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Jericho Co-development Agr. 9/13/2000

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Jericho Co-Development Agreement


Hewlett-Packard Company


Indigo N.V.




THIS AGREEMENT is entered into on this 13th day of September, 2000 ("Effective Date"), by and between HEWLETT-PACKARD COMPANY, a Delaware company with its principal offices at 3000 Hanover Street, MS2O-BT, Palo Alto, California 94304 ("HP"), and INDIGO N.V., a Netherlands company with its principal offices at Limburglaan 5,622l SH Maastricht, The Netherlands ("Indigo").

WHEREAS, HP is engaged in the development, manufacture, marketing, sale and service of computers, printers and other business and consumer products, and is a leading global provider of computing and imaging solutions and services for personal, office and enterprise applications, currently selling printers at prices of up to approximately $10,000; and

WHEREAS, Indigo is engaged in the development, manufacture, marketing, sale and service of Digital Offset Color/TM/ printing and imaging products that incorporate Indigo's proprietary, ink-based digital printing technology, at prices of approximately $150,000 and above, for commercial and industrial applications; and

WHEREAS, on November 17, 1998, the Parties entered into a Strategic Affiliation Agreement pursuant to which the parties agreed, inter alia, to explore the technical and economic feasibility of developing and selling digital color printing products combining Indigo's and HP's technology and know-how for applications not presently served by either firm, to identify the key "enablers" necessary to achieve broad adoption of Indigo's technology in the corporate enterprise environment, and to form a strategic technical alliance for exploring such possible future products and applications; and

WHEREAS, the said feasibility exploration has been successfully completed, and the Parties have concluded that, in collaboration with one another, they have the opportunity to introduce products to serve production color printing and publishing applications; and

WHEREAS, in order to capitalize upon such opportunities, the Parties wish to enter into a commercial relationship to aggressively pursue the aforesaid business opportunities by (a) HP's sale of certain Indigo products on an OEM basis as more fully described in the OEM Agreement, (b) the joint development of future products on the terms and conditions set forth in this Agreement; and (c) an HP equity investment in Indigo as more fully described in the Stock Purchase Agreement.


NOW THEREFORE, subject to the terms and conditions set forth herein, the Parties agree as follows:

1. Definitions

Capitalized terms used in this Agreement and not otherwise defined have the meanings as follows:

"Affiliate" means, with respect to a Party, any Person controlling, controlled by or under common control with such Party. Control of a Person shall mean the ownership of 50% or more of the voting power of such Person.

"Agreement" means this agreement and any Exhibits to this agreement.

"Background IP" means Intellectual Property owned by a party as of the Effective Date or developed or acquired by a Party after the Effective Date but during the term of this Agreement, other than in the course of performing its obligations under this Agreement.

"BPM" or "Branded Product Margin" means the Selling Price received by the selling Party less the Product Cost of Goods Sold.

"Change of Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date of the change) other than the other Party, an Affiliate of the other Party or the LFT (as defined in the Stock Purchase Agreement), through one or more transactions, of shares representing, upon the consummation, more than 33% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of a Party; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of a Party by Persons who were neither (i) nominated by the board of directors of that Party nor (ii) appointed by directors so nominated; or (c) the acquisition of the power, directly or indirectly, to direct or cause the direction of the management or policies of a Party, whether through the ability to exercise voting power, by contract or otherwise.

"Consumables" means ink (including imaging oil), image transfer blankets (intermediate transfer members) and photo imaging plates (photoconductors).

"Derivative IP" means Intellectual Property developed pursuant to this Agreement by either party, or by the parties jointly, that is a derivative or extension of, only one Party's Background IP. HP Derivative IP shall be deemed to include, without limitation, the fields described in section 5.1 (HP Development Component), and


Indigo Derivative IP shall be deemed to include without limitation the fields described in section 5.2 (Indigo Development Component).

"HP Jericho R&D" has the meaning set forth in section 5.1 below.

"Foreground IP" means Intellectual Property developed pursuant to this Agreement that does not constitute Derivative IP.

"Initial Jericho Product" means the first Jericho Product to be developed.

