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Agreement for ASIC Design and Development - Immersion Corp. and Kawasaki LSI USA Inc.

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                                 AGREEMENT DRAFT

                                       FOR

                           ASIC DESIGN AND DEVELOPMENT

                                 BY AND BETWEEN

                              IMMERSION CORPORATION

                                       AND

                            KAWASAKI LSI U.S.A., INC.



<PAGE>   2

                    AGREEMENT FOR ASIC DESIGN AND DEVELOPMENT


This Agreement for ASIC Design and Development ("Agreement") is entered into and
is effective as of this 16th day of October 1997 (the "Effective Date") by and
between Immersion Corporation, a California corporation having its principal
place of business at 2158 Paragon Drive, San Jose, CA 95131 (hereinafter
referred to as "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, CA 95131 (hereinafter referred to as "KLSI").

                                    RECITALS

Immersion wishes to have KLSI design and develop for Immersion and KLSI desires
to design and develop for Immersion an integrated circuit device as specified
more fully herein.

                                    AGREEMENT

1.      DEFINITIONS

        1.1     "A/D Converter" shall mean the A/D converter described in
                Exhibit A ("Specifications").


        1.2     "AOX Modifications" shall mean modifications made by AOX
                in the course of performance under the AXIS Chip Agreement to
                the USB Microcode and the Clock Generation and General Purpose
                I/O and the related Intellectual Property Rights.




        1.3     "AOX Preexisting Technology" shall mean AOX technology and
                the related Intellectual Property Rights in existence prior to
                the Effective Date and used in the AXIS Chip, consisting of the
                "QT Engine" Core Logic, the ROM BIOS, the Boot Loader Microcode,
                the USB Controller, the USB Microcode, the Timer Subsection, the
                Memory Controller, and the Clock Generation and General Purpose
                I/O.



        1.4     "AXIS Chip" shall mean an integrated circuit device which is
                designed to provide an optimized version of the force-feedback
                functions delivered by the Immersion force feedback firmware.

        1.5     "AXIS-derived Chip" shall mean an integrated circuit device
                which consists of the same or derivative base wafer, metal 1 and
                metal 2 layers as the AXIS Chip and which (i) does not contain
                the same ROM Mask Layer as the AXIS Chip, (ii) does not contain
                any portion of the Force Feedback Microcode, (iii) does not
                incorporate firmware that provides Force Feedback Functionality,
                to the best of KLSI's knowledge, as determined by KLSI by making
                a reasonable inquiry, and (iv) does have the Shaft Encoder Logic
                present but disabled through a means disclosed and described to
                Immersion in writing and approved by Immersion in writing.






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        1.6     "AXIS Chip Agreement" shall mean the written agreement between
                KLSI and AOX regarding the development of the AXIS Chip and
                the ownership and licensing of certain technology and the
                related Intellectual Property Rights used in the AXIS Chip.



        1.7     "Boot Loader Microcode" shall mean the boot loader microcode
                described in Exhibit A ("Specifications").

        1.8     "Clock Generation and General Purpose I/O" shall mean the clock
                generation and general purpose I/O described in Exhibit A
                ("Specifications").

        1.9     "Confidential Information" shall mean: (i) the Specifications,
                the Product, the PLSSOP, the Prototype Units, the Shaft Encoder
                Logic, the Force Feedback Microcode, the Immersion Requested
                Revisions ("IRR") and any trade secrets related to any of the
                foregoing, including but not limited to any information relating
                to either party's product plans, costs, prices and names,
                finances, marketing plans, business opportunities, personnel,
                research, development or know-how; (ii) any information
                designated by the disclosing party as confidential in writing
                or, if disclosed orally, reduced to writing within thirty (30)
                days, provided, however, that "Confidential Information" shall
                not include information that (i) is or becomes generally known
                or available by publication, commercial use or otherwise through
                no fault of the receiving party; (ii) is known and has been
                reduced to tangible form by the receiving party at the time of
                disclosure and is not subject to restriction; (iii) is
                independently developed by the receiving party by individuals
                who do not have access to the same information from the
                disclosing party; (iv) is lawfully obtained from a third party
                who has the right to make such disclosure; or (v) is released
                for publication by the disclosing party in writing.

        1.10    "Deliverables" shall mean the PLSSOP, the testable Prototype
                Units, the First Articles and Documentation.

        1.11    "DMA Controller" shall mean the DMA controller described in
                Exhibit A ("Specifications")

        1.12    "Development and Payment Schedule" shall mean the time for the
                parties' performance under this Agreement, as set forth in
                Exhibit B ("Development and Payment Schedule").

        1.13    "Documentation" shall mean the Specification, the VHDL File for
                the AXIS Chip, and other documentation that would reasonably
                accompany the Deliverables.

        1.14    "Errors" shall mean: (i) in the case of acceptance under the
                terms of Section 4.2 ("Acceptance"), defects in the Prototype
                Units which cause such Prototype Units not to operate in
                conformance with the requirements of this Agreement, and, in the
                case of warranty under the terms of Section 7.1 ("Warranties"),
                defects in the Deliverables which cause such Deliverables not to
                operate in conformance with Exhibit A ("Specifications"); (ii)
                defects in the Products which cause such Products not to operate
                in conformance with Exhibit A ("Specifications"); and (iii)
                defects in the Documentation which render it inaccurate,
                erroneous or otherwise unreliable.





