modifications.



(c) In the event that a variance should occur such that the actual OGMR is

worse than the OGMR specified in Exhibit A , ACS will implement a

corrective action program at its sole expense acceptable to Xerox to

correct such variance. If the average OGMR for the ACS 135 Spot Printer or

other printers distributed hereunder by Xerox/Xerox Affiliated Companies

nonetheless remains worse than that specified in Exhibit A after such

corrective action is implemented., ACS agrees to implement a superior

corrective action program and repair all such printers failed and affected

Spares at no cost to Xerox. Should such corrective actions taken by ACS not

result in average OGMR's in accordance with the Specifications, ACS shall

replace all such printers with a printer that meets or exceeds the

Specifications, including OGMR'S, at no cost to Xerox.



2.05 After delivery by ACS of any deliverable for which testing for compliance

with the Specifications is feasible and reasonable, Xerox will test the



and notify ACS in writing of either its approval or reasons for its

rejection of the deliverable due to its nonconformance to the

Specifications and/or its containing program errors or otherwise not

functioning properly as soon as reasonably practicable but in no event

later than thirty (30) days after commencement of such testing.



2.06 Following receipt by ACS of Xerox' written notice of rejection under

Section 2.05 hereof, ACS will develop within [*] a mutually agreeable

corrective action plan. If ACS subsequently delivers a corrected

deliverable to Xerox within said plan corrective period, Xerox will have up

to an additional [*] from receipt to reevaluate the corrected deliverable.



2.07 If, with respect to any particular ACS deliverable, ACS is unable due to

ACS' own fault to meet the agreed-upon Specifications and/or eliminate any

program errors and/or otherwise not provide a properly functioning

deliverable within the correction period set forth in Section 2.06 above,

or fails to meet any agreed upon milestone or date for delivery of a

deliverable then, in addition to any other rights Xerox may have hereunder

or under applicable law, Xerox may:



(a) extend the correction period by an amount of time as may be determined by

Xerox; or



(b) approve the deliverable with an equitable reduction in any Products'

purchase price as mutually determined by Xerox and ACS; or



(c) elect to complete or have completed on its behalf at Xerox' expense the

nonconforming deliverable and ACS shall give Xerox and Xerox Affiliated

Companies all reasonable and necessary cooperation with respect thereto at

ACS' expense including but not limited to (i) helping Xerox and Xerox

Affiliated Companies procure consumables, parts, components, or

subassemblies from ACS' vendors, (ii) granting Xerox and Xerox Affiliated

Companies a world-wide, royalty-free, non-exclusive, irrevocable right to

use, and sublicense, any ACS intellectual property, including know-how, and

related documentation, which is necessary for Xerox/Xerox Affiliated

Companies to complete or have completed such nonconforming deliverable; and

(iii) assist Xerox and Xerox Affiliated Companies to obtain any



[*] OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND

FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

necessary licenses from third parties necessary for the completion of such

nonconforming deliverable. Provided, however, within thirty (30) days after

Xerox elects to exercise the rights granted to it in this subparagraph, it

shall meet with ACS and discuss in good faith the possibility of ACS

reacquiring the right to complete in whole or in part the deliverables due

under this Agreement. In the event Xerox employees or contractors create or

conceive of any ideas, discoveries, innovations, and inventions

("Improvements") in the course of completing the nonconforming deliverable,

Xerox will own such Improvement and will grant ACS a world-wide , non-

exclusive, royalty-free, irrevocable right to use such Improvements in

connection with manufacturing Products hereunder solely for Xerox and Xerox

Affiliated Companies; or



(d) terminate this agreement.



2.08 (a) Number of Persons Employed on Development Activities - At all times

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during the development activities contemplated by this Agreement ACS shall

have at least ten (10) ACS full-time employees or contract workers whose

duties will principally relate to the development efforts hereunder.



