Product Development Agreement

EXHIBIT 10.34

CONFIDENTIAL TREATMENT REQUESTED = [*]



FACSIMILE PRODUCT DEVELOPMENT AGREEMENT BY AND BETWEEN JETFAX, INC. AND XEROX CORPORATION





This Facsimile Product Development Agreement (the "Agreement") is entered into and is effective as of June 9, 1994 (the "Effective Date"), by and between JetFax, Inc., a Delaware Corporation having its principal place of business at 1376 Willow Road, Menlo Park, California 94025 ("JetFax"), and Xerox Corporation, a New York corporation having its principal place of business at 800 Long Ridge Road, Stamford, Connecticut 06904-1600 ('Xerox").



WHEREAS, JetFax desires, upon the terms and conditions set forth in this Agreement, to perform certain Services and provide certain Hardware Designs, Mechanical Designs, Bill of Materials and Source List and Software (as hereinafter defined) for purposes of enabling the integration of that certain Xerox printer product known by the name "Personal Printer 4004" (as hereinafter defined, the "Printer Mechanism") into the Product (as, hereinafter defined); and



WHEREAS, Xerox desires to perform certain Services and manufacture the Product for itself and the JetFax Product (as hereinafter defined) as more fully set forth herein; and



WHEREAS, JetFax wishes to purchase the JetFax Product and certain replacement thermal ink jet printing cartridges from Xerox;



NOW, THEREFORE, it is agreed by and between the parties as follows:



1 DEFINITIONS



1.1 "Bill of Materials and Source List" shall mean the identification by manufacturer and model of certain components and subsystems (such as, by way of example and not limitation, a modem, an integrated circuit, or a scanner) and the source from which such materials compliant with the Specifications may be obtained.



1.2 "Documentation" shall mean the customer and service documentation specified in Exhibit E.



1.3 "Errors" shall mean: (i) reproducible defects in any Deliverable which causes it not to function in conformance with the Specifications, (ii) Software miscoding which results in the Software failing to function in conformance with the Specifications, if such failure is reproducible, and (iii) defects in the Documentation which render it inaccurate, erroneous or otherwise unreliable.



1.4 "Hardware Designs" shall mean [*].



1.5 "JetFax Cartridge" shall mean that [*].



1.6 "JetFax Deliverables" shall mean, collectively or individually, JetFax developed Software, Hardware Designs, Mechanical Designs and Bill of Materials and Source List. A more detailed description of the JetFax Deliverables and the requirements for same are set forth in Exhibit A to this Agreement.

CONFIDENTIAL TREATMENT REQUESTED = [*]



1.7 "Mechanical Designs" shall mean those [*].



1.8 "Printer Mechanism" shall mean [*].



1.9 "Product" shall mean the facsimile transceiver device ' based upon the Printer Mechanism and the JetFax Deliverables, as more fully described in Exhibit C to this Agreement.



1.10 "Product Acceptance" shall mean the date of acceptance of the Product pursuant to Section 4.2(c) hereof.



1.11 "Project Schedule" shall mean the schedule of events and coordinate time for the parties' performance under this Agreement, as set forth in Exhibit D.



1.12 "Prototype Units" shall mean initial working development units of the Product as specified on Exhibit C. The parties acknowledge that Prototype Units are intended to but may not fully comply with the applicable Specifications.



1.13 "Services" shall mean the work and labor necessary for the performance of the respective obligations of the parties to this Agreement.



1.14 "Software" shall mean [*]



1.15 "Specifications" shall mean the mechanical, engineering, operational and/or functional descriptions, details and requirements for the Product and the Software, Hardware Designs, Printer Mechanism, JetFax Cartridge and externally procured components (such as required modems, scanners, etc.) as set forth in Exhibits A, B and C as the same may be modified as provided herein. Included are any standards for performance or operation of the item to which such Specifications pertain.



1.16 "User Interface" shall mean [*].



