-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OYF+dFqfgSGh/2ZZXWfjbtWDgRpM1tlo0APX7AB0Q9LRt89DpsjNE5FTyrdHdmWG E7VXJTuzywrQDO4y04Us5A== 0000891618-99-004132.txt : 19990914 0000891618-99-004132.hdr.sgml : 19990914 ACCESSION NUMBER: 0000891618-99-004132 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19990913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMERSION CORP CENTRAL INDEX KEY: 0001058811 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 943180138 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-86361 FILM NUMBER: 99710044 BUSINESS ADDRESS: STREET 1: 2158 PARAGON DR CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084671900 MAIL ADDRESS: STREET 1: 2158 PARAGON DR CITY: SAN JOSE STATE: CA ZIP: 95131 S-1/A 1 AMENDMENT #1 TO THE FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1999 REGISTRATION NO. 333-86361 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 IMMERSION CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 3577 94-3180138 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
2158 PARAGON DRIVE SAN JOSE, CALIFORNIA 95131 (408) 467-1900 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------ LOUIS B. ROSENBERG CHIEF EXECUTIVE OFFICER IMMERSION CORPORATION 2158 PARAGON DRIVE SAN JOSE, CALIFORNIA 95131 (408) 467-1900 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: BRUCE SCHAEFFER, ESQ. LAIRD H. SIMONS, III, ESQ. TOM FURLONG, ESQ. KATHERINE TALLMAN SCHUDA, ESQ. PAMELA B. BURKE, ESQ. CYNTHIA E. GARABEDIAN, ESQ. GRAY CARY WARE & FREIDENRICH LLP FENWICK & WEST LLP 400 HAMILTON AVENUE TWO PALO ALTO SQUARE PALO ALTO, CALIFORNIA 94301-1825 PALO ALTO, CALIFORNIA 94306 (650) 328-6561 (650) 494-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------ If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act") check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] ------------------ CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE(1) - ---------------------------------------------------------------------------------------------------------------- Common Stock ($0.001 par value)............... $53,762,500 $14,946 - ---------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------
(1) Previously paid in connection with the filing of Immersion's Registration Statement on Form S-1 (File No. 333-86361) on September 1, 1999. ------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 EXPLANATORY NOTE The purpose of this Amendment No. 1 is solely to file certain exhibits to the Registration Statement as set forth below in Item 16(a) of Part II. 3 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all costs and expenses, other than the underwriting discounts and commissions payable by the Registrant in connection with the sale and distribution of the Common Stock being registered. All amounts shown are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market application fee. Securities and Exchange Commission registration fee......... $14,946 NASD filing fee............................................. 5,877 Nasdaq National Market application fee...................... Blue sky qualification fees and expenses.................... Printing and engraving expenses............................. Legal fees and expenses..................................... Accounting fees and expenses................................ Director and officer liability insurance.................... Transfer agent and registrar fees........................... Miscellaneous expenses...................................... ------- Total............................................. $ =======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law permits indemnification of officers, directors and other corporate agents under certain circumstances and subject to certain limitations. The Registrant's Certificate of Incorporation and Bylaws provide that the Registrant shall indemnify its directors, officers, employees and agents to the full extent permitted by Delaware General Corporation Law, including in circumstances in which indemnification is otherwise discretionary under Delaware law. In addition, the Registrant has entered into separate indemnification agreements (Exhibit 10.1) with its directors and officers which require the Registrant, among other things, to indemnify them against certain liabilities which may arise by reason of their status or service (other than liabilities arising from willful misconduct of a culpable nature). The Registrant also intends to maintain director and officer liability insurance, if available on reasonable terms. These indemnification provisions and the indemnification agreements may be sufficiently broad to permit indemnification of the Registrant's officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act. The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the Underwriters of the Registrant and its officers and directors for certain liabilities arising under the Securities Act, or otherwise. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. (a) Since August 31, 1996, we have sold and issued the following unregistered securities: (1) From inception to August 31, 1999, we have issued options to purchase an aggregate of 3,038,387 shares of common stock under the 1994 stock option plan, of which 1,173,114 have been exercised, and 2,123,486 shares of common stock under the 1997 stock option plan, of which 274,949 have been exercised. II-1 4 (2) On November 3, 1996, November 4, 1996, November 20, 1996, November 26, 1996 and November 27, 1996, the Company sold an aggregate of 98,334 shares of its Series B preferred stock to accredited investors for an aggregate purchase price of $590,004. (3) In November, 1996, we issued an option to purchase 80,700 shares of common stock to Steve Blank at an exercise price of $0.17 per share. (4) In November 1996, we issued a warrant to purchase 8,000 shares of Series B preferred stock to Bruce Paul at an exercise price of $6.00 per share. (5) From November 1996 through June 1999, we issued options to purchase an aggregate of 154,648 shares of common stock to Steven Blank at exercise prices ranging between $0.173 per share and $3.66 per share. These options may be exercised at any time within ten years after their date of issuance. (6) In December 1996, we issued a warrant to purchase 10,000 shares of Series B preferred stock to Bruce Paul at an exercise price of $6.00 per share. (7) On March 31, 1997, we issued 30,000 shares of Series A preferred stock to Bruce Paul individually or as a trustee upon the exercise of a warrant for an aggregate of $60,000.00 as consideration for consulting services. (8) In March 1997, we issued 30,000 shares of Series A Preferred Stock to Bruce Paul pursuant to an exercise of a warrant dated April 1995 at an exercise price of $2.00 per share. (9) On June 3, 1997, the Company sold an aggregate of 1,071,428 shares of its Series C preferred stock to accredited investors for an aggregate purchase price of $1,500,005.40. (10) On June 3, 1997, we issued a warrant to purchase 91,191 shares of common stock to an accredited investor at an exercise price of $0.18 per share. (11) In December 1997, we issued an option to purchase 80,700 shares of common stock to Washington Research Foundation at an exercise price of $0.37 per share in consideration of consulting services. This option may be exercised at any time within ten years after its issuance. (12) In March 1998, we issued an option to purchase 242,100 shares of common stock to Lex Computer Management at an exercise price of $0.62 per share in consideration of consulting services. (13) In March 1998, we issued an option to purchase 20,175 shares of common stock to Asia Pacific Ventures Co. with a fair market value of $0.37 in consideration of consulting services. This option may be exercised at any time within ten years after its issuance. (14) On April 13, 1998, the Company sold an aggregate of 1,706,232 shares of its Series D preferred stock to accredited investors for an aggregate purchase price of $5,750,002. (15) On April 13, 1998, we issued a warrant to purchase 14,836 shares of Series D preferred stock to BancAmerica Robertson Stephens at an exercise price of $3.37 per share. (16) In June 1998, we issued 80,700 shares of common stock to Digital Equipment Corporation with a fair market value of $3.66 per share in consideration of consulting services. (17) In June 1998, we issued 85,945 shares of common stock to Bernie G. Jackson pursuant to an exercise of a warrant dated June 1995 at an exercise price of $0.04 per share. II-2 5 (18) In July 1998, we issued 28,245 shares of common stock to Ming-Chang Tsai and Gemintek Corporation at a price of $3.66 per share in consideration of an assignment of the patent. (19) On August 1, 1998, we issued 3,750 shares of Series A preferred stock to Bruce Paul upon exercise of a warrant for consideration of $14,000. (20) In August 1998, we issued 7,500 shares of Series A Preferred Stock to Bruce Paul pursuant to an exercise of a warrant dated August 1996 at an exercise price of $4.00 per share. (21) In November 1998, we issued 28,245 shares of common stock to Craig Culver with a fair market value of $3.66 per share in consideration for an assignment of a patent. (22) In February 1999, we issued 8,070 shares of common stock to Washington Research Foundation as consideration for a patent license. (23) On March 4, 1999, we issued an aggregate of 1,291,200 shares of common stock to Cybernet Systems Corporation pursuant to an Agreement and Plan of Reorganization. (24) On March 4, 1999, we issued a warrant to purchase 322,800 shares of common stock to Cybernet Systems Corporation as consideration for certain consulting services. (25) In May 1999, we issued 7,061 shares of common stock to Richard Brent Gillespie pursuant to an exercise of a warrant dated August 1995 at an exercise price of $0.04 per share. (26) In June 1999, we issued an option to purchase 20,175 shares of common stock at an exercise price of $3.66 per share to Coactive Drive Corporation. This option may be exercised at any time within ten years after its issuance. (27) In July 1999, we issued 68,595 shares of common stock to Michael Reich and Associates in consideration of services. (28) There were no underwriters employed in connection with any of the transactions set forth in Item 15. The issuances described in Items 15(a)(1) through 15(a)(28) were deemed exempt from registration under the Securities Act in reliance on Section 492 of the Securities Act as transactions by an issuer not involving a public offering. Certain issuances described in Item 15(a) were deemed exempt from registration under the Securities Act in reliance on Section 4(2) or Rule 701 promulgated thereunder as transactions pursuant to compensatory benefit plans and contracts relating to compensation. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about us or had access, through employment or other relationships, to such information. II-3 6 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 1.1 Form of Underwriting Agreement.* 2.1 Agreement and Plan of Reorganization with Cybernet Systems Corporation ("Cybernet"), its wholly-owned subsidiary and our wholly-owned subsidiary dated March 4, 1999.** 3.1 Amended and Restated Articles of Incorporation of Immersion, as amended to date.** 3.2 Form of Certificate of Incorporation of Immersion. 3.3 Bylaws of Immersion.** 3.4 Form of Bylaws. 4.1 Information and Registration Rights Agreement dated April 13, 1998.** 4.2 Immersion Corporation Cybernet Registration Rights Agreement dated March 5, 1999.** 4.3 Common Stock Grant and Purchase Agreement and Plan with Michael Reich & Associates dated July 6, 1999.** 4.4 Common Stock Agreement with Digital Equipment Corporation dated June 12, 1998.** 5.1 Opinion of Gray Cary Ware & Freidenrich LLP.* 10.1 1994 Stock Option Plan and form of Incentive Stock Option Agreement and form of Nonqualified Stock Option Agreement.** 10.2 1997 Stock Option Plan and form of Incentive Stock Option Agreement and form of Nonqualified Stock Option Agreement.** 10.3 Form of Indemnity Agreement. 10.4 Immediately Exercisable Nonstatutory Stock Option Agreement with Steven G. Blank dated November 1, 1996.** 10.5 Common Stock Purchase Warrant issued to Cybernet Systems Corporation dated March 5, 1999.** 10.6 Consulting Services Agreement with Cybernet Systems Corporation dated March 5, 1999.** 10.7 Amendment to Warrant to Purchase Shares of Series B Preferred Stock to Bruce Paul amending warrant to purchase 8,000 shares of Series B Preferred Stock dated September 22, 1998.** 10.08 Amendment to Warrant to Purchase Shares of Series B Preferred Stock to Bruce Paul amending warrant to purchase 10,000 shares of Series B Preferred Stock dated September 22, 1998.** 10.09 Operating Agreement for MicroScribe, LLC dated July 1, 1997.** 10.10 Exchange Agreement with MicroScribe, LLC dated July 1, 1997.** 10.11 Lease with Spieker Properties, L.P. dated October 26, 1998. 10.12 Agreement Draft for ASIC Design and Development with Kawasaki LSI, U.S.A., Inc., dated October 16, 1997.+ 10.13 Patent License Agreement with Microsoft Corporation dated July 19, 1999.+ 10.14 Semiconductor Device Component Purchase Agreement with Kawasaki LSI, U.S.A., Inc., dated August 17, 1998.+ 10.15 Amendment No. 1 to Semiconductor Device Component Purchase Agreement with Kawasaki LSI, U.S.A., Inc., dated April 27, 1999.+ 10.16 Intercompany Intellectual Property License Agreement with MicroScribe, LLC dated July 1, 1997.+ 10.17 Patent License Agreement with MicroScribe, LLC dated July 1, 1997.+ 10.18 Intellectual Property License Agreement with Logitech, Inc. dated [#].+ 10.19 Intellectual Property License Agreement with Logitech, Inc. dated [#].+ 10.20 Technology Product Development Agreement with Logitech, Inc. dated [#].+ 21.1 Subsidiaries of Immersion.** 23.1 Consent of Deloitte & Touche LLP.** 23.4 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1).*
II-4 7
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 24.1 Power of Attorney (included on page II-5).** 27.1 Financial Data Schedule (EDGAR filed version only).**
- ------------------------ * To be filed by amendment. ** Previously filed with Registrant's Registration Statement on Form S-1 (File No. 333-86361) on September 1, 1999. # Certain information has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. + Confidential treatment is being requested as to a portion of this exhibit. (B) FINANCIAL STATEMENT SCHEDULES. The following are filed herewith: Independent Auditors' Report on Schedule. Schedule II Valuation and Qualifying Accounts. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act, and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-5 8 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California, on the thirteenth day of September, 1999 IMMERSION CORPORATION By: /s/ LOUIS ROSENBERG ------------------------------------ Louis Rosenberg, Ph.D. Chairman of the Board, Chief Executive Officer and President Pursuant to the requirements of the Securities Act, this Registration Statement Amendment No. 1 has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ LOUIS ROSENBERG Chairman of the Board, President September 13, 1999 - --------------------------------------------- and Chief Executive Officer Louis Rosenberg, Ph.D. (Principal Executive Officer) /s/ VICTOR VIEGAS* Chief Financial Officer (Principal September 13, 1999 - --------------------------------------------- Financial and Accounting Officer) Victor Viegas /s/ BRUCE SCHENA* Vice President, Chief Technology September 13, 1999 - --------------------------------------------- Officer, Secretary and Director Bruce Schena /s/ TIMOTHY LACEY* Vice President, Finance and September 13, 1999 - --------------------------------------------- Director Timothy Lacey /s/ STEVEN BLANK* Director September 13, 1999 - --------------------------------------------- Steven Blank
*By: /s/ LOUIS ROSENBERG --------------------------- Louis Rosenberg, Ph.D. Attorney-in-Fact II-6 9 INDEPENDENT AUDITORS' REPORT ON SCHEDULE To the Board of Directors and Stockholders of Immersion Corporation: We have audited the consolidated financial statements of Immersion Corporation (the Company) as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, and have issued our report thereon dated April 2, 1999 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule listed in Item 16(b) of this Registration Statement. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP San Jose, California April 2, 1999 S-1 10 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING COST AND DEDUCTIONS/ END OF OF PERIOD EXPENSES WRITE-OFFS PERIOD ---------- ---------- ----------- ---------- Year ended December 31, 1996 Allowance for doubtful accounts............ $ 5 $40 $37 $ 8 Year ended December 31, 1997 Allowance for doubtful accounts............ $ 8 $39 $ 9 $38 Year ended December 31, 1998 Allowance for doubtful accounts............ $38 $57 $ 3 $92 Six months ended June 30, 1999 Allowance for doubtful accounts*........... $92 $ 4 $20 $76
- --------------- * Unaudited S-2 11 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 1.1 Form of Underwriting Agreement.* 2.1 Agreement and Plan of Reorganization with Cybernet Systems Corporation ("Cybernet"), its wholly-owned subsidiary and our wholly-owned subsidiary dated March 4, 1999.** 3.1 Amended and Restated Articles of Incorporation of Immersion, as amended to date.** 3.2 Form of Certificate of Incorporation of Immersion. 3.3 Bylaws of Immersion.** 3.4 Form of Bylaws. 4.1 Information and Registration Rights Agreement dated April 13, 1998.** 4.2 Immersion Corporation Cybernet Registration Rights Agreement dated March 5, 1999.** 4.3 Common Stock Grant and Purchase Agreement and Plan with Michael Reich & Associates dated July 6, 1999.** 4.4 Common Stock Agreement with Digital Equipment Corporation dated June 12, 1998.** 5.1 Opinion of Gray Cary Ware & Freidenrich LLP.* 10.1 1994 Stock Option Plan and form of Incentive Stock Option Agreement and form of Nonqualified Stock Option Agreement.** 10.2 1997 Stock Option Plan and form of Incentive Stock Option Agreement and form of Nonqualified Stock Option Agreement.** 10.3 Form of Indemnity Agreement. 10.4 Immediately Exercisable Nonstatutory Stock Option Agreement with Steven G. Blank dated November 1, 1996.** 10.5 Common Stock Purchase Warrant issued to Cybernet Systems Corporation dated March 5, 1999.** 10.6 Consulting Services Agreement with Cybernet Systems Corporation dated March 5, 1999.** 10.7 Amendment to Warrant to Purchase Shares of Series B Preferred Stock to Bruce Paul amending warrant to purchase 8,000 shares of Series B Preferred Stock dated September 22, 1998.** 10.8 Amendment to Warrant to Purchase Shares of Series B Preferred Stock to Bruce Paul amending warrant to purchase 10,000 shares of Series B Preferred Stock dated September 22, 1998.** 10.9 Operating Agreement with MicroScribe, LLC dated July 1, 1997.** 10.10 Exchange Agreement with MicroScribe, LLC dated July 1, 1997.** 10.11 Lease with Spieker Properties, L.P. dated October 26, 1998. 10.12 Agreement Draft for ASIC Design and Development with Kawasaki LSI, U.S.A., Inc., dated October 16, 1997.+ 10.13 Patent License Agreement with Microsoft Corporation dated July 19, 1999.+ 10.14 Semiconductor Device Component Purchase Agreement with Kawasaki LSI, U.S.A., Inc., dated August 17, 1998.+ 10.15 Amendment No. 1 to Semiconductor Device Component Purchase Agreement with Kawasaki LSI, U.S.A., Inc. dated April 27, 1999.+ 10.16 Intercompany Intellectual Property License Agreement with MicroScribe, LLC dated July 1, 1997.+ 10.17 Patent License Agreement with MicroScribe, LLC dated July 1, 1997.+ 10.18 Intellectual Property License Agreement with Logitech, Inc. dated [#].+ 10.19 Intellectual Property License Agreement with Logitech, Inc. dated [#].+ 10.20 Technology Product Development Agreement with Logitech, Inc. dated [#].+ 21.1 Subsidiaries of Immersion.** 23.1 Consent of Deloitte & Touche LLP.**
12
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 23.4 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1.)* 24.1 Power of Attorney (included on page II-5).** 27.1 Financial Data Schedule (EDGAR filed version only).**
- --------------- * To be filed by amendment. ** Previously filed with Registrant's Registration Statement on Form S-1 (File No. 333-86361) on September 1, 1999. # Certain information has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. + Confidential treatment is being requested as to a portion of this exhibit. EX-3.2 2 FORM OF CERTIFICATE OF INCORPORATION OF IMMERSION 1 EXHIBIT 3.2 CERTIFICATE OF INCORPORATION OF IMMERSION CORPORATION DELAWARE FIRST: The name of this corporation is Immersion Corporation Delaware (hereinafter sometimes referred to as the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is Incorporating Services, Ltd., 15 East North Street, in the City of Dover, County of Kent. The name of the registered agent at that address is Incorporating Services, Ltd. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: The Corporation is authorized to issue a total of 25,000,000 shares of stock in two classes designated respectively "Preferred Stock" and "Common Stock." The total number of shares of all series of Preferred Stock that the Corporation shall have the authority to issue is 5,000,000 and the total number of shares of Common Stock that the Corporation shall have the authority to issue is 20,000,000. All of the authorized shares shall have a par value of $0.001. FIFTH: The name and mailing address of the incorporator is: Andrea Charvet c/o Gray Cary Ware & Freidenrich LLP 139 Townsend Street, Suite 400 San Francisco, CA 94107-1922 SIXTH: The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by Statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the 1 2 directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Election of directors need not be by written ballot unless the Bylaws so provide. SEVENTH: The Board of Directors is authorized to make, adopt, amend, alter or repeal the Bylaws of the Corporation. The stockholders shall also have power to make, adopt, amend, alter or repeal the Bylaws of the Corporation. EIGHTH: This Corporation reserves the right to amend or repeal any of the provisions contained in this Certificate of Incorporation in any manner now or hereafter permitted by law, and the rights of the stockholders of this Corporation are granted subject to this reservation. NINTH: To the fullest extent permitted by the Delaware General Corporation Law, a director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of the foregoing provisions of this Article NINTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate of Incorporation, do certify that the facts herein stated are true, and accordingly, have hereto set my hand this 26th day of August, 1999. /s/ ANDREA CHARVET --------------------------------------- Andrea Charvet 2 3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF IMMERSION CORPORATION DELAWARE (Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware) Immersion Corporation Delaware, a corporation organized and existing under the General Corporation Law of the State of Delaware on August 26, 1999, (the "Corporation") certifies as follows: 1. The Corporation's Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors and sole stockholder by written consent in accordance with Sections 242 and 245 of the General Corporation Law. 2. The Corporation's Certificate of Incorporation is restated to read in full as follows: FIRST: The name of the Corporation is Immersion Corporation Delaware. SECOND: The address of the registered office of the Corporation in the State of Delaware is Incorporating Services, Ltd., 15 East North Street, in the City of Dover, County of Kent. The name of the registered agent at that address is Incorporating Services, Ltd. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: A. The Corporation is authorized to issue a total of 108,525,759 shares of stock in two classes designated respectively "Preferred Stock" and "Common Stock". The total number of shares of all series of Preferred Stock that the Corporation shall have the authority to issue is 8,525,759 and the total number of shares of Common Stock that the Corporation shall have the authority to issue is 100,000,000. All of the authorized shares shall have a par value of $0.001. The shares of Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred Stock or any series thereof with respect to any wholly unissued series of Preferred Stock, and to fix the number of shares of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any 4 resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. B. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. C. On and after the closing date of the first sale of the Corporation's Common Stock pursuant to a firmly underwritten registered public offering (the "IPO"), any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. Prior to such sale, unless otherwise provided by law, any action which may otherwise be taken at any meeting of the stockholders may be taken without a meeting and without prior notice, if a written consent describing such actions is signed by the holders of outstanding shares having not less than the minimum number of votes which would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. D. Special meetings of stockholders of the Corporation may be called only (1) by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption) or (2) by the holders of not less than ten percent (10%) of all of the shares entitled to cast votes at the meeting. 2 5 SIXTH: A. The number of directors shall initially be set at five (5) and, thereafter, shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). Upon the closing of the IPO, the directors shall be divided into three classes with the term of office of the first class (Class I) to expire at the first annual meeting of the stockholders following the IPO; the term of office of the second class (Class II) to expire at the second annual meeting of stockholders held following the IPO; the term of office of the third class (Class III) to expire at the third annual meeting of stockholders; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. Subject to the rights of the holders of any series of Preferred Stock then outstanding, a vacancy resulting from the removal of a director by the stockholders as provided in Article SIXTH, Section C below may be filled at a special meeting of the stockholders held for that purpose. All directors shall hold office until the expiration of the term for which elected, and until their respective successors are elected, except in the case of the death, resignation, or removal of any director. B. