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Semiconductor Device Component Purchase Agreement - Immersion Corp. and Kawasaki LSI USA Inc.

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                              SEMICONDUCTOR DEVICE

                          COMPONENT PURCHASE AGREEMENT

         This Semiconductor Device Component Purchase Agreement (the
"Agreement") is entered into by and between Immersion Corporation, a California
corporation, having its principal place of business at 2158 Paragon Drive, San
Jose, California (hereinafter "Immersion") and Kawasaki LSI U.S.A. Inc., a
California corporation, having its principal place of business at 2570 North
First Street, Suite 301, San Jose, California 95131 (hereinafter "KLSI"). The
effective date of this Agreement will be the date last signed below ("Effective
Date").

                                    RECITALS

         WHEREAS, Immersion and KLSI have entered into an Agreement for ASIC
         Design and Development, effective as of October 16, 1997 (the "ASIC
         Design Agreement") under which the parties have designed and developed
         an integrated circuit device which provides an optimized version of the
         force-feedback functions delivered by the Immersion proprietary force
         feedback firmware; and

         WHEREAS, KLSI has agreed to manufacture and sell such integrated
         circuit devices to Immersion, on an exclusive basis, for resale by
         Immersion under the licenses and terms and conditions set forth herein.

         NOW, THEREFORE, in consideration of the promises and agreements set
         forth below and the other consideration cited herein, the parties agree
         as follows:

1.       DEFINITIONS.

In this Agreement, the following words and expressions shall have the following
meanings:

         1.1.     "AFFILIATE" means any corporation or business entity which is
                  controlled by, controls, or is under common control of an
                  Immersion customer. For this purpose, the meaning of the word
                  "control" shall include, without limitation, direct or
                  indirect ownership of more than fifty percent (50%) of the
                  voting shares of interest of such corporation or business
                  entity.

         1.2.     "COMPONENT" means the "AXIS Chip" which is an integrated
                  circuit device designed to provide an optimized version of the
                  force-feedback functions delivered by the Immersion
                  proprietary force feedback firmware. The AXIS Chip was
                  designed and developed under the terms of the ASIC Design
                  Agreement by KLSI and Immersion and is further described in
                  the Specification, but does not include any firmware or
                  hexcode to be loaded or loaded into such devices. The
                  Components will be produced in a .5 CBA format, a .35 CBA
                  format and a .35 standard cell format.



<PAGE>   2

         1.3.     "DEFECT" means (i) with respect to the Components, defects in
                  such Components which cause such Components not to operate in
                  conformance with the Specification and/or a defect in the
                  materials and/or workmanship of the Component and/or (ii) with
                  respect to the Documentation, defects in the Documentation
                  which render the Documentation inaccurate, erroneous or
                  otherwise unreliable.

         1.4.     "DELIVERABLES" shall mean the PLSSOP, the testable Prototype
                  Units, the First Articles and Documentation, as defined and
                  developed under the terms of the ASIC Design Agreement.

         1.5.     "DOCUMENTATION" means the Specification, the VHDL File for the
                  AXIS Chip and other documentation that accompanied the
                  Deliverables provided by KLSI to Immersion as required under
                  the ASIC Design Agreement.

         1.6.     "FIRST ARTICLES" shall mean a limited number of units of the
                  Components, in a given format (.5 CBA, .35 CBA or .35 standard
                  cell) as mutually agreed upon by the parties, which are
                  manufactured as a test run for review and acceptance by
                  Immersion prior to full production of the Component for sale
                  to Immersion under the terms of this Agreement.

         1.7.     "POST LAYOUT SIMULATION SIGN OFF PACKAGE" or "PLSSOP" shall
                  mean the computer generated simulation of the Prototype Unit
                  that is a model of the Prototype Unit and that is used to
                  review the features and functionality which will be present in
                  the Prototype Unit, as defined and developed under the terms
                  of the ASIC Design Agreement.

         1.8.     "PROTOTYPE UNITS" shall mean initial working testable units of
                  the Components that conform to the PLSSOP and the
                  Specifications, as defined and developed under the terms of
                  the ASIC Design Agreement.

         1.9.     "SECOND SOURCE" means an alternative silicon provider licensed
                  by KLSI to produce a specific format (.35 CBA or .35 standard
                  cell) of the Component for KLSI, as a "back-up" resource for
                  KLSI's manufacturing obligations or licensed by Immersion to
                  produce the Component for Immersion.

         1.10.    "SPECIFICATION" means the Component specification in Exhibit A
                  ("Specification") for each of the .5 CBA, .35 CBA and .35
                  standard cell formats.

2.       PURCHASE OF COMPONENTS.

         2.1.     PURCHASE OF COMPONENTS BY IMMERSION.

                  2.1.1.   COMPONENTS. The parties will agree upon a limited
                           number of units of the Components to be manufactured
                           as First Articles and which will serve as a test run
                           for review and acceptance by Immersion prior to full
                           production of



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                           each of the formats (.5 CBA, .35 CBA or .35 standard
                           cell) of the Components under the terms of this
                           Agreement. KLSI will not make any changes to the
                           design, materials, manufacturing (including source
                           and location) or processes without Immersion's prior
                           written consent. KLSI agrees to manufacture and sell
                           to Immersion and Immersion agrees to purchase from
                           KLSI (by means of purchase orders issued by Immersion
                           to KLSI) the production units of the Components,
                           under the terms of this Agreement, for use by
                           Immersion and resale by Immersion to Immersion's
                           customers and to the Affiliates. KLSI will be the
                           exclusive manufacturer of such Components except as
                           provided herein and the Components will be sold
                           exclusively to Immersion. Immersion makes no
                           representation or guarantee as to the quantity of
                           Components that Immersion may purchase under this
                           Agreement. KLSI represents that KLSI has the
                           manufacturing capacity to fulfill, on a timely basis,
                           all Immersion orders for the Components and agrees to
                           make good faith efforts to increase capacity in order
                           to fulfill Immersion's requirements. Upon request by
                           Immersion, KLSI will disclose information to
                           Immersion as necessary to demonstrate KLSI's
                           production readiness and ability to achieve steady
                           cost effective production.

                  2.1.2.   HEXCODE. Prior to shipment of the Components to
                           Immersion or an Immersion customer or Affiliate,
                           hexcode or firmware code will need to be incorporated
                           into each Component. KLSI and Immersion agree that
                           Immersion (in the case of Components to be shipped to
                           Immersion) or Immersion's customers or the Affiliates
                           (in the case of Components to be shipped to such
                           customers or Affiliates) will supply the required
                           hexcode or firmware code directly to KLSI for
                           incorporation into the applicable Component. KLSI
                           will cause such firmware or hexcode and a vendor
                           identification number (which is supplied by Immersion
                           or Immersion's customer or the Affiliates, as
                           applicable, directly to KLSI) to be loaded into
                           specified Components prior to delivery of such
                           Components to Immersion, Immersion's customers or the
                           Affiliates, as applicable. Subsequently, for each new
                           release of firmware or hexcode which is requested by
                           Immersion or Immersion's customer or the Affiliates
                           to be implemented in Components to be purchased (by
                           Immersion for Immersion's use or for resale to
                           Immersion's customer or the Affiliates, as
                           applicable) Immersion or Immersion's customer or the
                           Affiliates, as applicable, will provide such firmware
                           or hexcode to KLSI. Immersion will impose an
                           obligation on each Immersion customer and Affiliate,
                           by means of the contract between Immersion and such
                           customer or Affiliate, under which each such customer
                           or Affiliate will be required to provide the firmware
                           or hexcode to KLSI in compliance with KLSI's required
                           lead time for Component orders involving new masks so
                           as to allow sufficient time for the new mask to be
                           created and implemented in such Components. Immersion
                           and KLSI agree that the lead time for orders



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                           involving new masks will be two (2) weeks longer than
                           the usual six (6) week lead time described in Section
                           4 ("Lead Times and Minimum Order Quantities") for the
                           particular format (.5 CBA, .35 CBA or .35 standard
                           cell). KLSI will provide ceramic prototypes within
                           two (2) to three (3) weeks of a ROM spin.

         2.2.     SECOND SOURCE.

                  2.2.1.   SECOND SOURCE SILICON PROVIDER OBLIGATION. KLSI will
                           enter into contractual relationships with certain
                           silicon providers under which each such silicon
                           provider will stand ready to act as a "back-up"
                           Second Source for KLSI ("the Second Source Silicon
                           Provider Agreement") for the Components. Two
                           different Component designs will require a Second
                           Source: (i) Components without an analog to digital
                           converter; and (ii) Components with an analog to
                           digital converter.