1.17 "Xerox Affiliates" shall mean Xerox Canada, Inc., Rank Xerox Ltd., Fuji Xerox Ltd., and any subsidiary or affiliate at least 40% of the ownership of which is held directly or indirectly by Xerox, Xerox Canada Inc., Rank Xerox Ltd., or Fuji Xerox Ltd.



1.18 "Xerox Deliverables" shall mean units of the Printer Mechanism; units of the JetFax Cartridge; overall industrial designs of the Product; design of the control panel and User Interface and a fully functional pre-feed roller attachment for the automatic document feeder (ADF); and the customer and service Documentation; all in accordance with the Specifications and as more fully set forth in Exhibit B to this Agreement.



1.19 "Fax Boards" shall mean any circuit board assemblies which are designed by or for JetFax for use in the JetFax Product or any Derivative Product, which such Fax Boards shall be made by or for Xerox.





2. SCOPE OF WORK



2.1 Services. Upon the terms and conditions set forth in this Agreement,

-------- JetFax and Xerox agree to perform the Services in accordance with Exhibits A and B, respectively. Each party will be responsible for obtaining all the technology, labor, material, tooling and facilities necessary for the completion of its portion of the Services, except as otherwise set forth in this Agreement.



2.2 Progress Reports. Each party hereto shall provide the other party with

---------------- progress reports, as reasonably requested by the other party, starting after the Effective Date and ending on the date of Product Acceptance. Each report shall be in such form and contain such information as may be mutually agreed by the parties, including but not limited to, progress to current scheduled milestones, description of any problems in meeting milestone, and if problems, proposed recovery methods, and changes in party's estimate of key purchased component and JetFax Product differentiation costs.



2.3 Agency Approvals. The parties agree that JetFax shall be responsible

---------------- for any and all engineering and development work with respect to the JetFax Deliverables







necessary for obtaining any required governmental or necessary private agency approvals or certifications for the Product (such as, by way of example and not limitation, Underwriter's Laboratories, CSA, U.S. F.C.C. regulations parts 15 and 68) in the United States and Canada. The actual costs (including protesting consultant fees and expenses and testing costs and expenses) and filing fees for the submission for such approvals in the United States and Canada and such other jurisdictions as the parties mutually agree in writing they shall enter are to be borne by Xerox. In addition to the foregoing, for the period ending on the date that is 24 months from the Effective Date, JetFax agrees to use its reasonable efforts to design the JetFax Deliverables to meet the agency approval requirements of other jurisdictions. JetFax further agrees to use its reasonable efforts to provide design services with respect to the JetFax Deliverables, after such 24 month period, if necessary in conjunction with any changes required by jurisdictions in which agency approvals have been obtained during such 24 month period. In order for JetFax to perform its reasonable efforts obligations hereunder, Xerox shall provide JetFax with customary English language summaries of the specifications of each individual jurisdiction's requirements where agency approval is to be sought. Xerox shall provide all reasonable assistance to JetFax for obtaining approvals and certifications for the JetFax Product, including use by JetFax of any relevant testing, test results, documents, applications and approvals and certificates with regard to the Product. Xerox shall bear the cost of any JetFax travel, lodging and related expenses incurred in support of approval activities in connection with the Product. Except as set forth above, all costs for agency approvals for other jurisdictions shall be borne fully by the party seeking such approvals, unless otherwise mutually agreed. It is further agreed that after such 24 month period, JetFax agrees to provide such design services as may be requested by Xerox to meet the requirements of any jurisdiction. Xerox agrees to compensate JetFax at customary rates for such design services rendered after the end of such 24 month period.



2.4 Bill of Materials and Source List Approval. The Bill of Materials and

------------------------------------------ Source List shall be subject to review and approval by Xerox, and all component vendors providing materials set forth on the Bill of Materials shall be subject to qualification as a vendor to Xerox under Xerox standards for vendor certification then in effect. Such approval shall not be unreasonably withheld. Subject to the terms of Section 5.1 (d), Xerox reserves the right to make final selection of component vendors. Notwithstanding anything to the contrary contained herein, neither such Xerox approval nor such vendor qualification shall be a basis for any rejection pursuant to Section 4.2(a) or Section 4.3, or condition precedent to, or a basis for any delay in, Product Acceptance hereunder.