(b) Conflicts - In the event there is any conflict between ACS achieving

its development obligations under this Agreement and any development or

other obligations respecting any other person, the former will take



(c) Xerox Exclusivity - While any amount of any loans by Xerox to ACS

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remain outstanding, and unless otherwise approved in writing by Xerox'

Business Program Manager(s) appointed under this Agreement, ACS (i) may not

engage in any product (hardware or software) development work alone or in

concert with one or more other persons (natural or otherwise) nor enter

into a binding agreement relating to such product development work, other

than with or for Xerox or Xerox Affiliate Companies, relating to rendering

the ACS 135 Spot Printer or any other current or future cut-sheet ACS

products interoperable or compatible with any printer which has a rated

speed of 30 PPM or greater or copier which has a rated speed of 50 CPM or

greater and (ii) may not enter into any legally binding arrangements or

agreements with any person, including IBM and Siemens, which arrangement or

agreement directly precludes or has the effect of precluding ACS from

developing for or distributing to Xerox or Xerox Affiliated

Companies for resale an ACS Spot Printer or other printer which is

interoperable and compatible with Xerox' version of a web-fed printer with

a rated speed of 30 PPM or more.



2.09 (a) Improvements - Title to any Improvements created or conceived solely by

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employees of Xerox or those of ACS shall be owned solely by the party whose

employees solely created or conceived such Improvements.





(b) Pre-Existing ACS Intellectual Property - At all times title to pre-existing

-------------------------------------- ACS Intellectual Property resides with ACS and, unless expressly provided herein, no licenses with respect thereto are granted by ACS to Xerox or Xerox Affiliated Companies.





2.10 Escrow - Promptly after each portion thereof is completed, ACS shall place

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with the Office of the General Counsel of Xerox, 800 Long Ridge Road,

Stamford, CT 06904, one complete set of any software source code developed

hereunder, related Documentation, and all diagrams, drawings, and

schematics ("Source Material") related to the ACS 135 Spot Printer and

other printers being developed hereunder for Xerox. The foregoing shall

not be made available to anyone outside Xerox' Office of the General

Counsel unless there is a breach of this Agreement by ACS and Xerox elects

to complete or have completed the development activities contemplated by

this Agreement or to the extent allowed under applicable law in the event

of ACS' bankruptcy or insolvency. The use of such Source Materials will be

subject to the agreement between the parties styled "Confidential

Disclosure Agreement" effective (date), ("Confidentiality Agreement"). ACS

shall promptly send Xerox on a monthly basis updates of such source code,

related Documentation, and all diagrams, drawings, and schematics for the

ACS 135 Spot Printer and other printers being developed hereunder for

Xerox. In ACS' presence, Xerox may inspect, test, and review, but not

copy, the escrowed materials at the time of deposit or within a reasonable

time thereafter to verify that ACS is meeting its escrow obligations



2.11 Product Quality Plan - ACS will develop, implement and provide to Xerox a

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manufacturing Quality Plan for the deliverables to be delivered by ACS

hereunder in accordance with End Item Quality Provisions (Xerox

document "EIQP-3105-4"). Such Quality Plan shall define the controls and

operating systems required to assure that only defect free deliverables

will be delivered to Xerox. ACS will ensure that their suppliers will meet

the Xerox quality standards as set forth in the EIQP-3105-4. Xerox'

Material Quality Assurance Group or their authorized representatives shall

source verify au deliveries until ACS achieves Xerox' certification.

Existing ACS quality procedures which totally comprehend any quality plan

elements may be used to satisfy the plan and will become the basic

operating document for assuring compliance to Xerox' quality requirements.



2.12 Program Milestone Management - The parties agree that achievement of

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certain key milestones, as set forth in Exhibit B, must be managed actively

to assure that the ACS deliverables hereunder meet Xerox' market

requirements. Both parties agree to apply diligent efforts to assure that

the progress of the program is kept on schedule. Both parties shall

appoint Business Program and Technical Program Manager(s) with respect to

this Agreement. The Business Program Manager(s) for Xerox will be Amitabh

Saran respecting development activities relating to the Xerox 4635 and 4890

and Larry Rourke respecting the development activities relating to the

Xerox Docutech 135 Production Publisher. The Technical Program Manager(s)