                           2.2.1.1. COMPONENTS WITHOUT AN ANALOG TO DIGITAL
                                    CONVERTER. Under the terms of the Purchase
                                    Order No. 11305 dated June 30, 1998
                                    (executed July 2, 1998), KLSI is obligated
                                    to migrate the .35 CBA Component to a .35
                                    standard cell Component without the analog
                                    to digital converter. Therefore, KLSI will
                                    enter into a Second Source Silicon Provider
                                    Agreement to produce a .35 standard cell
                                    Component as a back-up for both: (i) the .35
                                    standard cell Component without the analog
                                    to digital converter; and (ii) the .35 CBA
                                    Component for those Component orders which
                                    do not require the .35 CBA Component with an
                                    analog to digital converter. KLSI further
                                    agrees that the Second Source for the .35
                                    standard cell without the analog to digital
                                    converter will be capable of producing such
                                    Components within thirty (30) days after the
                                    completion of the migration from the .35 CBA
                                    to the .35 standard cell without an analog
                                    to digital converter. For purposes of the
                                    previous sentence, the migration shall be
                                    deemed complete upon Immersion's acceptance
                                    of the .35 standard cell prototypes.

                           2.2.1.2. COMPONENTS WITH AN ANALOG TO DIGITAL
                                    CONVERTER. If Immersion's orders for the .35
                                    CBA with the analog to digital converter
                                    reach 100,000 units per month, or Logitech
                                    is designing a Logitech force feedback
                                    gaming product that uses a Component
                                    requiring an analog to digital converter
                                    (each a "Migration Trigger Event"), then,
                                    within thirty (30) days of receiving
                                    notification of a Migration Trigger Event
                                    from Immersion, KLSI shall begin the
                                    migration of the .35 CBA Component with an
                                    analog to digital converter to a .35
                                    standard cell Component with an analog to
                                    digital converter. KLSI shall



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                                    complete the migration within six (6) months
                                    from the date of such notification. KLSI
                                    shall bear all costs and expenses of the
                                    migration, but the parties acknowledge that
                                    KLSI may recover the actual, documented
                                    costs of the migration by not lowering the
                                    unit price of the .35 standard cell
                                    Components until such costs have been
                                    recovered, or until the date eighteen months
                                    following the first sale of the .35 standard
                                    cell Component with an analog to digital
                                    converter to Immersion, whichever is
                                    earlier. KLSI will enter into a Second
                                    Source Silicon Provider Agreement to produce
                                    a .35 standard cell Component with an analog
                                    to digital converter within thirty (30) days
                                    after it begins the migration of the .35 CBA
                                    Component to the .35 standard cell Component
                                    with an analog to digital converter. KLSI
                                    further agrees that the Second Source for
                                    the .35 standard cell Components with the
                                    analog to digital converter will be capable
                                    of producing such Components within thirty
                                    (30) days after the completion of the
                                    migration from the .35 CBA to the .35
                                    standard cell with an analog to digital
                                    converter. For purposes of the previous
                                    sentence, the migration shall be deemed
                                    complete upon Immersion's acceptance of the
                                    .35 standard cell prototypes.

                           2.2.1.3. SECOND SOURCE PROCEDURES. In any case where
                                    the Die Bank System die are used as a
                                    resource by such .35 standard cell Second
                                    Source to source .35 CBA format Components,
                                    in KLSI's discretion, the die used will be
                                    credited to Immersion's Die Bank System
                                    account and replenished by KLSI at no charge
                                    to Immersion. KLSI will provide an entire
                                    manufacturing package of all of the
                                    Deliverables, specifications, technology and
                                    other materials which will be needed by each
                                    such Second Source Silicon provider in order
                                    to manufacture the applicable Components.
                                    Although it is the intent of the parties
                                    that KLSI will manufacture the Components as
                                    the primary silicon provider, it is
                                    understood and agreed that KLSI may
                                    subcontract the manufacture of Components to
                                    such Second Sources, on a periodic basis, as
                                    necessary for KLSI to be in compliance with
                                    its obligations hereunder. KLSI will
                                    determine, in the case of each Component
                                    order, whether such Components will be
                                    manufactured by KLSI or by the applicable
                                    Second Source silicon provider. KLSI will be
                                    in the role of "governing seller" and
                                    therefore, Immersion will purchase all
                                    Components from KLSI (including the
                                    Components which are manufactured by the
                                    Second Source silicon providers), except
                                    that under a specified set of circumstances
                                    described in Section 2.2.5 ("Trigger
                                    Events") Immersion may, in its discretion,
                                    purchase Components directly from KLSI's
                                    Second Source silicon providers. Prior to



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                                    execution of each Second Source Silicon
                                    Provider Agreement, KLSI will identify each
                                    Second Source silicon provider to Immersion.

                  2.2.2.   TECHNOLOGY LICENSE TO THE SECOND SOURCE. Immersion
                           hereby grants KLSI a limited license, to sublicense
                           each Second Source silicon provider to utilize the
                           Immersion Preexisting Technology and Immersion
                           Requested Revisions (as defined in the ASIC Design
                           Agreement) solely to manufacture the Components under
                           the terms of the applicable Second Source Silicon
                           Provider Agreement. In addition, KLSI will license
                           the Non-Immersion Technology (as defined in the ASIC
                           Design Agreement) to each Second Source silicon
                           provider so as to permit manufacture of the
                           Components by the applicable Second Source silicon
                           provider.

                  2.2.3.   TERMS TO BE IMPOSED ON THE SECOND SOURCE SILICON
                           PROVIDER. KLSI will subcontract with each Second
                           Source silicon provider, under the terms of the
                           Second Source Silicon Provider Agreement, to obtain
                           the applicable Components from such Second Source
                           silicon provider and Immersion will be a third party
                           beneficiary of each subcontract between KLSI and
                           KLSI's designated Second Source silicon providers.
                           KLSI, under the terms of each Second Source Silicon
                           Provider Agreement, will require each such Second
                           Source silicon provider to comply with the lead
                           times, cancellation and rescheduling terms and
                           minimum order quantities that are included in this
                           Agreement and the Quality Requirements included in
                           any Ancillary Agreements between KLSI and Immersion's
                           customers or Affiliates. KLSI will impose an
                           obligation on each Second Source silicon provider to
                           sign an Ancillary Agreement (which is identical to
                           the KLSI Ancillary Agreement) directly with
                           Immersion's customers or the Affiliates in any case
                           where KLSI has entered into such an agreement.

                  2.2.4.   ESCROW ACCOUNT. KLSI recognizes that certain breaches
                           of KLSI's obligations under the terms of this
                           Agreement and/or the Ancillary Agreements may require
                           prompt implementation of business solutions to remedy
                           such breaches, including but not limited to,
                           solutions which allow Immersion and Immersion's
                           customers or the Affiliates (through purchases from
                           Immersion) to obtain the Components from an
                           alternative source. KLSI agrees to deposit all of the
                           Deliverables (excluding First Articles)
                           specifications, technology and other materials which
                           would be needed by a Second Source silicon provider
                           to manufacture the Components (the "Second Source
                           Device Deposit") into an escrow account held by an
                           escrow agent, mutually agreed upon by the parties.
                           The Second Source Device Deposit can be accessed by
                           Immersion for delivery to a Second Source silicon
                           provider, of Immersion's choice, upon the occurrence
                           of certain events ("Trigger Events"). The occurrence
                           of the Trigger Events will be identified by Immersion
                           by written notice to the



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                           escrow agent in accordance with the terms of Section
                           2.2.6 ("Trigger Event Process"). Such escrow
                           agreement (the "Second Source Device Deposit Escrow
                           Agreement") will be between KLSI, Immersion and the
                           escrow agent and will be attached hereto as Exhibit D
                           ("Second Source Device Deposit Escrow Agreement").
                           KLSI will be required, under the terms of the Second
                           Source Device Deposit Escrow Agreement to promptly
                           deposit any future updates or revisions to the Second
                           Source Device Deposit with the escrow agent.

                  2.2.5.   TRIGGER EVENTS. The parties agree that in the
                           following situations described in (i), (ii) and (iii)
                           below, Immersion will be entitled to take certain
                           steps to mitigate KLSI's breach: (i) If KLSI is not
                           in compliance with the Quality Requirements directly
                           imposed by Immersion's customers or the Affiliates on
                           KLSI under the terms of the Ancillary Agreements,
                           (ii) if KLSI is in material breach of its delivery
                           obligations to Immersion for orders placed by
                           Immersion for Immersion's use or orders placed by
                           Immersion for resale to Immersion's customers or the
                           Affiliates (and Immersion therefore may be in breach
                           of its obligations to its customers or the Affiliates
                           under the terms of the agreements between Immersion
                           and Immersion's customers or the Affiliates, or (iii)
                           if the Components delivered to Immersion for
                           Immersion's use or for sale to Immersion's customers
                           or the Affiliates by Immersion exceed the warranty
                           defect frequency levels permitted under the terms of
                           Section 0 ("Warranty Defect Frequency Levels"). If
                           any of the events described in (i), (ii) or (iii)
                           above occur and are not cured within the thirty (30)
                           day notice period described in Section 2.2.6
                           ("Trigger Event Process"), such event will be deemed
                           to be a "Trigger Event" under the Second Source
                           Device Deposit Escrow Agreement.