2.5 Software, Etc. Escrow. Promptly after the Effective Date, JetFax

---------------------- shall place with an independent third party escrow agent acceptable to Xerox one complete set, under seal, of source code, object code and supporting documentation for any and all Software, ASICS, FPGAS, and any other programmable devices (including their schematic capture and VHDL files, their ACTEL files, test patterns and test parameters and timing diagrams, to the extent available to JetFax, used to confirm the design) included in the JetFax Deliverables (the "Escrowed Materials"). The Escrowed Materials shall be retained in strict confidence by the chosen escrow agent under the terms of the escrow agreement (which escrow agreement shall be mutually acceptable to both JetFax and Xerox and consistent



with the terms of this Section 2-5) and the escrow agent shall not disclose the Escrowed Materials to Xerox except pursuant to this Section 2.5. All costs associated with the escrow, including any fees of the escrow agent, shall be borne by Xerox. In the event one of the events set forth below occurs, Xerox may, at its option, notify the escrow agent of such event and request the release of the Escrowed Materials to Xerox. Xerox shall simultaneously notify JetFax pursuant to Section 14.1 1 of this Agreement of such notification to the escrow agent, specifying the basis upon which such request for the release of the Escrowed Materials is based. In addition, the escrow agent shall notify JetFax of the Xerox request for the release of the Escrowed Materials. The escrow agent shall, only after ten (1 0) calendar days have passed from the date Xerox' notice to JetFax hereunder is given (pursuant' to Section 14.11 of this Agreement), release the Escrowed Materials to Xerox unless such action is prohibited by order of a court of competent jurisdiction. The only events which shall entitle Xerox to request the release of the Escrowed Materials are as follows: (i) JetFax ceases to support and maintain the Software and Hardware Designs as required pursuant to the terms of Section 4.4 of this Agreement and such failure remains uncured for a period of sixty (60) days after written notice thereof from Xerox, or (ii) the specified items of the Software or Hardware Designs listed on the Project Schedule to be performed by JetFax fail to be accepted pursuant to Section 4.2(a) and (b) within 90 days of the applicable due date therefor set forth in the Project Schedule due primarily to the failure of JetFax to perform its obligations under this Agreement, or (iii) JetFax grants its prior written consent to such release, or (iv) if a Petition is filed by or against JetFax under Chapter 7 of the Bankruptcy Act of the United States and such Petition is not discontinued, vacated or terminated within sixty (60) days. Xerox shall use such released Escrowed Materials solely for the purpose of maintenance, support and production of the Product, or, in the event subparagraph (ii) of this Section 2.5 shall occur, for the purpose of maintenance, support and production and Xerox completion of development (with or without the assistance of other parties) of a replacement product for the partially completed Product and for the uses stated in the second paragraph of Section 5.1 (b). Any Xerox use of the Escrowed Materials will be subject at all times to the terms and conditions of this Agreement. JetFax agrees to update and maintain monthly the Escrowed Materials held in safekeeping by the selected Escrow Agent to reflect all changes made to the Escrowed Materials pursuant to the terms of this Agreement.



2.6 Marketing. Except as expressly set forth in this Agreement, or in the

--------- Supply Agreement of even date herewith by and between Xerox and JetFax (the "Supply Agreement"), both parties shall be free to market their own respective versions of the Product (or permitted private label versions of same) through such marketing channels and in such countries as each party shall independently determine.



