Software Development & License Agreement

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Asterisks denote omissions.





DEVELOPMENT AND LICENSE AGREEMENT





This Development and License Agreement (the "Agreement") is made and entered into as of this 28th day of June, 1996 between SEAGATE TECHNOLOGY, INC., a Delaware corporation, with offices at 920 Disc Drive, Scotts Valley, California 95066 ("Seagate"), and DRAGON SYSTEMS, INC., a Delaware corporation, with offices at 320 Nevada Street, Newton, Massachusetts 02160 ("Dragon Systems").



WHEREAS, Dragon Systems is developing the voice recognition software described in Exhibit A hereto; and



WHEREAS, the parties desire that Dragon Systems complete development of, and license to Seagate, this software on the terms and conditions set forth herein;



In consideration of the mutual promises contained herein, Seagate and Dragon Systems agree as follows:



1. Definitions.



The following terms shall have the following meanings herein:



1.1 "Software" shall mean all current and future versions during the te rm of this Agreement of the software described in Exhibit A hereto, including all Dragon Systems New Versions of the Software and all Dragon Systems user documentation with respect thereto.



1.2 "New Version" of the Software means each error correction, improvement, update, new version, new release, or other modification or addition to the Software.



1.3 "Development Task" shall mean the development of the Software to be performed by Dragon Systems pursuant to this Agreement and Exhibit B.



1.4 "Deliverables" shall mean the items, if any, to be delivered by Dragon Systems to Seagate in connection with each Milestone, as set forth in Exhibit B.



1.5 "Specifications" shall mean the technical and other specifications for the Deliverables and Development Task, as set forth in Exhibit B.



1.6 "Development Schedule" shall mean the schedule for completion of the Development Task, as set forth in Exhibit B.

1.7 "Milestone" shall mean each development milestone identified in Exhibit B.



1.8 "Aggregate Payment Cap" for each Milestone shall mean the amount so specified in Exhibit B. This amount specifies the maximum aggregate amount payable by Seagate for completion of that Milestone and all prior Milestones.



1.9 "Status Report" shall have the meaning specified therefor in Section 2.2 below.



1.10 "Development Costs" means all direct expenses plus certain related overhead expended towards the development of the Software by Dragon Systems pursuant to this Agreement. Overhead is defined as engineering overhead only (non-S, G, & A) which would encomp a ss such expenses as facilities overhead costs, miscellaneous equipment and supplies, equipment depreciation, travel, and MIS support. Direct expenses shall include direct payroll expenses, and any other direct expenses specifically related to the developm ent of the Software. In the event that JKB Dragon Systems employees engage in extraordinary travel, Seagate will be charged only such extraordinary travel expenses as are directly attributable to the Development Task.



1.11 "Complete" or " Completion," with respect to development of the Software, shall mean that Dragon Systems has certified and Seagate has confirmed that development and testing of the Software have been completed by Dragon Systems, and that the Software and related document ation are fully ready for commercial use and distribution.



1.12 "Net Revenue" of a party with respect to a product means (i) the aggregate license fees and other revenue received by the party from the licensing and distribution of the pro duct, but only from licensing and distribution of the product and not including such ancillary revenue as fees received from support, maintenance, installation, technical assistance, or consulting, and not including freight, taxes, insurance, and similar ancillary charges, less (ii) credits for refunds and returns.



1.13 "Source Code" means the source code for the Software, in printed, machine readable, and any other form and including all existing comments, and all test suites and technic al and other documentation reasonably necessary for a reasonably skilled programmer to understand and use the source code.



1.14 "Affiliate" of a party means any entity which controls, is controlled by, or is under common control with tha t party, where "control" means ownership or control, direct or indirect, of more than fifty percent (50%) of the stock or other equity interest entitled to vote for the election of directors or equivalent governing body of the entity.



Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Asterisks denote omissions.





2. Development.



2.1 Development.



(a) Dragon Systems agrees to use its best efforts to perform the Development Task in accordance with the Specifications and task description in Exhibit B, including without limitation completion of the Development Task, and each Milestone, a nd delivery to Seagate of all applicable Deliverables, in accordance with the Development Schedule. Upon completion of each Milestone, Dragon Systems shall deliver to Seagate all applicable Deliverables, including documentation, for evaluation by Seagate.



