Prototype Development Agreement Dated 3/3/97

EXHIBIT 10.25


CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83 AND 230.406.


AGREEMENT NO. 9705NU0060.02-SL


MAGIC NETWORK
PROTOTYPE DEVELOPMENT AGREEMENT


This agreement ("Agreement") is between Nuance Communications, a California corporation with its principal place of business at 333 Ravenswood Ave., Building 110, Menlo Park, CA 94025 ("Nuance") and General Magic, Inc., a Delaware corporation with its principal place of business at 420 North Mary Ave., Sunnyvale, California ("General Magic"). The effective date of this Agreement shall be March 3, 1997 ("Effective Date").


Nuance and General Magic have agreed on business terms for the various stages of the development and implementation of the Magic Network service employing Nuance speech recognition as the speech interface. There are four agreed phases: i. Development support and initial trial; ii. [**] user pilot; iii. [**] user Magic Network deployment; iv. Post-deployment operations beginning January 1, 1999 with an initial end date of December 31, 2001.


1. PHASE ONE: DEVELOPMENT SUPPORT AND INITIAL TRIAL


1.1. Development.


1.1.1 Scope of Development. Nuance will design and implement the voice interface for the Magic Network prototype application which consists of a C-based application which defines the application callflow ("Voice Interface"). Nuance will also design and implement the recognition grammars which operate in conjunction with the Voice Interface to define the allowable speech input ("Recognition Grammars") for the Magic Network prototype application. Other functions required for the Magic Network prototype application, including information storage and retrieval and fax drivers, will be made available by General Magic via an http server interface. General Magic will provide a linkable C library, built on top of the current http server interface, which contains C wrapper functions that can be used as an interface to the server. The C wrapper function inputs and outputs will be native data structures used by the Magic Network application, meaning that creation and parsing of the http strings will be done within this library.


1.1.2 Development Schedule and Testing. Nuance projects a total of six weeks required for development and initial testing of the prototype Voice Interface and Recognition Grammars. Five weeks will be targeted as the development period with an additional week for testing and iteration of the prototype Voice Interface and Recognition Grammars by selected Nuance and General Magic employees. The prototype Voice Interface and Recognition Grammars are targeted for delivery on May 16, 1997.


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1.1.3 Development Costs. Nuance will commit appropriate management and development resources for design and implementation of the prototype Voice Interface and Recognition Grammars. The aggregate charge for contracting of development resources will be $[**] per week. General Magic will issue an initial purchase order for six (6) weeks of development resources. A minimum of six (6) weeks of funding, or $[**], is required and payable upon execution of this Agreement subject to prior receipt of an invoice from Nuance for $[**] unless such amount has been previously paid prior to execution of this Agreement. Should development continue beyond six (6) weeks, General Magic will issue purchase orders in one (1) week increments (although multiple weeks may be listed in a single purchase order) and Nuance will invoice General Magic weekly upon completion of each week's development work. Subject to receipt of Nuance's invoices, General Magic will pay Nuance's development work invoices within thirty (30) days of the end of each weekly development period described in a General Magic purchase order. General Magic may terminate development by written notice any time, subject to payment for all development resources time spent to date.


1.2. Initial Trial. A total of 200 users will be targeted for the initial Magic Network prototype trial of the prototype Voice Interface and Recognition Grammars. The Voice Interface will include a logon sequence, with users providing some means of identification (i.e. name, account number) and a PIN for security (voice and touch-tone supported for digit entry). Once logged in, users can retrieve voice mail and e-mail messages as well as calendar and contact information (PIM). The prototype Voice Interface application will include retrieval functions only, users will not be able to send voice messages or enter contact or calendar information. Functions for messaging include List (Scan), Play, and Delete. Functions for PIM include List Contacts, Read Information and Fax Information. Text-to-speech will be used to read e-mail messages. The text-to-speech for e-mail messages will be pre-processed and available to Nuance as audio files for use within the prototype Voice Interface and Recognition Grammars. Subsequently, as an alternative, General Magic may, in its discretion, provide a real-time text-to-speech capability as a resource.