"Insolvency Event" means the occurrence of any of the following:

(a) An involuntary proceeding is commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief
in respect of a Party or its debts, or of a substantial part of its
assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for a Party or for a substantial part
of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 120 days or an order or decree approving or
ordering any of the foregoing shall be entered.

(b) A Party shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any
Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect, (ii) consent to the institution
of, or fail to contest in a timely (i.e., as imposed by applicable law)
and appropriate manner, any proceeding or petition described in clause
(a) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for a
Party or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of
the foregoing.

(c) A Party shall become unable, admit in writing or fail generally to
pay its debts as they become due.

"Intellectual Property" or "IP" means rights in unpatented inventions, patent applications, patents, design rights, copyrights (including, without limitation, rights in computer software), know-how and other trade secret rights and all other rights or forms of protection of a similar nature or having equivalent or similar effect to any of these rights (but excluding trademark rights), whether or not any of these rights is


registered, and including, without limitation, applications for registration of, and rights to apply for, any such rights.

"Jericho Engine" means any printing device that uses Indigo Core Technology, provided however that current Indigo products incorporating Indigo Core Technology as well as future Indigo products incorporating Indigo Core Technology based on a "clean sheet" design (i.e., a design using substantially different components from those developed pursuant to this Agreement), shall not be deemed to include a Jericho Engine.

"Jericho Field of Use" means development, manufacture, importation and supply of Jericho Products, including the right to have manufactured, have imported, or have supplied such Jericho Products via third parties.

"Jericho Know-How" means know-how developed pursuant to this Agreement required to develop, manufacture, or service Jericho Products.

"Jericho Products" means any products that incorporate a Jericho Engine. Jericho Products include all relevant spare parts and Consumables.

"Material Breach" has the meaning set forth in section 12.1 below.

"Non-Jericho Products" means, in the case of Indigo, Indigo products other than Jericho Products that use the Indigo Core Technology and in the case of HP, to the extent applicable, HP's inkjet and dry toner products.

"OEM Agreement" means the agreement of that name entered into by the Parties on the Effective Date.

"OPM" or "OEM Product Margin" means the Selling Price received by either HP or Indigo from the third party OEM less the Product Cost of Goods Sold.

"Party" means either HP or Indigo (as the case may be) and "Parties" means both HP and Indigo.

"Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, sole proprietorship, joint venture, govemment (or any agency or political subdivision thereof) or other entity.

"Printer Equipment Vendors" means entities that primarily sell printers or other hardware products/services to end-users.


"Product Cost of Goods Sold" or "PCOGS" means all costs of goods incurred, directly, or indirectly through third parties, by HP or Indigo in the manufacture, freight, installation, operator training and free warranty of the Jericho Products.

"Selling Price" means the actual (unbundled) arm's-length selling price (including for sales to OEMs). If a product is sold to a customer in connection with a broader package (e.g., clicks, lease, rental, maintenance or other services), it will be deemed to have been sold at the average price over the previous 3 months for similar unbundled products.

"Stock Purchase Agreement" means the agreement of that name entered into by the Parties on the Effective Date.

"Supplies Resellers" means entities that primarily sell or distribute supplies.

"Indigo Core Technology" means technology which allows the creation of a printed image employing a liquid composition of charged, pigmented thermoplastic particles capable of being transferred from an image-bearing surface to a final substrate.

"Indigo Jericho R&D" has the meaning set forth in section 5.2 below.

2. Jericho Products

2.1 Basic Nature. HP and Indigo will, as set forth in this Agreement, cooperate - ---------------- in the development over time of a family of low cost digital color printers, not presently produced or capable of being produced by either Party independently through the joint undertaking of research and development within a framework of a defined work program set forth in this Agreement.

2.2 Technological Basis. Jericho Products will be based upon the Indigo Core - ----------------------- Technology. The Indigo Core Technology shall be further developed, engineered and productized using HP's extensive experience in leading edge printing and imaging technologies and Indigo's extensive experience in digital offset color printing.