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<PAGE>   4

        1.15    "Final Mask ROM" shall mean the final mask ROM described in
                Exhibit A ("Specifications").

        1.16    "First Articles" shall mean a limited number of units of the
                Product, 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 Product.

        1.17    "Force Feedback Functionality" shall mean the basic functions
                required by a local processor for use in a force feedback
                product. These functions include (a) sending and receiving
                commands from a host computer, (b) generating tactile sensations
                felt by a user by reading local sensors and controlling local
                actuators based upon embedded mathematical relations between
                sensor data and actuator output, and (c) generating said tactile
                sensations in response to said commands from said host computer.

        1.18    "Force Feedback Microcode" shall mean the Immersion microcode
                designed to implement the Force Feedback Functionality.

        1.19    "Immersion Preexisting Technology" shall mean the Immersion
                technology and related Intellectual Property Rights in existence
                prior to the Effective Date and used in the AXIS Chip,
                consisting of the Shaft Encoder Logic and the Force Feedback
                Microcode.


        1.20    "Immersion Requested Revisions" shall mean the technology
                modifications and related Intellectual Property Rights created
                by KLSI in the course of the performance under this Agreement
                and/or the technology modifications and related Intellectual
                Property Rights created by AOX in the course of performance
                under the AXIS Chip Agreement, consisting of (i) modifications
                to the Shaft Encoder Logic and the Force Feedback Microcode and
                (ii) modifications, which are specifically implemented to
                facilitate and support the implementation of the Force Feedback
                Functionality which are made to the "QT Engine" Core Logic, the
                ROM BIOS, the Boot Loader Microcode, the USB Controller, the
                UART, the Time Subsection, the DMA Controller, the Memory
                Controller, the PWM Generation Logic, the Watchdog Timer Logic
                and the Final Mask ROM.



        1.21    "Intellectual Property Rights" shall mean all worldwide patents
                and other patent rights (such as continuations, continuations in
                part and reissues), utility models, copyrights and mask work
                rights, including without limitation, all applications and
                registrations with respect thereto and rights in trade secrets
                and know-how.

        1.22    "Invention" shall mean any Invention or discovery which is or
                may be patentable or otherwise protectable under Title 35 of the
                United States Code.

        1.23    "Inventions" shall mean all ideas, creations, works, processes,
                designs and methods (whether or not patentable, copyrightable or
                registrable as a mask work) incorporated in the design or
                function of the Prototype Unit, and all documentation associated
                therewith, which are created or discovered as part of the
                Services; provided, however, that





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<PAGE>   5

                Inventions shall not include any discoveries, improvements or
                ideas made solely by KLSI regarding methods of designing,
                structuring or producing products generally.

        1.24    "KLSI Modifications" shall mean modifications made by KLSI in
                the course of performance under this Agreement to the USB
                Transceiver and the A/D Converter and the related Intellectual
                Property Rights.

        1.25    "KLSI Preexisting Technology" shall mean KLSI technology and the
                related Intellectual Property Rights in existence prior to the
                Effective Date and used in the AXIS Chip, consisting of the USB
                Transceiver, the A/D Converter and the Phase Lock Loop.

        1.26    "Memory Controller" shall mean the memory controller described
                in Exhibit A ("Specifications").


        1.27    "Non-Immersion Technology" shall mean the AOX Preexisting
                Technology, the AOX Modifications, the KLSI Preexisting
                Technology and the KLSI Modifications.



        1.28    "Phase Lock Loop" shall mean the phrase lock loop described in
                Exhibit A ("Specifications").

        1.29    "Product" shall mean the Axis Chip as more fully described in
                the Specifications.

        1.30    "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.

        1.31    "Prototype Units" shall mean initial working testable units of
                the Products that conform to the PLSSOP and the Specifications.

        1.32    "Purchase Agreement" shall mean the agreement to be entered into
                by Immersion and KLSI under which KLSI will produce AXIS Chips
                and Immersion will purchase the AXIS Chips.

        1.33    "PWM Generation Logic" shall mean the PWM generation logic
                described in Exhibit A ("Specifications").

        1.34    "`QT Engine' Core Logic" shall mean the QT engine core logic
                described in Exhibit A ("Specifications").

        1.35    "ROM BIOS" shall mean the ROM BIOS described in Exhibit A
                ("Specifications").

        1.36    "Second Source" shall mean an alternative foundry for the AXIS
                Chip licensed by Immersion to produce the AXIS Chip for
                Immersion.

        1.37    "Services" shall mean the design and development of the
                Prototype Units and the fabrication and assembly of the
                Prototype Units.




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        1.38    "Shaft Encoder Logic" shall mean the Immersion custom gate array
                that extracts position, velocity and other relevant information
                from shaft encoder signals.

        1.39    "Specifications" shall mean the initial technical and design
                specifications for the Product set forth in Exhibit A
                ("Specifications").

        1.40    "Timer Subsection" shall mean the timer subsection described in
                Exhibit A ("Specifications").

        1.41    "UART" shall mean the UART described in Exhibit A
                ("Specifications").

