Hardware Development Agreement

CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED

SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT

HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.





DEVELOPMENT AGREEMENT



This Agreement is made and entered into as of this 25th day of September, 1991 by and between Ailicec International Enterprises Ltd. , a Hong Kong corporation with offices at Rm. 503 5/F, Tower B, Hung Hom Commercial Centre, 37-39 Ma Tau Wai Road, Hung Hom, Kowloon, Hong Kong ("AILICEC") and JetFax, Inc., a Delaware corporation with offices at 978 Hamilton Court, Menlo Park, California 94025 ("JETFAX").



--------



WHEREAS, JETFAX is engaged in the development of a certain plain paper facsimile product for AILICEC;



WHEREAS, AILICEC is engaged in the manufacture of facsimile products, and



WHEREAS, AILICEC and JETFAX have agreed that JETFAX will develop the plain paper facsimile product to be owned and manufactured by Ailicec as specified below;



NOW, THEREFORE, in consideration of the mutual promises and undertakings set forth herein, AILICEC and JETFAX agree as follows:



1. Product.

-------



As used in this Agreement, the term "Product" shall mean the plain paper facsimile machine designed and manufactured in accordance with the specifications set forth in Exhi bit A-1 annexed hereto, as may subsequently be modified by mutual written agreement between the parties (the "Specifications").



2. Development and Ownership of the Product.

----------------------------------------



(a) JETFAX shall develop the Product in accordance with this Agreement, including without limitation, the Specifications, and shall accomplish the various milestones described in Section 3 by the respective dates set forth therein. AILICEC may provi d e JETFAX with requests for Specific Product requirements and/or modifications beyond those established in Exhibit A-1, and in response JETFAX shall, within a reasonable time, provide AILICEC with a good faith quotation and revised schedule within which su ch modifications may be implemented.



In its discretion, AILICEC may accept or reject such quotation and revised schedule. Upon



AILICEC'S written acceptance thereof, if any, such quotation and revised schedule shall be incorporated into this Agreement.



(b) All of the following shall be the exclusive property AILICEC:



(i) All results of the work of JETFAX in developing the Product, including without limitation all tangible materials such as the drawings, designs, prototypes, plans, work papers, schematic diagrams, circuit board layouts, and related documentation; specifically excluding all software source code as described in Section 4 below;



(ii) All patent rights, mask work rights and trade secrets in and to the Product hardware, specifically including all inventions, discoveries, ideas, technology, processes, formulas, production methods, techniques, concepts and embodied or incorporated in the Product hardware; and



(iii) Copies of all tangible materials containing or embodying any of the foregoing.



Items (i) through (iii) above shall collectively be the "AILICEC Property." JETFAX hereby assigns to AILICEC all rights and title to the AILICEC Property as they are generated by JETFAX. JETFAX hereby irrevo cably sells, transfers and assigns any and all rights that it may have in the AILICEC Property to AILICEC. Upon the request of AILICEC, JETFAX shall execute any and all documents or instruments, and take all other actions, necessary or convenient to evide nce, perfect or confirm AILICEC'S exclusive ownership of the AILICEC Property.



(c) JETFAX shall not manufacture or sell the Product, directly or indirectly, through any related or unrelated third party, or authorize others to manufacture or sell the Product, without the prior written consent of AILICEC's board of directors.



3. Development Milestones and Payments.

-----------------------------------



(a) JETFAX shall develop the Product with reference to the Telstar II Schedule in Exhibit A-2 and in accordance with the schedule set forth below, and AILICEC shall pay JETFAX the following amounts upon the parties' execution of this Agreement and upon JETFAX's completion of each of the following specific development milestones. Th e milestones referred to below will be achieved on the date indicated and it is AILICEC's sole responsibility to be at hand or have a representative present at JETFAX's office if necessary on such dates to determine the validity of the milestone being reac hed:





[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED

SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT

HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.



Development Milestone/ Development Work

Milestone Date Tasks Accomplished Payment Materials Delivered

- -------------- ---------------------- ------- -------------------





[*]





[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED

SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT

HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.



(b) In the event that the milestone under sections 3(a)(4) or 3(a)(5)is not completed on the specified Milestone Date set forth ; above, the payment to be paid on such Milestone Date shall be reduced by [*] for every one day of delay. In addition to these reductions, JETFAX shall be obliga t ed to reimburse AILICEC for all costs and expenses incurred by AILICEC arising out of or resulting from JETFAX's delay in meeting any development milestone set forth above. JETFAX shall make such reimbursement within thirty (30) days of AILICEC's submissi on to JETFAX of a reasonably determined statement of such costs and expenses. Any reduction in the development payments shall not affect JETFAX's obligations to continue performance under subsection (a) herein.



