Product Development And Supply Agreement

PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT


By and between


PATH 1 NETWORK TECHNOLOGIES INC.


And


INTERNET PHOTONICS, INC.


SEPTEMBER 9, 2002


1 DEFINITIONS..............................................................1 1.1 ACCEPTANCE TEST.......................................................1 1.2 ACCEPTANCE TEST PLAN OR ATP...........................................1 1.3 ACCEPTANCE TEST PROCEDURES............................................2 1.4 CUSTOMER READINESS....................................................2 1.5 DEFECT................................................................2 1.6 FIELD TRIAL UNIT......................................................2 1.7 INTELLECTUAL PROPERTY RIGHTS..........................................2 1.8 INTERNET PHOTONICS DELIVERABLES.......................................3 1.9 PATH 1 DELIVERABLES...................................................3 1.10 PATH 1 KNOW-HOW.......................................................3 1.11 PATH 1 PATENTS........................................................3 1.12 PATH 1 TECHNOLOGY.....................................................3 1.13 PRODUCT MANAGEMENT INFORMATION BASE (MIB).............................4 1.14 PRODUCT(S)............................................................4 1.15 PRODUCTION UNIT.......................................................4 1.16 SERVICES..............................................................4 1.17 SEVERITY 1 DEFECT.....................................................4 1.18 SEVERITY 2 DEFECT.....................................................4 1.19 SEVERITY 3 DEFECT.....................................................5 1.20 SEVERITY 4 DEFECT.....................................................5 1.21 SPECIFICATIONS........................................................5 1.22 TERM..................................................................5 1.23 WORKAROUND SOLUTION...................................................5 2 SCOPE OF WORK............................................................5 2.1 SERVICES..............................................................5 2.2 AGENCY APPROVALS......................................................6 3 COMPENSATION; INTELLECTUAL PROPERTY RIGHTS...............................6 3.1 COMPENSATION..........................................................6
3.1.1 Initial Payment.................................................6
3.1.2 Field Trial Delivery Payment....................................7
3.1.3 Extension of Exclusion Payment..................................7 3.2 INTELLECTUAL PROPERTY RIGHTS; ROYALTIES...............................7 3.3 EXCLUSIVE LICENSE.....................................................7
3.3.1 Exclusive License Grant.........................................7
3.3.2 Product Modifications and Derivatives...........................8
3.3.3 Exclusive Market and Exclusive Period...........................8 3.4 MOST FAVORED NATIONS PRICING..........................................8 3.5 TRADEMARK RIGHTS......................................................9 3.6 INDEMNIFICATION.......................................................9 4 PRICE PER UNIT..........................................................10 5 PRODUCT FORECAST........................................................10 6 MARKETING...............................................................10 7 MILESTONES..............................................................11 7.1 DELIVERY OF THE ACCEPTANCE TEST PLAN (ATP)...........................11 7.2 DELIVERY OF THE INTERNET PHOTONICS PRODUCT MANAGEMENT INFORMATION
BASE (MIB)...........................................................11 7.3 ACCEPTANCE TEST PROCEDURES...........................................11 7.4 ACCEPTANCE TEST......................................................12 7.5 AMENDMENT OF ACCEPTANCE TEST PLAN....................................12 7.6 FIELD TRIAL UNITS SHIPMENT...........................................12 7.7 PRODUCT RELEASE FOR FCC, CE AND UL CERTIFICATION.....................12 7.8 COMPLETION OF UL APPROVAL............................................12 7.9 PRODUCT REVIEWS AND MEETINGS.........................................12 7.10 PERFORMANCE ASSURANCE................................................13 8 SPECIFICATIONS..........................................................14 9 ENHANCEMENTS TO PRODUCTS................................................15 10 DELIVERABLES AND DELIVERY; ACCEPTANCE; AND REJECTION....................15 10.1 PROGRAM MANAGERS.....................................................15 10.2 DELIVERABLES.........................................................15 10.3 ACCEPTANCE...........................................................15
10.3.1 Inspection and Testing.........................................15
10.3.2 Material Errors and Correction.................................16
10.3.3 Product Acceptance.............................................16
10.3.4 Disputed Deliverables..........................................16
10.3.5 Rejection......................................................17 11 CONTINUITY OF SUPPLY....................................................17 12 REPRESENTATIONS AND WARRANTIES..........................................18 13 CONFIDENTIALITY.........................................................18 13.1 CONFIDENTIAL INFORMATION.............................................18 13.2 PERMITTED USE........................................................18 13.3 EQUITABLE RELIEF.....................................................19 13.4 RETURN AND USE OF CONFIDENTIAL INFORMATION...........................19 14 TERMINATION.............................................................20 14.1 ACCEPTANCE TEST FAILURE..............................................20 14.2 ASSIGNMENT OR TRANSFER OF ASSETS.....................................20 14.3 MATERIAL BREACH......................................................20 14.4 COMPLETION OF RESELLER AGREEMENT.....................................20 14.5 FULFILMENT OF OBLIGATIONS............................................21 14.6 SURVIVAL.............................................................21 15 WARRANTY ON PATH 1 TECHNOLOGY...........................................21 16 MAINTENANCE AND SUPPORT.................................................21 17 WARRANTIES/LIMITED LIABILITY............................................22 18 GENERAL.................................................................22 18.1 FORCE MAJEURE........................................................22 18.2 NOTICES..............................................................22 18.3 RELATIONSHIP OF PARTIES..............................................23 18.4 USE OF NAME..........................................................23 18.5 PERSONNEL............................................................23 18.6 EMPLOYMENT TAXES AND BENEFITS........................................24 18.7 OTHER TAX IMPLICATIONS...............................................24 18.8 EXPORT CONTROLS......................................................24 18.9 ASSIGNMENT...........................................................24 18.10 NO WAIVER.........................................................24 18.11 NO RIGHTS IN THIRD PARTIES........................................25 18.12 COUNTERPARTS......................................................25 18.13 HEADINGS AND REFERENCES...........................................25 18.14 CONSTRUCTION......................................................25 18.15 APPLICABLE LAW....................................................25 18.16 SEVERABILITY......................................................25 18.17 COMPLETE AGREEMENT................................................25 18.18 ATTORNEY'S FEES...................................................26 19 SIGNATURES..............................................................26