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation or other cause (other than removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders at which the term of office of the class to which they have been elected expires, and until their respective successors are elected, except in the case of the death, resignation, or removal of any director. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. C. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Vacancies in the Board of Directors resulting from such removal may be filled by a majority of the directors then in office, though less than a quorum, or by the stockholders as provided in Article SIXTH, Section A above. Directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders at which the term of office of the class to which they have been elected expires, and until their 3 6 respective successors are elected, except in the case of the death, resignation, or removal of any director. SEVENTH: The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the stockholders shall require, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. EIGHTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing provisions of this Article EIGHTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. 4 7 NINTH: The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article NINTH, Article FIFTH, Article SIXTH, Article SEVENTH or Article EIGHTH. IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate to be signed by a duly authorized officer on this ______ day of September, 1999. IMMERSION CORPORATION DELAWARE By: ------------------------------- Louis Rosenberg, Ph.D., Chief Executive Officer 5 8 IMMERSION CORPORATION DELAWARE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE TERMS OF THE SERIES A, SERIES B, SERIES C AND SERIES D PREFERRED STOCK (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) We, the President and the Secretary, respectively, of Immersion Corporation Delaware, organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the said Corporation, the said Board of Directors on August 30, 1999, adopted the following resolution creating (i) a series of 618,500 shares of Preferred Stock designated as Series A Preferred Stock, (ii) a series of 115,834 shares of Preferred Stock designated as Series B Preferred Stock (iii) a series of 1,070,357 shares of Preferred Stock designated as Series C Preferred Stock, and (iv) a series of 1,721,068 shares of Preferred Stock designated as Series D Preferred Stock. RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Certificate of Incorporation, series of Preferred Stock of the Corporation be and they hereby are created, and that the designation and amount thereof and the powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Designation and Amount. The first series of Preferred Stock shall be designated Series A Preferred Stock and shall be comprised of 618,500 shares. The second series of Preferred Stock shall be designated Series B Preferred Stock and shall be comprised of 115,834 shares. The third series of Preferred Stock shall be designated Series C Preferred Stock and shall be comprised of 1,070,357 shares. The fourth series of Preferred Stock shall be designated Series D Preferred Stock and shall be comprised of 1,721,068 shares. Relative rights, preferences, privileges and restrictions granted to or imposed upon the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (collectively, the "Preferred Stock") are as follows: Section 1. Voting Rights. Section 1.1 Except as otherwise required by law or as set forth herein, the shares of Series A, Series B, Series C and Series D Preferred Stock shall be voted equally and together with the shares of the Corporation's Common Stock at any annual or special meeting of shareholders of the Corporation, or may act by written consent in the same manner as the 1 9 Corporation's Common Stock, upon the following basis: each holder of shares of Series A, Series B, Series C and Series D Preferred Stock shall be entitled to such number of votes for the Series A, Series B, Series C and Series D Preferred Stock held by him on the record date fixed for such meeting, or on the effective date of such written consent, as shall be equal to the whole number of shares of the Corporation's Common Stock into which all of his shares of Series A, Series B, Series C and Series D Preferred Stock are convertible immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent. Section 2. Protective Provisions. Section 2.1 If any shares of Series C Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval by vote or written consent, in the manner provided by law, of the holders of more than fifty percent (50%) of the total number of shares of Series C Preferred Stock then outstanding, voting together as a single class, undertake any of the following actions: (a) amend or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of the Series C Preferred Stock; or (b) authorize, create or issue shares of any class of stock having rights, preferences, privileges or powers superior to that of the Series C Preferred Stock; or (c) reclassify any outstanding shares of any class of stock into shares having rights, preferences, privileges or powers as to dividends or assets senior to the preferences, rights, privileges or powers of the Series C Preferred Stock; or (d) amend the Corporation's Restated Articles to adversely affect the rights, preferences, privileges or powers of the Series C Preferred Stock; provided, however, that any amendment to the Corporation's Restated Articles authorizing any class of stock having rights, preferences, privileges or powers on parity with the Series C Preferred Stock shall not be deemed to adversely affect the rights of the Series C Preferred Stock, respectively. Section 2.2 If any shares of Series D Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval by vote or written consent, in the manner provided by law, of the holders of more than fifty percent (50%) of the total number of shares of Series D Preferred Stock then outstanding, voting together as a single class, undertake any of the following actions: (a) amend or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of the Series D Preferred Stock; or (b) authorize, create or issue shares of any class of stock having rights, preferences, privileges or powers superior to that of the Series D Preferred Stock; or (c) reclassify any outstanding shares of any class of stock into shares having rights, preferences, privileges or powers as to dividends or assets senior to the preferences, rights, privileges or powers of the Series D Preferred Stock; or (d) amend the Corporation's Restated Articles to adversely affect the rights, preferences, privileges or powers of the Series D Preferred Stock; provided, however, that any amendment to the Corporation's Restated Articles authorizing any class of stock having rights, preferences, privileges or powers on parity with the Series D Preferred Stock shall not be deemed to adversely affect the rights of the Series D Preferred Stock, respectively. 2 10 Section 3. Dividends. Section 3.1 The holders of the then outstanding Series A, Series B, Series C and Series D Preferred Stock shall be entitled to receive in any fiscal year, prior and in preference to any distribution of dividends to the holders of the Common Stock, when, as and if, declared by the Board of Directors, out of any assets at the time legally available therefor, dividends in cash at the rate of $0.02, $0.06, $0.14, and $0.33 per annum per share, respectively on a pari passu basis, as adjusted for any consolidations, combinations, stock distributions, stock dividends, stock splits or similar events (each a "Recapitalization Event"). The right to such dividends on the Series A, Series B, Series C and Series D Preferred Stock shall not be cumulative and no right shall accrue to holders of Series A, Series B, Series C or Series D Preferred Stock by reason of the fact that dividends on said shares are not declared in any prior year, nor shall any undeclared or unpaid dividends bear or accrue interest. Dividends may be declared or paid upon shares of Common Stock in any fiscal year of the Corporation only if dividends shall have been paid to or declared and set apart upon, as the case may be, all shares of Series A, Series B, Series C and Series D Preferred Stock at such annual rate for each quarter of such fiscal year of the Corporation including the quarter in which such dividends upon common shares are declared. No dividends shall be paid on any Common Stock unless an equal dividend is paid with respect to all outstanding shares of Series A, Series B, Series C and Series D Preferred Stock in an amount for each such share of Series A, Series B, Series C and Series D Preferred Stock equal to the aggregate amount of such dividends for all Common Stock into which each such share of Series A, Series B, Series C and Series D Preferred Stock could then be converted. Section 3.2 Each holder of Series A, Series B, Series C or Series D Preferred Stock shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of the General Corporation Law of the State of California, to (i) distributions made by the Corporation in connection with the repurchase of Common Stock issued to or held by employees or consultants upon termination of their employment or services pursuant to agreements providing for such repurchase and (ii) the use of up to two million dollars ($2,000,000) from the sale of Series D Preferred Stock to purchase outstanding shares of the Company's Common Stock or Preferred Stock at the fair market value of the Common Stock as determined by the Board of Directors of the Company. Section 4. Redemption Rights Section 4.1 At any time on or after June 4, 2002, this Corporation shall, upon receipt of the written request (the "Redemption Request") of the holders of at least a majority of the Series C Preferred Stock then outstanding, redeem for cash out of any funds legally available therefor ratably from holders thereof, on or before each of the relevant Redemption Dates (as defined below), that number of shares of Series C Preferred Stock equal to one-fourth of the number of such shares outstanding on the first Redemption Date. Redemptions of each share of Series C Preferred Stock pursuant to this Section 4.1 shall be made at the price originally paid by the holders of Series C Preferred Stock (and without interest as adjusted for any Recapitalization Event) for such Series C Preferred Stock, plus an amount equal to the amount of all declared but unpaid dividends as of the relevant Redemption Date payable in accordance with Section 3.1 3 11 above on each such share to be redeemed. The total amount to be paid with respect to each share of Series C Preferred Stock is hereinafter referred to as the "Redemption Price." Section 4.2 The Redemption Request shall set forth the requested date of the redemption, which date in no event shall be fewer than twenty (20) days nor more than sixty (60) days after the date of the Redemption Request, or such later date as the holders of at least a majority of the then outstanding Series C Preferred Stock agree to in writing. Such date and the six (6) month, twelve (12) month, and eighteen (18) month anniversaries thereof are referred to herein collectively as the "Redemption Dates" and individually as a "Redemption Date." Within ten (10) days of the Redemption Request, this Corporation shall give written notice by mail, postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is deposited in the mail) of the Series C Preferred Stock to be redeemed, at the address last shown on the records of this corporation for such holder or given by the holder to this Corporation for the purpose of notice, or if no such address appears or is given, at the place where the principal executive office of this Corporation is located, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the applicable Redemption Date, the applicable Redemption Price, the place at which payment may be obtained and the date on which such holder's Conversion Rights as to such shares terminate and calling upon such holder to surrender to this Corporation, in the manner and at the place designated, his certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). On or after such Redemption Date, each holder of Series C Preferred Stock to be redeemed shall surrender to this corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the applicable Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. Section 4.3 From and after the applicable Redemption Date, unless there shall have been a default in payment of the applicable Redemption Price, all dividends on the Series C Preferred Stock designated for redemption in the Redemption Notice shall cease to accrue, all rights of the holders of such shares as holders of the Series C Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of this corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the corporation legally available for redemption of Series C Preferred Stock on any Redemption Date are insufficient to redeem the total number of Series C Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed. The shares of Series C Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the corporation are legally available for the redemption of the Series C Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. 4 12 Section 5. Liquidation Preference. Section 5.1 In the event of the liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, distributions to the shareholders of the Corporation shall be made in the following manner: (a) The holders of Series C and Series D Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation, on a pari passu basis, for each share of Series C or Series D Preferred Stock then held by them, first, prior and in preference to any distribution to the holders of the Series A and Series B Preferred Stock, and the Common Stock, an amount equal to $1.40 per share of Series C Preferred Stock and $3.37 per share of Series D Preferred Stock (as adjusted for Recapitalization Events) plus an amount equal to all declared and unpaid dividends with respect thereto. If upon the occurrence of such event, the assets and funds available for distribution are insufficient to permit the payment to the holders of Series C and Series D Preferred Stock the full preferential amount, then the entire assets and funds of the Corporation legally available for distribution to shareholders will be distributed among the holders of the Series C and Series D Preferred Stock ratably in proportion to the full preferential amount which they would be entitled to receive pursuant to the preceding sentence of this Section 5.1(a). (b) After payment has been made to the holders of Series C and Series D Preferred Stock of the full preferential amounts to which they shall be entitled, if any, as aforesaid, the holders of the Series A and Series B Preferred Stock then outstanding shall be entitled to be paid, pari passu, out of the assets of the Corporation, for each share of Series A or Series B Preferred Stock then held by them, first, prior and in preference to any distribution to the holders of the Common Stock, and amount equal to (A) $0.40 per share for the Series A Preferred Stock and $6.00 per share for the Series B Preferred Stock (as adjusted for Recapitalization Events) plus (B) an amount equal to all declared and unpaid dividends with respect thereto. (c) After payment has been made to the holders of the Series A, Series B, Series C and Series D Preferred Stock of the full preferential amounts to which they shall be entitled, if any, as aforesaid and until the holders of the Series C and Series D Preferred Stock then outstanding have received an additional $1.40 and $2.02 per share of Series C and Series D Preferred Stock, respectively (as adjusted for Recapitalization Events), the holders of the Common Stock and the Series C and Series D Preferred Stock shall be entitled to receive, pro rata, the remaining assets of the Corporation available for distribution to shareholders, based on the number of shares of Common Stock then held, with each share of Series C and Series D Preferred Stock treated as the number of shares of Common Stock into which such share of Preferred Stock is then convertible. (d) After payment has been made to the holders of the Series C and Series D Preferred Stock and holders of Common Stock pursuant to Section 5.1(c), the holders of Common Stock shall be entitled to receive, pro rata, the remaining assets of the Corporation 5 13 available for distribution to shareholders, based on the number of shares of Common Stock then held. Section 5.2 Events Deemed to be Liquidation. (a) For the purposes of this Section 5 and with respect to the Series A and Series B Preferred Stock, (i) a consolidation or merger of the Corporation with or into any other corporation or corporations (other than a wholly-owned subsidiary) in which the shareholders of the Corporation immediately prior to such transaction hold fifty percent (50%) or less of the total voting power for the election of directors of the acquiring or surviving entity immediately following the transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation or (iii) the consummation of any transaction or series of related transactions which results in the Corporation's shareholders immediately prior to such transaction holding fifty percent (50%) or less of the voting power of the acquiring or surviving entity immediately following the transaction (each such event is hereinafter defined as a "Corporate Sale") shall not be deemed to be a liquidation, dissolution or winding up. (b) For purposes of this Section 5 and with respect to the Series C and Series D Preferred Stock, a Corporate Sale shall be deemed a liquidation, dissolution or winding up. Section 6. Conversion Rights. Section 6.1 Conversion of Series A and Series B Preferred Stock. (a) Optional Conversion. Each share of Series A and Series B Preferred Stock will be convertible, at the option of the holder thereof, at the office of the Corporation or any transfer agent for the Series A and Series B Preferred Stock, into Common Stock. The number of shares of Common Stock into which each share of Series A Preferred Stock will be converted will be equal to $0.40 divided by the Series A Conversion Price (as hereafter defined) such conversion ratio being referred to as the "Series A Conversion Rate." The initial Series A Conversion Price will be $0.40 and the initial Series A Conversion Rate shall be one-to-one. The number of shares of Common Stock into which each share of Series B Preferred Stock will be converted will be equal to $6.00 divided by the Series B Conversion Price (as hereafter defined) such conversion ratio being referred to as the "Series B Conversion Rate." The initial Series B Conversion Price will be $6.00 and the initial Series B Conversion Rate shall be one-to-one. Any decrease or increase of the Series A Conversion Price or Conversion Rate, or the Series B Conversion Price or Conversion Rate as described in this Section F will cause an increase or decrease in the conversion rate or conversion price accordingly. (b) Automatic Conversion of the Series A and Series B Preferred Stock. Each share of Series A and Series B Preferred Stock will be converted into shares of Common Stock at the then effective Series A Conversion Rate or Series B Conversion Rate: 6 14 (i) immediately upon the closing of the sale of stock pursuant to a registration statement under the Securities Act of 1933, as amended, (the "Securities Act") for an underwritten public offering (other than a registration on Form S-8, Form S-4 or comparable or successor forms) covering the Corporation's Common Stock which results in aggregate cash proceeds (prior to underwriters' commissions and expenses) to the Corporation of more than $5,000,000, and which has a public offering price of not less than $3.60 per share (as appropriately adjusted for stock splits, combinations, reclassifications and the like); (ii) immediately upon the affirmative vote or written consent of the holders of a majority of the then outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together as a class; or (iii) on the date that less than twenty percent (20%) of the highest number of the total number of shares of Series A Preferred Stock and Series B Preferred Stock that have been outstanding at any time remain outstanding. (c) Adjustment for Dividends, Distributions, Subdivisions or Combinations of Common Stock. In the event the Corporation at any time or from time to time after the date hereof (a) effects a subdivision or combination of its outstanding Common Stock into a greater or lesser number of shares without a proportionate and corresponding subdivision or combination of its outstanding Series A Preferred Stock and its outstanding Series B Preferred Stock or (b) issues a dividend or other distribution of additional shares of Common Stock or other securities or rights (collectively hereinafter referred to as "Common Stock Equivalents") convertible into or entitling the holder thereof to receive additional shares of Common Stock without payment of any consideration by such holder for such Common Stock Equivalents or the additional shares of Common Stock, then the existing Series A Conversion Price and Series B Conversion Price will be decreased or increased proportionately. (d) Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for in Section 5), provision shall be made so that the holders of the Series A and Series B Preferred Stock will thereafter be entitled to receive upon conversion of the Series A and Series B Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 6.1 with respect to the rights of the holders of the Series A and Series B Preferred Stock after the recapitalization to the end that the provisions of this Section 6.1 (including adjustment of the Series A and Series B Conversion Price then in effect and the number of shares issuable upon conversion of the Series A or Series B Preferred Stock) shall be applicable after that event in as nearly an equivalent manner as may be practicable. (e) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series A Conversion Rate or Series B Conversion Rate pursuant to this Section 6, the Corporation at its expense promptly will compute such adjustment 7 15 or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A or Series B Preferred Stock, a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation, upon the written request at any time of any holder of Series A or Series B Preferred Stock, will furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Series A or Series B Conversion Rate at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series A or Series B Preferred Stock held by such holder. Section 6.2 Conversion of Series C and Series D Preferred Stock. (a) Conversion. The holders of the Series C and Series D Preferred Stock have conversion rights as follows (the "Conversion Rights"): (i) Right to Convert Series C Preferred. Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share into the number of fully paid and nonassessable shares of Common Stock which results from dividing the Series C Conversion Value (as defined below) by the Series C Conversion Price (as defined below) per share in effect for such series at the time of conversion. The initial Series C Conversion Price per share of the Series C Preferred shall be $1.40, and the Series C Conversion Value per share of the Series C Preferred shall be $1.40. The initial Series C Conversion Price per share of the Series C Preferred Stock shall be subject to adjustment from time to time as provided in Section 6.2(a)(iv) hereof. Upon conversion, all declared and unpaid dividends on the Series C Preferred Stock shall be paid in cash, to the extent legally permitted. (ii) Right to Convert Series D Preferred. Each share of Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share into the number of fully paid and nonassessable shares of Common Stock which results from dividing the Series D Conversion Value (as defined below) by the Series D Conversion Price (as defined below) per share in effect for such series at the time of conversion. The initial Series D Conversion Price per share of the Series D Preferred shall be $3.37 and the Series D Conversion Value per share of the Series D Preferred shall be $3.37. The initial Series D Conversion Price per share of the Series D Preferred Stock shall be subject to adjustment from time to time as provided in Section 6.2(a)(iv) hereof. Upon conversion, all declared and unpaid dividends on the Series D Preferred Stock shall be paid in cash, to the extent legally permitted. (iii) Automatic Conversion of Series C and Series D Preferred Stock. Each share of Series C and Series D Preferred Stock will be converted into shares of Common Stock at the then effective Series C Conversion Price and Series D Conversion Price, respectively, immediately upon the closing of the sale of stock pursuant to a registration statement under the Securities Act for an underwritten public offering (other than a registration on Forms S-8, Form S-4 or comparable or successor forms) covering the Corporation's Common 8 16 Stock (an "Offering") which results in aggregate cash proceeds to the Corporation of more than $10,000,000 and which has a public offering price of not less than $7.00 per share (as adjusted for Recapitalization Events). (iv) Adjustments to Conversion Price of Series C and Series D Preferred Stock. (1) Special Definitions. For purposes of this Section 6.2(a)(iii), the following definitions shall apply: (A) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (B) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock. (C) "Additional Shares of Common" shall mean all shares of Common Stock issued (or, pursuant to Section 6.2(a)(iv)(3) below, deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable: (I) upon conversion of shares of Series A, Series B, Series C and Series D Preferred Stock; (II) upon exercise of warrants to purchase an aggregate of (i) 228,250 shares of Common Stock, (ii) 7,500 shares of Series A Preferred Stock, and (iii) 18,000 shares of Series C Preferred Stock outstanding as of the Original Issue Date (as adjusted for Recapitalization Events); (III) to officers, directors or employees of, or consultants to, the Corporation pursuant to a stock grant, option plan or purchase plan or other employee stock incentive program or agreement approved by the Board, not to exceed 7,400,000 shares, inclusive of the 3,549,596 shares subject to outstanding options and the 1,365,172 shares issued upon exercise of outstanding options but net of repurchases, cancellations, terminations and expirations, since the Original Issue Date (as adjusted for Recapitalization Events); (IV) in connection with the acquisition by the Company of another business entity or majority ownership thereof, provided that (A) such entity is not an affiliate (any person or entity controlling, controlled by or under common control with the Company, an "Affiliate") of any director, officer or other natural person who is an Affiliate of the Company (a "Control Person") other than in such Control Person's capacity as an officer, director or shareholder of the Company and such Control Person does not have a material interest in such entity other than as an officer, director or shareholder of the Company, or 9 17 (B) such issuances of Common Stock issued or issuable are made in a bona fide arm's length transaction as determined by the Board of Directors of the Company; (V) in an amount up to 750,000 shares of Common Stock (as adjusted for Recapitalization Events), in connection with any lease financing transaction approved by the Company's Board of Directors; (VI) as a dividend or distribution on Series A, Series B, Series C or Series D Preferred Stock; (VII) upon exercise of nonqualified stock options outstanding as of the Original Issue Date to purchase 100,000 shares of Common Stock (as adjusted for Recapitalization Events); (VIII) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common by the foregoing clauses (I) through (VII) or this clause (VIII); or (IX) solely for purposes of calculating adjustments to the Series D Conversion Price, Additional Shares of Common shall also exclude all shares of Common Stock issued or issuable in an amount up to 800,000 shares of Common Stock (as adjusted for Recapitalization Events), issued in connection with strategic investment and/or the acquisition of technology approved by the Company's Board of Directors. (D) "Original Issue Date" shall mean August 26, 1999. (2) No Adjustment of Conversion Price. No adjustment in the Series C or Series D Conversion Price shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share for an Additional Share of Common issued or deemed to be issued by the Corporation is less than the Series C or Series D Conversion Price, as applicable, in effect on the date of, and immediately prior to, such issue. (3) Deemed Issue of Additional Shares of Common. (A) Options and Convertible Securities. In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the exercise of such Options and conversion or exchange of such Convertible Securities shall be deemed to be Additional Shares of Common issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common shall not be deemed to have been issued unless the 10 18 consideration per share (determined pursuant to Section 6.2(a)(iv)(5) hereof) of such Additional Shares of Common would be less than the Series C or Series D Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common are deemed to be issued: (I) except as provided in Section 6.2(a)(iv)(3)(II) below, no further adjustment in the Series C or Series D Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (II) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Corporation, or change in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (other than under or by reason of provisions designed to protect against dilution), a Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; and (III) no readjustment pursuant to clause (II) above shall have the effect of increasing the Series C or Series D Conversion Price to an amount which exceeds the lower of (1) the Series C or Series D Conversion Price on the original adjustment date or (2) the Series C or Series D Conversion Price that would have resulted from any issuance of Additional Shares of Common between the original adjustment date and such readjustment date. (B) Stock Dividends and Subdivisions. In the event the Corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend on the Common Stock payable in Common Stock, or effect a split or subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common shall be deemed to have been issued: (I) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend, or (II) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective. (4) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common. In the event this Corporation shall issue Additional Shares of 11 19 Common (including Additional Shares of Common deemed to be issued pursuant to Section 6.2(a)(iv)(3)) without consideration or for a consideration per share less than the Series C or Series D Conversion Price in effect on the date of and immediately prior to such issue (such issuance price being referred to herein as the "Dilution Price"), then and in each such event the Series C or Series D Conversion Price, as applicable, shall be reduced to a price (calculated to the nearest cent) determined by multiplying such Series C or Series D Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common so issued would purchase at such Series C or Series D Conversion Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common so issued; provided that, for the purposes of this Section 6.2(a)(iv)(4), all shares of Common Stock issuable upon conversion of all outstanding Preferred Stock, and other Convertible Securities and all outstanding Options (provided such Options have an exercise price below the Series C or Series D Conversion Price immediately prior to such issue) shall be deemed to be outstanding, and, immediately after any Additional Shares of Common are deemed issued pursuant to Section 6.2(a)(iv)(3), such Additional Shares of Common shall be deemed to be outstanding. (5) Determination of Consideration. For purposes of this Section 6.2(a)(iv), the consideration received by the Corporation for the issue of any Additional Shares of Common shall be computed as follows: (A) Cash and Property: Such consideration shall: (I) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation; (II) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined by Board in the good faith exercise of its reasonable business judgment; and (III) in the event Additional shares of Common are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board. (B) Options and Convertible (I) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the 12 20 instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (C) Stock Dividends and Stock Subdivisions. Any Additional Shares of Common deemed to have been issued, relating to stock dividends and stock splits or subdivisions, shall be deemed to have been issued for no consideration. (6) Other Adjustments to Series C and Series D Conversion Price. (A) Subdivisions, Combinations, or Consolidations of Common Stock. In the event the outstanding shares of Common Stock shall be subdivided, combined or consolidated, by stock split, stock dividend, combination or like event, into a greater or lesser number of shares of Common Stock after the Original Issue Date, the Series C and the Series D Conversion Price in effect immediately prior to such subdivision, combination, consolidation or stock dividend shall, concurrently with the effectiveness of such subdivision, combination or consolidation, be proportionately adjusted. (B) Distributions Other Than Cash Dividends Out of Retained Earnings. In case the Corporation shall declare a cash dividend upon its Common Stock payable otherwise than out of retained earnings or shall distribute to holders of its Common Stock shares of its capital stock (other than Common Stock), stock or other securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights (excluding options to purchase and rights to subscribe for Common Stock or other securities of the Corporation convertible into or exchangeable for Common Stock), then, in each such case, the holders of shares of Series C and Series D Preferred Stock shall, concurrently with the distribution to holders of Common Stock, receive a like distribution based upon the numbers of shares of Common Stock into which the Series C and Series D Preferred Stock is then convertible. (C) Reclassifications. In the case, at any time after the date hereof, of any capital reorganization or any reclassification of the stock of the Corporation (other than as a result of a stock dividend or subdivision, split-up or combination of shares), or Corporate Sale (other than a consolidation or merger in which the Corporation is the continuing entity and which does not result in any change in the Common Stock), the shares of the Series C and Series D Preferred Stock shall, after such reorganization, reclassification or Corporate Sale, be convertible into the kind and number of shares of stock or other securities or property of the Corporation or otherwise to which such holder would have been entitled if 13 21 immediately prior to such reorganization, reclassification or Corporate Sale, the holder had converted the holder's shares of the Series C and Series D Preferred Stock into Common Stock. The provisions of this Section 6.2(a)(iv)(6)(C) shall similarly apply to successive reorganizations, reclassifications, consolidations or Corporate Sales. (b) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series C or Series D Conversion Price pursuant to this Section 6.2, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series C and/or Series D Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C or Series D Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price of the Series C or Series D Preferred Stock at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series C or Series D Preferred Stock. Section 6.3 No Fractional Shares. No fractional shares of Common Stock will be issued upon conversion of Series A, Series B, Series C or Series D Preferred Stock and any fractional share which otherwise would result from conversion by a holder of all of his shares of Series A, Series B, Series C or Series D Preferred Stock will be redeemed by payment in an amount equal to such fraction of the then effective Series A, Series B, Series C or Series D Conversion Price as promptly as funds legally are available therefor. Section 6.4 Mechanics of Conversion. Before any holder of Series A, Series B, Series C or Series D Preferred Stock will be entitled to convert the same into shares of Common Stock, he will surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A, Series B, Series C or Series D Preferred Stock, and he will give written notice to the Corporation stating the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation, as soon as practicable thereafter, will issue and deliver at such office to such holder of Series A, Series B, Series C or Series D Preferred Stock or to his nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which he will be entitled as aforesaid. Such conversion will be deemed to have been made, in the event of automatic conversion, immediately prior to the close of business on the date of the event of conversion or, in the event of voluntary conversion, immediately prior to the close of business on the date when the Corporation receives a holder's certificate or certificates for Series A, Series B, Series C or Series D Preferred Stock and any other documents or instruments required hereunder or by applicable law, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion will be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. Section 6.5 No Impairment. The Corporation, whether by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, merger, dissolution, issue or 14 22 sale of securities or any other voluntary action, will not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but at all times in good faith will assist in the carrying out of all of such action as may be necessary or appropriate in order to protect the conversion rights pursuant to this Section 6 of the holders of Series A, Series B, Series C and Series D Preferred Stock against impairment. Section 6.6 Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any Common Stock Equivalents or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation will mail to each holder of Series A, Series B, Series C or Series D Preferred Stock at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or rights, and the amount and character of such dividend, distribution or right. Section 6.7 Reservation of Stock Issuable Upon Conversion. The Corporation at all times will reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Series A, Series B, Series C or Series D Preferred Stock such number of its shares of Common Stock as from time to time will be sufficient to effect the conversion of all then outstanding shares of Series A, Series B, Series C and Series D Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all then outstanding shares of Series A, Series B, Series C and Series D Preferred Stock, in addition to such other remedies as may be available to the holders of Series A, Series B, Series C and Series D Preferred Stock for such failure, the Corporation will take such corporate action as, in the opinion of its counsel, may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as will be sufficient for such purpose. 1. Section 6.8 Notices. Any notices required by the provisions of this Section 6 to be given to the holders of shares of Series A, Series B, Series C or Series D Preferred Stock must be in writing and will be deemed given upon personal delivery, one day after deposit with a reputable overnight courier service for overnight delivery or after transmission by facsimile telecopier with confirmation of successful transmission, or five days after deposit in the United States mail, by registered or certified mail postage prepaid, or upon actual receipt if given by any other method, addressed to each holder of such record at his address appearing on the books of the Corporation. 15 23 IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this _____ day of ________________, 1999. ----------------------------------------------- Louis Rosenberg, Chief Executive Officer ----------------------------------------------- Bruce Schena, Secretary 16 24 CERTIFICATE OF ELIMINATION OF SERIES A, SERIES B, SERIES C AND SERIES D PREFERRED STOCK OF IMMERSION CORPORATION (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) Immersion Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), certifies as follows: FIRST: Article FOURTH of the Certificate of Incorporation of the Corporation authorizes the issuance of 8,525,759 shares of Preferred Stock, par value $0.001 per share (the "Preferred Stock"), of which 618,500 shares have been designated Series A Preferred Stock, 115,834 shares have been designated Series B Preferred Stock, 1,070,357 shares have been designated Series C Preferred Stock and 1,721,068 shares have been designated Series D Preferred Stock pursuant to a Certificate of Designations filed pursuant to Section 151 of the General Corporation Law of the State of Delaware. SECOND: The following resolution was adopted on ____________, 1999 by the Board of Directors of the Corporation as required by Section 151(g) of the General Corporation Law of the State of Delaware: RESOLVED, that none of the authorized shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are outstanding and no shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock will be issued subject to the Certificate of Designations previously filed with respect to such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. THIRD: Pursuant to the provisions of Section 151(g) of the General Corporation Law of the State of Delaware, all matters set forth in the Certificate of Designations with respect to such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are hereby eliminated from the Certificate of Incorporation. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its duly authorized officer this ____ day of September, 1999. IMMERSION CORPORATION By: -------------------------------------------- Its: -------------------------------------------- 25 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered into as of ____________________, 1999 by and between Immersion Corporation a California corporation ("Immersion California"), and Immersion Corporation Delaware, a Delaware corporation ("Immersion Delaware"). WITNESSETH: WHEREAS, Immersion Delaware is a corporation duly organized and existing under the laws of the State of Delaware; WHEREAS, Immersion California is a corporation duly organized and existing under the laws of the State of California; WHEREAS, on the date of this Merger Agreement, Immersion Delaware has authority to issue 100,000,000 shares of Common Stock, par value $0.001 per share (the "Immersion Delaware Common Stock"), of which 100 shares are issued and outstanding and owned by Immersion California and 8,525,759 shares of Preferred Stock, par value $0.001 per share (the "Immersion Delaware Preferred Stock), of which no shares are issued or outstanding; WHEREAS, on the date of this Merger Agreement, Immersion California has authority to issue 100,000,000 shares of Common Stock (the "Immersion California Common Stock"), of which 7,400,819 shares are issued and outstanding, and 5,000,000 shares of Preferred Stock (the "Immersion California Preferred Stock"), of which 3,492,923 shares are issued and outstanding; WHEREAS, the respective Boards of Directors for Immersion Delaware and Immersion California have determined that, for the purpose of effecting the reincorporation of Immersion California in the State of Delaware, it is advisable and to the advantage of said two corporations and their shareholders that Immersion California merge with and into Immersion Delaware upon the terms and conditions herein provided; and WHEREAS, the respective Boards of Directors of Immersion Delaware and Immersion California, the shareholders of Immersion California, and the sole stockholder of Immersion Delaware have adopted and approved this Merger Agreement; NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, Immersion California and Immersion Delaware hereby agree to merge as follows: 1. Merger. Immersion California shall be merged with and into Immersion Delaware, and Immersion Delaware shall survive the merger ("Merger"), effective upon the date when this Merger Agreement is made effective in accordance with applicable law (the "Effective Date"). 2. Governing Documents. The Amended and Restated Certificate of Incorporation of Immersion Delaware (the "Certificate of Incorporation") shall continue to be the Certificate of Incorporation of Immersion Delaware as the surviving Corporation. Article FIRST of the Restated Certificate of Incorporation of Immersion Delaware shall be amended to read as follows: 1 26 FIRST: The name of the Corporation is Immersion Corporation. The Bylaws of Immersion Delaware, in effect on the Effective Date, shall continue to be the Bylaws of Immersion Delaware as the surviving Corporation without change or amendment until further amended in accordance with the provisions thereof and applicable laws. 3. Directors and Officers. The directors and officers of Immersion California shall become the directors and officers of Immersion Delaware upon the Effective Date and any committee of the Board of Directors of Immersion California shall become the members of such committees for Immersion Delaware. 4. Succession. On the Effective Date, Immersion Delaware shall succeed to Immersion California in the manner of and as more fully set forth in Section 259 of the General Corporation Law of the State of Delaware. 5. Further Assurances. From time to time, as and when required by Immersion Delaware or by its successors and assigns, there shall be executed and delivered on behalf of Immersion California such deeds and other instruments, and there shall be taken or caused to be taken by it such further and other action, as shall be appropriate or necessary in order to vest, perfect or confirm, of record or otherwise, in Immersion Delaware the title to and possession of all the property, interests, assets, rights, privileges, immunities, powers, franchises and authority of Immersion California, and otherwise to carry out the purposes of this Merger Agreement and the officers and directors of Immersion Delaware are fully authorized in the name and on behalf of Immersion California or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments. 6. Stock of Immersion California. a. Common Stock. Upon the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof, each one (1) share of Immersion California Common Stock outstanding immediately prior thereto shall be changed and converted into 0.807 fully paid and nonassessable share of Immersion Delaware Common Stock. b. Preferred Stock. Upon the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof, (i) each one (1) share of Immersion California Series A Preferred and Series B Preferred outstanding immediately prior thereto shall be changed and converted into 4.035 fully paid and nonassessable equivalent shares of Immersion Delaware Series A Preferred or Series B Preferred Stock and (ii) each one share of Series C Preferred Stock and Series D Preferred Stock outstanding immediately prior thereto shall be changed and converted into 0.807 fully paid and nonassessable equivalent share of Immersion Delaware Series C or Series D Preferred Stock. c. Fractional Shares. No fractional shares which a Immersion Delaware stockholder would otherwise be entitled to receive by reason of the exchange of Immersion California stock for Immersion Delaware stock shall be issued. In lieu of any fractional shares to which a holder would otherwise be entitled, Immersion Delaware shall pay cash equal to such fraction multiplied by the fair market value of the Common Stock on the Effective Date as determined by the Board of Directors of Immersion Delaware and for the Preferred Stock, such 2 27 fraction multiplied by the Conversion Prices as defined in Article FOURTH, subparagraph 4(a) of this Certificate of Incorporation. 7. Stock Certificates. On and after the Effective Date, all of the outstanding certificates which prior to that time represented shares of Immersion California stock shall be deemed for all purposes to evidence ownership of and to represent the shares of Immersion Delaware stock into which the shares of Immersion California stock represented by such certificates have been converted as herein provided. The registered owner on the books and records of Immersion Delaware or its transfer agent of any such outstanding stock certificate shall, until such certificate shall have been surrendered for transfer or otherwise accounted for to Immersion Delaware or its transfer agent, have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon the shares of Immersion Delaware stock evidenced by such outstanding certificate as above provided. 8. Options and Warrants. Upon the Effective Date, (i) each outstanding option, warrant to purchase common Stock, Series C Preferred Stock or Series D Preferred Stock or other right to purchase Common Stock, Series C Preferred Stock or Series D Preferred Stock of Immersion California, including those options granted under the 1994 Stock Option Plan and 1997 Stock Option Plan (collectively, the "Option Plan") of Immersion California, shall be converted into and become an option, warrant, or right to purchase the number of shares of Immersion Delaware stock determined by multiplying the number of shares of Immersion California subject to the option, warrant or right to purchase by 0.807, rounded down to the nearest whole number, at a price per share equal to the exercise price of the option, warrant or right to purchase Immersion California stock divided by 0.807, rounded down to the nearest whole cent, and upon the same terms and subject to the same conditions as set forth in the Option Plan and other plan or agreement entered into by Immersion California pertaining to such options, warrants, or rights and (ii) each outstanding warrant to purchase Series A or Series B Preferred Stock of Immersion California shall be converted into and become a warrant to purchase the equivalent number of shares of Series A Preferred Stock or Series B Preferred Stock of Immersion Delaware stock determined by multiplying the number of shares of Immersion California subject to the warrant by 4.035 rounded down to the nearest whole number, at a price per share equal to the exercise price of the warrant divided by 4.035, rounded down to the nearest whole cent, and upon the same terms and subject to the same conditions as set forth in the agreements entered into by Immersion California pertaining to the warrant. A number of shares of Immersion Delaware stock of the relevant class and series shall be reserved for purposes of (i) the options, warrants, and rights described in clause (i) of the preceding sentence equal to the number of shares of Immersion California stock so reserved as of the Effective Date multiplied by 0.807 and (ii) of the warrants described in clause (ii) of the preceding sentence equal to the number of shares of Immersion California stock of the relevant class and series so reserved as of the Effective Date multiplied by 4.035. As of the Effective Date, Immersion Delaware shall assume all obligations of Immersion California under agreements pertaining to such options, warrants and rights, including the Option Plans, and the outstanding options, warrants or other rights, or portions thereof, granted pursuant thereto. 9. Other Employee Benefit Plans. As of the Effective Date, Immersion Delaware hereby assumes all obligations of Immersion California under any and all employee benefit plans 3 28 in effect as of said date or with respect to which employee rights or accrued benefits are outstanding as of said date. 10. Outstanding Common Stock of Immersion Delaware. Forthwith upon the Effective Date, the One Hundred (100) shares of Immersion Delaware Common Stock presently issued and outstanding in the name of Immersion California shall be canceled and retired and resume the status of authorized and unissued shares of Immersion Delaware Common Stock, and no shares of Immersion Delaware Common Stock or other securities of Immersion Delaware shall be issued in respect thereof. 11. Covenants of Immersion Delaware. Immersion Delaware covenants and agrees that it will, on or before the Effective Date: a. Qualify to do business as a foreign corporation in the State of California, and in all other states in which Immersion California is so qualified and in which the failure so to qualify would have a material adverse impact on the business or financial condition of Immersion Delaware. In connection therewith, Immersion Delaware shall irrevocably appoint an agent for service of process as required under the provisions of Section 2105 of the California Corporations Code and under applicable provisions of state law in other states in which qualification is required hereunder. b. File any and all documents with the California Franchise Tax Board necessary to the assumption by Immersion Delaware of all of the franchise tax liabilities of Immersion California. 