        1.42    "USB Controller" shall mean the USB controller described in
                Exhibit A ("Specifications").

        1.43    "USB Microcode" shall mean the USB microcode described in
                Exhibit A ("Specifications").

        1.44    "USB Transceiver" shall mean the USB transceiver described in
                Exhibit A ("Specifications").

        1.45    "Watchdog Timer Logic" shall mean the watchdog timer logic
                described in Exhibit A ("Specifications").

2.      SCOPE OF WORK

        2.1     Services. Based on the terms and conditions set forth in this
                Agreement, KLSI agrees to perform the Services in accordance
                with the Development and Payment Schedule. Except for the design
                and development functions of system definition, logic design and
                breadboard definition and construction (which will be provided
                by Immersion), KLSI will be responsible for obtaining all the
                technology, labor, material, tooling and facilities necessary
                for such design and development of the Prototype Unit.

        2.2     Progress Reports. KLSI will provide Immersion with written
                progress reports, as requested by Immersion, starting one week
                after the Effective Date and ending on the date of Immersion's
                final acceptance of the Prototype Unit and receipt of all
                Deliverables. Each report shall indicate progress as follows:

                (a)     Status of progress toward the next scheduled milestone;

                (b)     Short description of problems in meeting such milestone,
                        if any;

                (c)     Proposed recover method to meet the next milestone, if
                        necessary;

                (d)     Probability of meeting the next milestone;

                (e)     Any changes in KLSI's estimate of recurring
                        manufacturing costs for the Prototype Unit or First
                        Articles.



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<PAGE>   7


3.      DESIGN REVIEW AND SPECIFICATION CHANGES

        3.1     Design Review. Immersion is entitled to conduct periodic design
                reviews to ensure its satisfaction with the Services. Upon
                reasonable notice, KLSI shall allow Immersion during normal
                business hours, to visit its places of business for development
                and manufacturing to discuss and inspect the status of the
                development of the Product.

        3.2     Changes to the Specification. Immersion is entitled to request
                modifications in the form of changes or additions to the
                Specifications at anytime time during the term of this
                Agreement. Such requests shall be submitted by Immersion to KLSI
                in writing. If any such modification of the Specifications
                materially increases or decreases the cost or time of
                performance of the Services, the parties will negotiate an
                equitable adjustment to this Agreement. Upon receipt of
                Immersion's written approval, KLSI will proceed with the
                implementation of the prescribed changes and the Specifications
                and other exhibits to the Agreement shall be modified in writing
                accordingly to reflect such agreed upon changes and signed by
                both parties.

4.      DELIVERABLES: DELIVERY; ACCEPTANCE; AND REJECTION

        4.1     Deliverables KLSI agrees to deliver the Deliverables in
                accordance with the Development and Payment Schedule.
                Deliverables shall be delivered to the Immersion Project Manager
                accompanied by a written statement listing the items delivered
                and stating that they are ready for Immersion's acceptance
                testing. All Deliverables shall be sent to Immersion F.O.B.
                Immersion's facility at the address stated above. KLSI's
                liability for loss shall cease upon delivery to the F.O.B. point
                and title to the Deliverables shall shift to Immersion without
                any effect on the intellectual property rights in such
                Deliverables.

        4.2     Acceptance

                (a)     Immersion, with the assistance of KLSI if requested by
                        Immersion, shall examine and test the PLSSOP and the
                        Prototype Unit and examine each other Deliverable upon
                        delivery to determine whether the PLSSOP and the
                        Prototype Unit and each other Deliverable conforms to
                        the Specification and that the Prototype Unit conforms
                        to the PLSSOP.

                (b)     Within the acceptance period for each Deliverable
                        specified in Exhibit B ("Development and Payment
                        Schedule"), Immersion shall provide KLSI with written
                        acceptance of such Deliverable or a written statement of
                        Errors (the "Statement of Errors") to be corrected prior
                        to Immersion's payment of the amount due upon
                        Immersion's acceptance of such Deliverables, if any.
                        Immersion will examine the Deliverables received against
                        the list in Exhibit C ("Deliverables") to confirm that
                        all such Deliverables have, in fact, been delivered and
                        will notify KLSI if any items are missing. KLSI will
                        promptly deliver any Deliverables that are missing upon
                        notification by Immersion.



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                (c)     KLSI will correct the Errors in any Deliverable set
                        forth in the Statement of Errors and redeliver the
                        Deliverable to Immersion. The parties will negotiate a
                        reasonable time period for each Error correction
                        depending on the nature of the Errors. The following
                        will serve as reasonable guidelines for Error
                        correction:

                        (i)     seven (7) calendar days unless reprocessing of
                                prototypes, remasking or redesign is required,

                        (ii)    twenty-one (21) calendar days if reprocessing of
                                prototypes is required,

                        (iii)   twenty-five (25) calendar days if remasking is
                                required, and

                        (iv)    thirty-five (35) calendar days if redesign (new
                                tape) is required.

                (d)     Immersion will, within thirty (30) calendar days after
                        any such redelivery, provide KLSI with written
                        acceptance or another Statement of Errors. The procedure
                        set forth in this Section 4.2 will be repeated until
                        Immersion accepts the Deliverables or terminates this
                        Agreement pursuant to Section 4.3 ("Rejection").