1.3. Purchase of Server Licenses. General Magic will purchase [**] run-time server software licenses for the Nuance voice recognition engine [**] to support the initial 200-user Magic Network prototype trial and subsequent [**] user service trial currently scheduled for August, 1997. The total software license fee for the [**] server licenses shall be $[**]. $[**] is payable on execution of this Agreement with the remaining $[**] due on or before July 1, 1997. The Nuance voice recognition engine server software (referred to as the "Program" in the Software License Agreement) is licensed to General Magic under the terms of the software license as specified in Exhibit A ("Software License and Support Agreement") and such license is applicable to the Magic Network service system which will ultimately be used for deployment; the terms of such software license agreement shall not change the license fees or payment terms set forth herein. All orders for server software licenses hereunder are non-cancelable, and sums, once paid, are non-refundable.


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2. PHASE TWO: [**]-USER PILOT


Following the initial 200-user trial, General Magic will develop a Phase Two pilot for the Magic Network service incorporating the Voice Interface and Recognition Grammars configured for a total of [**] users. General Magic will have use of the [**] server licenses purchased under the terms of Section 1.3 ("Purchase of Server Licenses") to support the Phase Two [**]-user trial. In addition, Nuance will grant General Magic up to [**] additional server licenses for use in support of the Phase Two pilot on an as-needed, no-charge, temporary basis. Such [**] additional server licenses will be "loaned" at no charge as described herein through December 31, 1997.


3. PHASE THREE: 100,000- USER MAGIC NETWORK DEPLOYMENT


When General Magic makes a commitment, in its sole discretion, to deploy the Magic Network service, a Phase Three purchase order will be issued by General Magic to Nuance for the total number of Nuance voice recognition engine server software licenses required to support [**] users. This Phase Three purchase order, if any, for the applicable number of licenses as determined by General Magic, will be delivered to Nuance on or before December 31, 1997. Upon delivery of such Phase Three purchase order by General Magic to Nuance, such purchase order is non-cancelable and the license fees due thereunder are non-refundable. The total number of licenses is currently estimated at [**] but is subject to change by General Magic depending on trial results. At a minimum, General Magic will pay 25% of the total license fees due under the Phase Three purchase order on or before March 31, 1998 and will pay the remaining 75% of the license fees due under the Phase Three purchase order on or before June 30, 1998. The discount applied to server licenses ordered for the [**]-user system shall be [**]% off the then-current Nuance list price as of the date the Phase Three purchase order is placed.


4. PHASE FOUR: POST-DEPLOYMENT OPERATIONS


4.1. Purchase of Server Licenses. During the term of this Agreement, General Magic shall receive a [**]% discount off the then-current Nuance list price for any server licenses purchased for the Magic Network service in order to serve a subscriber base of more than [**] users. Payment terms for any Nuance voice recognition engine server software licenses ordered by General Magic other than under the Phase Three purchase order shall be Net 30 days from the date of the invoice.


4.2. Revenue Participation. Nuance will also share in the revenue generated from the Magic Network service. Nuance shall receive a royalty of $[**] the Magic Network service. The royalty will be in effect and apply to the Magic Network service subscriber base beginning on January 1, 1999 and will continue up through and including December 31, 2001. Such royalty will be due thirty (30) days after the last day of each month and will be based on [**] to the Magic Network service as tallied on the last day of each month.


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4.3. Audit. Nuance may, at Nuance's expense and not more than once annually, audit General Magic's books and records relevant to the royalties due under Section 4.2 ("Revenue Participation"). Any such audit shall be conducted by an independent accounting firm selected by Nuance and shall be conducted during General Magic's regular business hours and shall not unreasonably interfere with General Magic's business activities. If such an audit reveals that General Magic has underpaid royalties to Nuance, General Magic shall be invoiced for the underpaid royalties.


4.4. Technical Support. Nuance will make technical support for the voice recognition engine software, the Voice Interface and the Recognition Grammars available to General Magic under the support terms in Exhibit A ("Software License and Support Agreement") and the Technical Support Policy in Attachment A-2. General Magic agrees to purchase such technical support during the initial term of this Agreement on an annual basis for the voice recognition engine software and on an as needed, time and materials basis (billed at Nuance's then current standard rate) for the Voice Interface and Recognition Grammars. The annual technical support fee for the voice recognition engine software will be payable annually in advance on the Effective Date and thereafter on the Support Period Anniversary (as defined below). The technical support fee will be calculated as [**] percent ([**]%) of the server license fee actually invoiced to General Magic (net price) for each copy of the voice recognition engine server software for which General Magic has purchased a license and which is in use in the Magic Network on the Effective Date of this Agreement and thereafter on each Support Period Anniversary (as defined below). Nuance will prepare and issue an appropriate invoice for each successive one-year period ("Support Period"), starting as of the Effective Date and on each anniversary of the Effective Date ("Support Period Anniversary") thereafter. As each new copy of the voice recognition engine server software is licensed from Nuance and put into use in the Magic Network, Nuance will issue an invoice for the technical support fee applicable to each such copy of the voice recognition engine server software, pro rated to include only the months remaining in the then-current Support Period.