12. Amendment. At any time before or after approval and adoption by the stockholders of Immersion California, this Merger Agreement may be amended in any manner as may be determined in the judgment of the respective Boards of Directors of Immersion Delaware and Immersion California to be necessary, desirable or expedient in order to clarify the intention of the parties hereto or to effect or facilitate the purposes and intent of this Merger Agreement. 13. Abandonment. At any time before the Effective Date, this Merger Agreement may be terminated and the Merger may be abandoned by the Board of Directors of either Immersion California or Immersion Delaware or both, notwithstanding approval of this Merger Agreement by the sole stockholder of Immersion Delaware and the shareholders of Immersion California. 14. Counterparts. In order to facilitate the filing and recording of this Merger Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original. 4 29 IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved by resolution of the Board of Directors of Immersion California and Immersion Delaware, is hereby executed on behalf of each of said two corporations by their respective officers thereunto duly authorized. IMMERSION CORPORATION DELAWARE, a Delaware corporation By: ----------------------------------------------- Louis Rosenberg, Chief Executive Officer IMMERSION CORPORATION, a California corporation By: ----------------------------------------------- Louis Rosenberg, Chief Executive Officer 5 30 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF IMMERSION CORPORATION Immersion Corporation, a Delaware corporation (the "Corporation"), hereby certifies: 1. That the Corporation's Board of Directors has duly adopted the following resolutions: RESOLVED, that the first paragraph of Article FOURTH of the Restated Certificate of Incorporation is hereby amended to read in full as follows: FOURTH:The Corporation is authorized to issue a total of 105,000,000 shares of stock in two classes designated respectively "Preferred Stock" and "Common Stock." The total number of shares of all series of Preferred Stock that the Corporation shall have the authority to issue is 5,000,000 and the total number of shares of Common Stock that the Corporation shall have the authority to issue is 100,000,000. All of the authorized shares shall have a par value of $0.001. 2. That the proposed amendment has been duly adopted by the Corporation's Board of Directors and sole stockholder in accordance with the provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of Restated Certificate of Incorporation to be signed by a duly authorized officer on this _____ day of ___________, 1999. IMMERSION CORPORATION ----------------------------------------------- Louis Rosenberg, Ph.D., Chief Executive Officer EX-3.4 3 FORM OF BYLAWS 1 EXHIBIT 3.4 BYLAWS OF IMMERSION CORPORATION DELAWARE 2 IMMERSION CORPORATION DELAWARE A DELAWARE CORPORATION BYLAWS ARTICLE I STOCKHOLDERS Section 1.1 Annual Meeting. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. Section 1.2 Special Meetings. Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called only (i) by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exists any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (ii) by the holders of not less than 10% of all shares entitled to cast votes at the meeting, voting together as a single class and shall be held at such place, on such date, and at such time as they shall fix. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice. Section 1.3 Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 1.4 Quorum. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. 3 If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. Section 1.5 Conduct of the Stockholders' Meeting. At every meeting of the stockholders, the Chairman, if there is such an officer, or if not, the President of the Corporation, or in his absence the Vice President designated by the President, or in the absence of such designation any Vice President, or in the absence of the President or any Vice President, a chairman chosen by the majority of the voting shares represented in person or by proxy, shall act as Chairman. The Secretary of the Corporation or a person designated by the Chairman shall act as Secretary of the meeting. Unless otherwise approved by the Chairman, attendance at the stockholders' meeting is restricted to stockholders of record, persons authorized in accordance with Section 8 of these Bylaws to act by proxy, and officers of the Corporation. Section 1.6 Conduct of Business. The Chairman shall call the meeting to order, establish the agenda, and conduct the business of the meeting in accordance therewith or, at the Chairman's discretion, it may be conducted otherwise in accordance with the wishes of the stockholders in attendance. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. The Chairman shall also conduct the meeting in an orderly manner, rule on the precedence of and procedure on, motions and other procedural matters, and exercise discretion with respect to such procedural matters with fairness and good faith toward all those entitled to take part. The Chairman may impose reasonable limits on the amount of time taken up at the meeting on discussion in general or on remarks by any one stockholder. Should any person in attendance become unruly or obstruct the meeting proceedings, the Chairman shall have the power to have such person removed from participation. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 1.6 and Section 1.7, below. The Chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1.6 and Section 1.7, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 1.7 Notice of Stockholder Business. At an annual or special meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) properly brought before the meeting by or at the direction of the Board of Directors, (c) properly brought before an annual meeting by a stockholder, or (d) properly brought before a special meeting by a stockholder, but if, and only if, the notice of a special 4 meeting provides for business to be brought before the meeting by stockholders. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder proposal to be presented at an annual meeting shall be received at the Corporation's principal executive offices not less than 120 calendar days in advance of the date that the Corporation's (or the Corporation's predecessor's) proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous year's proxy statement, or in the event of a special meeting, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual or special meeting (a) a brief description of the business desired to be brought before the annual or special meeting and the reasons for conducting such business at the special meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Section 1.8 Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. No stockholder may authorize more than one proxy for his shares. Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or required by law. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast. Section 1.9 Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. 5 The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE II BOARD OF DIRECTORS Section 2.1 Number and Term of Office. The number of directors shall initially be four (4) and, thereafter, shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). Upon the closing of the first sale of the Corporation's common stock pursuant to a firmly underwritten registered public offering (the "IPO"), the directors shall be divided into three classes, with the term of office of the first class to expire at the first annual meeting of stockholders held after the IPO, the term of office of the second class to expire at the second annual meeting of stockholders held after the IPO, the term of office of the third class to expire at the third annual meeting of stockholders held after the IPO and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. A vacancy resulting from the removal of a director by the stockholders as provided in Article II, Section 2.3 below may be filled at special meeting of the stockholders held for that purpose. All directors shall hold office until the expiration of the term for which elected and until their respective successors are elected, except in the case of the death, resignation or removal of any director. Section 2.2 Vacancies and Newly Created Directorships. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause (other than removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 2.3 Removal. Subject to the rights of holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Vacancies in the Board of Directors resulting from such removal may be filled by a majority of the directors then in office, though less than a quorum, or by the stockholders as provided in Article II, Section 2.1 above. Directors so chosen shall hold office until the new annual meeting of stockholders. 6 Section 2.4 Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 2.5 Special Meetings. Special meetings of the Board of Directors may be called by one-third of the directors then in office (rounded up to the nearest whole number) or by the chief executive officer and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given each director by whom it is not waived by mailing written notice not fewer than five (5) days before the meeting or by telegraphing or personally delivering the same not fewer than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 2.6 Quorum. At any meeting of the Board of Directors, a majority of the total number of authorized directors shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 2.7 Participation in Meetings by Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 2.8 Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or requited by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 2.9 Powers. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (a) To declare dividends from time to time in accordance with law; (b) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (c) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; 7 (d) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (e) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (f) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; (g) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and (h) To adopt from time to time regulations, not inconsistent with these bylaws, for the management of the Corporation's business and affairs. Section 2.10 Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors. Section 2.11 Nomination of Director Candidates. Subject to the rights of holders of any class or series of Preferred Stock then outstanding, nominations for the election of Directors may be made by the Board of Directors or a proxy committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of Directors generally. However, any stockholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if timely notice of such stockholder's intent to make such nomination or nominations has been given in writing to the Secretary of the Corporation. To be timely, a stockholder nomination for a director to be elected at an annual meeting shall be received at the Corporation's principal executive offices not less than 120 calendar days in advance of the date that the Corporation's (or the Corporation's Predecessor's) Proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous year's proxy statement, or in the event of a nomination for director to be elected at a special meeting, notice by the stockholders to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the special meeting was mailed or such public disclosure was made. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote for the election of Directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons 8 (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. In the event that a person is validly designated as a nominee in accordance with this Section 2.11 and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee upon delivery, not fewer than five days prior to the date of the meeting for the election of such nominee, of a written notice to the Secretary setting forth such information regarding such substitute nominee as would have been required to be delivered to the Secretary pursuant to this Section 2.11 had such substitute nominee been initially proposed as a nominee. Such notice shall include a signed consent to serve as a director of the Corporation, if elected, of each such substitute nominee. If the chairman of the meeting for the election of Directors determines that a nomination of any candidate for election as a Director at such meeting was not made in accordance with the applicable provisions of this Section 2.11, such nomination shall be void; provided, however, that nothing in this Section 2.11 shall be deemed to limit any voting rights upon the occurrence of dividend arrearages provided to holders of Preferred Stock pursuant to the Preferred Stock designation for any series of Preferred Stock. ARTICLE III COMMITTEES Section 3.1 Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Section 3.2 Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as 9 otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third of the authorized members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. ARTICLE IV OFFICERS Section 4.1 Generally. The officers of the Corporation shall consist of a President, one or more Vice Presidents, a Secretary and a Treasurer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board and such other officers as may from time to time be appointed by the Board of Directors. Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. The Chairman of the Board, if there shall be such an officer, and the President shall each be members of the Board of Directors. Any number of offices may he held by the same person. Section 4.2 Chairman of the Board. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these bylaws. Section 4.3 President. The President shall be the chief executive officer of the Corporation. Subject to the provisions of these bylaws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him or her by the Board of Directors. He or she shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation. Section 4.4 Vice President. Each Vice President shall have such powers and duties as may be delegated to him or her by the Board of Directors. One Vice President shall be designated by the Board to perform the duties and exercise the powers of the President in the event of the President's absence or disability. Section 4.5 Treasurer. Unless otherwise designated by the Board of Directors, the Chief Financial Officer of the Corporation shall be the Treasurer. The Treasurer shall have the responsibility for maintaining the financial records of the Corporation and shall have custody of all monies and securities of the Corporation. He or she shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all 10 such transactions and of the financial condition of the Corporation. The Treasurer shall also perform such other duties as the Board of Directors may from time to time prescribe. Section 4.6 Secretary. The Secretary shall issue all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders, the Board of Directors, and all committees of the Board of Directors. He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe. Section 4.7 Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 4.8 Removal. Any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors. Section 4.9 Action With Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V STOCK Section 5.1 Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any of or all the signatures on the certificate may be facsimile. Section 5.2 Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. Section 5.3 Record Date. The Board of Directors may fix a record date, which shall not be more than sixty (60) nor fewer than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for the other action hereinafter described, as of which there shall be determined the stockholders who are entitled: to notice of or to vote at any meeting of stockholders or any adjournment thereof; to receive payment of any dividend or other distribution or allotment of any rights; or to exercise any rights with respect to any change, conversion or exchange of stock or with respect to any other lawful action. 11 Section 5.4 Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5.5 Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI NOTICES Section 6.1 Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram, mailgram, telecopy or commercial courier service. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice shall be deemed to be given shall be the time such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if hand delivered, or the time such notice is dispatched, if delivered through the mails or be telegram or mailgram. Section 6.2 Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE VII MISCELLANEOUS Section 7.1 Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 7.2 Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. Section 7.3 Reliance Upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the 12 Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care. Section 7.4 Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 7.5 Time Periods. In applying any provision of these bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 8.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative ("proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, or of a Partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity while serving as a director, officer or employee, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by Delaware Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to such person under applicable law, this bylaw or any agreement with the Corporation) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 8.2 of this Article VIII, the Corporation shall indemnify any such person seeking indemnity in connection with an action, suit or proceeding (or part thereof) initiated by such person only if (a) such indemnification is expressly required to be made by law, (b) the action, suit or proceeding (or part thereof) was authorized by the Board of Directors of the Corporation, (c) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Delaware General Corporation Law, or (d) the action, suit or proceeding (or part thereof) is brought to establish or enforce a right to indemnification under an indemnity agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law. Such right shall be a contract right and shall include the right to be paid by the Corporation expenses incurred in 13 defending any such proceeding in advance of its final disposition; provided, however, that, unless the Delaware General Corporation Law then so prohibits, the payment of such expenses incurred by a director or officer of the Corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is tendered by such person while a director or officer, including, without limitation. service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section or otherwise. Section 8.2 Right of Claimant to Bring Suit. If a claim under Section 1 of this Article VIII is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim. The burden of proving such claim shall be on the claimant. It shall be a defense to any such action (other then an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. Section 8.3 Non-Exclusivity of Rights. The rights conferred on any person in Sections 1 and 2 shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 8.4 Indemnification Contracts. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determinates, greater than, those provided for in this Article VIII. Section 8.5 Insurance. The Corporation shall maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have 14 the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. Section 8.6 Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VIII by the stockholders and the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. ARTICLE IX AMENDMENTS Section 9.1 Amendment of Bylaws. The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of By-Laws of the Corporation by the stockholders shall require, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. 15 CERTIFICATE OF SECRETARY I hereby certify that I am the duly elected and acting Secretary of Immersion Corporation Delaware, a Delaware corporation (the "Corporation"), and that the foregoing Bylaws, comprising thirteen (13) pages, constitute the Bylaws of the Corporation as duly adopted on August __, 1999, by the unanimous written consent of the Board of Directors of the Corporation. IN WITNESS WHEREOF, I have hereunto subscribed my name on ________________, 1999. ________________________________________ Bruce Schena, Secretary 16 TABLE OF CONTENTS
Page ---- ARTICLE I STOCKHOLDERS...............................................................1 Section 1.1 Annual Meeting.......................................................1 Section 1.2 Special Meetings.....................................................1 Section 1.3 Notice of Meetings...................................................1 Section 1.4 Quorum...............................................................2 Section 1.5 Conduct of the Stockholders' Meeting.................................2 Section 1.6 Conduct of Business..................................................2 Section 1.7 Notice of Stockholder Business.......................................2 Section 1.8 Proxies and Voting...................................................3 Section 1.9 Stock List...........................................................3 ARTICLE II BOARD OF DIRECTORS.........................................................4 Section 2.1 Number and Term of Office............................................4 Section 2.2 Vacancies and Newly Created Directorships............................4 Section 2.3 Removal..............................................................4 Section 2.4 Regular Meetings.....................................................5 Section 2.5 Special Meetings.....................................................5 Section 2.6 Quorum...............................................................5 Section 2.7 Participation in Meetings by Conference Telephone....................5 Section 2.8 Conduct of Business..................................................5 Section 2.9 Powers...............................................................5 Section 2.10 Compensation of Directors............................................6 Section 2.11 Nomination of Director Candidates....................................6 ARTICLE III COMMITTEES.................................................................7 Section 3.1 Committees of the Board of Directors.................................7 Section 3.2 Conduct of Business..................................................8 ARTICLE IV OFFICERS...................................................................8 Section 4.1 Generally............................................................8 Section 4.2 Chairman of the Board................................................8 Section 4.3 President............................................................8 Section 4.4 Vice President.......................................................8 Section 4.5 Treasurer............................................................9 Section 4.6 Secretary............................................................9 Section 4.7 Delegation of Authority..............................................9 Section 4.8 Removal..............................................................9 Section 4.9 Action With Respect to Securities of Other Corporations..............9 ARTICLE V STOCK......................................................................9 Section 5.1 Certificates of Stock................................................9 Section 5.2 Transfers of Stock...................................................9 Section 5.3 Record Date..........................................................9
17 TABLE OF CONTENTS (continued)
Page ---- Section 5.4 Lost, Stolen or Destroyed Certificates..............................10 Section 5.5 Regulations.........................................................10 ARTICLE VI NOTICES...................................................................10 Section 6.1 Notices.............................................................10 Section 6.2 Waivers.............................................................10 ARTICLE VII MISCELLANEOUS.............................................................10 Section 7.1 Facsimile Signatures................................................10 Section 7.2 Corporate Seal......................................................11 Section 7.3 Reliance Upon Books, Reports and Records............................11 Section 7.4 Fiscal Year.........................................................11 Section 7.5 Time Periods........................................................11 ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................11 Section 8.1 Right to Indemnification............................................11 Section 8.2 Right of Claimant to Bring Suit.....................................12 Section 8.3 Non-Exclusivity of Rights...........................................12 Section 8.4 Indemnification Contracts...........................................12 Section 8.5 Insurance...........................................................13 Section 8.6 Effect of Amendment.................................................13 ARTICLE IX AMENDMENTS................................................................13 Section 9.1 Amendment of Bylaws.................................................13