        4.3     Rejection. Should any Prototype Unit fail to conform to the
                PLSSOP and/or the Specification either (i) after the second
                redelivery of such Prototype Unit pursuant to Section 4.2(b) or
                (ii) after any delivery or redelivery which is late, then KLSI
                will be deemed to be in material breach of this Agreement and
                Immersion may terminate the Agreement pursuant to Section 10.1
                ("Termination for Cause by Either Party").

5.      INTELLECTUAL PROPERTY RIGHT

        5.1     Disclosure. KLSI will promptly and fully disclose and describe
                to Immersion in writing any Inventions which are conceived or
                reduced to practice during the term of this Agreement and within
                the scope of the development of the Immersion Requested
                Revisions.

        5.2     Ownership.


                (a)     Ownership by Immersion. The parties agree that Immersion
                        owns and will solely own all Immersion Preexisting
                        Technology and Immersion Requested Revisions. Nothing in
                        this Agreement is intended to affect or restrict
                        Immersion's rights in the Immersion Preexisting
                        Technology or Immersion Requested Revisions. KLSI hereby
                        assigns to Immersion all right, title and interest in
                        the Immersion Requested Revisions. KLSI represents and
                        warrants and agrees to insure that under the terms of
                        the AXIS Chip Agreement, all Immersion Requested
                        Revisions created by AOX will be assigned to
                        Immersion, through KLSI. KLSI agrees that in no case
                        will Immersion be required to assign any Immersion
                        Preexisting Technology to KLSI or AOX and KLSI agrees
                        that KLSI's and AOX's use of the Immersion Requested
                        Revisions shall be limited to the licenses granted
                        herein.






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                (b)     Ownership by KLSI. KLSI owns and will own all KLSI
                        Preexisting Technology. Nothing in this Agreement is
                        intended to affect or restrict KLSI's rights in the KLSI
                        Preexisting Technology. Immersion agrees that in no case
                        will KLSI be required to assign any KLSI Preexisting
                        Technology to Immersion and that assignment of the
                        Immersion Requested Revisions will not in any way grant
                        Immersion rights in the KLSI Preexisting Technology
                        except as licensed to Immersion under the terms of this
                        Agreement.


                (c)     Cooperation. KLSI agrees to assist Immersion, and will
                        make appropriate contractual arrangements with AOX
                        for AOX to assist Immersion, in any reasonable manner
                        to maintain and enforce Immersion's Intellectual
                        Property Rights in the Immersion Requested Revisions for
                        Immersion's benefit in any and all countries, and KLSI
                        agrees to execute, and to make appropriate contractual
                        arrangements with AOX for AOX to execute, when
                        requested by Immersion, applications for and assignments
                        to Immersion and any other documents necessary to
                        effectuate the ownership provisions applicable to the
                        Intellectual Property Rights in the Immersion Requested
                        Revisions. KLSI represents and agrees and will make
                        appropriate contractual arrangements with AOX for
                        AOX to represent and agree, that all persons who
                        perform work on the Immersion Requested Revisions will
                        have signed written agreements which vest all
                        Intellectual Property Rights in KLSI, or AOX, as
                        applicable, for assignment to Immersion.



        5.3     Licenses.


                (a)     License by KLSI to Immersion. KLSI hereby grants
                        Immersion a worldwide nonexclusive license, under KLSI's
                        and AOX's Intellectual Property Rights in the
                        Non-Immersion Technology (i) to have KLSI manufacture
                        the AXIS Chip and to have a Second Source manufacture
                        the AXIS Chip if KLSI cannot accommodate Immersion and
                        Immersion's designated parties' requests in terms of
                        volume production of the AXIS Chip due to lack of wafer
                        capacity or allotment of wafer fabrication capacity, and
                        (ii) to distribute and sell the AXIS Chip through
                        Immersion's channels of distribution.



                (b)     License by Immersion to KLSI. Immersion hereby grants
                        KLSI a worldwide nonexclusive license, without a right
                        to sublicense, under Immersion's Intellectual Property
                        Rights in the Shaft Encoder Logic, the Immersion
                        Requested Revisions and the Force Feedback Microcode (i)
                        to use and modify the Shaft Encoder Logic, the Immersion
                        Requested Revisions and the Force Feedback Microcode in
                        developing, prototyping and manufacturing the AXIS Chip
                        and (ii) to distribute and sell the AXIS Chip to
                        Immersion and Immersion designated parties, as provided
                        in the Purchase Agreement. In addition, Immersion hereby
                        grants KLSI a license under Immersion's Intellectual
                        Property Rights in the Shaft Encoder Logic and the
                        Immersion Requested Revisions (i) to use and modify the
                        Immersion Requested Revisions and to include the Shaft
                        Encoder Logic (but to






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                        disable such Shaft Encoder Logic) in developing,
                        prototyping and manufacturing the AXIS-derived Chip and
                        (ii) to distribute and sell the AXIS-derived Chip.