5. SOFTWARE LICENSES AND PROPRIETARY RIGHTS


5.1. Software Licenses. The server software for the Nuance voice recognition engine will be licensed to General Magic under the terms of the software license in Exhibit A ("Software License and Support Agreement").


5.2. Acceptance of the Voice Interface and Recognition Grammars. Nuance will deliver the Voice Interface and Recognition Grammars as developed by Nuance hereunder in accordance with the mutually agreed upon schedule. Within thirty (30) days of delivery of the Voice Interface and Recognition Grammars, General Magic will review and accept or reject (with a written statement of errors) the Voice Interface and Recognition Grammars based on the written requirements mutually agreed upon by Nuance and General Magic in Exhibit B ("Acceptance Requirements"). The parties will mutually agree upon and add acceptance testing procedures to Exhibit B ("Acceptance Requirements") by amendment, within a reasonable period of time after the Effective Date but at least prior to the beginning of the thirty (30) day acceptance period. General Magic's deployment of the Voice Interface and Recognition Grammars in the initial 200-user trial shall be deemed acceptance of the Voice Interface and Recognition Grammars by General Magic.


5.3. Assignment of the Voice Interface. Nuance hereby assigns all right, title and interest in the Voice Interface developed by Nuance hereunder including all patent, copyright, trade secret and trademark rights to General Magic.


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4 5 Nuance agrees to perform all acts deemed necessary or desirable by General Magic to permit and assist General Magic, at General Magic's expense, in perfecting and enforcing its rights in the Voice Interface throughout the world. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in the registration and enforcement, including litigation, of applicable intellectual property rights or other legal proceedings.


5.4. Ownership. General Magic shall retain all right, title and interest in the Voice Interface, including patent, copyright, trade secret, and trademark rights. Nuance does not acquire any rights, express or implied, in the Voice Interface. Nuance shall retain all right, title and interest in the Recognition Grammars, including patent, copyright, trade secret and trademark rights. Except as licensed hereunder, General Magic does not acquire any rights, express or implied, in the Recognition Grammars.


5.5. License to the Recognition Grammars. Nuance hereby grants to General Magic a worldwide, nonexclusive, perpetual, irrevocable, royalty-free license to reproduce, modify, distribute, display and perform the Recognition Grammars in conjunction with the Magic Network service.


5.6. Warranty of Title. Nuance represents and warrants (i) that the Voice Interface and Recognition Grammars are original works of authorship and were created solely by Nuance, (ii) that the Voice Interface and Recognition Grammars and the intellectual property rights associated with such applications are free and clear of all encumbrances, including, without limitation, security interests, licenses, liens, charges or other restrictions, and (iii) that use, reproduction, distribution, or modification of the Voice Interface and Recognition Grammars does not and will not violate the rights of any third party including, but not limited to, trade secrets, copyrights and, to the best of Nuance's knowledge, patents.


5.7. Source Code. Upon acceptance of the Voice Interface and Recognition Grammars by General Magic, Nuance will deliver a complete copy of the source code for the Voice Interface and Recognition Grammars, including all programmer's comments and any proprietary tools, in object code, necessary to compile the Voice Interface and Recognition Grammars source code as well as any related information necessary to support the source code.


5.8. Similar Software. General Magic acknowledges that Nuance may be requested to develop software with functions that are similar to the Voice Interface and/or the Recognition Grammars and agrees that nothing in this Agreement is intended to prohibit Nuance from independently developing such similar software so long as Nuance does not copy the Voice Interface code and does not incorporate any of General Magic's Confidential Information.