                  2.2.6.   TRIGGER EVENT PROCESS. On the basis of Immersion
                           customer or Affiliate input, or in the case where the
                           Components purchased by Immersion are exhibiting
                           warranty defect frequency levels in excess of those
                           permitted under the terms of Section 5.3 ("Warranty
                           Defect Frequency Levels"), Immersion may, in
                           Immersion's discretion, send a written notice to
                           KLSI, the applicable Second Source silicon provider
                           and the escrow agent for the Second Source Device
                           Deposit escrow account, advising KLSI that if the
                           noncompliance with the Quality Requirements, material
                           breach of the delivery obligations to Immersion or
                           excessive warranty defect frequency levels, as
                           applicable, are not cured within thirty (30) days
                           from receipt of Immersion's notice, that the
                           noncompliance with the Quality Requirements, material
                           breach of the delivery obligations to Immersion or
                           excessive warranty defect levels, as applicable, will
                           be deemed to be a "Trigger Event" under the Second
                           Source Device Deposit Escrow Agreement. The Second
                           Source Device Deposit will be released by the escrow
                           agent to Immersion for delivery to a Second Source
                           silicon



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                           provider of Immersion's choice upon the occurrence of
                           a Trigger Event. Notwithstanding the foregoing,
                           Immersion will still have the right, but not the
                           obligation, to purchase the Components from KLSI
                           after occurrence of the Trigger Event and although
                           the rescheduling rules described in Exhibit B
                           ("Cancellation and Rescheduling Polices and Fees")
                           will still be in effect, Immersion may cancel orders
                           without obligation to pay cancellation fees or base
                           wafer maintenance invoices after the Trigger Event
                           (and KLSI will credit any base wafer maintenance fees
                           or die bank fees already paid, which are not applied
                           to base wafers actually used, to Immersion's account
                           within thirty (30) days of the Trigger Event).

                  2.2.7.   IMMERSION'S SECOND SOURCE. Immersion may choose, in
                           Immersion's sole discretion, to designate any of
                           KLSI's Second Source silicon providers as Immersion's
                           Second Source silicon providers after occurrence of
                           the Trigger Event. Immersion will notify KLSI as to
                           the Second Source silicon providers selected by
                           Immersion. KLSI hereby grants Immersion a limited
                           license to sublicense the Second Source silicon
                           providers selected by Immersion to utilize the
                           Non-Immersion Technology after a Trigger Event so as
                           to permit manufacture of the Components by such
                           Second Source silicon providers.

         2.3.     PURCHASE OF COMPONENTS BY IMMERSION'S CUSTOMER'S AFFILIATES.
                  KLSI acknowledges that Immersion's customers may be permitted,
                  under the terms of the agreement between Immersion and each of
                  Immersion's customers, to submit purchase orders for the
                  Components from the customer's Affiliates (on behalf of one or
                  more of such Affiliates) and KLSI further acknowledges that
                  Immersion may agree to process such orders as though the order
                  was an Immersion customer Component purchase order (i.e.,
                  receive orders directly from the Affiliate, drop ship directly
                  to the Affiliate, invoice the Affiliate and handle returns and
                  warranty returns directly with the Affiliate). Immersion will
                  require Immersion's customer by contract, to impose on each
                  Affiliate, by means of a written agreement, prior to the
                  placement of the first Component order to Immersion by any
                  Affiliate, all obligations imposed on Immersion's customer
                  under the terms of this Agreement and the applicable Ancillary
                  Agreement, if any. KLSI agrees to enter into Ancillary
                  Agreements with such Affiliates and in response to Immersion's
                  purchase orders, to ship Components directly to such
                  Affiliates under the same terms imposed upon KLSI by this
                  Agreement with respect to the Immersion customers.

         2.4.     SPECIFICATION ESCROW. KLSI acknowledges that in addition to
                  the Second Source Device Deposit escrow account which is for
                  the benefit of Immersion, Immersion's customers (or the
                  Affiliates) may request Immersion to escrow the Specification
                  for the Components for the benefit of Immersion's customers
                  (or the Affiliates). KLSI shall promptly provide to Immersion
                  any future updates or revisions to the Specification for
                  deposit by Immersion with the escrow agent.



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3.       ORDERING PROCEDURE.

         3.1.     FORECASTING. Immersion will require, by contract, that
                  Immersion's customers and/or Affiliates provide Immersion with
                  a written nonbinding six (6) month rolling forecast, updated
                  by the first day of each month, which describes the quantity
                  of each Component, by format (.5 CBA, .35 CBA or .35 standard
                  cell), by part number, proposed to be purchased by each
                  Immersion customer and Affiliates, by month. Immersion will
                  provide a copy of such forecasts directly to KLSI, accompanied
                  by a written nonbinding six (6) month rolling forecast for
                  Immersion's own usage of Components, by the fifteenth of each
                  month. Immersion may, in its discretion, integrate such
                  forecast information into a single forecast. Such forecasts
                  will be invalid unless placed by Immersion's designated
                  purchasing agent.

         3.2.     PURCHASE ORDERS.

                  3.2.1.   PURCHASE ORDER PROCESS. Immersion will issue purchase
                           orders to KLSI, specifying the end customer, the
                           shipping address, the Components by part number and
                           designating the hexcode or firmware to be loaded into
                           the Components. Such purchase orders may be submitted
                           by written, faxed or electronic means. KLSI will
                           accept Immersion's purchase orders and acknowledge
                           such orders in writing, to Immersion, within five (5)
                           days of receipt. Such purchase orders will be invalid
                           unless placed by Immersion's designated purchasing
                           agent. The terms and conditions of this Agreement
                           shall apply to all orders submitted by Immersion to
                           KLSI and supersede any different or additional terms
                           on Immersion's or KLSI's purchase orders, order
                           acknowledgments or invoices, as applicable.

                  3.2.2.   SHIPMENT AND DELIVERY. KLSI will ship all components
                           to Immersion, Immersion's customers and the
                           Affiliates, FOB Narita, Japan. KLSI will provide
                           Immersion with KLSI's standard packaging
                           specifications for Immersion's prior approval. All
                           Components will be shipped in accordance with such
                           standard packaging specifications unless otherwise
                           agreed to by KLSI and Immersion in writing, in
                           advance. KLSI will provide Immersion with all
                           documents that Immersion, Immersion's customers or
                           the Affiliates need to receive possession of the
                           Components and to ship, import and export the
                           Components. KLSI shall use best efforts to make
                           deliveries to Immersion, Immersion's customers and
                           the Affiliates of orders so accepted, promptly and
                           within three (3) days of (before or after) scheduled
                           delivery dates. For purposes of this Agreement, a
                           "scheduled delivery date" is the date the shipment
                           leaves KLSI's dock FOB Narita, Japan.

                  3.2.3.   LATE DELIVERIES. KLSI will promptly notify Immersion
                           of any possible delays and Immersion may elect in
                           writing to cancel any orders which



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                           KLSI (i) advises will not be delivered as scheduled
                           (and will be more than ten (10) days late) or (ii)
                           which are not delivered as scheduled (and are more
                           than ten (10) days late) and (iii) in either case,
                           the cause of the late delivery was attributable
                           solely to KLSI, KLSI's Second Source and/or other
                           KLSI suppliers. Such cancellations by Immersion will
                           not be subject to the cancellation rules and fees
                           described in Exhibit B ("Cancellation and
                           Rescheduling Policies and Fees"). If Immersion does
                           not cancel a late order (meaning the shipment will be
                           received more than ten (10) days after the scheduled
                           delivery date), KLSI will pay the premium
                           transportation charges necessary to meet Immersion's
                           delivery obligations, or to mitigate the delay.
                           Allowing Immersion to cancel late orders and payment
                           of premium shipping are remedies intended to mitigate
                           KLSI's breach of its delivery obligations and
                           Immersion's acceptance of any such remedies in no way
                           waives Immersion's right to all other available
                           remedies. Orders which will not be delivered or are
                           not delivered in accordance with the scheduled
                           delivery date and which are canceled by Immersion
                           will nevertheless be counted as purchased for
                           purposes of quantity discounts, if any. Immersion
                           shall not be liable to Immersion's customers or the
                           Affiliates for any damages to Immersion's customers
                           or the Affiliates or to any other person for KLSI's
                           failure to fill any orders, or for any delay in
                           delivery or error in filling any orders for any
                           reason whatsoever. KLSI agrees to indemnify, defend
                           and hold Immersion harmless from any claim by any
                           Immersion customer or Affiliate which is based on
                           KLSI's failure to fill any orders or for any delay in
                           delivery or error in filling any orders for any
                           reason whatsoever.

                  3.2.4.   EARLY DELIVERIES. KLSI will not ship Components to
                           Immersion, Immersion's customers or the Affiliates
                           more than five (5) days prior to the scheduled
                           delivery date without Immersion's prior written
                           consent. Immersion, Immersion's customers and the
                           Affiliates will be entitled to return any Components
                           delivered more than five (5) days in advance of the
                           scheduled delivery date at KLSI's risk and expense
                           and Immersion's account will be credited.