                (c)     Prohibitions. KLSI expressly agrees that it will not,
                        during the term of this Agreement or thereafter, without
                        Immersion's prior written consent:

                        (i)     knowingly design, simulate, sell or otherwise
                                distribute a prototype device identical to the
                                Prototype Unit, either for KLSI's account or for
                                any third party, or assist any third party in so
                                doing; or

                        (ii)    unless for Immersion, knowingly develop,
                                utilizing any Confidential Information regarding
                                the Prototype Unit obtained by KLSI from
                                Immersion, a prototype for a semiconductor
                                device that is pin-compatible with the Prototype
                                Unit, or assist any third party in so doing.

6.      PAYMENTS

Immersion shall make payments to KLSI in accordance with the Development and
Payment Schedule, subject to completion of the applicable milestones and
acceptance of the applicable Deliverables by Immersion. Such payments shall be
due net thirty (30) days from Immersion's receipt of KLSI invoices.

7.      WARRANTIES AND INDEMNIFICATION

        7.1     Warranties KLSI warranties that: (i) all Deliverables delivered
                to Immersion hereunder will conform to the Specifications for a
                period of ninety (90) days after acceptance by Immersion; (ii)
                in connection with KLSI performance of the Services, KLSI will
                not knowingly infringe any patent, copyright, trade secret, mask
                work right, or any other proprietary right of any third party;
                (iii) KLSI has not previously granted and will not grant any
                rights in the Product or any Inventions to any third party which
                grant is inconsistent with the rights granted to Immersion
                herein; and (iv) all Products delivered to Immersion hereunder
                will conform to the Specifications for a period of ninety (90)
                days after acceptance by Immersion. In the event that the
                Products delivered to Immersion do not conform to the
                Specifications, KLSI will repair or replace the nonconforming
                Products.

        7.2     Infringement Indemnity.

                (a)     KLSI shall, at its expense and at Immersion's request,
                        defend any claim or action brought against Immersion,
                        and Immersion's subsidiaries, affiliates, directors,
                        officers, employees, agents and independent contractors,
                        to the extent it is based on a claim that the Product
                        provided under this Agreement infringes or violates any
                        patent, copyright, trademark, trade secret or other
                        proprietary right of a third party, and shall indemnify
                        and hold harmless from and against any costs, damages
                        and fees reasonably incurred by Immersion including but
                        not limited to fees of attorneys and other professionals
                        that are attributable to such claim; provided,



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                        however, that: (i) Immersion gives KLSI reasonably
                        prompt notice in writing of any such suit and permits
                        KLSI through counsel of its choice, to answer the charge
                        of infringement and defend such claim or suit; (ii)
                        Immersion provides KLSI with information, assistance and
                        authority, at KLSI's expense, to enable KLSI to defend
                        such suit; and (iii) KLSI shall not be responsible for
                        any settlement made by Immersion without KLSI's written
                        permission. In the event Immersion agrees to settle the
                        suit, Immersion agrees not to publicize the settlement
                        nor to permit the party claiming infringement to
                        publicize the settlement without first obtaining KLSI's
                        written permission.

                (b)     KLSI shall have no liability under this Section 7.2
                        ("Infringement Indemnity") to the extent that such claim
                        or suit could have been avoided but for (i) the
                        combination, operation, or use of the Product with
                        equipment, logic, software or products not supplied by
                        KLSI, (ii) any alteration or modification made to the
                        Products after delivery by KLSI to Immersion or (iii)
                        the use by KLSI of specifications or requirements
                        provided by Immersion.

        7.3     Duty to Correct. Notwithstanding Section 7.2 (a), should the
                Product become the subject of a claim of infringement of a third
                party's proprietary right, KLSI shall, at KLSI's expense: (i)
                procure for Immersion the past right to make, use and sell and
                the future right to continue to make, use and sell the Product;
                (ii) replace or modify the Product to make such non-infringing,
                provided that the same function is performed by the replacement
                or modified Product to Immersion satisfaction; or (iii) if the
                past and future rights to continue to make, use and sell cannot
                be procured or the Product cannot be replaced or modified at
                reasonable expense, reimburse Immersion for the total amount
                paid under this Agreement.

        7.4     General Indemnity. KLSI shall, at KLSI's expense, indemnify,
                hold Immersion harmless and, at Immersion's request, defend
                Immersion and Immersion's subsidiaries, affiliates, directors,
                officers, employees, agents and independent contractors, from
                and against any and all loss, cost, liability or expense
                (including costs and reasonable fees of attorneys and other
                professionals) arising out of or in connection with KLSI
                performance under this Agreement to the extent caused by, in
                whole or in part, any negligent act or omission or willful
                misconduct of KLSI or KLSI employees, agent or independent
                contractors, including but not limited to any act or omission
                that contributes to : (i) any personal injury, sickness, disease
                or death; (ii) any damage to or destruction of property of
                Immersion or any loss of use resulting therefrom; (iii) any
                violation of any statute, ordinance or regulation.

8.      CONFIDENTIALITY AND PROPRIETARY NOTICE

        8.1     Each party acknowledges that by reason of its relationship to
                the other hereunder, it will access to other party's
                Confidential Information. Each party agrees that it shall not
                use in any way for its account or the account of any third
                party, nor disclose to any third party any Confidential
                Information revealed to it by the other party. Neither party
                shall use the



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                Confidential Information of the other party for purposes other
                than those necessary to directly further the purposes of this
                Agreement. Each party shall take every necessary precaution to
                protect the confidentiality of all Confidential Information.