EX-10.3 4 INDEMNITY AGREEMENT 1 EXHIBIT 10.3 INDEMNITY AGREEMENT This Indemnity Agreement, dated as of __________, 1999, is made by and between Immersion Corporation Delaware, a Delaware corporation (the "Company"), and (the "Indemnitee"). RECITALS A. The Company is aware that competent and experienced persons are increasingly reluctant to serve as directors, officers or agents of corporations unless they are protected by comprehensive liability insurance or indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors, officers and other agents. B. The statutes and judicial decisions regarding the duties of directors and officers are often difficult to apply, ambiguous, or conflicting, and therefore fail to provide such directors, officers and agents with adequate, reliable knowledge of legal risks to which they are exposed or information regarding the proper course of action to take. C. Plaintiffs often seek damages in such large amounts and the costs of litigation may be so enormous (whether or not the case is meritorious), that the defense and/or settlement of such litigation is often beyond the personal resources of directors, officers and other agents. D. The Company believes that it is unfair for its directors, officers and agents and the directors, officers and agents of its subsidiaries to assume the risk of huge judgments and other expenses which may occur in cases in which the director, officer or agent received no personal profit and in cases where the director, officer or agent was not culpable. E. The Company recognizes that the issues in controversy in litigation against a director, officer or agent of a corporation such as the Company or its subsidiaries are often related to the knowledge, motives and intent of such director, officer or agent, that he is usually the only witness with knowledge of the essential facts and exculpating circumstances regarding such matters, and that the long period of time which usually elapses before the trial or other disposition of such litigation often extends beyond the time that the director, officer or agent can reasonably recall such matters; and may extend beyond the normal time for retirement for such director, officer or agent with the result that he, after retirement or in the event of his death, his spouse, heirs, executors or administrators, may be faced with limited ability and undue hardship in maintaining an adequate defense, which may discourage such a director, officer or agent from serving in that position. F. Based upon their experience as business managers, the Board of Directors of the Company (the "Board") has concluded that, to retain and attract talented and experienced 1 2 individuals to serve as directors, officers and agents of the Company and its subsidiaries and to encourage such individuals to take the business risks necessary for the success of the Company and its subsidiaries, it is necessary for the Company to contractually indemnify its directors, officers and agents and the directors, officers and agents of its subsidiaries, and to assume for itself maximum liability for expenses and damages in connection with claims against such directors, officers and agents in connection with their service to the Company and its subsidiaries, and has further concluded that the failure to provide such contractual indemnification could result in great harm to the Company and its subsidiaries and the Company's stockholders. G. Section 145 of the General Corporation Law of Delaware, under which the Company is organized ("Section 145"), empowers the Company to indemnify its directors, officers, employees and agents by agreement and to indemnify persons who serve, at the request of the Company, as the directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by Section 145 is not exclusive. H. The Company desires and has requested the Indemnitee to serve or continue to serve as a director, officer or agent of the Company and/or one or more subsidiaries of the Company free from undue concern for claims for damages arising out of or related to such services to the Company and/or one or more subsidiaries of the Company. I. Indemnitee is willing to serve, or to continue to serve, the Company and/or one or more subsidiaries of the Company, provided that he is furnished the indemnity provided for herein. AGREEMENT NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Definitions. (a) Agent. For the purposes of this Agreement, "agent" of the Company means any person who is or was a director, officer, employee or other agent of the Company or a subsidiary of the Company; or is or was serving at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise; or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the Company or a subsidiary of the Company, or was a director, officer, employee or agent of another enterprise at the request of, for the convenience of, or to represent the interests of such predecessor corporation. (b) Expenses. For purposes of this Agreement, "expenses" include all out of pocket expenses costs of any type or nature whatsoever (including, without limitation, all attorneys' fees and related disbursements), actually and reasonably incurred by the Indemnitee in 2 3 connection with either the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification under this Agreement or Section 145 or otherwise; provided, however, that "expenses" shall not include any judgments, fines, ERISA excise taxes or penalties, or amounts paid in settlement of a proceeding. (c) Proceeding. For the purposes of this Agreement, "proceeding" means any threatened, pending, or completed action, suit or other proceeding, whether civil, criminal, administrative, or investigative. (d) Subsidiary. For purposes of this Agreement, "subsidiary" means any corporation of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more other subsidiaries, or by one or more other subsidiaries. 2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to serve as agent of the Company, at its will (or under separate agreement, if such agreement exists), in the capacity Indemnitee currently serves as an agent of the Company, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the Bylaws of the Company or any subsidiary of the Company or until such time as he tenders his resignation in writing; provided, however, that nothing contained in this Agreement is intended to create any right to continued employment by Indemnitee. 3. Liability Insurance. (a) Maintenance of D&O Insurance. The Company hereby covenants and agrees that, so long as the Indemnitee shall continue to serve as an agent of the Company and thereafter so long as the Indemnitee shall be subject to any possible proceeding by reason of the fact that the Indemnitee was an agent of the Company, the Company, subject to Section 3(c), shall promptly obtain and maintain in full force and effect directors' and officers' liability insurance ("D&O Insurance") in reasonable amounts from established and reputable insurers. (b) Rights and Benefits. In all policies of D&O Insurance, the Indemnitee shall be named as an insured in such a manner as to provide the Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if the Indemnitee is a director; or of the Company's officers, if the Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if the Indemnitee is not a director or officer but is a key employee. (c) Limitation on Required Maintenance of D&O Insurance. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or the Indemnitee is covered by similar insurance maintained by a subsidiary of the Company. 3 4 4. Mandatory Indemnification. Subject to Section 9 below, the Company shall indemnify the Indemnitee as follows: (a) Successful Defense. To the extent the Indemnitee has been successful on the merits or otherwise in defense of any proceeding (including, without limitation, an action by or in the right of the Company) to which the Indemnitee was a party by reason of the fact that he is or was an Agent of the Company at any time, against all expenses of any type whatsoever actually and reasonably incurred by him in connection with the investigation, defense or appeal of such proceeding. (b) Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company) by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, the Company shall indemnify the Indemnitee against any and all expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding, provided the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (c) Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the Company by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, the Company shall indemnify the Indemnitee against all expenses actually and reasonably incurred by him in connection with the investigation, defense, settlement, or appeal of such proceeding, provided the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and its stockholders; except that no indemnification under this subsection 4(c) shall be made in respect to any claim, issue or matter as to which such person shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction unless and only to the extent that the court in which such proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which the court shall deem proper. (d) Actions where Indemnitee is Deceased. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, and if prior to, during the pendency of after completion of such proceeding Indemnitee becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors and administrators against any and all expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) actually and reasonably incurred to the extent Indemnitee would have been entitled to indemnification pursuant to Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive. 4 5 (e) Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) for which payment is actually made to Indemnitee under a valid and collectible insurance policy of D&O Insurance, or under a valid and enforceable indemnity clause, by-law or agreement. 5. Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) incurred by him in the investigation, defense, settlement or appeal of a proceeding, but not entitled, however, to indemnification for all of the total amount hereof, the Company shall nevertheless indemnify the Indemnitee for such total amount except as to the portion hereof to which the Indemnitee is not entitled. 6. Mandatory Advancement of Expenses. Subject to Section 8(a) below, the Company shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Company. Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall be determined ultimately that the Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to the Indemnitee within twenty (20) days following delivery of a written request therefor by the Indemnitee to the Company. 7. Notice and Other Indemnification Procedures. (a) Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. (b) If, at the time of the receipt of a notice of the commencement of a proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (c) In the event the Company shall be obligated to pay the expenses of any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee, upon the delivery to the Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that (i) the Indemnitee 5 6 shall have the right to employ his counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense; or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by Indemnitee. To indemnify or advance expenses to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board, (iii) such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under the General Corporation Law of Delaware or (iv) the proceeding is brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145. (b) Lack of Good Faith. To indemnify the Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by the Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or (c) Unauthorized Settlements. To indemnify the Indemnitee under this Agreement for any amounts paid in settlement of a proceeding unless the Company consents to such settlement, which consent shall not be unreasonably withheld. 9. Non-exclusivity. The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, the Company's Certificate of Incorporation or Bylaws, the vote of the Company's stockholders or disinterested directors, other agreements, or otherwise, both as to action in his official capacity and to action in another capacity while occupying his position as an agent of the Company, and the Indemnitee's rights hereunder shall continue after the Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee. 10. Enforcement. Any right to indemnification or advances granted by this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. Indemnitee, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any action for which a claim for indemnification is made under this Agreement (other than an action brought to enforce a claim for expenses pursuant to Section 6 hereof, provided that the required undertaking has 6 7 been tendered to the Company) that Indemnitee is not entitled to indemnification because of the limitations set forth in Sections 4 and 8 hereof. Neither the failure of the Corporation (including its Board of Directors or its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Indemnitee is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors or its stockholders) that such indemnification is improper, shall be a defense to the action or create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise. 11. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 12. Survival of Rights. (a) All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an agent of the Company and shall continue thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Indemnitee was serving in the capacity referred to herein. (b) The Company shall require any successor to the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 13. Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to the Indemnitee to the fullest extent permitted by law including those circumstances in which indemnification would otherwise be discretionary. 14. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 13 hereof. 15. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver 7 8 of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 16. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee or (ii) if mailed by certified or registered mail with postage prepaid, on the third business day after the mailing date. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 17. Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. 18. Consent to Jurisdiction. The Company and the Indemnitee each hereby consent to the jurisdiction of the courts of the State of Delaware with respect to any action or proceeding which arises out of or relates to this Agreement. 8 9 The parties hereto have entered into this Indemnity Agreement effective as of the date first above written. THE COMPANY: IMMERSION CORPORATION DELAWARE By -------------------------------- Its ------------------------------- Address: 2158 Paragon Drive San Jose, California 94402 INDEMNITEE: ----------------------------------- [NAME] Address: ----------------------------------- ----------------------------------- 9 EX-10.11 5 LEASE WITH SPIEKER PROPERTIES, L.P. 1 EXHIBIT 10.11 BASIC LEASE INFORMATION INDUSTRIAL NET LEASE DATE: October 26, 1998 TENANT: Immersion Corporation, a California corporation TENANT'S NOTICE ADDRESS: 2158 Paragon Drive, San Jose, CA 95131 TENANT'S BILLING ADDRESS: 2158 Paragon Drive, San Jose, CA 95131 TENANT CONTACT: Timothy Lacey PHONE NUMBER: (408) 467-1900 FAX NUMBER: (408) 467-1901 LANDLORD: Spieker Properties, L.P., a California limited partnership LANDLORD'S NOTICE ADDRESS: 2180 Sand Hill Rd., Suite 200, Menlo Park, CA 94025 LANDLORD'S REMITTANCE ADDRESS: P. O. Box 45587, Department 11231, San Jose, CA 94145-0587 PROJECT DESCRIPTION: That four building R&D/light industrial project totaling 163,370 square feet situated on 9.237 acres of land commonly known as the Charcot Business Park, San Jose, California. The Project is outlined in green on Exhibit A. BUILDING DESCRIPTION: That approximately 29,480 square foot, one-story building known as building C. The building is outlined in blue on exhibit A. PREMISES: Approximately 16,280 rentable square feet, 2150, 2154, and 2158 Paragon Drive, San Jose, California, outlined in red on Exhibit A. PERMITTED USE: Office, marketing, prototyping, assembly, storage, and distribution of computer hardware PARKING DENSITY: Lessee will be allocated 39 non-exclusive parking spaces on an unassigned basis. SCHEDULED TERM COMMENCEMENT DATE: February 1, 1999 SCHEDULED LENGTH OF TERM: Three (3) years and nine (9) months SCHEDULED TERM EXPIRATION DATE: October 31, 2002 RENT: BASE RENT: $19,536.00 per month (subject to adjustment as provided in Paragraph 38.A. hereof) ESTIMATED FIRST YEAR OPERATING EXPENSES: $2,767.60 per month SECURITY DEPOSIT: $23,000.00 including $15,770.00 currently on deposit. TENANT'S PROPORTIONATE SHARE: OF BUILDING: 55.22% OF PROJECT: 9.97%
The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above and shall be construed to 2 incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the Lease, the latter shall control. LANDLORD TENANT Spieker Properties, L.P., Immersion Corporation a California limited partnership a California corporation By: Spieker Properties, Inc., a Maryland corporation, By: /s/ Timothy Lacey its general partner ----------------------------------- Timothy Lacey Its: Chief Financial Officer By: /s/ Joseph D. Russell, Jr. ------------------------------------ Joseph D. Russell, Jr. Its: Regional Senior Vice President 2 3 TABLE OF CONTENTS
PAGE ---- Basic Lease Information............................................... 1 Table of Contents..................................................... 2 1. Premises.............................................................. 4 2. Possession and Lease Commencement..................................... 4 3. Term.................................................................. 4 4. Use................................................................... 4 5. Rules and Regulations................................................. 5 6. Rent.................................................................. 5 7. Operating Expenses.................................................... 5 8. Insurance and Indemnification......................................... 7 9. Waiver of Subrogation................................................. 8 10. Landlord's Repairs and Maintenance.................................... 8 11. Tenant's Repairs and Maintenance...................................... 9 12. Alterations........................................................... 9 13. Signs................................................................. 10 14. Inspection/Posting Notices............................................ 10 15. Services and Utilities................................................ 10 16. Subordination......................................................... 11 17. Financial Statements.................................................. 11 18. Estoppel Certificate.................................................. 11 19. Security Deposit...................................................... 11 20. Limitation of Tenant's Remedies....................................... 11 21. Assignment and Subletting............................................. 11 22. Authority of Tenant................................................... 13 23. Condemnation.......................................................... 13 24. Casualty Damage....................................................... 13 25. Holding Over.......................................................... 14 26. Default............................................................... 14 27. Liens................................................................. 15 28. Substitution.......................................................... 15 29. Transfers by Landlord................................................. 15 30. Right of Landlord to Perform Tenant's Covenants....................... 15 31. Waiver................................................................ 16 32. Notices............................................................... 16 33. Attorney's Fees....................................................... 16 34. Successors and Assigns................................................ 16 35. Force Majeure......................................................... 16 36. Surrender of Premises................................................. 16 37. Miscellaneous......................................................... 17 38. Additional Provisions................................................. 17 39. Jury Trial Waiver..................................................... 19 Signatures............................................................ 19
Exhibits: Exhibit A............................. Rules and Regulations Exhibit B............................. Site Plan, Property Description Exhibit C............................. Tenant Improvements and Specifications Additional Exhibits as Required
3 4 LEASE THIS LEASE is made as of the 26th day of October, 1998, by and between Spieker Properties, L.P., a California limited partnership (hereinafter called "LANDLORD"), and Immersion Corporation (hereinafter called "TENANT"). 1. PREMISES Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and conditions hereinafter set forth, those premises (the "PREMISES") outlined in red on EXHIBIT B and described in the Basic Lease Information. The Premises shall be all or part of a building (the "BUILDING") and of a project (the "PROJECT"), which may consist of more than one building and additional facilities, as described in the Basic Lease Information. The Building and Project are outlined in blue and green respectively on EXHIBIT B. Landlord and Tenant acknowledge that physical changes may occur from time to time in the Premises, Building or Project, and that the number of buildings and additional facilities which constitute the Project may change from time to time, which may result in an adjustment in Tenant's Proportionate Share, as defined in the Basic Lease Information, as provided in Paragraph 7.A. 2. POSSESSION AND LEASE COMMENCEMENT A. EXISTING IMPROVEMENTS. If this Lease pertains to a Premises in which the interior improvements have already been constructed ("EXISTING IMPROVEMENTS"), the provisions of this Paragraph 2.A. shall apply and the term commencement date ("TERM COMMENCEMENT DATE") shall be the earlier of the date on which: (1) Tenant takes possession of some or all of suite two-thousand one-hundred fifty (2150); or (2) Landlord notifies Tenant that Tenant may occupy the Premises. If for any reason Landlord cannot deliver possession of the Premises to Tenant on the scheduled Term Commencement Date, Landlord shall not be subject to any liability therefor, nor shall Landlord be in default hereunder nor shall such failure affect the validity of this Lease, and Tenant agrees to accept possession of the Premises at such time as Landlord is able to deliver the same, which date shall then be deemed the Term Commencement Date. Tenant shall not be liable for any Rent (defined below) for any period prior to (a) the Scheduled Term Commencement Date or (b) the Term Commencement Date. Tenant acknowledges that Tenant has inspected and accepts the Premises in their present condition, broom clean, "as is," and as suitable for, the Permitted Use (as defined below), and for Tenant's intended operations in the Premises. Tenant agrees that the Premises and other improvements are in good and satisfactory condition as of when possession was taken. Tenant further acknowledges that no representations as to the condition or repair of the Premises nor promises to alter, remodel or improve the Premises have been made by Landlord or any agents of Landlord unless such are expressly set forth in this Lease. Upon Landlord's request, Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among other things, to acceptance of the Premises and to the determination of the Term Commencement Date, in accordance with the terms of this Lease, but Tenant's failure or refusal to do so shall not negate Tenant's acceptance of the Premises or affect determination of the Term Commencement Date. B. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building to be constructed or improvements to be constructed within a Building, the provisions of this Paragraph 2.B. shall apply in lieu of the provisions of Paragraph 2.A. above and the term commencement date ("TERM COMMENCEMENT DATE") shall be the earlier of the date on which: (1) Tenant takes possession of some or all of the Premises; or (2) the improvements to be constructed or performed in the Premises by Landlord (if any) shall have been substantially completed in accordance with the plans and specifications, if any, described on EXHIBIT C and Tenant's taking of possession of the Premises or any part thereof shall constitute Tenant's confirmation of substantial completion for all purposes hereof, whether or not substantial completion of the Building or Project shall have occurred. If for any reason Landlord cannot deliver possession of the Premises to Tenant on the scheduled Term Commencement Date, Landlord shall not be subject to any liability therefor, nor shall Landlord be in default hereunder nor shall such failure affect the validity of this Lease, and Tenant agrees to accept possession of the Premises at such time as such improvements have been substantially completed, which date shall then be deemed the Term Commencement Date. Tenant shall not be liable for any Rent for any period prior to the Term Commencement Date (but without affecting any obligations of Tenant under any improvement agreement appended to this Lease). In the event of any dispute as to substantial completion of work performed or required to be performed by Landlord, the certificate of Landlord's architect or general contractor shall be conclusive. Substantial completion shall have occurred notwithstanding Tenant's submission of a punchlist to Landlord, which Tenant shall submit, if at all, within three (3) business days after the Term Commencement Date or otherwise in accordance with any improvement agreement appended to this Lease. Upon Landlord's request, Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among other things, to acceptance of the Premises and to the determination of the Term Commencement Date, in accordance with the terms of this Lease, but Tenant's failure or refusal to do so shall not negate Tenant's acceptance of the Premises or affect determination of the Term Commencement Date. 3. TERM The term of this Lease (the "TERM") shall commence on the Term Commencement Date and continue in full force and effect for the number of months specified as the Length of Term in the Basic Lease Information or until this Lease is terminated as otherwise provided herein. If the Term Commencement Date is a date other than the first day of the calendar month, the Term shall be the number of months of the Length of Term in addition to the remainder of the calendar month following the Term Commencement Date. 4. USE A. GENERAL. Tenant shall use the Premises for the permitted use specified in the Basic Lease Information ("PERMITTED USE") and for no other use or purpose. Tenant shall control Tenant's employees, agents, customers, visitors, invitees, licensees, contractors, assignees and subtenants (collectively, "TENANT'S PARTIES") in such a manner that Tenant and Tenant's Parties cumulatively do not exceed the parking density specified in the Basic Lease Information (the "PARKING DENSITY") at any time. So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the nonexclusive right to use, in common with other parties occupying the Building or Project, the parking areas, driveways and other common areas of the Building and Project, subject to the terms of this Lease and such rules and regulations as Landlord may from time to time prescribe. Landlord reserves the right, without notice or liability to Tenant, and without the same constituting an actual or constructive eviction, to alter or modify the common areas from time to time, including the location and configuration thereof, and the amenities and facilities which Landlord may determine to provide from time to time. B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas, substances, noise or vibrations to emanate from the Premises or from any portion of the common areas as a result of Tenant's or any Tenant's Party's use thereof, nor take any action which would constitute a nuisance or would disturb, obstruct or endanger any other tenants or occupants of the Building or Project or elsewhere, or interfere with their use of their respective premises or common areas. Storage outside the Premises of materials, vehicles or any other items is prohibited. Tenant shall not use or allow the Premises to be used for any immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of any waste in, 4 5 on or about the Premises. Tenant shall not allow any sale by auction upon the Premises, or place any loads upon the floors, walls or ceilings which could endanger the structure, or place any harmful substances in the drainage system of the Building or Project. No waste, materials or refuse shall be dumped upon or permitted to remain outside the Premises except in trash containers placed inside exterior enclosures designated for that purpose by Landlord. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of the above-referenced rules or any other terms or provisions of such tenant's or occupant's lease or other contract. C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts the Premises in the condition existing as of the date of such entry. Tenant shall at its sole cost and expense strictly comply with all existing or future applicable municipal, state and federal and other governmental statutes, rules, requirements, regulations, laws and ordinances, including zoning ordinances and regulations, and covenants, easements and restrictions of record governing and relating to the use, occupancy or possession of the Premises, to Tenant's use of the common areas, or to the use, storage, generation or disposal of Hazardous Materials (hereinafter defined) (collectively "REGULATIONS"). Tenant shall at its sole cost and expense obtain any and all licenses or permits necessary for Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly comply with the requirements of any board of fire underwriters or other similar body now or hereafter constituted. Tenant shall not do or permit anything to be done in, on, under or about the Project or bring or keep anything which will in any way increase the rate of any insurance upon the Premises, Building or Project or upon any contents therein or cause a cancellation of said insurance or otherwise affect said insurance in any manner. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any loss, cost, expense, damage, attorneys' fees or liability arising out of the failure of Tenant to comply with any Regulation. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. Solely with respect to suite two-thousand one-hundred fifty (2150), tenant's obligations to comply with Regulations do not extend to (i) instances of non compliance with respect to the condition of the Premises existing prior to Commencement Date. D. HAZARDOUS MATERIALS. As used in this Lease, "HAZARDOUS MATERIALS" shall include, but not be limited to, hazardous, toxic and radioactive materials and those substances defined as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or other similar designations in any Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause, any Hazardous Materials to be handled, used, generated, stored, released or disposed of in, on, under or about the Premises, the Building or the Project or surrounding land or environment in violation of any Regulations. Tenant must obtain Landlord's written consent prior to the introduction of any Hazardous Materials onto the Project. Notwithstanding the foregoing, Tenant may handle, store, use and dispose of products containing small quantities of Hazardous Materials for "general office purposes" (such as toner for copiers) to the extent customary and necessary for the Permitted Use of the Premises; provided that Tenant shall always handle, store, use, and dispose of any such Hazardous Materials in a safe and lawful manner and never allow such Hazardous Materials to contaminate the Premises, Building, or Project or surrounding land or environment. Tenant shall immediately notify Landlord in writing of any Hazardous Materials' contamination of any portion of the Project of which Tenant becomes aware, whether or not caused by Tenant. Landlord shall have the right at all reasonable times to inspect the Premises and to conduct tests and investigations to determine whether Tenant is in compliance with the foregoing provisions, the costs of all such inspections, tests and investigations to be borne by Tenant. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses (including attorneys' and consultants' fees and court costs), demands, causes of action, or judgments directly or indirectly arising out of or related to the use, generation, storage, release, or disposal of Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about the Premises, the Building or the Project or surrounding land or environment, which indemnity shall include, without limitation, damages for personal or bodily injury, property damage, damage to the environment or natural resources occurring on or off the Premises, losses attributable to diminution in value or adverse effects on marketability, the cost of any investigation, monitoring, government oversight, repair, removal, remediation, restoration, abatement, and disposal, and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the expiration or earlier termination of this Lease. Neither the consent by Landlord to the use, generation, storage, release or disposal of Hazardous Materials nor the strict compliance by Tenant with all laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's obligation of indemnification pursuant to this Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. 5. RULES AND REGULATIONS Tenant shall faithfully observe and comply with the building rules and regulations attached hereto as EXHIBIT A and any other rules and regulations and any modifications or additions thereto which Landlord may from time to time prescribe in writing for the purpose of maintaining the proper care, cleanliness, safety, traffic flow and general order of the Premises or the Building or Project. Tenant shall cause Tenant's Parties to comply with such rules and regulations. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of such rules and regulations, any other tenant's or occupant's lease or any Regulations. 6. RENT A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive, without notice or demand throughout the Term, Base Rent as specified in the Basic Lease Information, payable in monthly installments in advance on or before the first day of each calendar month, in lawful money of the United States, without deduction or offset whatsoever, at the Remittance Address specified in the Basic Lease Information or to such other place as Landlord may from time to time designate in writing. Base Rent for the first full month of the Term shall be paid by Tenant upon Tenant's execution of this Lease. If the obligation for payment of Base Rent commences on a day other than the first day of a month, then Base Rent shall be prorated and the prorated installment shall be paid on the first day of the calendar month next succeeding the Term Commencement Date. The Base Rent payable by Tenant hereunder is subject to adjustment as provided elsewhere in this Lease, as applicable. As used herein, the term "Base Rent" shall mean the Base Rent specified in the Basic Lease Information as it may be so adjusted from time to time. B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be paid by Tenant under Paragraph 15, the interest and late charge described in Paragraphs 26.C. and D., and any monies spent by Landlord pursuant to Paragraph 30, shall be considered additional rent ("ADDITIONAL RENT"). "RENT" shall mean Base Rent and Additional Rent. 7. OPERATING EXPENSES A. OPERATING EXPENSES. In addition to the Base Rent required to be paid hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate Share of the Building and/or Project (as applicable), as defined in the Basic Lease Information, of Operating Expenses (defined below) in the manner set forth below. Tenant shall pay the applicable Tenant's Proportionate Share of each such Operating Expenses. Landlord and Tenant acknowledge that if the number of buildings which constitute the Project increases or decreases, or if physical changes are made to the Premises, Building or Project or the configuration of any thereof, Landlord may at its discretion reasonably adjust Tenant's Proportionate Share of the Building or Project to reflect the change. Landlord's determination of Tenant's Proportionate Share of the Building and of the Project shall be conclusive so long as it is reasonably and consistently applied. "OPERATING 5 6 EXPENSES" shall mean all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay, because of or in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building or Project and its supporting facilities and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project (as determined in a reasonable manner) other than those expenses and costs which are specifically attributable to Tenant or which are expressly made the financial responsibility of Landlord or specific tenants of the Building or Project pursuant to this Lease. Operating Expenses shall include, but are not limited to, the following: (1) TAXES. All real property taxes and assessments, possessory interest taxes, sales taxes, personal property taxes, business or license taxes or fees, gross receipts taxes, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit charges, and other impositions, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind (including fees "in-lieu" of any such tax or assessment) which are now or hereafter assessed, levied, charged, confirmed, or imposed by any public authority upon the Building or Project, its operations or the Rent (or any portion or component thereof), or any tax, assessment or fee imposed in substitution, partially or totally, of any of the above. Operating Expenses shall also include any taxes, assessments, reassessments, or other fees or impositions with respect to the development, leasing, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, Building or Project or any portion thereof, including, without limitation, by or for Tenant, and all increases therein or reassessments thereof whether the increases or reassessments result from increased rate and/or valuation (whether upon a transfer of the Building or Project or any portion thereof or any interest therein or for any other reason). Operating Expenses shall not include inheritance or estate taxes imposed upon or assessed against the interest of any person in the Project, or taxes computed upon the basis of the net income of any owners of any interest in the Project. If it shall not be lawful for Tenant to reimburse Landlord for all or any part of such taxes, the monthly rental payable to Landlord under this Lease shall be revised to net Landlord the same net rental after imposition of any such taxes by Landlord as would have been payable to Landlord prior to the payment of any such taxes. (2) INSURANCE. All insurance premiums and costs, including, but not limited to, any deductible amounts, premiums and other costs of insurance incurred by Landlord, including for the insurance coverage set forth in Paragraph 8.A. herein. (3) COMMON AREA MAINTENANCE. (a) Repairs, replacements, and general maintenance of and for the Building and Project and public and common areas and facilities of and comprising the Building and Project, including, but not limited to, the roof and roof membrane, elevators, mechanical rooms, alarm systems, pest extermination, landscaped areas, parking and service areas, driveways, sidewalks, truck staging areas, rail spur areas, fire sprinkler systems, sanitary and storm sewer lines, utility services, heating/ventilation/air conditioning systems, electrical, mechanical or other systems, telephone equipment and wiring servicing, plumbing, lighting, and any other items or areas which affect the operation or appearance of the Building or Project, which determination shall be at Landlord's discretion, except for: those items expressly made the financial responsibility of Landlord pursuant to Paragraph 10 hereof; those items to the extent paid for by the proceeds of insurance; and those items attributable solely or jointly to specific tenants of the Building or Project. Replacement costs of Generally Accepted Accounting Principals (GAAP) capital items (roof membrane, HVAC, paving and exterior painting) in excess of twenty thousand dollars ($20,000) shall be amortized over their useful lives based on industry norms and Tenant shall be responsible for its pro rata share for the remaining Term of the Lease. (b) Repairs, replacements, and general maintenance shall include the cost of any capital improvements made to or capital assets acquired for the Project or Building that in Landlord's discretion may reduce any other Operating Expenses, including present or future repair work, are reasonably necessary for the health and safety of the occupants of the Building or Project, or are required to comply with any Regulation, such costs or allocable portions thereof to be amortized over such reasonable period as Landlord shall determine, together with interest on the unamortized balance at the publicly announced "prime rate" charged by Wells Fargo Bank, N.A. (San Francisco) or its successor at the time such improvements or capital assets are constructed or acquired, plus two (2) percentage points, or in the absence of such prime rate, then at the U.S. Treasury six-month market note (or bond, if so designated) rate as published by any national financial publication selected by Landlord, plus four (4) percentage points, but in no event more than the maximum rate permitted by law, plus reasonable financing charges. (c) Payment under or for any easement, license, permit, operating agreement, declaration, restrictive covenant or instrument relating to the Building or Project. (d) All expenses and rental related to services and costs of supplies, materials and equipment used in operating, managing and maintaining the Premises, Building and Project, the equipment therein and the adjacent sidewalks, driveways, parking and service areas, including, without limitation, expenses related to service agreements regarding security, fire and other alarm systems, janitorial services to the extent not addressed in Paragraph 11 hereof, window cleaning, elevator maintenance, Building exterior maintenance, landscaping and expenses related to the administration, management and operation of the Project, including without limitation salaries, wages and benefits and management office rent. (e) The cost of supplying any services and utilities which benefit all or a portion of the Premises, Building or Project to the extent not addressed in Paragraph 15 hereof. (f) Legal expenses and the cost of audits by certified public accountants; provided, however, that legal expenses chargeable as Operating Expenses shall not include the cost of negotiating leases, collecting rents, evicting tenants nor shall it include costs incurred in legal proceedings with or against any tenant or to enforce the provisions of any lease. (g) A management and accounting cost recovery fee equal to five percent (5%) of the sum of the Project's base rents and Operating Expenses (other than such management and accounting fee). If the rentable area of the Building and/or Project is not fully occupied during any fiscal year of the Term as determined by Landlord, an adjustment may be made in Landlord's discretion in computing the Operating Expenses for such year so that Tenant pays an equitable portion of all variable items (e.g., utilities, janitorial services and other component expenses that are affected by variations in occupancy levels) of Operating Expenses, as reasonably determined by Landlord; provided, however, that in no event shall Landlord be entitled to collect in excess of one hundred percent (100%) of the total Operating Expenses from all of the tenants in the Building or Project, as the case may be. Operating Expenses shall not include the cost of providing tenant improvements or other specific costs incurred for the account of, separately billed to and paid by specific tenants of the Building or Project, the initial construction cost of the Building, or debt service on any mortgage or deed of trust recorded with respect to the Project other than pursuant to Paragraph 7.A.(3)(b) above. Notwithstanding 6 7 anything herein to the contrary, in any instance wherein Landlord, in Landlord's sole discretion, deems Tenant to be responsible for any amounts greater than Tenant's Proportionate Share, Landlord shall have the right to allocate costs in any manner Landlord deems appropriate. The above enumeration of services and facilities shall not be deemed to impose an obligation on Landlord to make available or provide such services or facilities except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to make the same available or provide the same. Without limiting the generality of the foregoing, Tenant acknowledges and agrees that it shall be responsible for providing adequate security for its use of the Premises, the Building and the Project and that Landlord shall have no obligation or liability with respect thereto, except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to provide the same. B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "ESTIMATED OPERATING EXPENSES" for any particular year shall mean Landlord's estimate of the Operating Expenses for such fiscal year made with respect to such fiscal year as hereinafter provided. Landlord shall have the right from time to time to revise its fiscal year and interim accounting periods so long as the periods as so revised are reconciled with prior periods in a reasonable manner. During the last month of each fiscal year during the Term, or as soon thereafter as practicable, Landlord shall give Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal year. Tenant shall pay Tenant's Proportionate Share of the Estimated Operating Expenses with installments of Base Rent for the fiscal year to which the Estimated Operating Expenses applies in monthly installments on the first day of each calendar month during such year, in advance. Such payment shall be construed to be Additional Rent for all purposes hereunder. If at any time during the course of the fiscal year, Landlord determines that Operating Expenses are projected to vary from the then Estimated Operating Expenses by more than five percent (5%), Landlord may, by written notice to Tenant, revise the Estimated Operating Expenses for the balance of such fiscal year, and Tenant's monthly installments for the remainder of such year shall be adjusted so that by the end of such fiscal year Tenant has paid to Landlord Tenant's Proportionate Share of the revised Estimated Operating Expenses for such year, such revised installment amounts to be Additional Rent for all purposes hereunder. C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE ADJUSTMENT" shall mean the difference between Estimated Operating Expenses and actual Operating Expenses for any fiscal year determined as hereinafter provided. Within one hundred twenty (120) days after the end of each fiscal year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a statement of actual Operating Expenses for the fiscal year just ended, accompanied by a computation of Operating Expense Adjustment. If such statement shows that Tenant's payment based upon Estimated Operating Expenses is less than Tenant's Proportionate Share of Operating Expenses, then Tenant shall pay to Landlord the difference within twenty (20) days after receipt of such statement, such payment to constitute Additional Rent for all purposes hereunder. If such statement shows that Tenant's payments of Estimated Operating Expenses exceed Tenant's Proportionate Share of Operating Expenses, then (provided that Tenant is not in default under this Lease) Landlord shall pay to Tenant the difference within twenty (20) days after delivery of such statement to Tenant. If this Lease has been terminated or the Term hereof has expired prior to the date of such statement, then the Operating Expense Adjustment shall be paid by the appropriate party within twenty (20) days after the date of delivery of the statement. Should this Lease commence or terminate at any time other than the first day of the fiscal year, Tenant's Proportionate Share of the Operating Expense Adjustment shall be prorated based on a month of 30 days and the number of calendar months during such fiscal year that this Lease is in effect. Notwithstanding anything to the contrary contained in Paragraph 7.A or 7.B, Landlord's failure to provide any notices or statements within the time periods specified in those paragraphs shall in no way excuse Tenant from its obligation to pay Tenant's Proportionate Share of Operating Expenses. D. NET LEASE. This shall be a triple net Lease and Base Rent shall be paid to Landlord absolutely net of all costs and expenses, except as specifically provided to the contrary in this Lease. The provisions for payment of Operating Expenses and the Operating Expense Adjustment are intended to pass on to Tenant and reimburse Landlord for all costs and expenses of the nature described in Paragraph 7.A. incurred in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building and/or Project and its supporting facilities and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project. E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any statement provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall have the right, not later than twenty (20) days following receipt of such statement and upon the condition that Tenant shall first deposit with Landlord the full amount in dispute, to cause Landlord's books and records with respect to Operating Expenses for such fiscal year to be audited by certified public accountants selected by Tenant and subject to Landlord's reasonable right of approval. The Operating Expense Adjustment shall be appropriately adjusted on the basis of such audit. If such audit discloses a liability for a refund in excess of ten percent (10%) of Tenant's Proportionate Share of the Operating Expenses previously reported, the cost of such audit shall be borne by Landlord; otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not request an audit in accordance with the provisions of this Paragraph 7.E. within twenty (20) days after receipt of Landlord's statement provided pursuant to Paragraph 7.B. or 7.C., such statement shall be final and binding for all purposes hereof. 8. INSURANCE AND INDEMNIFICATION A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for the sole benefit of Landlord and under Landlord's sole control. (1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance insuring the Building against damage or destruction due to risk including fire, vandalism, and malicious mischief in an amount not less than the replacement cost thereof, in the form and with deductibles and endorsements as selected by Landlord. At its election, Landlord may instead (but shall have no obligation to) obtain "All Risk" coverage, and may also obtain earthquake, pollution, and/or flood insurance in amounts selected by Landlord. (2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also (but shall have no obligation to) carry insurance against loss of rent, in an amount equal to the amount of Base Rent and Additional Rent that Landlord could be required to abate to all Building tenants in the event of condemnation or casualty damage for a period of twelve (12) months. Landlord may also (but shall have no obligation to) carry such other insurance as Landlord may deem prudent or advisable, including, without limitation, liability insurance in such amounts and on such terms as Landlord shall determine. Landlord shall not be obligated to insure, and shall have no responsibility whatsoever for any damage to, any furniture, machinery, goods, inventory or supplies, or other personal property or fixtures which Tenant may keep or maintain in the Premises, or any leasehold improvements, additions or alterations within the Premises. B. TENANT'S INSURANCE. (1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term, insurance on all personal property and fixtures of Tenant and all improvements, additions or alterations made by or for Tenant to the Premises on an "All Risk" basis, insuring such property for the full replacement value of such property. 