CONFIDENTIAL TREATMENT REQUESTED


PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT


This Product Development and Supply Agreement (the "Agreement") is entered into effective September 6, 2002 (the "Effective Date") between Path 1 Network Technologies Inc. (hereinafter "Path 1"), a Delaware corporation located at 6215 Ferris Square, Suite 140, San Diego, CA 92121, and Internet Photonics, Inc. (hereinafter "Internet Photonics"), a Delaware corporation located at 1030 Broad Street, Shrewsbury, New Jersey 07702 (individually a "Party" and collectively "the Parties").


RECITALS


WHEREAS, Path 1 desires to develop a co-branded set of products using certain of Path 1's proprietary technology and to deliver such products to Internet Photonics in exchange for the compensation set forth herein;


WHEREAS, Internet Photonics desires Path 1 to perform certain engineering services in connection with the development, testing and delivery of certain co-branded products for and to Internet Photonics; and


WHEREAS, Internet Photonics desires to sell the products developed and delivered by Path 1 pursuant to this agreement.


NOW, THEREFORE, in consideration of the mutual promises contained herein the Parties agree as follows:


TERMS AND CONDITIONS


1 DEFINITIONS


1.1 ACCEPTANCE TEST


Acceptance Test means the test of the Products to be performed by
Path 1 and witnessed by Internet Photonics pursuant to the
Acceptance Test Plan.


1.2 ACCEPTANCE TEST PLAN OR ATP


Acceptance Test Plan or "ATP" means the test criteria and test
scenarios to be mutually agreed upon by the Parties to ensure the
Products' compliance with the Product and Interoperability
Specifications. The Parties shall use reasonable efforts to ensure
that the ATP will be submitted to Internet Photonics by Path 1 by
*** and be mutually agreed upon by the Parties on or before ***.


1.3 ACCEPTANCE TEST PROCEDURES


Acceptance Test Procedure means the test procedure to be used to
measure the criteria spelled out by the ATP. It will include the
test sequences to be performed at Path 1's facility in San Diego
following a *** approach.


1.4 CUSTOMER READINESS


Customer Readiness shall mean a Product that can be
installed at an IPI customer site.


1.5 DEFECT


A Defect shall mean any variance, documented in writing by Path1
or IPI, in performance and functionally from the Product
performance and functionality described in the ASI Over IP Gateway
Product Specification called out in Appendix A.


1.6 FIELD TRIAL UNIT


Field Trial Unit or "Unit" means the Product as delivered after
Acceptance Test but before Certification Release. A field trial
unit ***, but *** as mutually agreed to by the parties, however,
Field Trial Units shall ***.


1.7 INTELLECTUAL PROPERTY RIGHTS


Intellectual Property Rights means any information, inventions,
copyrights, trademarks, service marks, maskwork rights, logos,
trade names, innovations, discoveries, improvements, ideas,
know-how, show-how, developments, methods, designs, reports,
charts, drawings, diagrams, designs, analyses, concepts,
technology, records, brochures, instructions, manuals, software
(both in source code and object code format), documentation
relating to all software, manufacturing techniques, expertise,
inventions (whether or not reduced to practice or the subject of a
patent application), test protocols, test results, descriptions,
parts lists, bills of materials, documentation whether in written
or electronic format, prototypes, molds, models, assemblies,
processes and any similar intellectual property and information,
whether or not protected or protectable by patent or copyright
together with all United States and foreign patents and pending
applications.