        8.2     Any breach of the restrictions contained in this Section 8 is a
                breach of this Agreement which will cause irreparable harm to
                the other party entitling the other party to injunctive relief
                in addition to all legal remedies.

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

9.      TERM

This Agreement will commence on the Effective Date and will continue until
terminated as provided in this Agreement.

10.     TERMINATION

        10.1    Termination for Cause By Either Party. Either party shall have
                the right to terminate this Agreement immediately upon written
                notice at any time if:

                (a)     the other party is in material breach of any warranty,
                        term, condition or covenant of this Agreement other than
                        those contained in Section 8 and fails to cure that
                        breach within sixty (60) days after written notice of
                        that breach;

                (b)     the other party is in material breach of any warranty,
                        term, condition or covenant of Section 8; or

                (c)     the other party: (i) becomes insolvent; (ii) falls to
                        pay its debts or perform its obligations in the ordinary
                        course of business as they mature; (iii) admits in
                        writing its insolvency or inability to pay its debts or
                        perform its obligations as they mature or (iv) makes any
                        assignment for the benefit of creditors.

        10.2    Effect of Termination. Upon termination of this Agreement, each
                party shall be released from all obligations and liabilities to
                the other occurring or arising after the date of such
                termination, except that any termination of this Agreement will
                not relieve obligations under Sections 5, 7, 8 and 12 hereof,
                nor will any such termination relieve Immersion or KLSI from any
                liability arising from any breach of this Agreement. Neither
                party will be liable to the other for damages of any sort solely
                as a result of terminating this Agreement in accordance with its
                terms. Termination of this Agreement will be without prejudice
                to any other right or remedy of either party. Upon any
                termination of this Agreement, KLSI will immediately deliver to
                Immersion all work in process on the Deliverables, in whole or
                in part and will confirm in writing the assignment of all
                related Intellectual Property Rights.



                                       11
<PAGE>   13

        10.3    Payment by Immersion. Upon any termination of this Agreement
                pursuant to the provisions of Section 10.1 above, Immersion's
                monetary obligation to KLSI will be to pay for all milestones
                completed and accepted by Immersion as set forth in the
                Development and Payment Schedule, and to pay KLSI pro rata
                (based on the ratio (equal to 1:1)) of the number of calendar
                days elapsed since completion of the last payment milestone and
                the number of days between such milestone and the next
                subsequent milestone in the Development and Payment Schedule)
                for work done by KLSI towards the next subsequent milestone,
                including any costs, previously approved by Immersion in
                writing, that are reasonably incurred for materials related to
                any subsequent milestones. In no event, however, shall
                Immersion's liability exceed the amounts set forth in the
                Development and Payment Schedule.

11.     DISCLAIMER OF CONSEQUENTIAL DAMAGES

IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR BREACH OF OR FAILURE TO PERFORM UNDER
THIS AGREEMENT, EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.

12.     GENERAL

        12.1    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, labor shortages or disputes, and
                governmental actions, which are beyond its reasonable control;
                provided that the delayed party: (i) gives the other party
                written notice of such cause promptly, and in any event within
                fifteen (15) days of discovery thereof, and (ii) uses its
                reasonable efforts to correct such failure or delay in its
                performance. The delayed party time for performance or cure
                under this Section 12.1 shall be extended for a period equal to
                the duration of the cause or sixty (60) days, whichever is less.
                Notwithstanding the above provisions in this Section 12.1, the
                obligations to make payments under this Agreement which are due
                and owing shall not be deferred, excused or otherwise affected
                by Force Majeure or any other reasons whether or not foreseen or
                foreseeable so long as the services, Deliverables or Products
                for which the payment is due are received.

        12.2    Relationship of Parties. KLSI is an independent contractor.
                Neither each party nor its employees, consultants, contractors
                or agents are agents, employees or joint ventures of other party
                nor do they have any authority to bind the other party by
                contract or otherwise to any obligation. They will not represent
                to the contrary, either expressly, implicitly, by appearance or
                otherwise.

        12.3    Personnel. KLSI employees, consultants, contractors and agents
                who work on Immersion premises will be required to observe
                Immersion regulations applying to non-Immersion personnel
                working on Immersion premises.



                                       12
<PAGE>   14

        12.4    Employment Taxes and Benefits It will be KLSI's obligation to
                report as income all compensation received by KLSI pursuant to
                this Agreement and pay all taxes due on such compensation.

        12.5    Other Tax Implications. The purpose of development of the
                Deliverables under this Agreement is to demonstrate that the
                Product developed hereunder will conform to the Specifications.
                The Deliverables have no intrinsic value as an item. As such, no
                value added, sales, or use taxes have been assessed or are
                anticipated to be required as a result of the Services performed
                under this Agreement. To the extent any such taxes are
                ultimately assessed to Immersion as a retailer, Immersion shall
                have responsibility to discharge the claim.