7 8 (2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term Commercial General Liability insurance covering bodily injury and property damage liability occurring in or about the Premises or arising out of the use and occupancy of the Premises and the Project, and any part of either, and any areas adjacent thereto, and the business operated by Tenant or by any other occupant of the Premises. Such insurance shall include contractual liability coverage insuring all of Tenant's indemnity obligations under this Lease. Such coverage shall have a minimum combined single limit of liability of at least Two Million Dollars ($2,000,000.00), and a minimum general aggregate limit of Three Million Dollars ($3,000,000.00), with an "Additional Insured - Managers or Lessors of Premises Endorsement" and the "Amendment of the Pollution Exclusion Endorsement." All such policies shall be written to apply to all bodily injury (including death), property damage or loss, personal and advertising injury and other covered loss, however occasioned, occurring during the policy term, shall be endorsed to add Landlord and any party holding an interest to which this Lease may be subordinated as an additional insured, and shall provide that such coverage shall be "PRIMARY" and non-contributing with any insurance maintained by Landlord, which shall be excess insurance only. Such coverage shall also contain endorsements including employees as additional insureds if not covered by Tenant's Commercial General Liability Insurance. All such insurance shall provide for the severability of interests of insureds; and shall be written on an "OCCURRENCE" basis, which shall afford coverage for all claims based on acts, omissions, injury and damage, which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period. (3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant shall carry Workers' Compensation Insurance as required by any Regulation, throughout the Term at Tenant's sole cost and expense. Tenant shall also carry Employers' Liability Insurance in amounts not less than One Million Dollars ($1,000,000) each accident for bodily injury by accident; One Million Dollars ($1,000,000) policy limit for bodily injury by disease; and One Million Dollars ($1,000,000) each employee for bodily injury by disease, throughout the Term at Tenant's sole cost and expense. (4) COMMERCIAL AUTO LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term commercial auto liability insurance with a combined limit of not less than One Million Dollars ($1,000,000) for bodily injury and property damage for each accident. Such insurance shall cover liability relating to any auto (including owned, hired and non-owned autos). (5) GENERAL INSURANCE REQUIREMENTS. All coverages described in this Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty (30) days' notice of cancellation or change in terms; and (ii) waive all rights of subrogation by the insurance carrier against Landlord. If at any time during the Term the amount or coverage of insurance which Tenant is required to carry under this Paragraph 8.B. is, in Landlord's reasonable judgment, materially less than the amount or type of insurance coverage typically carried by owners or tenants of properties located in the general area in which the Premises are located which are similar to and operated for similar purposes as the Premises or if Tenant's use of the Premises should change with or without Landlord's consent, Landlord shall have the right to require Tenant to increase the amount or change the types of insurance coverage required under this Paragraph 8.B. All insurance policies required to be carried by Tenant under this Lease shall be written by companies rated A X or better in "Best's Insurance Guide" and authorized to do business in the State of California. In any event deductible amounts under all insurance policies required to be carried by Tenant under this Lease shall not exceed Five Thousand Dollars ($5,000.00) per occurrence. Tenant shall deliver to Landlord on or before the Term Commencement Date, and thereafter at least thirty (30) days before the expiration dates of the expired policies, certified copies of Tenant's insurance policies, or a certificate evidencing the same issued by the insurer thereunder; and, if Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at Landlord's option and in addition to Landlord's other remedies in the event of a default by Tenant hereunder, procure the same for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent. C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably acceptable to Landlord, protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses, including reasonable attorneys' and consultants' fees and court costs, demands, causes of action, or judgments, directly or indirectly arising out of or related to: (1) claims of injury to or death of persons or damage to property occurring or resulting directly or indirectly from the use or occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or from activities or failures to act of Tenant or Tenant's Parties; (2) claims arising from work or labor performed, or for materials or supplies furnished to or at the request of Tenant in connection with performance of any work done for the account of Tenant within the Premises or Project; (3) claims arising from any breach or default on the part of Tenant in the performance of any covenant contained in this Lease; and (4) claims arising from the negligence or intentional acts or omissions of Tenant or Tenant's Parties. The foregoing indemnity by Tenant shall not be applicable to claims to the extent arising from the gross negligence or willful misconduct of Landlord. Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury or damage to any person or property in or about the Premises, Building or Project by or from any cause whatsoever (other than Landlord's gross negligence or willful misconduct) and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the Premises, Building or Project, or caused by gas, fire, oil or electricity in, on or about the Premises, Building or Project. The provisions of this Paragraph shall survive the expiration or earlier termination of this Lease. 9. WAIVER OF SUBROGATION To the extent permitted by law and without affecting the coverage provided by insurance to be maintained hereunder or any other rights or remedies, Landlord and Tenant each waive any right to recover against the other for: (a) damages for injury to or death of persons; (b) damages to property, including personal property; (c) damages to the Premises or any part thereof; and (d) claims arising by reason of the foregoing due to hazards covered by insurance maintained or required to be maintained pursuant to this Lease to the extent of proceeds recovered therefrom, or proceeds which would have been recoverable therefrom in the case of the failure of any party to maintain any insurance coverage required to be maintained by such party pursuant to this Lease. This provision is intended to waive fully, any rights and/or claims arising by reason of the foregoing, but only to the extent that any of the foregoing damages and/or claims referred to above are covered or would be covered, and only to the extent of such coverage, by insurance actually carried or required to be maintained pursuant to this Lease by either Landlord or Tenant. This provision is also intended to waive fully, and for the benefit of each party, any rights and/or claims which might give rise to a right of subrogation on any insurance carrier. Subject to all qualifications of this Paragraph 9, Landlord waives its rights as specified in this Paragraph 9 with respect to any subtenant that it has approved pursuant to Paragraph 21 but only in exchange for the written waiver of such rights to be given by such subtenant to Landlord upon such subtenant taking possession of the Premises or a portion thereof. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy. 10. LANDLORD'S REPAIRS AND MAINTENANCE Landlord shall at Landlord's expense maintain in good repair, reasonable wear and tear excepted, the structural soundness of the roof, foundations, and exterior and load-bearing walls of the Building. The term "exterior walls" as used herein shall not include windows, glass or plate glass, doors, dock bumpers or dock plates, special store fronts or office entries. Any damage caused by or repairs 8 9 necessitated by any negligence or act of Tenant or Tenant's Parties may be repaired by Landlord at Landlord's option and Tenant's expense. Tenant shall immediately give Landlord written notice of any defect or need of repairs in such components of the Building for which Landlord is responsible, after which Landlord shall have a reasonable opportunity and the right to enter the Premises at all reasonable times to repair same. Landlord's liability with respect to any defects, repairs, or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance, and there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of repairs, alterations or improvements in or to any portion of the Premises, the Building or the Project or to fixtures, appurtenances or equipment in the Building, except as provided in Paragraph 24. By taking possession of the Premises, Tenant accepts them "as is," as being in good order, condition and repair and the condition in which Landlord is obligated to deliver them and suitable for the Permitted Use and Tenant's intended operations in the Premises, whether or not any notice of acceptance is given. Landlord represents that upon delivery of the Premises, the HVAC, electrical, plumbing, roof and warehouse docking systems are in good working order. Landlord will perform repairs to the HVAC, electrical, plumbing, roof and warehouse docking systems of subject premises for the first 30 days of tenant occupancy. In no event will Landlord be responsible to repair the HVAC, electrical, plumbing, roof (excluding structural soundness) and warehouse docking systems of which Landlord was notified more than 30 days after lease commencement. 11. TENANT'S REPAIRS AND MAINTENANCE Tenant shall at all times during the Term at Tenant's expense maintain all parts of the Premises and such portions of the Building as are within the exclusive control of Tenant in a first-class, good, clean and secure condition and promptly make all necessary repairs and replacements, as determined by Landlord, including but not limited to, all windows, glass, doors, walls, including demising walls, and wall finishes, floors and floor covering, heating, ventilating and air conditioning systems, ceiling insulation, truck doors, hardware, dock bumpers, dock plates and levelers, plumbing work and fixtures, downspouts, entries, skylights, smoke hatches, roof vents, electrical and lighting systems, and fire sprinklers, with materials and workmanship of the same character, kind and quality as the original. Tenant shall at Tenant's expense also perform regular removal of trash and debris. If Tenant uses rail and if required by the railroad company, Tenant agrees to sign a joint maintenance agreement governing the use of the rail spur, if any. Tenant shall, at Tenant's own expense, enter into a regularly scheduled preventative maintenance/service contract with a maintenance contractor for servicing all hot water, heating and air conditioning systems and equipment within or serving the Premises. The maintenance contractor and the contract must be approved by Landlord. The service contract must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective and a copy thereof delivered to Landlord within thirty (30) days after the Term Commencement Date. Landlord may, upon notice to Tenant, enter into such a service contract on behalf of Tenant or perform the work and in either case charge Tenant the cost thereof along with a reasonable amount for Landlord's overhead. Notwithstanding anything to the contrary contained herein, Tenant shall, at its expense, promptly repair any damage to the Premises or the Building or Project resulting from or caused by any negligence or act of Tenant or Tenant's Parties. Nothing herein shall expressly or by implication render Tenant Landlord's agent or contractor to effect any repairs or maintenance required of Tenant under this Paragraph 11, as to all of which Tenant shall be solely responsible. 12. ALTERATIONS A. Tenant shall not make, or allow to be made, any alterations, physical additions, improvements or partitions, including without limitation the attachment of any fixtures or equipment, in, about or to the Premises ("ALTERATIONS") without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld with respect to proposed Alterations which: (a) comply with all applicable Regulations; (b) are, in Landlord's opinion, compatible with the Building or the Project and its mechanical, plumbing, electrical, heating/ventilation/air conditioning systems, and will not cause the Building or Project or such systems to be required to be modified to comply with any Regulations (including, without limitation, the Americans With Disabilities Act); and (c) will not interfere with the use and occupancy of any other portion of the Building or Project by any other tenant or its invitees. Specifically, but without limiting the generality of the foregoing, Landlord shall have the right of written consent for all plans and specifications for the proposed Alterations, construction means and methods, all appropriate permits and licenses, any contractor or subcontractor to be employed on the work of Alterations, and the time for performance of such work, and may impose rules and regulations for contractors and subcontractors performing such work. Tenant shall also supply to Landlord any documents and information reasonably requested by Landlord in connection with Landlord's consideration of a request for approval hereunder. Tenant shall cause all Alterations to be accomplished in a first-class, good and workmanlike manner, and to comply with all applicable Regulations and Paragraph 27 hereof. Tenant shall at Tenant's sole expense, perform any additional work required under applicable Regulations due to the Alterations hereunder. No review or consent by Landlord of or to any proposed Alteration or additional work shall constitute a waiver of Tenant's obligations under this Paragraph 12. Tenant shall reimburse Landlord for all costs which Landlord may incur in connection with granting approval to Tenant for any such Alterations, including any costs or expenses which Landlord may incur in electing to have outside architects and engineers review said plans and specifications, and shall pay Landlord an administration fee of ten percent (10%) of the cost of the Alterations as Additional Rent hereunder. Landlord shall not impose the allowable ten percent (10%) administrative fee for alterations with a project budget below ten thousand dollars ($10,000). All such Alterations shall remain the property of Tenant until the expiration or earlier termination of this Lease, at which time they shall be and become the property of Landlord; provided, however, that Landlord may, at Landlord's option, require that Tenant, at Tenant's expense, remove any or all Alterations made by Tenant and restore the Premises by the expiration or earlier termination of this Lease, to their condition existing prior to the construction of any such Alterations. All such removals and restoration shall be accomplished in a first-class and good and workmanlike manner so as not to cause any damage to the Premises or Project whatsoever. If Tenant fails to remove such Alterations or Tenant's trade fixtures or furniture or other personal property, Landlord may keep and use them or remove any of them and cause them to be stored or sold in accordance with applicable law, at Tenant's sole expense. In addition to and wholly apart from Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses, Tenant shall be responsible for and shall pay prior to delinquency any taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital levies, or other charges imposed upon, levied with respect to or assessed against its fixtures or personal property, on the value of Alterations within the Premises, and on Tenant's interest pursuant to this Lease, or any increase in any of the foregoing based on such Alterations. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord. Notwithstanding the foregoing, at Landlord's option (but without obligation), all or any portion of the Alterations shall be performed by Landlord for Tenant's account and Tenant shall pay Landlord's estimate of the cost thereof (including a reasonable charge for Landlord's overhead and profit) prior to commencement of the work; provided however that Landlord's right to perform alterations work itself shall be subject to a commercially reasonable pricing standard. In addition, at Landlord's election and notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of removing any such Alterations and restoring the Premises to their original condition such cost to include a reasonable charge for Landlord's overhead and profit as provided above, and such amount may be deducted from the Security Deposit or any other sums or amounts held by Landlord under this Lease. B. In compliance with Paragraph 27 hereof, at least ten (10) business days before beginning construction of any Alteration, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice of non-responsibility. Upon substantial completion of construction, if the law so provides, Tenant shall cause a timely notice of completion to be recorded in the office of the recorder of the county in which the Building is located. 9 10 13. SIGNS Tenant shall not place, install, affix, paint or maintain any signs, notices, graphics or banners whatsoever or any window decor which is visible in or from public view or corridors, the common areas or the exterior of the Premises or the Building, in or on any exterior window or window fronting upon any common areas or service area or upon any truck doors or man doors without Landlord's prior written approval which Landlord shall have the right to withhold in its absolute and sole discretion; provided that Tenant's name shall be included in any Building-standard door and directory signage, if any, in accordance with Landlord's Building signage program, including without limitation, payment by Tenant of any fee charged by Landlord for maintaining such signage, which fee shall constitute Additional Rent hereunder. Any installation of signs, notices, graphics or banners on or about the Premises or Project approved by Landlord shall be subject to any Regulations and to any other requirements imposed by Landlord. Tenant shall remove all such signs or graphics by the expiration or any earlier termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury to or defacement of the Premises, Building or Project and any other improvements contained therein, and Tenant shall repair any injury or defacement including without limitation discoloration caused by such installation or removal. 14. INSPECTION/POSTING NOTICES After reasonable notice, except in emergencies where no such notice shall be required, Landlord and Landlord's agents and representatives, shall have the right to enter the Premises to inspect the same, to clean, to perform such work as may be permitted or required hereunder, to make repairs, improvements or alterations to the Premises, Building or Project or to other tenant spaces therein, to deal with emergencies, to post such notices as may be permitted or required by law to prevent the perfection of liens against Landlord's interest in the Project or to exhibit the Premises to prospective tenants, purchasers, encumbrancers or to others, or for any other purpose as Landlord may deem necessary or desirable; provided, however, that Landlord shall use reasonable efforts not to unreasonably interfere with Tenant's business operations. Tenant shall not be entitled to any abatement of Rent by reason of the exercise of any such right of entry. Tenant waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem necessary or proper to open said doors in an emergency, in order to obtain entry to any portion of the Premises, and any entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not be construed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portions thereof. At any time within six (6) months prior to the expiration of the Term or following any earlier termination of this Lease or agreement to terminate this Lease, Landlord shall have the right to erect on the Premises, Building and/or Project a suitable sign indicating that the Premises are available for lease. 15. SERVICES AND UTILITIES A. Tenant shall pay directly for all water, gas, heat, air conditioning, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or from the Premises, together with any taxes, penalties, surcharges or the like pertaining thereto, and maintenance charges for utilities and shall furnish all electric light bulbs, ballasts and tubes. If any such services are not separately billed or metered to Tenant, Tenant shall pay a proportion, as determined by Landlord, of all charges jointly serving other premises. All sums payable under this Paragraph 15 shall constitute Additional Rent hereunder. B. Tenant acknowledges that Tenant has inspected and accepts the water, electricity, heat and air conditioning and other utilities and services being supplied or furnished to the Premises as of the date Tenant takes possession of the Premises, if any, as being sufficient in their present condition, "as is," for the Permitted Use, and for Tenant's intended operations in the Premises. Landlord shall have no obligation to provide additional or after-hours electricity, heating or air conditioning, but if Landlord elects to provide such services at Tenant's request, Tenant shall pay to Landlord a reasonable charge for such services as determined by Landlord. Tenant agrees to keep and cause to be kept closed all window covering when necessary because of the sun's position, and Tenant also agrees at all times to cooperate fully with Landlord and to abide by all of the regulations and requirements which Landlord may prescribe for the proper functioning and protection of electrical, heating, ventilating and air conditioning systems. Wherever heat-generating machines, excess lighting or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. C. Tenant shall not without written consent of Landlord use any apparatus, equipment or device in the Premises, including without limitation, computers, electronic data processing machines, copying machines, and other machines, using excess lighting or using electric current, water, or any other resource in excess of or which will in any way increase the amount of electricity, water, or any other resource being furnished or supplied for the use of the Premises for reasonable and normal office use, in each case as of the date Tenant takes possession of the Premises as determined by Landlord, or which will require additions or alterations to or interfere with the Building power distribution systems; nor connect with electric current, except through existing electrical outlets in the Premises or water pipes, any apparatus, equipment or device for the purpose of using electrical current, water, or any other resource. If Tenant shall require water or electric current or any other resource in excess of that being furnished or supplied for the use of the Premises as of the date Tenant takes possession of the Premises, if any, as determined by Landlord, Tenant shall first procure the written consent of Landlord which Landlord may refuse, to the use thereof, and Landlord may cause a special meter to be installed in the Premises so as to measure the amount of water, electric current or other resource consumed for any such other use. Tenant shall pay directly to Landlord as an addition to and separate from payment of Operating Expenses the cost of all such additional resources, energy, utility service and meters (and of installation, maintenance and repair thereof and of any additional circuits or other equipment necessary to furnish such additional resources, energy, utility or service). Landlord may add to the separate or metered charge a recovery of additional expense incurred in keeping account of the excess water, electric current or other resource so consumed. Landlord shall not be liable for any damages directly or indirectly resulting from nor shall the Rent or any monies owed Landlord under this Lease herein reserved be abated by reason of: (a) the installation, use or interruption of use of any equipment used in connection with the furnishing of any such utilities or services, or any change in the character or means of supplying or providing any such utilities or services or any supplier thereof; (b) the failure to furnish or delay in furnishing any such utilities or services when such failure or delay is caused by acts of God or the elements, labor disturbances of any character, or any other accidents or other conditions beyond the reasonable control of Landlord or because of any interruption of service due to Tenant's use of water, electric current or other resource in excess of that being supplied or furnished for the use of the Premises as of the date Tenant takes possession of the Premises; or (c) the inadequacy, limitation, curtailment, rationing or restriction on use of water, electricity, gas or any other form of energy or any other service or utility whatsoever serving the Premises or Project otherwise; or (d) the partial or total unavailability of any such utilities or services to the Premises or the Building, whether by Regulation or otherwise; nor shall any such occurrence constitute an actual or constructive eviction of Tenant. Landlord shall further have no obligation to protect or preserve any apparatus, equipment or device installed by Tenant in the Premises, including without limitation by providing additional or after-hours heating or air conditioning. Landlord shall be entitled to cooperate voluntarily and in a reasonable manner with the efforts of national, state or local governmental agencies or utility suppliers in reducing energy or other resource consumption. The obligation to make services available hereunder shall be subject to the limitations of any such voluntary, reasonable program. In addition, Landlord reserves the right to change the supplier or provider of any such utility or service from time to time. 10 11 Landlord may, but shall not be obligated to, upon notice to Tenant, contract with or otherwise obtain any electrical or other such service for or with respect to the Premises or Tenant's operations therein from any supplier or provider of any such service. Tenant shall cooperate with Landlord and any supplier or provider of such services designated by Landlord from time to time to facilitate the delivery of such services to Tenant at the Premises and to the Building and Project, including without limitation allowing Landlord and Landlord's suppliers or providers, and their respective agents and contractors, reasonable access to the Premises for the purpose of installing, maintaining, repairing, replacing or upgrading such service or any equipment or machinery associated therewith. 