(b) Dragon Systems agrees not to engage in any work or services on its behalf or for any other party which would jeopardize or conflict with its obligations under this Agreement.



(c) Dragon Systems agrees to complete development of the Software no later than [**] after Dragon Systems incurs [**] in performance of the Development Task.



2.2 Status Reports.



Within twenty (20) days after the end of each calendar quarter, D ragon Systems shall deliver to Seagate a written report (the "Status Report") describing in reasonable detail the status of the development of the Software, including without limitation the then current status of completed development, development accompl i shed during the preceding calendar quarter, known problems and the anticipated effect on the project, current and planned staffing, whether Dragon Systems expects to meet the Development Schedule, Specifications, and other aspects of the Development Exhib i t and, if not, the variations, any other information pertaining to the development of the Software that would reasonably be of interest to Seagate, as well as any information specifically and reasonably requested by Seagate. Dragon System represents and w a rrants that each Status Report will be reasonably complete and accurate, and Dragon System agrees to update each Status Report, prior to the delivery of the next quarterly Status Report, in the event major problems or other major variations are encountere d. Dragon Systems will also respond to reasonable inquiries from time to time from Seagate concerning the development project.









2.3 Acceptance.



Upon delivery to Seagate of the Deliverables for each Milestone, Sea gate shall test and evaluate such Deliverables for conformity to the Development Task description and Specifications. Seagate shall provide Dragon Systems within fourteen (14) days after delivery of such materials with written acceptance thereof, or a sta t ement of defects to be corrected. Dragon Systems shall promptly correct such defects and return the corrected Deliverables for retesting and reevaluation, and Seagate shall within fourteen (14) days after such redelivery provide Dragon Systems with writte n acceptance or a statement of defects. The parties shall repeat this procedure until acceptance of the Deliverables or termination of this Agreement by Seagate.



3. Ownership.



Dragon Systems will retain ownership of the So ftware, and no ownership of the Software is transferred to Seagate by this Agreement. Seagate, however, shall retain ownership of any modifications, New Versions, or other derivative works prepared by or for Seagate, subject to Dragon Systems' ownership o f the underlying Software.



4. Software License.



4.1 Object Code. Dragon Systems grants to Seagate, under all intellectual property rights with respect thereto, a worldwide, perpetual, irrevocable (subject only to Section 10.2 below) license, with right to sublicense, to reproduce, have reproduced, use, import, and distribute the Software, alone and/or integrated with other software, products, or other items, and directly to end users and/or through third parties. This license extends to the Software in executable code, object code, and any other form except Source Code. Seagate will reproduce Dragon Systems' copyright notice in any c opy of the Software or any portion thereof.



4.2 Source Code. Dragon Systems grants to Seagate a worldwide, perpetual, irrevocable (subject only to Section 10.2 below) license to reproduce, use, modify and otherwise prepare derivative work s of the Source Code and derivative works thereof. Seagate, however, agrees not to exercise any rights with respect to the Source Code until it is rightfully in possession of the Source Code. It is understood that Seagate's right to obtain and possess the Source Code is set forth exclusively in Section 4.5 below and the escrow agreement referenced therein. The license granted to Seagate pursuant to Section 4.1 above shall extend to any modifications, New Versions, or other derivative works of the Software p repared by Seagate pursuant to this section. Seagate shall own each such modification, New Version, or other derivative work, subject to Dragon Systems' retention of ownership of the underlying Software. Seagate shall be entitled to retain consultants or other subcontractors to exercise its rights pursuant to this section, subject to confidentiality obligations substantially similar to those set forth in



Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Asterisks denote omissions.



Sections 9.1, 9.2, and 9.3 below. Seagate shall protect the Source Code with precautions similar to those used for its own software source code, and shall restrict access to the Source Code to employees, consultants , and subcontractors with a need for such access pursuant to this Agreement.



4.3 Exclusivity. Seagate's license to distribute the Software, pursuant to Section 4.1 above, shall be exclusive. Dragon Systems shall refer to Seagate all cust omer requests for Software. Except for this exclusive license to distribute the Software, the licenses and rights granted to Seagate in Sections 4.1 and 4.2 above shall be co-exclusive, i.e., Dragon Systems shall retain the right itself to also exercise t he rights granted to Seagate, but Dragon Systems shall not grant, and represents and warrants that it has not granted, such rights, or any of them, to any third party.