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5.9 Support Software. In order to support the functionality required by the Magic Network Service, Nuance may develop additional software ("Support Software") which works in conjunction with the voice recognition engine software (examples include automatic pronunciation generation, text-to-speech integration and call statistics). Such Support Software will be licensed to General Magic as part of the voice recognition engine software according to the terms in Exhibit A. Nuance shall retain all right, title and interest in the Support Software, including patent, copyright, trade secret and trademark rights. Except as licensed hereunder, General Magic does not acquire any rights, express or implied, in the Support Software.


5.10. Cellular Recognition Performance. Recognition Accuracy over cellular channels is important to consumer acceptance of the Magic Network Service. In one study of recognition performance on 8-digit strings, the word error rate over landline channels was [**]%, AMPS-[**]%, CDMA-[**]%, and TDMA-[**]% (stationary handset for all cases). Nuance will apply its best efforts to achieve equal or better accuracy in its product releases to General Magic in addition to providing a product which performs well over GSM channels (no tests performed to date).


6. WARRANTIES AND DISCLAIMERS


6.1. Warranty. Nuance warrants that for a period of ninety (90) days from the Effective Date, the Voice Interface and Recognition Grammars as delivered to and accepted by General Magic and without modification by General Magic will perform the functions required by the acceptance requirements set forth in Exhibit B ("Acceptance Requirements"). The foregoing warranty will not be applicable to versions of the Voice Interface or Recognition Grammars which have been modified by General Magic. Nuance does not warrant that the Voice Interface and Recognition Grammars will operate in the combinations which General Magic may select for use, that the operation of the Voice Interface and Recognition Grammars will be uninterrupted or error-free, or that all the Voice Interface and Recognition Grammars errors will be corrected.


6.2. Services. Nuance warrants that its technical support services will be performed consistent with generally accepted industry standards. This warranty shall be valid for ninety (90) days from performance of service.


6.3. Limitations. The warranties above are exclusive and in lieu of all other warranties, whether express or implied, including the implied warranties of merchantability and fitness for a particular purpose.


6.4. Exclusive Remedies. For any breach of the warranties contained above, General Magic's exclusive remedy, and Nuance's entire liability, shall be:


(a) For the Voice Interface. The correction of Voice Interface and/or Recognition Grammars errors which are reproducible in the unmodified versions of the Voice Interface and/or Recognition Grammars that cause the Voice Interface and/or Recognition Grammars not to perform the functions required by the Acceptance Requirements, or if Nuance is unable to make the Voice Interface and/or Recognition Grammars perform as warranted, General Magic shall be entitled to terminate the use of the Voice Interface and/or Recognition Grammars in its sole discretion and recover the fees paid for the Voice Interface and/or Recognition Grammars.


(b) For Services. The re-performance of the technical support services, or if Nuance is unable to perform the services as warranted, General Magic shall be entitled to recover the fees paid to Nuance for the deficient services.


7. LIMITATION OF LIABILITY


In no event shall either party be liable to the other for any special, indirect, incidental, or consequential damages, or damages for loss of profits, savings, revenue, use, damaged files or data, or business interruption, incurred by either party or any third party, which may arise in connection with this Agreement or the use and support of the Voice Interface and/or Recognition Grammars regardless of whether such claims are based or remedies are sought in contract or tort, even if the other party has been advised of the possibility of such damages. Under no circumstances shall Nuance's liability exceed [**].


8. INDEMNITY


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Nuance will defend and indemnify General Magic against a claim that the unmodified Voice Interface and/or Recognition Grammars furnished and used within the scope of this Agreement infringe a copyright, patent, or trademark, provided that: (a) General Magic notifies Nuance of such claim in writing within thirty (30) days of the claim; (b) at Nuance's expense, Nuance has sole control of the defense and all related settlement negotiations, and (c) General Magic provides Nuance with a reasonable assistance, information, and authority necessary to perform Nuance's obligations under this Section 8 ("Indemnity"). Nuance shall have no liability for any claim of infringement based on use of a superseded or altered release of the Voice Interface and/or Recognition Grammars or the use of the Voice Interface and/or Recognition Grammars in combination with other hardware or software if the infringement would have been avoided by the use of a current, unaltered release of the Voice Interface and/or Recognition Grammars that Nuance provides to General Magic, or in combination with different hardware or software, or to the extent such use is possible, use without any combination. In the event the Voice Interface and/or Recognition Grammars are held or are believed by Nuance to infringe, Nuance shall have the option, at its expense, to (a) modify the Voice Interface and/or Recognition Grammars to be noninfringing; (b) procure for General Magic a license to continue using the Voice Interface and/or Recognition Grammars; or if it is not commercially reasonable for Nuance to perform (a) or (b), (c) General Magic may, in its sole discretion, terminate the use of the Voice Interface and/or Recognition Grammars and receive a refund of the fees paid for the Voice Interface and/or Recognition Grammars. This Section states Nuance's entire liability and General Magic's exclusive remedy for infringement.