3. DESIGN REVIEW AND SPECIFICATION CHANGES



3.1 Design Review. The parties agree to conduct regular program reviews as

------------- shown on the agreed Project Schedule set forth on Exhibit D to this Agreement, to ensure their mutual satisfaction with the performance under the Agreement. Upon reasonable notice, the parties agree to meet at a mutually agreeable time and



location to review and discuss the status of the development of the Product. The parties further agree to promptly meet at the request of either party with respect to any material issues a party may have with the performance of the other party of its obligations under this Agreement.



3.2 Changes to the Specification. Each party is entitled to request

---------------------------- modifications in the form of changes or additions to the Specifications at any time during the term of this Agreement. Such requests shall be submitted in writing, and shall not be deemed or considered binding unless accepted by the other party in writing. If any such modification of the Specifications is agreed, the parties will negotiate an equitable adjustment to the Agreement, including the apportionment of any additional development, testing or tooling costs. Upon mutual agreement to any change to the Specifications, both parties will proceed with the implementation of the prescribed changes, and the Specifications and other Exhibits to the Agreement shall be modified accordingly to reflect such agreed upon changes. Notwithstanding the foregoing, if the JetFax requested changes to the Specifications involve any change to the Printer Mechanism, the design responsibility for which is with third parties under contract with Xerox, Xerox shall use reasonable efforts to effect such Specification change provided that the same does not increase the cost of such Printer Mechanism or component thereof, or adversely and materially affect the Project Schedule or function of the Printer Mechanism, the Product or components thereof. In such event JetFax shall be responsible for the payment of all nonrecurring expenses involved in such change (or such pro rata portion thereof, in the further event Xerox elects to incorporate the same in its version of the Product). Notwithstanding the foregoing, JetFax shall not be responsible for any such nonrecurring expenses if JetFax requested changes are necessary for the Product to achieve Product Acceptance or to meet the Specification as changed at the request of Xerox. In the event such third party will not agree to such Specification change, Xerox shall so notify JetFax and Xerox shall have no other or further liability to JetFax as a result of such request.



3.3 Modification to Specifications. JetFax and Xerox agree that upon

------------------------------ acceptance of each Deliverable pursuant to Section 4.2 and upon Product Acceptance the Specifications shall be modified as necessary to conform to the Deliverables and the Product, as applicable, as accepted, excepting mutually agreed (in writing) deviations from the Specification which require additional development work to achieve conformance to the Specification. After and upon acceptance of each Deliverable pursuant to Section 4.2 and after and upon Product Acceptance, the term "Specifications" as used herein shall refer in all cases to the Specifications as so modified.



4. DELIVERABLES AND DELIVERY; ACCEPTANCE; AND REJECTION



4.1 Deliverables. Xerox and JetFax agree to use reasonable efforts to

------------ perform their respective Services and deliver their respective Deliverables in accordance with the Project Schedule (Exhibit D). Each party's obligation shall be contingent upon the other party successfully providing any prerequisite Deliverable in a timely fashion in accordance with the Specifications for same. All Deliverables shall be delivered by the times set forth in the Project Schedule and stated dates are date of delivery unless otherwise specified. The parties shall use such Deliverables for testing and acceptance and marketing purposes only and shall not sell, lease



or transfer the same to any third party.



4.2 Acceptance.

----------



(a) Each party, with the reasonable assistance of the other party if requested, will examine and test each respective Deliverable (and/or item thereof as specified on the Project Schedule) of the other party upon delivery. Each receiving party shall, as soon as reasonably practicable following the delivery of same, but in no event later than fifteen (I 5) business days after receipt of notice of delivery: (i) accept the Deliverable (or item thereof and so inform the other party in writing; or (ii) if the Deliverable (or item thereof contains material Errors, reject the Deliverable (or item thereof and provide the other party with a written statement of such material Errors. The failure of a party to respond within the specified fifteen (15) day period shall be deemed acceptance of the Deliverable (or item thereof, but shall not limit the provisions of Section 4.4 hereof. Either party may request a reasonable extension in the time to complete such testing if the same is required under the circumstances, and both parties shall reasonably consider such requests, provided that no such extension shall be effective unless in writing and signed by a duly authorized representative of the party granting such extension.