4.4 Object Code Delivery. Within [**] after Completion of development of the Software, Dragon Systems shall deliver to Seagate one master copy of the Software in object code or executable form, suitable for reproduction and use pursuant to this Agreement. Dragon Systems shall promptly provide to Seagate each New Version of these materials as such New Version is created by or for Dragon Systems.



4.5 Source Code Delivery. Upon written request of Seagate, Dragon Systems shall immediately deliver to a third party escrow company selected by Seagate, pursuant to an escrow agreement substantially in the form attached hereto as Exhibit E, one copy of the Source Code (in machine readable form suitable for use by Seagate). The Source Code shall be released and delivered to Seagate as set forth in the escrow agreement , which shall be limited to release only if (i) Dragon Systems dissolves or liquidates, or takes any corporate or other action to achieve dissolution or liquidation, or Dragon Systems ceases to conduct business in the normal course, or (ii) both (A) Dragon s Systems is a debtor in a bankruptcy proceeding or other proceeding for the general settlement of its debts, or a receiver or other official is appointed for all or substantially all of Dragon Systems' assets, or Dragon Systems makes a general assignment f or the benefit of creditors, and (B) Dragon Systems is unable to perform its obligations pursuant to Section 8 below. Dragon Systems shall promptly provide to the escrow company each New Version of these materials as such New Version is created by or for Dragon Systems. Seagate shall be responsible for the fees of the escrow company.



5. Dragon Systems Representations, Warranties, and Indemnities.



5.1 Dragon Systems represents and warrants on a continuing basis:





(a) Corporate Authority. Dragon Systems has the right to enter this Agreement, is a corporation duly organized, validly existing, and in good standing under the laws of Delaware, has the power and authority, corporate and otherwise, to execute and d eliver this Agreement and to perform its obligations hereunder, and has by all necessary corporate action duly and validly authorized the execution and delivery of this Agreement and the performance of its obligations hereunder.



(b) No Conflicts. The execution, delivery and performance by Dragon Systems of this Agreement and each other agreement, document, or instrument now or hereafter executed and delivered by Dragon Systems pursuant thereto or in connection herewith will not: ( i) conflict with or violate the articles or certificate of incorporation or by-laws of Dragon Systems or any provision of any law, rule, regulation, authorization or judgment of any governmental authority having applicability to Dragon Systems, its employ e es, or its or their actions; or (ii) conflict with or result in any breach of, or constitute a default under, any note, security agreement, commitment, contract or other agreement, instrument or undertaking to which Dragon Systems is a party or by which a n y of its property is bound. Dragon Systems represents and warrants that it is under no obligation or restriction, and agrees that it will not assume any obligation or restriction or take any action, that does or would in any way interfere or conflict with , or that does or would present a conflict of interest, concerning Dragon Systems' performance under this Agreement or would restrict any of the rights and licenses granted to Seagate herein.



(c) Ownership. Dragon Systems owns and will own the Software or otherwise has and will have the right and power to grant the licenses and other rights granted to Seagate hereunder.



(d) Independent Work. With exception of Text-to- Speech JKB , which may be licensed from a third party, the Software has been and will have been independently created by Dragon Systems' employees, agents, and consultants, and use and distribution of the Software by Seagate as contemplated herein will not depend on the acquisition of righ ts from any third party.



(e) No Infringement or Claims. To the best of Dragon Systems' knowledge and belief, neither the Software nor the exercise by Seagate of any of the rights granted hereunder, will infringe any intellectual property or other right of any third party. There is no pending litigation or claim nor, to the best of Dragon Systems' knowledge and belief, the basis for any claim, that Dragon Systems does not own the Software or that the exercise by Seagate of any right granted hereunder with respect thereto will infringe any intellectual property right of any third party.