3. Jericho Product Specifications

3.1 Preparation of Initial Jericho Product Specification. HP shall prepare, at - -------------------------------------------------------- its sole expense and based upon consultation with Indigo, all aspects of the product specifications for the Initial Jericho Product, setting out all technical and functional specifications therefor. HP shall use commercially reasonable efforts to complete the specifications for the initial Jericho Product within 90 days of the Effective Date. The Parties will collaborate to discuss and jointly develop an understanding of the potential applications and customer needs.


3.2 New Jericho Products. Either Party shall have the right (but neither Party - ------------------------- shall have the obligation), from time to time, to suggest new Jericho Products or further Jericho Product R&D, by submitting a proposal in writing to the other Party, attaching draft product specifications for the new Jericho Product or R&D objectives, as the case may be. The Parties shall consider and discuss each such proposal in good faith. HP shall have the right, in its sole discretion, to adopt or decline any such proposal. If any such proposal is so adopted, the Parties shall attempt to reach agreement on such specifications or R&D objectives. To the extent the Parties are unable to agree on such specifications or R&D objectives within 90 days of commencement of discussions (or such longer period as may be agreed), HP's version of the specifications shall be adopted and the new Jericho Products or further Jericho Product R&D shall be developed based on such specifications together with the relevant statement of work and project plan.

4. Jericho Product Development

4.1 Statement of Work and Project Plan. After agreement is reached - --------------------------------------- regarding product specifications, the parties shall work together to develop a statement of work and project plan for the full-scale development, including the production of a prototype, of the relevant Jericho Product.

5. Development and Funding Responsibilities

5.1 HP Development Component. HP shall lead the research into and development - ---------------------------- of the formatter and system for Jericho Products, and will carry out supplemental activities (including those of HP Labs) that HP agrees to do in support of Indigo's Jericho R&D ("HP Jericho R&D"), and shall be solely responsible for funding thereof.

5.2 Indigo Development Component. Simultaneously with the HP development set - --------------------------------- forth above, Indigo shall lead the research into and development of the ink and engine (generally those sub-systems and components that "touch" the ink or are involved in the process steps of image creation) for Jericho Products, which development shall be conducted primarily in Israel ("Indigo Jericho R&D") and funded dollar-for-dollar in accordance with the funding obligations set forth below.

5.3 Access to Know-How. Each Party will provide the other with access to that - ----------------------- Party's know-how to the extent necessary to perform its research and development component under this Agreement.

5.4 HP Funding of Indigo Jericho R&D for Initial Jericho Product. The Parties - ----------------------------------------------------------------- expect the full scale research and development program for the Initial Jericho


Product to take three (3) years, with the commercial sale of such Initial Jericho Product expected to commence in the first calendar quarter of 2004. HP's funding of Indigo Jericho R&D for the Initial Jericho Product shall be as follows:

5.4.1 Payment of $5m no later than January 1, 200l.

5.4.2 Payment of $3.75m no later than January 1, 2002.

5.4.3 Payment of $3.75m no later than 10 days after the go/no go
checkpoint of June 30, 2002 (provided HP elects to "go" at that

5.4.4 Payment of $12.5m no later than January 1, 2003 (provided HP elects
to "go" at the June 30, 2002 checkpoint).

5.5 Indigo Funding of Indigo Jericho R&D for Initial Jericho Product. - --------------------------------------------------------------------- Indigo shall match, dollar-for-dollar, the aforesaid HP funding of Indigo Jericho R&D.

5.6 Go/No Go Checkpoints. Notwithstanding the foregoing payment schedule, - ------------------------- there shall be go/no go checkpoints on June 30, 2002 and on September 30, 2003, at which checkpoints HP may in its absolute discretion decide to terminate the Agreement. If HP so terminates on June 30, 2002, it shall have no obligation to make any further payments beyond that date, except for fair "exit charges" payable to Indigo. If HP so terminates on September 30, 2003, it shall incur no additional exit charges. In such event, all Indigo exit expenses shall be deemed to have been covered by HP's prior payment of $12.5m for Indigo Jericho R&D during calendar year 2003.