1.8 INTERNET PHOTONICS DELIVERABLES


Internet Photonics Deliverables means, collectively or
individually, revisions and approval of the Specifications
(Appendix A), preliminary operations manual, acceptance test plan
and Product MIB.


1.9 PATH 1 DELIVERABLES


Path 1 Deliverables means, collectively or individually, the
Specifications, preliminary operations manual, an initial draft of
the Acceptance Test Plan, ***Field Trial units.


1.10 PATH 1 KNOW-HOW


Path 1 Know-How means all of Path 1's proprietary information
techniques, inventions, data, practices, methods, knowledge,
designs, skill and experience including, without any limitation,
any trade secret or other Intellectual Property Right, whether or
not patentable or copyrightable, relating to the Path 1 Technology
or useful for the development, production, assembly, manufacture,
or transport of the Products.


1.11 PATH 1 PATENTS


Path 1 Patents means and includes all patents and patent
applications related to the design, manufacture, or use of the
Products, issued or filed as of the date hereof, or during the
Term, including without limitation all foreign counterparts, all
substitutions, extensions, reissues, renewals, divisions,
continuations and continuations in part relating to such patents
and their foreign counterparts, and which are owned or controlled
by Path 1 (where "controlled" means licensed-in by Path 1 with a
royalty-free right to grant sublicenses).


1.12 PATH 1 TECHNOLOGY


Path 1 Technology means (i) the inventions, designs, discoveries
and processes claimed in the Path 1 Patents and (ii) the Path 1
Know-How.


1.13 PRODUCT MANAGEMENT INFORMATION BASE (MIB)


Product Management Information Base (MIB) means the collection of
definitions, which identify the properties of the managed objects
within the device to be managed. Every managed device keeps a
database of values for each of the definitions written in the MIB.


1.14 PRODUCT(S)


Product(s) means and includes the co-branded Asynchronous Serial
Interface ("ASI") to Internet Protocol ("IP") gateway products to
be developed and supplied by Path 1 using the Path 1 Technology
pursuant to this Agreement as more particularly described in
Appendix A attached hereto. Product(s) also means and includes the
Non - Exclusive co-branded Internet Protocol ("IP") to
Asynchronous Serial Interface ("ASI") to gateway products already
developed, or will be developed by Path 1


1.15 PRODUCTION UNIT


Production Unit means the Product as delivered after full
Acceptance Test compliance but before Certification Release. A
production unit will fully satisfy the ATP.


1.16 SERVICES


Services means the work and labor of each Party necessary for the
performance of such Party's respective obligations pursuant to
this Agreement.


1.17 SEVERITY 1 DEFECT


Severity 1 defect shall mean any product defect that materially
affects the functionality and performance of the product to the
extent that it does not meet the Product Requirement in Appendix
A.


1.18 SEVERITY 2 DEFECT


Severity 2 defect shall mean any product defect that severely
degrades the functionality and performance of the product and for
which there is no workaround solution.


1.19 SEVERITY 3 DEFECT


Severity 3 defect shall mean any product defect that degrades the
functionality and performance of the product and for which there
is a workaround solution to restore functionality and performance.


1.20 SEVERITY 4 DEFECT


Severity 4 defect shall mean any product defect that does not
affect operational functionality or performance of the product.


1.21 SPECIFICATIONS


Specifications means the mechanical, engineering, operational
and/or functional descriptions, details and requirements for the
Products as set forth in Appendix A attached hereto 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.


1.22 TERM


Term means the period from the Effective Date until this Agreement
is terminated pursuant to Section 14 hereof.


1.23 WORKAROUND SOLUTION


Workaround solution shall mean any configuration and/or
instructions that do not conform to the intended use of the
Product but, when used, allows the Product to operate as intended.


2 SCOPE OF WORK


2.1 SERVICES


Subject to the terms and conditions set forth in this Agreement,
each Party will be responsible for obtaining all of the
technology, labor, material, tooling and facilities (and all
related costs) necessary for the completion of its portion of its
respective portion of the Services, except as otherwise set forth
in this Agreement.


2.2 AGENCY APPROVALS


Path 1 shall be responsible for (a) supporting all board level and
power supply changes required to meet Conformite Europeene ("CE")
and Underwriters Laboratories ("UL") approval and (b) obtaining
all necessary CE, UL and FCC approvals required to distribute the
Products. Path 1 and Internet Photonics agree to form a joint
certification team to obtain any other governmental or necessary
private agency approvals or certifications necessary for the
Products to be distributed in North America and to use their
respective reasonable efforts to obtain such approvals or
certifications.


