Semiconductor Device Component Purchase Agreement - Immersion Corp. and Kawasaki LSI USA Inc.
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.
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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,
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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
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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
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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
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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
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<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
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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
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<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.
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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.
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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
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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.
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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.
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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
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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.
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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
------------------------------ -----------------------------------
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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
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<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
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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.
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EXHIBIT D
Second Source Device Deposit Escrow Agreement
29
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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