        12.6    Assignment. The rights and liabilities of the parties hereto
                will bind and inure to the benefit of their respective
                successors, executors and administrators, as the case may be.
                Each party may not assign or delegate its rights or obligations
                under this Agreement either in whole or in part, without the
                prior written consent of the other party except that Immersion
                may assign this Agreement in the case of a merger, acquisition
                or sale of assets. Any attempted assignment in violation of the
                provisions of this Section 12.6 will be void. Immersion agrees
                that KLSI may use AOX as a subcontractor to perform the
                Services.



        12.7    Applicable Law. This Agreement will be governed by and construed
                in accordance with the laws of the United States and the State
                of California as applied to agreements entered into and to be
                performed entirely within California between California
                residents.

        12.8    Jurisdiction and Venue. The parties hereby submit to the
                jurisdiction of, and waive any venue objections against, the
                United States District Court for the Northern District of
                California, the Superior Court of the State of California for
                the County of Santa Clara, the Santa Clara Municipal Court, and
                any mutually agreed to alternative dispute resolution proceeding
                taking place in Santa Clara County, California, in any
                litigation arising out of this Agreement.

        12.9    Severability. If for any reason a court of competent
                jurisdiction rinds any provision of this Agreement, or portion
                thereof, to be unenforceable, that provision of this Agreement
                shall be enforced to the maximum extent permissible so as to
                effect the intent of the parties, and the remainder of this
                Agreement shall continue in full force and effect.

        12.10   Notices. All notices required or permitted under this Agreement
                shall be in writing, and be deemed given when: (i) delivered
                personally; (ii) when sent by confirmed telex or facsimile;
                (iii) five (5) days after having been sent by registered or
                certified mail, return receipt requested, postage prepaid; or
                (iv) one (1) day after deposit with a commercial overnight
                carrier, with written verification of receipt. All
                communications will be sent to the addresses first above
                written. Either party may change its address by giving notice
                pursuant to this Section 12.10.





                                       13
<PAGE>   15

        12.11   No Waiver. Failure by either party to enforce any provision of
                this Agreement shall not be deemed a waiver of future
                enforcement of that or any other provision.

        12.12   No Rights in Third Parties Rights. This Agreement is made for
                the benefit of Immersion and KLSI and their respective
                subsidiaries and affiliates, if any, and not for the benefit of
                any third parties.

        12.13   Counterparts. This Agreement may be executed in one or more
                counterparts, each of which shall be deemed an original.

        12.14   Headings and References. The headings and captions used in this
                Agreement are used for convenience only and are not to be
                considered in construing or interpreting this Agreement.

        12.15   Construction. This Agreement has been negotiated by the parties
                and their respective counsel. This Agreement will be fairly
                interpreted in accordance with its terms and without any strict
                construction in favor of or against either party.

        12.16   Complete Agreement. This Agreement, including all Exhibits,
                constitutes the entire agreement between the parties with
                respect to the subject matter hereof, and supersedes and
                replaces all prior or contemporaneous understandings or
                agreements, written or oral, regarding such subject matter
                hereof. In the case of any conflict between the terms of this
                Agreement and any of the Exhibits, the terms of the Agreement
                shall govern and control. No amendment to or modification of
                this Agreement shall be binding unless in writing and signed by
                a duly authorized representative of both parties. To the extent
                any terms and conditions of this Agreement conflict with the
                terms and conditions of any invoice, purchase order or purchase
                order acknowledgment placed hereunder, the terms and conditions
                of this Agreement shall govern and control.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.



KAWASAKI LSI U.S.A. INC.                    IMMERSION CORPORATION

By:  /s/ Masanori Kodama                    By:  /s/ Louis Rosenberg
     ----------------------------                ----------------------------
     (Signature)                                 (Signature)

     Masanori Kodama                             Louis Rosenberg
     ----------------------------                ----------------------------
     (Print Name)                                (Print Name)

     President                                   President
     ----------------------------                ----------------------------
     (Title)                                     (Title)

     10/15/97                                    10/16/97
     ----------------------------                ----------------------------
     (Date)                                      (Date)





                                       14
<PAGE>   16

                                    EXHIBIT A

                                 SPECIFICATIONS

               Immersion ASIC Specification dated October 16, 1997










<PAGE>   17



                          IMMERSION ASIC SPECIFICATION

                                     [****]









*All information in this forty page exhibit has been omitted and filed
 separately with the Commission. Confidential treatment has been requested
 with respect to the omitted portions.




                                      1-40
<PAGE>   18


                                   EXHIBIT B

                        DEVELOPMENT AND PAYMENT SCHEDULE



                                       41
<PAGE>   19
IMMERSION CORPORATION
-------------------------------------------------------------------------------

     To KLSI c/o Brooks Technical Group                           April 24, 1997
        10080 N. Wolfe Rd. SW3-100
        Cupertino, CA 950114
        408-257-3880 x 1307
        408-252-4434 fax


                                                                  PURCHASE ORDER
                                                                       NO: 10499

Description of Purchased Item:

Design and development KLSI/AOX "Processor Plus" ASIC to be developed in
conjunction with Immersion personnel.

Total NRE Charges: $198,000 USD

Payment Schedule:

1) Design award/initiation - $15,000 USD
2) Technical transfer completion - $55,000 USD (action scheduled for completion
   prior to 5/15/1997)
3) Design sign-off - $80,000
4) Ceramic sample delivery - $48,000 USD

This program will be run according to a Design and Development Agreement that
outlines the program in detail, itemizes each action step, who is assigned to
what action, and the completion date for each action. This plan will be
developed within 1 week of this purchase order date.