(b) The developing party will promptly correct the material Errors set forth in the statement of material Errors with respect to any Deliverable (or item thereof and redeliver the Deliverable (or item thereof to the receiving party within such reasonable period of time as may be agreed upon by JetFax and Xerox with regard to all circumstances affecting the Product or the Deliverables. The receiving party shall, as soon as reasonably practicable after such redelivery but in no event later than fifteen (1 5) business days thereafter, accept or reject the redelivery in accordance with the procedure set forth in Section 4.2(a), which procedure shall be repeated until the Deliverables are accepted or the receiving party invokes the provisions of Section 4.3 hereof.



(c) "Product Acceptance" shall be deemed to occur upon the earlier of (i) acceptance, pursuant to this Section 4.2, of all JetFax and Xerox Deliverables and successful completion of the acceptance test procedures with regard to the Product as set forth in Exhibit F or (ii) the first sale, lease, license or other distribution or transfer of a unit of Product (not including any Xerox replacement product as referred to in Section 5.1(a) second paragraph) by Xerox to a customer or other third party other than solely for test purposes. The date of such Product Acceptance shall be deemed the "date of Product Acceptance." Notwithstanding anything to the contrary contained herein, Product Acceptance shall not be conditioned upon any design or development of the JetFax Deliverables to meet any criteria of any agency approvals other than those of the United States or Canada.



(d) The parties further agree that in the event a dispute arises as to whether any Deliverable (or item thereof is acceptable under the procedure set forth in Sections 4.2(a) and 4.2(b), and the parties are unable after good faith negotiation to resolve such dispute, the parties agree to submit the acceptability of any such Deliverable (or item thereof to Genoa Technology, Inc., or other independent third party-mutually acceptable to the parties, who shall test such Deliverable (or



item thereof and determine if such Deliverable (or item thereof is acceptable as set forth in Sections 4.2(a) and 4.2(b). The determination of such independent third party shall as to the acceptance or rejection of any Deliverable (or item thereof, be deemed final. The cost, if any, of employing such independent third party shall be borne by the losing party.



4.3 Rejection. Should any Deliverable fail to be accepted after the third

--------- delivery of that Deliverable pursuant to Section 4.2(b) then the parties shall promptly meet in accordance with Section 3.1 to resolve the problem. Any subsequent rejection of the same Deliverable (unless otherwise resolved pursuant to Section 4.2(d)) shall be deemed a breach of this Agreement by such delivering party, and the non-breaching party may elect to terminate this Agreement pursuant to Section 1 1.1 (a) hereof, or may elect to accept further resubmission of the applicable Deliverable.



4.4 Error Fixes. JetFax shall at its expense, from the Effective Date

----------- until the date that is eighteen (18) months from the date of Product Acceptance, use its reasonable efforts promptly to correct documented and reproducible material Errors in the Software and Hardware Designs which are reported in writing by Xerox to JetFax. Provided, however, that prior to Product Acceptance, this obligation shall apply only to Deliverables (or items thereof that have been delivered by JetFax in accordance with the Project Schedule. Xerox shall provide such assistance in correction as JetFax may reasonably request. All such corrections to the Software and Hardware Designs shall be deemed to be included in the licenses granted under section 5,1 hereof, and copies of any such corrections shall be promptly furnished in source code to the escrow agent set forth in section 2.5 of this Agreement. JetFax will have no obligation under this Section 4.4 with respect to any Error in the Software or Hardware Designs caused by any person or entity other than JetFax or its sources identified on the Bill of Materials and Source List and JetFax is not obligated to correct any Errors in the Software unless such Error or defect causes the Software to fail to function in conformance with the Specifications as defined injection 3.3 herein.