         3.3.     ACCEPTANCE OF COMPONENT ORDERS BY IMMERSION AND IMMERSION'S
                  CUSTOMERS AND AFFILIATES.

                  3.3.1.   ACCEPTANCE PROCESS. Immersion agrees that the
                           Components purchased by Immersion from KLSI for
                           Immersion's own use will be deemed accepted within
                           fifteen (15) days of receipt from KLSI, unless
                           Immersion, by means of written notice, notifies KLSI
                           of a Defect, which has been verified by a means
                           mutually agreed upon between KLSI and Immersion,
                           which means may include, but will not be limited to,
                           Defect Test Suites as described below, within such
                           period. Immersion will require, under the terms of
                           the contract with each Immersion customer and each
                           Affiliate,



                                       10
<PAGE>   11

                           that the Components will be deemed accepted by
                           Immersion's customer or the Affiliate within a
                           specified number of days from receipt unless
                           Immersion's customer or the Affiliate, by means of
                           written notice, notifies Immersion of a Defect, which
                           has been verified by a means mutually agreed upon
                           between Immersion and such customer, and which may
                           include, but will not be limited to, Defect Test
                           Suites as described below, within such period.

                  3.3.2.   DEFECT TEST SUITES. Immersion and KLSI may develop
                           and mutually agree upon a Defect Test Suite which
                           will test the Components, excluding the hexcode or
                           firmware code supplied by Immersion or the Immersion
                           customer, using specified test vectors to identify
                           Defects. The Defect Test Suites may be supplied to
                           each Immersion customer and Affiliate by Immersion
                           for use as the basis for acceptance or rejection of
                           the Components (excluding the hexcode or firmware
                           code portion).

                  3.3.3.   FIRST LEVEL INTERFACE. Immersion agrees to perform
                           the role of the first level interface with the
                           Immersion customers and the Affiliates and to verify
                           whether there is a Defect. Once Immersion has
                           notified KLSI as to Immersion's conclusion that the
                           existence of a Defect has been verified, by whatever
                           means mutually agreed upon between Immersion and the
                           Immersion customer, KLSI will work directly with the
                           Immersion customers and the Affiliates in compliance
                           with the sample reject/failure mode criteria and RMA
                           procedure which have been agreed upon between KLSI
                           and such Immersion customer or Affiliate under the
                           terms of the Ancillary Agreement. The Immersion
                           customers and Affiliates will be permitted to return
                           the Components to KLSI for replacement within five
                           (5) days of KLSI's return approval notification. In
                           such case KLSI will ship the replacement Components
                           to Immersion's customer or the Affiliate on a
                           priority basis.

                  3.3.4.   HEXCODE DEFECTS. KLSI and each Immersion customer or
                           Affiliate will mutually agree upon, in writing, under
                           the terms of the Ancillary Agreement, an appropriate
                           test suite for use by the Immersion customer or
                           Affiliate as the basis for acceptance or rejection of
                           the hexcode or firmware code portion of the
                           Components.

                  3.3.5.   IMMERSION AS A CUSTOMER. Once Immersion has notified
                           KLSI that Immersion has verified the existence of a
                           Defect in Components purchased by Immersion for
                           Immersion's use, KLSI and Immersion will coordinate
                           return of the defective Component units under the
                           terms of the reject/failure mode criteria and RMA
                           procedure described in Exhibit E ("KLSI RMA
                           Procedures"). Immersion will be permitted to return
                           the Components to KLSI for replacement within five
                           (5) days of KLSI's return approval notification. KLSI
                           will ship the replacement Components



                                       11
<PAGE>   12

                           to Immersion on a priority basis. In addition, KLSI
                           and Immersion will mutually agree upon, in writing,
                           an appropriate test suite for use by Immersion as the
                           basis for acceptance or rejection of the hexcode or
                           firmware code portion of the Components ordered by
                           Immersion for Immersion's use.

         3.4.     CHANGE ORDERS. Cancellation and rescheduling of Immersion's
                  Component orders will be governed by the cancellation and
                  rescheduling policies and fees described in Exhibit B
                  ("Cancellation and Rescheduling Policies and Fees"). All
                  cancellation and/or rescheduling requests will be submitted to
                  Immersion by Immersion's customers and will be incorporated by
                  Immersion into a cancellation and/or rescheduling request
                  which will be submitted by Immersion to KLSI.

         3.5.     ANCILLARY AGREEMENT. Immersion agrees and acknowledges that
                  Immersion's customers will be permitted to negotiate with KLSI
                  to directly impose quality requirements on KLSI under the
                  terms of a separate, executed agreement (the "Ancillary
                  Agreement") and to mutually agree upon RMA procedures and
                  hexcode or firmware code loading and spin charges.

4.       LEAD TIMES AND MINIMUM ORDER QUANTITIES. The parties agree that the
         lead time for orders placed by Immersion to KLSI for the .5 CBA and .35
         CBA format Components will be six (6) weeks from receipt of the
         Immersion purchase order by KLSI, subject to implementation of a Base
         Wafer Maintenance Purchase Order System as described in Section 0
         ("Base Wafer Maintenance Purchase Order System"). The parties agree
         that the lead time for orders placed by Immersion to KLSI for the .35
         standard cell will be six (6) weeks from receipt of the Immersion
         purchase order by KLSI, subject to implementation of a Die Bank System
         as described in Section 0 ("Die Bank System"). Some exceptions may be
         taken to the six (6) week lead time in the case of
         factory/subcontractor holiday periods, however, KLSI shall notify
         Immersion of any shutdown impact and will define the additional lead
         time necessary for ordering purposes on a case by case basis at the
         time the order first appears in the forecast (within five (5) days of
         receipt of the forecast from Immersion). The minimum order quantity
         requirement is 5000 Component units per Immersion purchase order,
         however Components aggregated on a single purchase order may be
         designated to be shipped to multiple Immersion customer and Affiliate
         locations.

5.       WARRANTY.

         5.1.     WARRANTY BY KLSI TO IMMERSION. KLSI acknowledges that although
                  Immersion may purchase Components for Immersion's use, for the
                  most part Immersion is purchasing the Components for resale to
                  Immersion's customers and that Immersion will be making a
                  warranty to each of Immersion's customers that for a period of
                  one (1) year from delivery of each quantity of the Components
                  to Immersion's customer, the Components, excluding the hexcode
                  or firmware code, will conform to the Specification and will
                  be free from defects in materials and



                                       12
<PAGE>   13

                  workmanship. KLSI warrants to Immersion that for a period of
                  one (1) year from delivery of each quantity of the Components
                  to Immersion or directly to Immersion's customers or the
                  Affiliates, the Components, excluding the hexcode or firmware
                  code, will conform to the Specification and will be free from
                  defects in materials and workmanship.

         5.2.     WARRANTY PROCEDURES.

                  5.2.1.   WARRANTY PROCESS. KLSI further agrees that in any
                           instance where Immersion's customer or an Affiliate
                           has asserted a claim under the warranty provided by
                           Immersion to the customer or the Affiliate (during
                           the one (1) year warranty period) that a Component,
                           excluding the hexcode or firmware code, does not
                           conform to the Specification and/or is not free from
                           defects in material and workmanship, Immersion will
                           identify the nature of the claim through direct
                           communication with the customer or the Affiliate and
                           will conduct Defect verification tests using the
                           means, including but not limited to Defect Test
                           Suites, that has been mutually agreed upon between
                           Immersion and KLSI in accordance with Section 3.3.2
                           ("Defect Test Suites"). Immersion will obtain an
                           appropriate sample of Component units, prior to
                           notifying KLSI of the customer or the Affiliate
                           warranty claim. For Components purchased by Immersion
                           for Immersion's use, Immersion will conduct
                           verification tests using the means, including but not
                           limited to Defect Test Suites that has been mutually
                           agreed upon between Immersion and KLSI in accordance
                           with the terms of Section 3.3.2 ("Defect Test
                           Suites") on an appropriate sample of Components
                           following the same procedures.

                  5.2.2.   KLSI RESPONSIBILITIES. If Immersion determines, on
                           the basis of the verification criteria that the
                           sample Component units are defective, KLSI agrees
                           that KLSI will accept receipt of Immersion's test
                           data and sample Component units and will treat such
                           delivery of test data and sample Component units from
                           Immersion as a warranty claim by Immersion under the
                           warranty provided by KLSI to Immersion under the
                           terms of this Agreement. If Immersion presents KLSI
                           with a warranty claim which involves Components which
                           have been shipped to an Immersion customer or
                           Affiliate, KLSI will contact the customer or
                           Affiliate under KLSI's Return Authorization Program
                           within ten (10) days of receipt of Immersion's test
                           data and sample Component units and will accept
                           defective Component units back directly from
                           Immersion's customers or the Affiliates. KLSI will
                           provide replacement Component units directly to
                           Immersion's customers or the Affiliates on a one to
                           one basis for each defective Component returned by
                           Immersion's customer or an Affiliate to KLSI, as
                           described above, within thirty (30) days of receipt
                           of Immersion's test data and sample Component units.
                           If Immersion presents KLSI with a warranty claim for
                           Components which have been shipped to



                                       13
<PAGE>   14

                           Immersion, KLSI will contact Immersion within ten
                           (10) days of receipt of Immersion's test data and
                           sample Component units and will accept defective
                           Component units back from Immersion. KLSI will
                           provide replacement Component units directly to
                           Immersion on a one to one basis for each defective
                           Component returned by Immersion, as described above,
                           within thirty (30) days of receipt of Immersion's
                           test data and sample Component units. KLSI agrees to
                           be responsible for all insurance and shipping costs
                           incurred by Immersion and by Immersion's customers
                           and the Affiliates in returning defective Component
                           units to KLSI. Immersion may, in its sole discretion,
                           instruct KLSI to accept return of the defective
                           Component units from Immersion, Immersion's customers
                           or the Affiliates, as applicable, and to credit
                           Immersion's account for the purchase price of such
                           units, instead of providing replacement units to
                           Immersion, Immersion's customers or the Affiliates,
                           as applicable.