5.7 Personnel. Throughout the term of the Indigo research and development - -------------- effort, an estimate of 10 technical experts employed by HP shall, at HP's expense, be stationed on a full-time basis at Indigo's premises in Israel (the "Relocated Personnel"). The Relocated Personnel shall have experience in fields to be determined by mutual agreement of the Parties, it being anticipated that such fields will likely range from color science and imaging to project management, testing and value engineering. The Relocated Personnel shall comply with all relevant Indigo policies regarding safety, security and other work practices.

5.8 Funding for New Jericho Product Development and Further Jericho Product - ---------------------------------------------------------------------------- R&D. The Parties shall fbnd all new Jericho Products and all further Jericho - --- Product R&D which the Parties undertake pursuant to section 3.2. It is the intention of the Parties that such funding be allocated between the Parties in the same ratio as in the Initial Jericho Product research and development period, with HP funding HP Jericho R&D, as well as one-half of the Indigo Jericho R&D, payable annually in advance and otherwise as set forth below in this section 5.8. From the time the


original $50 million R&D funding for the Initial Jericho Product is spent. The Parties will agree an annual Indigo Jericho R&D budget to be at least 2 x 5% of Indigo's total revenue from HP and all other Indigo revenue from Jericho Product sales during the prior calendar year. To the extent that 5% of Indigo's aforesaid prior year's revenue is inadequate to cover 50% of the jointly-agreed Indigo Jericho R&D budget, HP will fund not only its 50% share of said R&D budget but will also fund 100% of the shortfall, with the amount of such shortfall to be credited against HP's R&D commitment in future years.

6. Manufacturing

6.1 Commencement of Jericho Product Manufacturing. Once the Parties agree that - -------------------------------------------------- a prototype meets the relevant product specifications, commercial manufacturing of the relevant Jericho Product shall commence. If the Parties are unable to agree as aforesaid, HP's view shall prevail.

6.2 Ink Manufacturing. All ink manufacturing for the Jericho Product shall be - --------------------- done by Indigo and the first ink manufacturing plant for the Jericho Product shall be established in Israel. Subsequent ink plants will be built in other geographical locations if necessary.

6.3 Long-Term Manufacturing of Other Consumables. If, at any time, in either - ------------------------------------------------ Party's reasonable opinion, it becomes necessary to manufacture Consumables (other than ink) for Jericho Products in any locations other than Israel, the Parties shall, in consultation with one another, have the right to specify the new locations where such Consumables should be manufactured, and the manufacturer thereof. In making their determination, the Parties will give particular consideration to the value and secrecy of the Indigo know-how utilized in manufacturing the said Consumables with a view to maximizing the protection of Indigo's Intellectual Property.

6.4 Long-Term Manufacturing Strategy. The Parties shall regularly review, - ------------------------------------ restructure, and/or relocate manufacturing of Jericho Products (other than ink) as reasonably necessary to give effect to HP's strong preference for the manufacture of Jericho Products by global third party contract manufacturers, focused on pursuing low manufacturing cost, high quality, access to tax havens, operational hedging, and low supply chain cost with the strategy to cover all manufacturing capacity investments necessary to create a manufacturable product (tooling, production prototypes, etc.) in the per unit product cost of goods sold, leveraging from the existing infrastructure of the third party.

6.5 Minimization of Manufacturing Costs. If, at any time, HP is able to, - ---------------------------------------- reasonably evidence that, either by itself or using third parties, it can manufacture any or all components of the Jericho Products (other than ink) significantly more cost


effectively than may then be manufactured by Indigo (or the then current manufacturer), HP shall, in consultation with Indigo. have the right. over a reasonable period, to transfer such manufacturing to itself or such third party, as the case may be. In making a decision to transfer manufacturing, HP must make provision for recovery over a reasonable period of reasonable sunk costs invested by Indigo in the manufacturing process as part of the proposal to transfer manufacturing.

6.6 Funding of Manufacturing Infrastructure. The Parties agree that the Party - -------------------------------------------- undertaking any component of manufacturing pursuant to this Agreement will be responsible for the funding of the manufacturing plant and infrastructure needed to carry out such manufacturing.

7. Branding and Sales of Je
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