9. TAXES


Fees hereunder do not include local, state, or federal sales, use, property, value-added, or other taxes based on the licenses and services provided under this Agreement or General Magic's use thereof. General Magic agrees to pay all such taxes as may be imposed upon Nuance or General Magic. General Magic shall be invoiced for such taxes if Nuance is required to pay them on General Magic's behalf. This provision shall not apply to taxes based on Nuance's income.


10. CONFIDENTIAL INFORMATION


10.1. Obligations. By virtue of this Agreement, the parties may have access to information that is confidential to one another ("Confidential Information"). Confidential Information shall include the disclosing party's business strategies, technical information related to the Magic Network service in the case of General Magic, source code for all software delivered by Nuance hereunder, customer information, the terms of this Agreement and pricing under this Agreement, and in addition, all information clearly identified as confidential if disclosed in writing (or visually) or in the case of verbal disclosure, identified as such at the time of disclosure. The obligations of confidentiality described herein shall be applicable during the term of this Agreement and for a period of ten years after the termination of this Agreement. The parties agree that, unless required by law, they will not make each other's Confidential Information available in any form to any third party or use each other's Confidential Information for any purpose other than the implementation of this Agreement. Notwithstanding the foregoing, General Magic may disclose certain Confidential Information to third parties as


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necessary to display the Magic Network so long as such disclosure is under an obligation of confidentiality and so long as General Magic obtains Nuance's prior written consent, which consent will not be unreasonably withheld. Each party agrees to take all reasonable steps using at a minimum the same degree of care as is used for its own Confidential Information to ensure that Confidential Information is not disclosed or distributed by its employees or agents in violation of the terms of this Agreement.


10.2. Exception. A party's Confidential Information shall not include information that: (a) is or becomes a part of the public domain through no act or omission of the other party; (b) was in the other party's lawful possession prior to the disclosure and had not been obtained by the other party either directly or indirectly from the disclosing party; (c) is lawfully disclosed to the other party by a third party without restrictions on disclosure; or (d) is independently developed by the other party.


11. TERM


The initial term of this Agreement shall commence on the Effective Date and shall terminate on December 31, 2001. Thereafter, the Agreement will automatically renew for successive one (1) year renewal terms unless either party sends a notice of termination at least thirty (30) days prior to the last day of the initial term or any renewal period.


12. ASSIGNMENT


Except in the case of a merger, acquisition or sale of all or substantially all of the assets of a party, neither party may assign this Agreement without the other party's prior written consent. Any attempt to do so without that consent will be void. This Agreement will bind and inure to the benefit of the parties and their respective successors and permitted assigns.


13. TERMINATION


Either party may terminate this Agreement for a material breach by the other party upon thirty (30) days written notice and opportunity to cure during the notice period. General Magic may terminate this Agreement at any time for its convenience, subject to the obligation to pay for all development work, license fees and royalties that have accrued and/or are due and owing as of the date of termination.


14. EXPORT


General Magic agrees to comply fully with all relevant export laws and regulations of the United States ("Export Laws") to assure that neither the Voice Interface and/or Recognition Grammars nor any direct product thereof are (a) exported, directly or indirectly, in violation of Export Laws; or (b) intended to be used for any purposes prohibited by the Export laws, including, without limitation, nuclear, chemical, or biological weapons proliferation.


15. NOTICE


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All notices under this Agreement, including notices of address change, shall be in writing and shall be deemed to have been given when sent by registered mail, return receipt requested, to the first address listed above.


16. LEGAL EXPENSES


In the event legal action is taken by either party to enforce this Agreement, all costs and expenses, including reasonable attorney's fees incurred by the prevailing party, shall be paid by the other party.


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