                  5.2.3.   PURPOSE OF THE WARRANTY. Although this warranty
                           extends only to Immersion and not to Immersion's
                           customers, KLSI agrees and acknowledges that the
                           purpose of this warranty is to cause KLSI to provide
                           warranty replacement units to Immersion's customer or
                           an Affiliate in each instance where Immersion's
                           customer or an Affiliate asserts a warranty claim to
                           Immersion under the one (1) year warranty provided by
                           Immersion to Immersion's customers and the
                           Affiliates. KLSI further acknowledges and agrees that
                           it is Immersion's intent to avoid a situation where
                           Immersion is responsible under Immersion's warranty
                           to Immersion's customer or an Affiliate for defective
                           Components and Immersion is without recourse from
                           KLSI to obtain replacement Component units under the
                           warranty provided by KLSI to Immersion.

         5.3.     WARRANTY DEFECT FREQUENCY LEVELS.

                  5.3.1.   PROCESS IMPROVEMENT. Immersion and KLSI agree that
                           the Components manufactured by KLSI should be free
                           from Defects and that the Components should be
                           manufactured under a stable manufacturing process
                           that is capable of producing high-quality reliable
                           components in volume. The acceptance procedure as
                           described in Section 3.3 ("Acceptance of Component
                           Orders by Immersion and Immersion's Customers and
                           Affiliates) and the warranty procedures described in
                           Section 5.1 ("Warranty by KLSI to Immersion") and 5.2
                           ("Warranty Procedures") are intended to identify
                           Defects and to allow Immersion, the Immersion
                           customers and the Affiliates to return Defective
                           Components to KLSI. Notwithstanding the acceptance
                           and warranty procedures, KLSI and Immersion recognize
                           that if the frequency level of Defects in the
                           Components exceeds certain parameters, the acceptance
                           and warranty procedures will become expensive and
                           time consuming. As a result, the



                                       14
<PAGE>   15

                           parties agree that KLSI will conduct a quality and
                           reliability improvement program on an ongoing basis
                           and use the Defect data obtained through the
                           acceptance and warranty procedures to document,
                           analyze and implement a program to constantly reduce
                           the Defect frequency levels of the Components towards
                           a zero Defect standard.

                  5.3.2.   RECORD KEEPING AND DOCUMENTATION. KLSI will maintain
                           records of corrective actions indicating the
                           frequency of Defects during fabrication of the
                           Components, the proposed corrective process change,
                           evaluation of effectiveness of the corrective process
                           and the effective date of implementation of
                           corrective measures. KLSI will make such records
                           available to Immersion upon request. KLSI will
                           provide documentation with each shipment of
                           Components which indicates that the Components
                           shipped have been tested and inspected by KLSI and
                           have a defect rate no greater than 100 dpm.

                  5.3.3.   CORRECTIVE ACTION. KLSI will implement and maintain a
                           corrective action system, including failure analysis,
                           for addressing and correcting Defects reported under
                           the acceptance and warranty procedures. The parties
                           agree that any time the Defect rate in Components
                           purchased by Immersion on a rolling basis or in any
                           shipment or consecutive series of shipments exceeds
                           100 dpm and such Defects are traceable to a single
                           failure mode, Immersion will be entitled to notify
                           KLSI that the Defect levels are unacceptable and KLSI
                           will respond by preparing and proposing a Corrective
                           Action Plan within ten (10) business days of KLSI's
                           confirmation of unacceptable Defects levels. KLSI
                           will confirm the unacceptable Defect levels within
                           five (5) days of receipt of Immersion's notice. The
                           Corrective Action Plan will address implementation
                           and procedure milestones and timeframes for remedying
                           the unacceptable Defect levels.

                  5.3.4.   SUSPENSION BY IMMERSION. Immersion will be permitted
                           to delay and/or postpone manufacturing and deliveries
                           of Components which have been ordered as well as
                           future orders (a "Suspension") by written notice to
                           KLSI, pending correction of the excessive Defect
                           levels under the Corrective Action Plan. The
                           Suspension status invoked by Immersion's written
                           notice will temporarily relieve KLSI of its
                           obligation to ship Components, will relieve Immersion
                           customers and the Affiliates of any obligation to
                           receive shipment of Components, and will not be
                           treated as a cancellation or rescheduling by
                           Immersion under the terms of this Agreement. KLSI
                           will develop a remedy for the Defects under the
                           Corrective Action Plan at KLSI's sole expense and
                           will demonstrate to Immersion the effectiveness of
                           such remedy. If Immersion, in its discretion,
                           approves the remedy, Immersion will cancel the
                           Suspension and KLSI will (i) incorporate such remedy
                           into all subsequent



                                       15
<PAGE>   16

                           Components manufactured, (ii) replace all Component
                           units in Immersion, Immersion's customers' and/or the
                           Affiliates' inventory, and (iii) reimburse Immersion,
                           the Immersion customers and/or the Affiliates for any
                           expenses and/or costs associated with implementation
                           of such remedy. If KLSI is unable to propose and
                           implement a remedy as described above, Immersion will
                           be entitled to treat such failure as a Trigger Event
                           under Section 2.2 ("Second Source") upon thirty (30)
                           days written notice and receive a refund for all
                           defective Components in Immersion, Immersion's
                           customers' and the Affiliates' inventories.

         5.4.     DISCLAIMER. EXCEPT FOR THE EXPRESS WARRANTIES CONTAINED
                  HEREIN, KLSI MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED,
                  INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
                  FOR A PARTICULAR PURPOSE.

6.       INDEMNIFICATION.

         6.1.     INDEMNIFICATION BY KLSI.

                  6.1.1.   SCOPE OF KLSI'S INDEMNITY. Subject to prompt
                           notification by Immersion, cooperation by Immersion
                           and control of all litigation and/or settlement by
                           KLSI, KLSI shall indemnify, defend and hold
                           Immersion, Immersion's customers and the Affiliates
                           harmless from and against any and all damages, costs
                           and expenses ("Costs") suffered or incurred by
                           Immersion, Immersion's customers and the Affiliates
                           as a result of any third party claim that the
                           Components, as delivered by KLSI (whether
                           manufactured by KLSI or KLSI's Second Source silicon
                           provider) to Immersion, Immersion's customers or the
                           Affiliates, but excluding any firmware or hexcode
                           loaded onto any Components and further excluding the
                           Immersion Preexisting Technology and Immersion
                           Requested Revisions (as defined in the ASIC Design
                           Agreement), infringe any patent, copyright or
                           misappropriates any trade secret of any third party.

                  6.1.2.   MITIGATION BY KLSI. In the case of any third party
                           claim involving the Components which is covered by
                           the indemnity described in Section 6.1.1 ("Scope of
                           KLSI's Indemnity"), KLSI may, in its sole discretion
                           (i) provide Immersion with a modified version of the
                           Components which comply with the functionality and
                           features of the Specification so that the Components
                           become noninfringing (as a replacement for Components
                           in Immersion, Immersion's customer's and the
                           Affiliates inventory and for future sales), (ii)
                           provide Immersion other components which are
                           functionally equivalent (as a replacement for
                           Components in Immersion, Immersion's customer's and
                           the Affiliates inventory and for future sales), (iii)
                           procure for Immersion a license to continue to use
                           and sell the Components, or, (iv) in the alternative,
                           if none of the foregoing



                                       16
<PAGE>   17

                           alternatives are commercially reasonable, accept
                           return of the infringing Components in Immersion's,
                           Immersion's customer's and/or the Affiliate's
                           inventory and refund to Immersion the purchase price
                           paid for such inventory. Each party agrees to notify
                           the other promptly of any matters in respect to which
                           the foregoing indemnity in Section 6.1.1 ("Scope of
                           KLSI's Indemnity") may apply. If notified in writing
                           of any action or claim for which KLSI is to provide
                           indemnity, KLSI shall defend those actions or claims
                           at KLSI's expense and pay the Costs awarded against
                           Immersion, Immersion's customers and/or Affiliates in
                           any such action, or pay any settlement of such action
                           or claim entered into by KLSI.

                  6.1.3.   EXCEPTIONS TO KLSI'S INDEMNITY OBLIGATION. The
                           foregoing indemnity by KLSI will not apply to any
                           infringement claim to the extent it arises from (i)
                           any modification of any Component by parties other
                           than KLSI or KLSI subcontractors under contract with
                           KLSI, or (ii) an infringement which would not occur
                           in the Component but which does occur when the
                           Component is incorporated into the devices.