The Parties shall *** pay the actual costs and filing fees for the
submission for any such additional approvals in the United States
and any other jurisdictions as the Parties mutually agree in
writing. In order for Path 1 to perform its obligations under this
Section 2.2, Internet Photonics shall provide Path 1 with
customary English language summaries of the specifications of each
individual jurisdiction's requirements where agency approval is
being sought. Each Party shall provide all reasonable assistance
to the other for obtaining approvals and certifications for the
Products, including use of any relevant testing, test results,
documents, applications and approvals and certificates with regard
to the Products.


In the event other governmental or private agency approvals or
certifications are necessary (other than CE, UL and FCC
approvals), all costs for agency approvals for other jurisdictions
shall be mutually agreed upon.


3 COMPENSATION; INTELLECTUAL PROPERTY RIGHTS


3.1 COMPENSATION.


Internet Photonics agrees to pay Path 1 aggregate fees of up to *** as follows:


3.1.1 Initial Payment


Two Hundred Fifty Thousand Dollars (US$250,000) shall be
paid by Internet Photonics to Path 1 upon the signing of
this Agreement for completion of the Milestones in
accordance with Section 7, Exclusive License in accordance
with Section 3 and all other obligations of Path 1 and
rights to be received by Internet Photonics in accordance
with the terms and conditions of this Agreement.


3.1.2 Field Trial Delivery Payment


***shall be paid by Internet Photonics to Path 1 upon
Internet Photonics' receipt and acceptance of *** Field
Trial units, in accordance with Section 1.7 of this
agreement, or upon delivery of one or more units to a
customer site, on or before ***. Field Trial Units may be
for *** and any *** Path 1 products desired by Internet
Photonics to support customer trial configurations.


3.1.3 Extension of Exclusion Payment


*** shall be due and payable only by Internet Photonics to
Path 1 at such time that Internet Photonics elects to
increase the Exclusivity Period as set forth in Section
3.3 of this Agreement. At the time of exercise of this
option to increase the exclusivity period, Internet
Photonics will place an order for a minimum of ***
production units. This order may be for *** products
desired by Internet Photonics, but must be for no less
than *** units per month during the exclusive period.
Internet Photonics will have the option to reduce this
order by ***% for every *** weeks delay in the delivery of
the first *** Field Trial Units from the delivery date
stated in Section 7.6 hereof.


3.2 INTELLECTUAL PROPERTY RIGHTS; ROYALTIES


Path 1 shall own all Intellectual Property Rights related to the
Products, the application program interface and the Path 1
Technology and retains all rights to manufacture the Products and
the application program interface.


3.3 EXCLUSIVE LICENSE


3.3.1 Exclusive License Grant


Subject to the terms and conditions of this Agreement, Path
1 hereby grants to Internet Photonics for the Term, a
fully-paid, limited, exclusive (as set forth below),
nontransferable license to use, support, demonstrate, resell
and distribute the Products and all end user documentation
delivered as part of, or related to, the Products. This
license becomes a perpetual, non-exclusive license for all
products purchased under this agreement after the expiration
of the exclusivity period.


3.3.2 Product Modifications and Derivatives


The foregoing license grant does not extend to derivative
works based on the Products. The license does apply to any
performance improvements and/or maintenance updates of the
Products made by Path 1. Within the period referenced in
Section 15 of this agreement, modifications to Products,
for performance, interoperability or other improvements,
which are necessary for use of products on *** networks to
support service offerings, due to Internet Photonics'
customer requirements or to meet agency Certifications,
shall be implemented by Path 1 in good faith with
commercially reasonable efforts.


3.3.3 Exclusive Market and Exclusive Period


The foregoing license grant shall be restricted to other
channel partners of Path 1 in the *** market, selling into
*** environments only (the "Exclusive Market"), and will
only be exclusive for a period of *** months from the date
that Path 1 delivers, and IPI accepts, in accordance with
Section 10.3.3, Production Units of Products and announces
the immediate availability of its formal product release
(the "Exclusivity Period"). The Exclusivity Period may be
extended by Internet Photonics for an additional
consecutive *** month period upon payment of the
exclusivity payment prior to the end of year 2002. As a
further condition of this exclusivity, Internet Photonics
agrees that it will exclusively distribute the Products as
Internet Photonics' ASI to IP and IP to ASI products (no
third party competitive products) during the Exclusivity
Period.


For purposes of clarification, not withstanding the
foregoing, during the Exclusivity Period, Path 1 is free to
sell its products and derivatives thereof directly to ***
customers in such markets as it chooses to sell into,
including, but not limited to, ***, or any other such
market. During the exclusivity period, Path 1 agrees to
only propose and inform Internet Photonics products, when
any *** customer opportunities requiring *** are identified
by Path 1 for *** transport that are within the *** market
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