4.5 JetFax Support. JetFax further acknowledges and agrees that, for a

-------------- period of one (1) year following Product Acceptance and subject to the provisions of this Section 4.5, it shall provide Xerox with such reasonable field and engineering support as Xerox shall reasonably request, necessary for the manufacture and field support of the Product as more fully set forth in Exhibit E to the Supply Agreement. All travel, lodging and associated expenses (save salary and benefits of JetFax employees) shall be borne by Xerox. In addition, after the one (1) year period following Product Acceptance, Xerox shall pay JetFax the reasonable and customary personnel, service and related charges for any such support provided by JetFax.



6. OWNERSHIP RIGHTS AND LICENSES



5.1 Software and Hardware Designs, Etc.

---------------------------------- (a) Subject to the terms and conditions of this Agreement and the Supply Agreement, JetFax hereby grants to Xerox, effective only upon and after the date of Product Acceptance, a nonexclusive, perpetual (except if terminated pursuant to Section



11.1 herein), worldwide license to the Software, the Hardware Designs, the Mechanical Designs, and any other JetFax confidential information disclosed to Xerox and necessary or useful for the following licensed activities (and JetFax intellectual property corresponding to the above recited items), to manufacture or have manufactured, the Product (including any enhancements and modifications as set forth in Sections 3.3 and 8.1 of the Supply Agreement), the Product as defined in the Supply Agreement (i.e., the "JetFax Product"), and any Derivative Products (as defined in the Supply Agreement), and to use and distribute and sell and service the Product, the JetFax Product and any Derivative Products.



Provided however, if the Escrowed Materials are released to Xerox pursuant to Section 2.5 of this Agreement, the above license as it applies to the Product shall automatically extend, if and only if there has not been Product Acceptance, to a Xerox replacement product (and variants thereof for the partially completed Product and shall automatically encompass all of the Escrowed Materials. In such event, the royalty set forth in Section 6.2(a) of this Agreement in the sum of [*] (reduced, if applicable as set forth in such Section 6.2(a)) shall also apply to such replacement product license. In such event, JetFax shall promptly and fully disclose the fully or partially completed JetFax Deliverables to Xerox, but shall have no further obligations under Sections 2.1, 2.3, 2.5, 4.1, 4.4 and 4.5 of this, Agreement and Section 3.1 of the Supply Agreement.



(b) The Software, the Hardware Designs, and the Mechanical Designs are confidential information of JetFax, subject to the CDA defined in Section 8.1 of this Agreement and shall be used by Xerox solely in connection with the Product, the JetFax Product, and any Derivative Products (as defined in the Supply Agreement) in accordance with the terms of this Agreement and the Supply Agreement or as provided in this Article 5. Subject to the terms and conditions of this Agreement and the Supply Agreement, JetFax hereby grants to Xerox a nonexclusive, perpetual (except if terminated pursuant to Section 1 1.2(a) of this Agreement), worldwide license (with the Xerox right to sublicense Xerox Affiliates) to the Mechanical Designs, the Hardware Designs (excluding the ASICs and the Field Programmable Gate Arrays (FPGAS) themselves and a majority of the designs of each such ASIC or FPGA), and any other confidential information of JetFax disclosed to Xerox (excluding the Software and the above excluded items) and necessary or useful for the following licensed activities (and JetFax intellectual property corresponding to the above recited licensed items) to manufacture or have manufactured any other products (i.e., products other than the Product (but including any products related to the Product if there is no Product Acceptance), the JetFax Product, and Derivative Products (as defined in the Supply Agreement)), and to use and distribute and sell and service such other products. Provided, however, notwithstanding any sublicense made pursuant to the above right to sublicense, Xerox shall remain fully liable for compliance with all of its obligations under this Agreement, including without limitation the payment of all royalties.



Provided however, if the Escrowed Materials are released to Xerox pursuant to Section 2.5 of this Agreement, the above license of this Section 5.1(b) shall automatically extend, if and only if there has not been Product Acceptance, to include all fully or partially completed JetFax Deliverables including Software, ASICS,, and ...