         6.2.     INDEMNIFICATION BY IMMERSION.

                  6.2.1.   SCOPE OF IMMERSION'S INDEMNITY. Subject to prompt
                           notification by KLSI, cooperation by KLSI and control
                           of all litigation and/or settlement by Immersion,
                           Immersion shall indemnify, defend and hold KLSI
                           harmless from and against any and all damages, costs
                           and expenses ("Costs") suffered or incurred by KLSI
                           as a result of any third party claim that the
                           Immersion Preexisting Technology and Immersion
                           Requested Revisions (as defined in the ASIC Design
                           Agreement) as incorporated into the Components as
                           manufactured under the terms of this Agreement, but
                           excluding any firmware or hexcode loaded onto any
                           Components, infringe any patent, copyright or
                           misappropriate any trade secret of any third party.

                  6.2.2.   MITIGATION BY IMMERSION. In the case of any third
                           party claim involving the Components which is covered
                           by the indemnity described in Section 0 ("Scope of
                           Immersion's Indemnity"), Immersion may, in its sole
                           discretion, (i) provide KLSI with a modification to
                           the Immersion Preexisting Technology and/or Immersion
                           Requested Revisions for use in the Components, or
                           (ii) procure for Immersion a license to continue to
                           use the Immersion Preexisting Technology and/or
                           Immersion Requested Revisions in the Components. Each
                           party agrees to notify the other promptly of any
                           matters in respect to which the foregoing indemnity
                           in Section 6.2.1 ("Scope of Immersion's Indemnity")
                           may apply. If notified in writing of any action or
                           claim for which Immersion is to provide indemnity,
                           Immersion shall defend those actions or claims at
                           Immersion's expense and pay the Costs awarded against
                           KLSI in any such action, or pay any settlement of
                           such action or claim entered into by Immersion.



                                       17
<PAGE>   18

                  6.2.3.   EXCEPTIONS TO IMMERSION'S INDEMNITY OBLIGATION. The
                           foregoing indemnity by Immersion will not apply to
                           any infringement claim to the extent it arises from
                           (i) any modification of the Immersion Preexisting
                           Technology and/or Immersion Requested Revisions by
                           parties other than Immersion or Immersion
                           subcontractors under contract with Immersion, or (ii)
                           an infringement which would not occur in the
                           Immersion Preexisting Technology and/or Immersion
                           Requested Revisions but which does occur when the
                           Immersion Preexisting Technology and/or Immersion
                           Requested Revisions are incorporated into the
                           Components.

7.       FINANCIAL TERMS.

         7.1.     PRICE. The pricing for the Components will be in U.S. dollars
                  and shall be as set forth in Exhibit C ("Pricing"). KLSI has
                  advised Immersion that there is a [****] CBA ROM spin charge
                  per each new (or new revision of) hexcode or firmware
                  implemented in the Components. Such charge will be paid by
                  Immersion within thirty (30) days of KLSI's invoice in the
                  case of Components ordered by Immersion for Immersion's use.
                  Such charge will be invoiced by KLSI directly to the Immersion
                  customers or the Affiliates, as applicable, in the case of
                  Components ordered by Immersion for shipment to Immersion's
                  customers or the Affiliates, since the hexcode or firmware
                  will be provided to KLSI directly by the Immersion customers
                  or the Affiliates, as applicable. KLSI will not reserve or
                  retain a security interest in the Components. In any case
                  where the respin is due to KLSI's failure to perform, such
                  respin will be expedited at no charge.

        7.2.      PAYMENT. KLSI will invoice Immersion for all Components
                  shipped to Immersion, the Immersion customers or the
                  Affiliates, as applicable and will invoice the Immersion
                  customers and Affiliates for any ROM spin charges. The invoice
                  from KLSI to Immersion for each shipment of Components will be
                  due and payable to KLSI within forty-five (45) days after
                  acceptance of the Components by Immersion, Immersion's
                  customer or the Affiliates as described in Section 3.2.2
                  ("Deemed Acceptance by Immersion"). KLSI shall not require a
                  letter of credit or prepayment as precondition to
                  manufacturing Components for sale to Immersion or delivering
                  Components to Immersion, Immersion's customers or the
                  Affiliates.

         7.3.     TAXES AND DUTIES. In addition to any payments due to KLSI
                  under this Agreement, Immersion shall pay amounts equal to any
                  taxes, duties, or other amounts, however designated, which are
                  levied or based upon such payments, or upon this Agreement,
                  provided, however, that Immersion shall not be liable for
                  taxes based on KLSI's net income.

         7.4.     BASE WAFER MAINTENANCE PURCHASE ORDER SYSTEM. KLSI and
                  Immersion agree that in order for KLSI to maintain the six (6)
                  week lead time required under the terms of this Agreement with
                  respect to the .5 CBA and .35 CBA format


* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.

                                       18
<PAGE>   19

                  Components, as well as the flexibility requested in the
                  reschedule and cancellation windows described in Exhibit B
                  ("Cancellation and Rescheduling Policies and Fees"), it will
                  be necessary for KLSI to implement a Base Wafer Maintenance
                  program. Under the program, KLSI will manufacture a
                  "maintenance quantity" of Component base wafers which have
                  been manufactured up to the metalization phase and set aside
                  for use exclusively to produce Components in fulfillment of
                  Immersion's purchase orders. The "maintenance quantity" will
                  be determined on a monthly basis by KLSI and will be
                  calculated using the upcoming month's quantity of Components
                  as reflected in the Immersion rolling six (6) month forecast
                  for .5 CBA and .35 CBA format Components submitted to KLSI. To
                  facilitate the program, Immersion agrees to issue an open
                  rolling purchase order for .5 CBA and .35 CBA format
                  Components. If Immersion cancels or discontinues the Base
                  Wafer Maintenance program without providing KLSI three (3)
                  months notice and if such cancellation or discontinuation is
                  due to no fault of KLSI for either non-delivery or quality
                  issues, then Immersion will be responsible for the amount of
                  the Base Wafer Maintenance purchase order which is equal to
                  one month's average usage (based on the average purchase order
                  quantity for the previous six months) at thirty percent (30%)
                  of the applicable current unit price. An invoice will be sent
                  by KLSI to Immersion within thirty (30) business days of
                  Immersion's cancellation or discontinuation of the program and
                  will be due and payable by Immersion within thirty (30) days
                  after receipt. KLSI agrees that KLSI is obligated to use up
                  the base wafer "maintenance quantity" prior to any termination
                  of this Agreement and that the rolling open purchase order
                  will be deemed to be canceled upon notice of such termination.

        7.5.      DIE BANK SYSTEM. KLSI and Immersion agree that in order for
                  KLSI to maintain the six (6) week lead time required under the
                  terms of this Agreement with respect to the .35 standard cell
                  format Components, as well as the flexibility requested in the
                  reschedule and cancellation windows described in Exhibit B
                  ("Cancellation and Rescheduling Policies and Fees"), it will
                  be necessary for KLSI to implement a Die Bank System program.
                  Under the program, KLSI will manufacture a "maintenance
                  quantity" of Component die which have been manufactured up to
                  the finished die phase and set aside for use exclusively to
                  produce Components in fulfillment of Immersion's purchase
                  orders. The "maintenance quantity" will be determined on a
                  monthly basis by KLSI and will be calculated using the
                  upcoming month's quantity of Components as reflected in the
                  Immersion rolling six (6) month forecast for .35 standard cell
                  format Components submitted to KLSI. To facilitate the
                  program, Immersion agrees to issue an open rolling purchase
                  order for .35 standard cell format Components. If Immersion
                  cancels or discontinues the Die Bank System program without
                  providing KLSI three (3) months notice and if such
                  cancellation or discontinuation is due to no fault of KLSI for
                  either non-delivery or quality issues, then Immersion will be
                  responsible for the amount of the Die Bank System purchase
                  order which is equal to one month's average usage (based on
                  the average purchase order quantity for the previous six
                  months) at seventy-five percent (75%) of the applicable
                  current unit



                                       19
<PAGE>   20

                  price. An invoice will be sent by KLSI to Immersion within
                  thirty (30) business days of Immersion's cancellation or
                  discontinuation of the program and will be due and payable by
                  Immersion within thirty (30) days after receipt. KLSI agrees
                  that KLSI is obligated to use up the die "maintenance
                  quantity" prior to any termination of this Agreement and that
                  the rolling open purchase order will be deemed to be canceled
                  upon notice of such termination.

8.       TERMINATION.

         8.1.     TERM. The initial term of this Agreement shall be for a period
                  of five (5) years commencing on the Effective Date, unless
                  otherwise earlier terminated by the parties according to the
                  terms of this Agreement. Thereafter, this Agreement shall
                  automatically renew for subsequent one-year periods, unless
                  either party terminates the Agreement by written notice at
                  least thirty (30) days prior to the end of the initial term or
                  any renewal term.

         8.2.     TERMINATION WITHOUT CAUSE. Immersion may terminate this
                  Agreement without cause upon ninety (90) days prior written
                  notice.

         8.3.     TERMINATION FOR CAUSE. Either party may terminate this
                  Agreement by written notice if the other party materially
                  breaches the terms of this Agreement. Such termination shall
                  become effective upon thirty (30) days written notice of
                  breach, provided the breaching party fails to cure its breach
                  within the notice period.