win be Steve Baumann respecting development activities relating to the

Xerox 4635 and 4890 and to be identified by 3/15/96 respecting the

development activities relating to the Xerox Docutech 135 Production

Publisher. The Business Program and Technical Program Manager for ACS win

respectively be Martyn R. Jones and Robert S. Rizza. If it is determined

by either party that the progress of key program milestones is insufficient

to assure that delivery schedule of conforming deliverables is maintained,

the parties' respective Technical Program Managers shall be empowered to

schedule a milestone exception review upon written notification to the

other party. Milestone exception reviews will be held at a mutually agreed

location within ten (10) working days of such written notification and will

be attended by the program team members that Xerox and ACS respectively

each select. The parties respective Business Program Managers will review

the problems and causes for delay in achieving the key milestones and

commit the necessary resources within their company to recover or minimize

the program delay.



Ill. AGENCY APPROVAL AND SAFETY 3.01 Compliance - The Products shall comply with all applicable governmental

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laws, regulations and other safety requirements and governmental or other

agency certifications or approvals required for marketing of the Products

which are set forth in the Specifications.



IV. PURCHASE AND SALE



4.01 Purchase and Sale - Xerox and Xerox Affiliated Companies may purchase from

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ACS and ACS shall sell to Xerox and Xerox Affiliated Companies pursuant to

this Agreement, the Products as are listed in Exhibit C for resale and

servicing by Xerox, Xerox Affiliated Companies, and/or their respective

authorized resellers in the Territory.



4.02 Prices

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(a) Prices for the initial version of Products shall be those set forth in

Exhibit C hereto. As of the Effective Date, Exhibit C reflects only ACS'

maximum initial prices to Xerox respecting the purchase of Products.

Exhibit C will be completed no later than March 15, 1996. Prices for

Products shall include the cost of packaging and packing which conform to

the agreed packaging specifications.



(b) Xerox may ask ACS for a downward price correction whenever, in

Xerox' considered opinion, the prices of the Products are, or have become,

so high compared to similar products marketed by third party competitors or

by Xerox or Xerox Affiliated Companies, such that Xerox or Xerox Affiliated

Companies are no longer in a position to compete normally in the

marketplace. ACS agrees to negotiate any such request in good faith with

Xerox, provided that until such time as agreement on any price decrease is

reached, the prices then in effect shall prevail.



(c) If ACS' costs of materials for Products unexpectedly increase and, on

a cumulative basis, increases the materials component of Products' unit

manufacturing cost by more than ten (10%) percent in any twelve month

period ACS may increase Products prices to reflect one-half of such

unexpected increased cost of materials.



(d) In addition, either party may request a change in the price of

Products hereunder based upon changes in costs or market conditions then

prevailing, and the parties agree to negotiate such requested price change

in good faith, and until such time as an agreement on any changed price is

reached, the prices then in effect shall prevail.



(e) ACS shall make all commercially reasonable efforts to reduce year

over year its costs of manufacturing, selling, and delivering the Products

to Xerox and Xerox Affiliated Companies by at least eight (8%) percent.

ACS agrees to pass along to Xerox and Xerox Affiliated Companies one-half

of such cost reductions in the form of Products prices decreases.



(f) The applicable price for Products shall be the price in effect as of

the date an order for Products is submitted to ACS.



4.03 Trademarks of Products - Xerox intends to market the ACS 135 Spot Printer

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bearing the trademarks, trades dress and logos of Xerox and Xerox

Affiliated Companies, as appropriate. However, if doing so will cause the

date of the ACS 135 Spot Printer's initial availability for customer

deliveries to be significantly negatively impacted, Xerox will agree to

initially market the ACS 135 Spot Printer bearing ACS' trademarks, trade

dress, and logos.



4.04 Most Favored Nation Pricing

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(a) ACS represents and warrants that the prices for the Products offered to

Xerox and Xerox Affiliated Companies will be no higher than those

offered to any other reseller of the Products [*].



(b) ACS agrees that to the extent the prices offered to Xerox/Xerox

[*] OMITTED INFORMATION SUBJECT TO PENDING CONFIDENTIAL TREATMENT REQUEST AND

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