Bruce Schena
V.P./C.T.O.     _________________________

Tim Lacey
V.P./C.F.O.     _________________________


Thanks for your time. I look forward to hearing from you.

BRUCE SCHENA, CTO
IMMERSION



                                       42
<PAGE>   20
                                   EXHIBIT C

                                  DELIVERABLES







                                       43
<PAGE>   21
                               STATEMENT OF WORK

                                    REV. 1.4



-----------------------------------------------------------------------------------------------------------------------------------
                                                    
NO       TASK                DATE/                   WHO               DESCRIPTION
                             TIME
                                      -------------------------------
                                       IMMERSION    AOX      KLSI
-----------------------------------------------------------------------------------------------------------------------------------
1        Function           4/21/97        X          X          X     Immersion, AOX, and KLSI agree to functional block
         spec. sign-off                                                specification and interface specification
-----------------------------------------------------------------------------------------------------------------------------------
2        Issue P.O.         4/21/97        X                           Immersion issues formal Purchase Order number (1st
                                                                       payment $15K)
-----------------------------------------------------------------------------------------------------------------------------------
3        Detailed           6/12           X          X         X      Immersion, AOX, and KLSI agree to detailed specification
         spec. sign-off                                                defines internal implementation of the chip. This document
                                                                           add some details that are not well defined in the
                                                                       function specification.
-----------------------------------------------------------------------------------------------------------------------------------
4        Code               5/15/97       X                            Immersion transfers Intel 930 microcode to AOX
         transfer
-----------------------------------------------------------------------------------------------------------------------------------
5        Code               5/15/97       X                           - Immersion transfers all available date on shaft encoder
         transfer
-----------------------------------------------------------------------------------------------------------------------------------
6        Place &            6/18                                X     Trial place and route complete
         route
                     --------------------------------------------------------------------------------------------------------------
7        Base water         5/18/97                   X         X     KLSI and AOX sign off on base wafer
         Master slice
         sign-off
-----------------------------------------------------------------------------------------------------------------------------------
8        VHDL                                                   X     AOX completes VHDL functional code, simulates the
                                                                      result and assures that the design agrees with the
                                                                      detailed specification.
-----------------------------------------------------------------------------------------------------------------------------------
9        Pre-layout                                             X     AOX synthesizes the  VHDL code, simulates the
         design                                                       resulting level netlist, and assures that the design
                                                                      agrees with the specification.
-----------------------------------------------------------------------------------------------------------------------------------
10      Pre-layout         6/12/97                   X         X      AOX and KLSI agree that the pre-layout simulation
        simulation                                                    result is satisfactory. 1st sign off
-----------------------------------------------------------------------------------------------------------------------------------
11      post layout        6/19/97                             X      KLSI-placement generate post-layout file.
-----------------------------------------------------------------------------------------------------------------------------------
12      ROM code           6/26/97                             X     AOX provides preliminary ROM code
-----------------------------------------------------------------------------------------------------------------------------------
13      simulation         7/3/97                              X     AOX simulates the design and makes sure that the design
                                                                               with the detailed specification
-----------------------------------------------------------------------------------------------------------------------------------
14      second sign        7/3/97                    X        X      AOX and KLSI agree that the post-layout simulation
        off                                                          result is satisfactory, second sign off
-----------------------------------------------------------------------------------------------------------------------------------
15      KLSI fabs                                             X      KLSI fabricates ceramic and plastic prototypes
-----------------------------------------------------------------------------------------------------------------------------------
16      proto                              X                         Immersion provides AOX with prototype Joystick system
        joystick
-----------------------------------------------------------------------------------------------------------------------------------
17      KLSI               7/25/97                            X      KLSI delivers Xx ceramic prototypes
        delivers
        prototypes
-----------------------------------------------------------------------------------------------------------------------------------
18      Integration                        X                 X      AOX and Immersion integrate system
-----------------------------------------------------------------------------------------------------------------------------------
19      marking                            X                 X      Immersion and KLSI agrees to the marking specification.
                                                                              marking will be based on KLSI's standard marking
                                                                    with positive modifications to it depending on
                                                                    Immersion's requirement.
-----------------------------------------------------------------------------------------------------------------------------------






                                       44
<PAGE>   22


-----------------------------------------------------------------------------------------------------
                    DATE/
NO   TASK           TIME                  WHO               DESCRIPTION
                              ---------------------------
                              IMMERSION   AOX     KLSI
-----------------------------------------------------------------------------------------------------
                                         
20   plastic        8/8/97                            X     KLSI delivers 12 plastic prototypes
     prototypes
-----------------------------------------------------------------------------------------------------
21   approval                  X                            Immersion approves prototype
-----------------------------------------------------------------------------------------------------
22   ROM final                 X                            Immersion finalizes ROM code
-----------------------------------------------------------------------------------------------------
23   Production                X                            Immersion places first mass production
     order                                                  order with 10 weeks time
-----------------------------------------------------------------------------------------------------








                                       45