         8.4.     EFFECT OF TERMINATION.

                  8.4.1.   GENERALLY. Upon termination of this Agreement,
                           Immersion's obligation to pay KLSI for Components
                           delivered to Immersion, Immersion's customers and/or
                           Affiliates, as applicable, up through the effective
                           date of termination shall survive and Immersion will
                           pay for all such Components in accordance with the
                           terms of this Agreement, subject to all rights of
                           acceptance and rejection and warranty returns and
                           credits.

                  8.4.2.   LIMITATION. EXCEPT FOR DIRECT DAMAGES RESULTING FROM
                           A BREACH OF THE TERMS OF THIS AGREEMENT, NEITHER
                           PARTY SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY
                           SORT, DIRECT OR INDIRECT, INCLUDING LOST PROFITS, AS
                           A RESULT OF TERMINATING THIS AGREEMENT IN ACCORDANCE
                           WITH THE TERMS OF THE AGREEMENT.

9.       PERSONAL INJURY AND PROPERTY DAMAGE CLAIMS. Neither party shall have
         any obligation to indemnify, protect, defend and hold the other party
         harmless from any Costs suffered or incurred by the other party to the
         extent such third party claim or threatened claim arises from a
         personal or alleged personal injury or damage or alleged damage to
         property arising out of the third party's use of the Components or the
         devices containing the Components.



                                       20
<PAGE>   21

10.      CONFIDENTIALITY AND PROPRIETARY NOTICES.

         10.1.    OBLIGATIONS. During the course of this Agreement, each party
                  may be a disclosing party (hereinafter called "Discloser") for
                  transmitting certain proprietary information to the other
                  party (hereinafter called "Recipient"). Recipient agrees to
                  treat as confidential all such proprietary information,
                  including all information, written or oral, relating thereto,
                  including, but not limited to, know how, concepts, techniques,
                  drawings, specifications, processes, computer programs,
                  firmware, hexcode, designs and systems, manufacturing and
                  marketing information, received from Discloser, and Recipient
                  agrees not to publish such information or disclose same to
                  others except to those employees, subcontractors and
                  sublicensees to whom disclosure is necessary to order to carry
                  out the purpose for which such information is supplied.
                  Recipient shall inform such employees, subcontractors and
                  sublicensees of the confidential nature of such information
                  and of their obligation to keep same confidential. Recipient
                  further agrees not to use such proprietary information for
                  Recipient's own benefit or for the benefit of others, other
                  than in accordance with this Agreement, without Discloser's
                  prior written consent, and that all tangible materials,
                  including written material, photographs, discs or other
                  documentation embodying such proprietary information shall
                  remain the sole property of Discloser and shall be delivered
                  to Discloser upon Discloser's request. Upon Discloser's
                  request, the Receiving party shall return any and all copies
                  of Discloser's confidential information or, at Discloser's
                  option, the Receiving party shall destroy such copies and
                  notify Discloser in writing when such copies have been
                  destroyed.

         10.2.    EXCEPTIONS. The foregoing obligations of confidentiality do
                  not apply to information which was previously known to
                  Recipient, is rightfully received from a third party by
                  Recipient, or becomes publicly known or available without
                  breach of this Agreement by Recipient.

         10.3.    PROPRIETARY NOTICES. KLSI will cause the outside package and
                  top level metal mask work layer of the Components to bear a
                  mask work and copyright notice for Immersion's benefit.

11.      LIMITATION OF LIABILITY.

         11.1.    CONSEQUENTIAL DAMAGES. IN NO EVENT WILL EITHER PARTY BE LIABLE
                  FOR LOST PROFITS, OR ANY SPECIAL, INDIRECT, INCIDENTAL OR
                  CONSEQUENTIAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF
                  LIABILITY, ARISING IN ANY WAY IN CONNECTION WITH THIS
                  AGREEMENT. THIS LIMITATION WILL APPLY EVEN IF THE PARTIES HAVE
                  BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND
                  NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
                  LIMITED REMEDY.



                                       21
<PAGE>   22

         11.2.    LIMITATIONS OF LIABILITY OTHER THAN INDEMNITY OBLIGATIONS.
                  EXCEPT WITH RESPECT TO EITHER PARTY'S OBLIGATIONS OF
                  INDEMNITY, INCLUDING, BUT NOT LIMITED TO, COSTS OF DEFENSE AND
                  "COSTS" (AS DEFINED ABOVE) SET FORTH IN SECTION 6
                  ("INDEMNIFICATION") IN NO CASE WILL EITHER PARTY'S TOTAL
                  CUMULATIVE LIABILITY OR OBLIGATIONS UNDER THE TERMS OF OR
                  ARISING OUT OF THIS AGREEMENT EXCEED $1,000,000.

12.      GENERAL PROVISIONS.

         12.1.    SUCCESSION AND ASSIGNMENT. Neither party may assign this
                  Agreement unless the other party consents in advance in
                  writing to the assignment, provided, however, that the
                  Agreement may be assigned to a corporate successor in interest
                  in the case of a merger or acquisition or in the case of a
                  sale of assets without the prior approval of the other party.
                  Any attempt to assign this Agreement in violation of the
                  provisions of this Section 12.1 ("Succession and Assignment")
                  shall be void.

         12.2.    NOTICES. Notices required under this Agreement shall be
                  addressed as follows, except as otherwise revised by written
                  notice:



                  TO IMMERSION:                         TO KLSI:
                  -------------                         --------
                                                    
                  Louis B. Rosenberg, Ph.D.             _______________
                  President                             _______________
                  Immersion Corporation                 Kawasaki LSI USA Inc.
                  2158 Paragon Drive                    2570 North First Street
                  San Jose, CA 95131                    Suite 301
                  U.S.A.                                San Jose, CA 95131
                                                        U.S.A.


         12.3.    GOVERNING LAW. The validity, interpretation and performance of
                  this Agreement shall be governed by the substantive laws of
                  the State of California, without the application of any
                  principle that leads to the application of the laws of any
                  other jurisdiction.

         12.4.    NO AGENCY. Neither party is to be construed as the agent or to
                  be acting as the agent of the other party hereunder in any
                  respect.

         12.5.    MULTIPLE COUNTERPARTS. This Agreement may be executed in
                  several counterparts, all of which taken together shall
                  constitute one single Agreement between the parties.

         12.6.    NO WAIVER. No delay or omission by either party hereto to
                  exercise any right or power occurring upon any noncompliance
                  or default by the other party with respect to any of the terms
                  of this Agreement shall impair any such right or power or be
                  construed to be a waiver thereof. A waiver by either of the
                  parties hereto of



                                       22
<PAGE>   23

                  any of the covenants, conditions, or agreements to be
                  performed by the other shall not be construed to be a waiver
                  of any succeeding breach thereof or of any covenant,
                  condition, or agreement herein contained. Unless stated
                  otherwise, all remedies provided for in this Agreement shall
                  be cumulative and in addition to and not in lieu of any other
                  remedies available to either party at law, in equity, or
                  otherwise.

         12.7.    SEVERABILITY. If any one or more of the provisions of this
                  Agreement shall be held to be invalid, illegal or
                  unenforceable, the validity, legality or enforceability of the
                  remaining provisions of this Agreement shall not in any way be
                  affected or impaired thereby.

         12.8.    AMENDMENTS IN WRITING. Any amendment to this Agreement shall
                  be in writing and signed by both parties hereto.

         12.9.    INTERPRETATION. Since this Agreement was prepared by both
                  parties hereto, it shall not be construed against any one
                  party as the drafting party.

         12.10.   SURVIVAL. Sections 2.2 ("Second Source"), 5 ("Warranty"), 6
                  ("Indemnification"), 7.4 ("Base Wafer Maintenance Purchase
                  Order System"), 7.5 ("Die Bank System"), 8 ("Termination"), 9
                  ("Personal Injury and Property Damage Claims"), 10
                  ("Confidentiality and Proprietary Notices"), 11 ("Limitation
                  of Liability") and 12 ("General Provisions") will survive and
                  continue after the expiration or termination of this
                  Agreement.

         12.11.   DISPUTE RESOLUTION. Except in the case of a breach of an
                  obligation related to a party's intellectual property rights,
                  in the event either party concludes that it is in its best
                  interest to file any legal action against the other, the party
                  shall contact the other party's management and at least two
                  (2) senior managers from each party shall meet without legal
                  counsel or interruption for a minimum amount of three (3)
                  eight (8) hour periods and diligently attempt to resolve all
                  disputed matters. If the parties are unable to resolve their
                  difference and either party desires to file a legal action
                  against the other, at least two (2) senior managers from each
                  party and their respective counsels shall meet for three (3)
                  eight (8) hour periods and diligently attempt to resolve all
                  disputed matters. Either party may request that an independent
                  third party bound to mutually agreed upon obligations of
                  confidentiality attend such meeting in order to assist the
                  parties in reaching a reasonable resolution. All oral and
                  written information exchanged in these meetings shall be
                  exchanged in an effort to settle all disputed matters. If
                  either party still desires to file a legal action against the
                  other after these prescribed meetings, such party may file a
                  legal action against the other party as allowed by applicable
                  law in Santa Clara County state court or in the federal court.
                  The parties agree that if a party does not attend all of the
                  prescribed meetings it waives its rights to any monetary
                  damages in the legal action(s) it files.