5.2 Infri ngement Indemnity. Dragon Systems agrees to defend any claim or action against Seagate or any of Seagate's sublicensees or any of their direct or indirect customers, to the extent alleging that the Software, or any portion thereof,



infringes any third par ty US. or Canadian patent, worldwide copyright, or other intellectual property right (other than trademarks), and Dragon Systems agrees to pay all damages awarded, or settlements entered into, in connection therewith. Seagate agrees to notify Dragon Syste m s in a timely fashion of each such claim or action, and agrees to provide to Dragon Systems reasonable assistance (at Dragon Systems' expense) in connection therewith and to provide to Dragon Systems the right to control the defense or settlement of the c l aim or action, provided that any settlement shall be subject to the prior written approval of Seagate, which approval shall not be unreasonably withheld. Seagate shall be entitled to participate in the defense of any such claim or action at its expense, p r ovided that if Dragon Systems is financially or otherwise unable to properly undertake the defense of the claim or action, Seagate shall be entitled to do so at Dragon Systems' expense. If the Software, or any portion thereof, is held to infringe any U.S. or Canadian patent, worldwide copyright, or other intellectual property right, or its use or distribution, or the exercise of any other right granted to Seagate, is enjoined, Dragon Systems will use its best efforts to modify or replace the Software with e quivalent, noninfringing software, or to obtain all necessary rights with respect thereto to enable continued use and distribution of the Software and for Seagate to continue to exercise all rights and licenses granted to Seagate in this Agreement. If, in Dragon Systems' reasonable judgment, the Software, or any portion thereof, is likely to be held to infringe any U.S. or Canadian patent, worldwide copyright, or other intellectual property right, or its use or distribution, or the exercise of any other ri g ht granted to Seagate, is likely to be enjoined, Dragon Systems may modify or replace the Software with equivalent, noninfringing software, or to obtain all necessary rights with respect thereto to enable continued use and distribution of the Software and for Seagate to continue to exercise all rights and licenses granted to Seagate in this Agreement. Dragon Systems shall have no liability or obligation pursuant to this section, however, to the extent the claim or action is caused by modification of the So ftware (other than by Dragon Systems) or combination of the Software with items not supplied by Dragon Systems.



6. Seagate Representations and Warranties. Seagate represents and warrants on a continuing basis:



6.1 Corporate Auth ority. Seagate has the right to enter this Agreement, is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, has the power and authority, corporate and otherwise, to execute and deliver this Agreem ent and to perform its obligations hereunder, and has by all necessary corporate action duly and validly authorized the execution and delivery of this Agreement and the performance of its obligations hereunder.



6.2 No Conflicts. The execu tion, delivery and performance by Seagate of this Agreement and each other agreement, document, or instrument now or hereafter executed and delivered by Seagate pursuant thereto or in connection herewith will not: (i) conflict with or violate the articles of incorporation or by-laws of Seagate or any



Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Asterisks denote omissions.



provision of any law, rule, regulation, authorization or judgment of any governmental authority having applicability to Seagate or its actions; or (ii) conflict with or result in any breach of, or constitute a default under, any note, security agreement, commitment, contract or other agreement, instrument or undertakin g to which Seagate is a party or by which any of its property is bound.



7. Fees and Royalties.



7.1 Engineering Fee. Together with each Milestone delivery by Dragon Systems pursuant to Section 2.1(a) above, Dragon Systems s hall submit to Seagate a detailed description of Development Costs incurred by Dragon Systems, since completion of the preceding Milestone, in developing the Software pursuant to this Agreement, substantially in the form attached hereto as Exhibit C and s i gned and certified as correct by the chief financial officer of Dragon Systems. Within [**] after Seagate's acceptance of the Milestone as complete pursuant to Section 2.3 above, Seagate shall pay to Dragon Systems, as a nonrefundable engineering fee, the amount of such Development Costs, plus any such Developments Costs incurred and reported by Dragon Systems for prior Milestones but not paid by Seagate due to the Aggregate Payment Cap, provided that the aggregate payments by Seagate upon completion of ea c h Milestone, for that Milestone and all prior Milestones, shall not exceed the associated Aggregate Payment Cap specified in Exhibit B for that Milestone. In no event shall Seagate be obligated to pay to Dragon Systems in excess of [**] pursuant to this s ection.



7.2 Software Royalty. Seagate shall pay to Dragon Systems a royalty equal to [**] of Seagate's Software Net Revenue. These payments shall be made within [**] aft ...