(c) Except as expressly stated otherwise in this Agreement and in Sections 3(d) and 6, JETFAX shall bear all of the engineering costs in developing the Product, including without limitation all industrial design, plastic enclosure design, scanner and document feeder design, and related tasks; a l l electronic hardware and software design and programming; all required prototypes of the electronics hardware to meet the milestones described in Section 3(a) above; and all costs associated with writing and documenting the user and service manuals in En glish.



(d) Except as expressly stated otherwise in this Agreement and in Sections 3(c) and 6, AILICEC shall bear all of the costs of all models, prototypes and/or test fixtures of the document feeders, laser engines and any other mechanical components included in the Product; all plastic, metal or other tooling costs to build either prototypes or production units; all in-circuit testers and other test equipment and fixtures needed for production; all costs associated with any shipping carton designs a n d materials; all printing costs for manuals, control panels, and logos. These costs will be reimbursed by AILICEC only if JETFAX obtains the prior written approval of AILICEC. AILICEC may, in its discretion and by subsequent written agreement with JETFAX, agree to reimburse JETFAX for certain additional costs associated with development of the Product.



(e) JETFAX shall send AILICEC, with a copy to Ailicec California Corporation ("ACC"), a California corporation and an affiliate of AILICEC, a developme nt progress report by facsimile transmission by Monday of each week. This report shall be prepared and approved by Rudy Prince or Lon Radin and shall give the status of the development and an evaluation of whether JETFAX is able to meet the development mi lestone deadlines set forth in subsection (a) herein.



4. Delivery of AILICEC Property; Software.

--------------------------------------



(a) JETFAX shall physically deliver all tangible materials in JETFAX's possession in relation to the Product pursuant to Section 3(a) and all AILICEC Property to AILICEC at any location designated by AILICEC and pursuant to instructions given by AILICEC. The parties agree that beyond the final development payment pursuant to Section 3(a)(5) above, JETFAX shall continue the development in good faith until the Specifications are complied with in all respects or as modified and agreed upon between the parties; and all final and necessary documents are provided to AILICEC.



(b) The parties acknowledge that AILICEC shall have all rights, title and interest of any kind, nature or description in the source code for software incorporated in all the standard features of the Product as described in Exhibit A-1 attached hereto ("Standard Feature Source Code"), and JETFAX hereby assigns to AILICEC full title and interest in the worldwide rights to the Standard Feature Source Code, including all



applicable copyrights and trade secret rights. As the owner of the Standard Feature Source Code, AILICEC shall have the unrestricted rights, without further obligation to compensate JETFAX, (1) to reproduce and use the Standard Feature Source Code in the manufacture, distribution, marketing and sale of the Product, (2) to reproduce, dec o mpile, debug, analyze, modify, and/or upgrade the Standard Feature Source Code to the extent necessary to ensure proper operation of the Product in compliance with the Specifications, to address defects therein, and/or to enhance the Product with addition al features. Upon request JETFAX shall assist AILICEC in correcting any errors or malfunctions in the Standard Feature Source Code that may arise in connection with the use or operation of the Product.



(c) The parties acknowledge that JETFAX shall ret ain full title to and ownership of the source code for the software incorporated in the optional features of the Product as described in Exhibit A-1 attached hereto ("Options Source Code"), including all applicable copyrights and trade secret rights. JETF A X hereby grants a perpetual, nonexclusive, worldwide royalty-free license to AILICEC to use the Options Source Code (1) to reproduce and use the Options Source Code in the manufacture, distribution, marketing and sale of the Product, (2) to reproduce, dec o mpile, debug, analyze, modify, upgrade and/or reverse engineer the Options Source Code to the extent necessary to ensure proper operation of the Product in compliance with the Specifications, to address defects therein, and/or to enhance the Product with a dditional features, all without further obligation to compensate JETFAX. Upon request and at JETFAX's own expense, JETFAX shall assist AILICEC in correcting any errors or malfunctions in the Options Source Code that may arise in connection with the use or operation of the Product.



(d) Concurrent with AILICEC's receipt of the final version of the Product pursuant to Section 3(a)(6) JETFAX shall provide AILICEC with the Standard Feature Source Code and the object code version of the Options Source Code on a floppy disk and in printed text form. AILICEC agrees that such Standard Feature Source Code and object code version of the Options Source Code shall be held in the strictest confidence for use only by employees or agents of AILICEC. In the event of t he bankruptcy or insolvency of JETFAX, the parties acknowledge that AILICEC may have the option to purchase JETFAX's ownership right of the Options Source Code.



(e) AILICEC shall not use the Standard Feature Source Code to develop any new product rela ted or unrelated to the Product for a period of two (2) years beginning on the date that AILICEC commences manufacturing the Product. Thereafter, AILICEC may develop any new product provided it first offers to JETFAX the opportunity to develop such new pr o duct jointly with AILICEC. JETFAX shall not use the technology provided to AILICEC under this Agreement to develop (i) any products which are competitive with and substantially equivalent to the Product for a period of one (1) year beginning on the date t h at A ...