                                       23
<PAGE>   24

         12.12.   FORCE MAJEURE. Neither party shall be liable for any failure
                  or delay in its performance under this Agreement due to
                  causes, including, but not limited to, acts of God, acts of
                  civil or military authority, fires, epidemics, floods,
                  earthquakes, riots, wars, sabotage, court orders and
                  governmental actions, which are beyond its reasonable control
                  ("Force Majeure"); provided that the delayed party: (i) gives
                  the other party written notice of such cause promptly; and
                  (ii) uses its best efforts to correct such failure or delay in
                  its performance. Notwithstanding the foregoing, KLSI agrees
                  that failure to deliver the Components to Immersion or
                  Immersion's customers will have a significant effect on
                  Immersion's ability to comply with Immersion's contractual
                  obligations to its customers. As such, KLSI agrees that delays
                  in production of the Components in a single silicon facility,
                  with respect to a particular format, whether at KLSI or a
                  Second Source, including but not limited to, process problems,
                  availability of materials, or other such manufacturing delays,
                  shall not constitute a Force Majeure. Accordingly, KLSI will
                  take all reasonable measures to establish, maintain and
                  qualify Second Source capability so as to insure a continuous
                  supply of the Components.

         12.13.   ENTIRE AGREEMENT. This Agreement, with the exception of the
                  ASIC Design Agreement, constitutes the complete agreement of
                  the parties, and supersedes any other agreements, written or
                  oral, concerning the subject matter hereof, with the exception
                  of the ASIC Design Agreement.

         IN WITNESS WHEREOF, the authorized representatives of the parties
hereto have signed this Agreement as of the date and year last set forth below.


KLSI:                                   IMMERSION:

KAWASAKI LSI USA.                       IMMERSION CORPORATION

By: /s/ Hakuo Watanabe                  By: /s/ Louis Rosenberg
   --------------------------------        -------------------------------------

Print Name: Hakuo Watanabe              Print Name: Louis Rosenberg
           ------------------------                -----------------------------

Title: CFO                              Title: President
      -----------------------------           ----------------------------------

Date: 8/17/98                           Date: Aug. 17, 1998
     ------------------------------          -----------------------------------



                                       24
<PAGE>   25

                                    EXHIBIT A

                                  Specification

AXIS Chip: 48 MHz RISC processor that has been optimized for force feedback
functionality and allows both serial and/or USB interface capability.



                                       25
<PAGE>   26

                                    EXHIBIT B

                 Cancellation and Rescheduling Policies and Fees

I.       Base Wafer Maintenance PO System:

Rescheduling. Immersion may reschedule the scheduled delivery date for .5 CBA
and .35 CBA Components as follows:

         -        If the scheduled delivery date is more than forty-five (45)
                  days away at the time Immersion submits a written reschedule
                  request, Immersion may reschedule the order for any date
                  outside of such forty-five (45) day window, at no charge.

         -        If the scheduled delivery date is thirty (30) days or more
                  (but forty-five (45) days or less) away at the time Immersion
                  submits a written reschedule request, Immersion may reschedule
                  the order for any date within sixty (60) days of such written
                  reschedule request, at no charge.

         -        If the scheduled delivery date is less than thirty (30) days
                  away at the time Immersion desires to submit a written
                  reschedule request, Immersion will not be permitted to
                  reschedule.

Cancellation. Immersion may cancel orders for the .5 CBA and .35 CBA Components
as follows:

         -        If the cancellation is for Components with a scheduled
                  delivery date more than forty-five (45) days away at the time
                  Immersion submits a written cancellation request, Immersion
                  may cancel such order without charge and the base wafer units
                  and/or remaining base wafer maintenance fees, if any,
                  allocated to produce the canceled Component units will be
                  applied/credited to the next month's base wafer needs, or base
                  wafer maintenance invoice, as applicable.

         -        If the cancellation is for Components with a scheduled
                  delivery date which is forty-five (45) days or less away at
                  the time Immersion submits a written cancellation request,
                  Immersion may cancel such order by paying a cancellation fee
                  based on the status of the Components in the manufacturing
                  process as follows:

                  (i)      if the Components are probed wafer/die (ROM code
                           integrated) -- 75% of the applicable unit price

                  (ii)     if the Components have been final tested/FG -- 100%
                           of the applicable unit price



                                       26
<PAGE>   27

II.      Die Bank System:

Rescheduling. Immersion may reschedule the scheduled delivery date for .35
standard cell Components as follows:

         -        If the scheduled delivery date is more than forty-five (45)
                  days away at the time Immersion submits a written reschedule
                  request, Immersion may reschedule the order for any date
                  outside of such forty-five (45) day window, at no charge.

         -        If the scheduled delivery date is thirty (30) days or more
                  (but forty-five (45) days or less) away at the time Immersion
                  submits a written reschedule request, Immersion may reschedule
                  the order for any date within sixty (60) days of such written
                  reschedule request, at no charge.

         -        If the scheduled delivery date is less than thirty (30) days
                  away at the time Immersion desires to submit a written
                  reschedule request, Immersion will not be permitted to
                  reschedule.

Cancellation. Immersion may cancel orders for the .35 standard cell Components
as follows:

         -        If the cancellation is for Components with a scheduled
                  delivery date more than forty-five (45) days away at the time
                  Immersion submits a written cancellation request, Immersion
                  may cancel such order without charge and the base wafer units
                  and/or remaining base wafer maintenance fees, if any,
                  allocated to produce the canceled Component units will be
                  applied/credited to the next month's base wafer needs, or base
                  wafer maintenance invoice, as applicable.

         -        If the cancellation is for Components with a scheduled
                  delivery date which is forty-five (45) days or less away at
                  the time Immersion submits a written cancellation request,
                  Immersion may cancel such order by paying a cancellation fee
                  based on the status of the Components in the manufacturing
                  process as follows:

                  (iii)    if the Components are probed wafer/die (ROM code
                           integrated) -- 75% of the applicable unit price

                  (iv)     if the Components have been final tested/FG -- 100%
                           of the applicable unit price



                                       27
<PAGE>   28

                                    EXHIBIT C

                                     Pricing

KLSI/IMMERSION
PRICING ATTACHMENT
TIME PERIOD Q3-98 TO Q4-2K



-------------------------------------------------------------------------------
Device                         Estimated Usage    Timeframe*         Unit Price
-------------------------------------------------------------------------------
                                                           
Axis (0.5u CBA)                250K               Q3-98 to Q4-98     [****]
                                                                     [****]
                                                                     [****]
Axis II (0.35u CBA)            1.0M               Q1-99 to Q4-99     [****]
Axis IISC (0.35u Std Cell)     2.0M               Q1-2K to Q4-2K     [****]
-------------------------------------------------------------------------------


*Crossover timeframes may vary based on customer schedules to qualify migration
versions.

ORDER AGREEMENT

This agreement does not constitute a purchase order for devices; it is for the
NRE portion only. Releases against this agreement will be made via purchase
orders released from Immersion and/or Immersion authorized parties only. Except
as otherwise provided in this Agreement, the terms and conditions specified in
Immersion Purchase Orders and KLSI Sales Order acknowledgements shall continue
to govern the purchase of the Products contemplated in this Agreement.

PRICING

Prices and payments shall be made in US dollars and as indicated above. To the
extent that Immersion does not purchase the volume specified therein and such
failure is not due to delivery or quality problems then KLSI reserves the right,
as its' sole remedy, to renegotiate prices in any subsequent period.

ORDER MINIMUMS

The minimum order size is 10K in any given month. Individual quantities per
purchase order may vary per Immersion designated ship to location. At no time
shall individual purchase orders be issued for a quantity less than 5K pieces
unless designated for pre-production purposes.


* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.


                                       28
<PAGE>   29

                                    EXHIBIT D

                  Second Source Device Deposit Escrow Agreement



                                       29
<PAGE>   30

                                    EXHIBIT E

                               KLSI RMA Procedures

Kawasaki LSI/Immersion RMA Procedure

1)       Immersion reports failure to KLSI-US

Contact:        Lisa Van Valkenburg
                Kawasaki LSI
                2570 N. First St., Ste. 301
                Tel: 408-570-0555 x403
                Fax: 408-570-0567
                e-mail:  lisavanv@klsi.com

2)       KLSI issues RMA number for reject sample return and advises destination
         for reject samples i.e. KLSI-Japan or KLSI-US (1 day from Immersion
         notification).

3)       KLSI will confirm receipt of samples upon arrival. KLSI provides
         initial results of reject sample analysis and issues RMA# for full
         return of rejects for credit or replace if sample rejects found valid
         (3 days from KLSI receipt of reject samples).

4)       KLSI will make a best effort to provide a final report 10 days from
         receipt of samples, dependent on the level of detail provided in the
         failure mode report from Immersion, and the condition of the reject
         samples supplied. Samples that are damaged as a result of removal from
         boards may delay an accurate validation of failure and/or
         identification of failure cause. KLSI will provide daily status report
         until final report is issued.



                                       30