16. SUBORDINATION Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be and is hereby declared to be subject and subordinate at all times to: (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Premises and/or the land upon which the Premises and Project are situated, or both; and (b) any mortgage or deed of trust which may now exist or be placed upon the Building, the Project and/or the land upon which the Premises or the Project are situated, or said ground leases or underlying leases, or Landlord's interest or estate in any of said items which is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. If any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord provided that Tenant shall not be disturbed in its possession under this Lease by such successor in interest so long as Tenant is not in default under this Lease. Within ten (10) days after request by Landlord, Tenant shall execute and deliver any additional documents evidencing Tenant's attornment or the subordination of this Lease with respect to any such ground leases or underlying leases or any such mortgage or deed of trust, in the form requested by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of trust, subject to such nondisturbance requirement. If requested in writing by Tenant, Landlord shall use commercially reasonable efforts to obtain a subordination, nondisturbance and attornment agreement for the benefit of Tenant reflecting the foregoing from any ground landlord, mortgagee or beneficiary, at Tenant's expense, subject to such other terms and conditions as the ground landlord, mortgagee or beneficiary may require. 17. FINANCIAL STATEMENTS At the request of Landlord from time to time, Tenant shall provide to Landlord Tenant's and any guarantor's current financial statements or other information discussing financial worth of Tenant and any guarantor, which Landlord shall use solely for purposes of this Lease and in connection with the ownership, management, financing and disposition of the Project. 18. ESTOPPEL CERTIFICATE Tenant agrees from time to time, within ten (10) days after request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating that this Lease is in full force and effect, that this Lease has not been modified (or stating all modifications, written or oral, to this Lease), the date to which Rent has been paid, the unexpired portion of this Lease, that there are no current defaults by Landlord or Tenant under this Lease (or specifying any such defaults), that the leasehold estate granted by this Lease is the sole interest of Tenant in the Premises and/or the land at which the Premises are situated, and such other matters pertaining to this Lease as may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. Failure by Tenant to execute and deliver such certificate shall constitute an acceptance of the Premises and acknowledgment by Tenant that the statements included are true and correct without exception. Tenant agrees that if Tenant fails to execute and deliver such certificate within such ten (10) day period, Landlord may execute and deliver such certificate on Tenant's behalf and that such certificate shall be binding on Tenant. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. The parties agree that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of this Lease, and shall be an event of default (without any cure period that might be provided under Paragraph 26.A(3) of this Lease) if Tenant fails to fully comply or makes any material misstatement in any such certificate. 19. SECURITY DEPOSIT Tenant agrees to deposit with Landlord upon execution of this Lease, a security deposit as stated in the Basic Lease Information (the "SECURITY DEPOSIT"), which sum shall be held and owned by Landlord, without obligation to pay interest, as security for the performance of Tenant's covenants and obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of damages incurred by Landlord in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may from time to time, without prejudice to any other remedy provided herein or by law, use such fund as a credit to the extent necessary to credit against any arrears of Rent or other payments due to Landlord hereunder, and any other damage, injury, expense or liability caused by such event of default, and Tenant shall pay to Landlord, on demand, the amount so applied in order to restore the Security Deposit to its original amount. Although the Security Deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this Lease that all of Tenant's obligations under this Lease have been fulfilled, reduced by such amounts as may be required by Landlord to remedy defaults on the part of Tenant in the payment of Rent or other obligations of Tenant under this Lease, to repair damage to the Premises, Building or Project caused by Tenant or any Tenant's Parties and to clean the Premises. Landlord may use and commingle the Security Deposit with other funds of Landlord. 20. LIMITATION OF TENANT'S REMEDIES The obligations and liability of Landlord to Tenant for any default by Landlord under the terms of this Lease are not personal obligations of Landlord or of the individual or other partners of Landlord or its or their partners, directors, officers, or shareholders, and Tenant agrees to look solely to Landlord's interest in the Project for the recovery of any amount from Landlord, and shall not look to other assets of Landlord nor seek recourse against the assets of the individual or other partners of Landlord or its or their partners, directors, officers or shareholders. Any lien obtained to enforce any such judgment and any levy of execution thereon shall be subject and subordinate to any lien, mortgage or deed of trust on the Project. Under no circumstances shall Tenant have the right to offset against or recoup Rent or other payments due and to become due to Landlord hereunder except as expressly provided in Paragraph 23.B. below, which Rent and other payments shall be absolutely due and payable hereunder in accordance with the terms hereof. 21. ASSIGNMENT AND SUBLETTING A. (1) GENERAL. This Lease has been negotiated to be and is granted as an accommodation to Tenant. Accordingly, this Lease is personal to Tenant, and Tenant's rights granted hereunder do not include the right to assign this Lease or sublease the Premises, or to receive any excess, either in installments or lump sum, over the Rent which is expressly reserved by Landlord as hereinafter provided, except as otherwise expressly hereinafter provided. Tenant shall not assign or pledge this Lease or sublet the Premises or any part thereof, whether voluntarily or by operation of law, or permit the use or occupancy of the Premises or any part thereof by anyone other than Tenant, or suffer or permit any such assignment, pledge, subleasing or occupancy, without Landlord's prior written consent except as provided herein. If Tenant desires to assign this Lease or sublet any or all of the 11 12 Premises, Tenant shall give Landlord written notice (the "TRANSFER NOTICE") at least thirty-five (35) days prior to the anticipated effective date of the proposed assignment or sublease, which shall contain all of the information reasonably requested by Landlord to address Landlord's decision criteria specified hereinafter. Landlord shall then have a period of thirty (30) days following receipt of the Transfer Notice to notify Tenant in writing that Landlord elects either: (i) to terminate this Lease as to the space so affected as of the date so requested by Tenant by delivery of written notice (the "Recapture Notice"), provided that if Landlord delivers the Recapture Notice, Tenant may, within five (5) business days after the receipt thereof, withdraw the Transfer Notice, thereby retaining all of its interests and rights in and under this Lease with respect to the Premises and nullifying the Recapture Notice; or (ii) to consent to the proposed assignment or sublease, subject, however, to Landlord's prior written consent of the proposed assignee or subtenant and of any related documents or agreements associated with the assignment or sublease. If Landlord should fail to notify Tenant in writing of such election within said period, Landlord shall be deemed to have waived option (i) above, but written consent by Landlord of the proposed assignee or subtenant shall still be required. If Landlord does not exercise option (i) above, Landlord's consent to a proposed assignment or sublease shall not be unreasonably withheld. Consent to any assignment or subletting shall not constitute consent to any subsequent transaction to which this Paragraph 21 applies. (2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other instances in which it may be reasonable for Landlord to withhold Landlord's consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold Landlord's consent in the following instances: if the proposed assignee does not agree to be bound by and assume the obligations of Tenant under this Lease in form and substance satisfactory to Landlord; the use of the Premises by such proposed assignee or subtenant would not be a Permitted Use or would violate any exclusivity or other arrangement which Landlord has with any other tenant or occupant or any Regulation or would increase the Occupancy Density or Parking Density of the Building or Project, or would otherwise result in an undesirable tenant mix for the Project as determined by Landlord; the proposed assignee or subtenant is not of sound financial condition as determined by Landlord in Landlord's sole discretion; the proposed assignee or subtenant is a governmental agency; the proposed assignee or subtenant does not have a good reputation as a tenant of property or a good business reputation; the proposed assignee or subtenant is a person with whom Landlord is negotiating to lease space in the Project or is a present tenant of the Project; the assignment or subletting would entail any Alterations which would lessen the value of the leasehold improvements in the Premises or use of any Hazardous Materials or other noxious use or use which may disturb other tenants of the Project; or Tenant is in default of any obligation of Tenant under this Lease, or Tenant has defaulted under this Lease on three (3) or more occasions during any twelve (12) months preceding the date that Tenant shall request consent. Failure by or refusal of Landlord to consent to a proposed assignee or subtenant shall not cause a termination of this Lease. Upon a termination under Paragraph 21.A.(1)(i), Landlord may lease the Premises to any party, including parties with whom Tenant has negotiated an assignment or sublease, without incurring any liability to Tenant. At the option of Landlord, a surrender and termination of this Lease shall operate as an assignment to Landlord of some or all subleases or subtenancies. Landlord shall exercise this option by giving notice of that assignment to such subtenants on or before the effective date of the surrender and termination. In connection with each request for assignment or subletting, Tenant shall pay to Landlord Landlord's standard fee for approving such requests, as well as all costs incurred by Landlord or any mortgagee or ground lessor in approving each such request and effecting any such transfer, including, without limitation, reasonable attorneys' fees. (3) TRANSFER TO AFFILIATES. An "Affiliate" means any entity that (i) controls, is controlled by, or is under common control with Tenant, (ii) results from the transfer of all or substantially all of Tenant's assets or stock, or (iii) results from the merger or consolidation of Tenant with another entity. "Control" means the direct or indirect ownership of more than fifty percent (50%) of the voting securities of an entity or possession of the right to vote more than fifty percent (50%) of the voting interest in the ordinary direction of the entity's affairs. Landlord's consent is not required for any assignment of this Lease or sublease of all or a portion of the Premises to an Affiliate as long as the following conditions are met: (a) At least ten (10) business days before any such assignment or sublease, Landlord receives written notice of such assignment or sublease (as well as any documents or information reasonably requested by Landlord regarding the intended sublessee or assignee); (b) Tenant is not then in default under this Lease (c) if the transfer is an assignment, the intended assignee assumes in writing all of Tenant's obligations under this Lease relating to the Premises in form satisfactory to Landlord or, if the transfer is a sublease, the intended sublessee accepts the sublease in form satisfactory to Landlord; (d) the intended transferee has a tangible net worth, as evidenced by financial statements delivered to Landlord and certified by an independent certified public accountant in accordance with generally accepted accounting principles that are consistently applied, at least equal to three million dollars ($3,000,000.00); and (e) Tenant shall pay all costs reasonably incurred by Landlord in connection with such assignment or subletting, including without limitation attorneys' fees. No transfer to an Affiliate in accordance with this paragraph shall relieve Tenant of any obligation under this Lease or alter the primary liability of the Tenant named herein for the payment of Rent or for the performance of any other obligation to be performed by Tenant, including obligations contained in Paragraph 25 with respect to any Affiliate. B. BONUS RENT. Any Rent or other consideration realized by Tenant under any such sublease or assignment in excess of the Rent payable hereunder, after amortization of a reasonable brokerage commission and cost of subtenant improvements incurred by Tenant, shall be divided and paid, twenty-five percent (25%) to Tenant, seventy-five percent (75%) to Landlord. In any subletting or assignment undertaken by Tenant, Tenant shall diligently seek to obtain a market reasonable rental amount available in the marketplace for comparable space available for primary leasing. C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares by sale, assignment, bequest, inheritance, operation of law or other disposition (including such a transfer to or by a receiver or trustee in federal or state bankruptcy, insolvency or other proceedings) resulting in a change in the present control of such corporation or any of its parent corporations by the person or persons owning a majority of said corporate shares, shall constitute an assignment for purposes of this Lease. D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture, unincorporated limited liability company or other unincorporated business form, a transfer of the interest of persons, firms or entities responsible for managerial control of Tenant by sale, assignment, bequest, inheritance, operation of law or other disposition, so as to result in a change in the present control of said entity and/or of the underlying beneficial interests of said entity and/or a change in the identity of the persons responsible for the general credit obligations of said entity shall constitute an assignment for all purposes of this Lease. E. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise, shall relieve Tenant of any obligation under this Lease or alter the primary liability of the Tenant named herein for the payment of Rent or for the performance of any other obligations to be performed by Tenant, including obligations contained in Paragraph 25 with respect to any assignee or subtenant. Landlord may collect rent or other amounts or any portion thereof from any assignee, subtenant, or other occupant of the Premises, permitted or otherwise, and apply the net rent collected to the Rent payable hereunder, but no such collection shall be deemed to be a waiver of this Paragraph 21, or the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of the obligations of Tenant under this Lease. Any assignment or subletting which conflicts with the provisions hereof shall be void. 12 13 22. AUTHORITY Landlord represents and warrants that it has full right and authority to enter into this Lease and to perform all of Landlord's obligations hereunder and that all persons signing this Lease on its behalf are authorized to do. Tenant and the person or persons, if any, signing on behalf of Tenant, jointly and severally represent and warrant that Tenant has full right and authority to enter into this Lease, and to perform all of Tenant's obligations hereunder, and that all persons signing this Lease on its behalf are authorized to do so. 23. CONDEMNATION A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial part of the Premises should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the Permitted Use of the Premises, either party shall have the right to terminate this Lease at its option. If any material portion of the Building or Project is taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, Landlord may terminate this Lease at its option. In either of such events, the Rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall have occurred. B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project of which the Premises are a part should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking prevents or materially interferes with the Permitted Use of the Premises, and this Lease is not terminated as provided in Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion of this Lease shall be reduced, beginning on the date when the physical taking shall have occurred, to such amount as may be fair and reasonable under all of the circumstances, but only after giving Landlord credit for all sums received or to be received by Tenant by the condemning authority. Notwithstanding anything to the contrary contained in this Paragraph, if the temporary use or occupancy of any part of the Premises shall be taken or appropriated under power of eminent domain during the Term, this Lease shall be and remain unaffected by such taking or appropriation and Tenant shall continue to pay in full all Rent payable hereunder by Tenant during the Term; in the event of any such temporary appropriation or taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the use of or occupancy of the Premises during the Term, and Landlord shall be entitled to receive that portion of any award which represents the cost of restoration of the Premises and the use and occupancy of the Premises. C. AWARD. Landlord shall be entitled to (and Tenant shall assign to Landlord) any and all payment, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance and Tenant shall have no claim against Landlord or otherwise for any sums paid by virtue of such proceedings, whether or not attributable to the value of any unexpired portion of this Lease, except as expressly provided in this Lease. Notwithstanding the foregoing, any compensation specifically and separately awarded Tenant for Tenant's personal property and moving costs, shall be and remain the property of Tenant. D. WAIVER OF CCP SECTION 1265.130. Each party waives the provisions of California Civil Code Procedure Section 1265.130 allowing either party to petition the superior court to terminate this Lease as a result of a partial taking. 24. CASUALTY DAMAGE A. GENERAL. If the Premises or Building should be damaged or destroyed by fire, tornado, or other casualty (collectively, "CASUALTY"), Tenant shall give immediate written notice thereof to Landlord. Within thirty (30) days after Landlord's receipt of such notice, Landlord shall notify Tenant whether in Landlord's estimation material restoration of the Premises can reasonably be made within one hundred eighty (180) days from the date of such notice and receipt of required permits for such restoration. Landlord's determination shall be binding on Tenant. B. WITHIN 180 DAYS. If the Premises or Building should be damaged by Casualty to such extent that material restoration can in Landlord's estimation be reasonably completed within one hundred eighty (180) days after the date of such notice and receipt of required permits for such restoration, this Lease shall not terminate. Provided that insurance proceeds are received by Landlord to fully repair the damage, Landlord shall proceed to rebuild and repair the Premises in the manner determined by Landlord, except that Landlord shall not be required to rebuild, repair or replace any part of the Alterations which may have been placed on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement insurance proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy. C. GREATER THAN 180 DAYS. If the Premises or Building should be damaged by Casualty to such extent that rebuilding or repairs cannot in Landlord's estimation be reasonably completed within one hundred eighty (180) days after the date of such notice and receipt of required permits for such rebuilding or repair, then Landlord shall have the option of either: (1) terminating this Lease effective upon the date of the occurrence of such damage, in which event the Rent shall be abated during the unexpired portion of this Lease; or (2) electing to rebuild or repair the Premises diligently and in the manner determined by Landlord. Landlord shall notify Tenant of its election within thirty (30) days after Landlord's receipt of notice of the damage or destruction. Notwithstanding the above, Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed, on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement insurance proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy. D. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the Premises or any other portion of the Building are damaged by Casualty resulting from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's Parties, Base Rent and Additional Rent shall not be diminished during the repair of such damage and Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of the Building caused thereby to the extent such cost and expense is not covered by insurance proceeds. E. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, if the Premises or Building are damaged or destroyed and are not fully covered by the insurance proceeds received by Landlord or if the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then in either case Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within thirty (30) days after the date of notice to Landlord that said damage or destruction is not fully covered by insurance or such requirement is made by any such holder, as the case may be, whereupon this Lease shall terminate. F. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the event of damage or destruction to the Premises or the Building. As a material inducement to Landlord entering into this Lease, Tenant hereby waives any rights it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of California with respect to any destruction of the Premises, Landlord's obligation for tenantability of the Premises and Tenant's right to make repairs and deduct the expenses of such repairs, or under any similar law, statute or ordinance now or hereafter in effect. 13 14 G. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of the Premises or the Building, under no circumstances shall Landlord be required to repair any injury or damage to, or make any repairs to or replacements of, Tenant's personal property. 25. HOLDING OVER Unless Landlord expressly consents in writing to Tenant's holding over, Tenant shall be unlawfully and illegally in possession of the Premises, whether or not Landlord accepts any rent from Tenant or any other person while Tenant remains in possession of the Premises without Landlord's written consent. If Tenant shall retain possession of the Premises or any portion thereof without Landlord's consent following the expiration of this Lease or sooner termination for any reason, then Tenant shall pay to Landlord for each day of such retention triple the amount of daily rental as of the last month prior to the date of expiration or earlier termination. Tenant shall also indemnify, defend, protect and hold Landlord harmless from any loss, liability or cost, including consequential and incidental damages and reasonable attorneys' fees, incurred by Landlord resulting from delay by Tenant in surrendering the Premises, including, without limitation, any claims made by the succeeding tenant founded on such delay. Acceptance of Rent by Landlord following expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, shall not constitute a renewal of this Lease, and nothing contained in this Paragraph 25 shall waive Landlord's right of reentry or any other right. Additionally, if upon expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, Tenant has not fulfilled its obligation with respect to repairs and cleanup of the Premises or any other Tenant obligations as set forth in this Lease, then Landlord shall have the right to perform any such obligations as it deems necessary at Tenant's sole cost and expense, and any time required by Landlord to complete such obligations shall be considered a period of holding over and the terms of this Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any expiration or earlier termination of this Lease. 26. DEFAULT A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an event of default on the part of Tenant: (1) ABANDONMENT. Abandonment or vacation of the Premises for a continuous period in excess of five (5) days. Tenant waives any right to notice Tenant may have under Section 1951.3 of the Civil Code of the State of California, the terms of this Paragraph 26.A. being deemed such notice to Tenant as required by said Section 1951.3. (2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any other amount due and payable hereunder upon the date when said payment is due, as to which time is of the essence. (3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subparagraphs (1) and (2) of this Paragraph 26.A., such failure continuing for fifteen (15) days after written notice of such failure, as to which time is of the essence. (4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit of creditors. (5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's creditors, which involuntary petition remains undischarged for a period of thirty (30) days. If under applicable law, the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shall, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease. (6) RECEIVERSHIP. The employment of a receiver to take possession of substantially all of Tenant's assets or the Premises, if such appointment remains undismissed or undischarged for a period of fifteen (15) days after the order therefor. (7) ATTACHMENT. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or Tenant's leasehold of the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of fifteen (15) days after the levy thereof. (8) INSOLVENCY. The admission by Tenant in writing of its inability to pay its debts as they become due. B. REMEDIES UPON DEFAULT. (1) TERMINATION. In the event of the occurrence of any event of default, Landlord shall have the right to give a written termination notice to Tenant, and on the date specified in such notice, Tenant's right to possession shall terminate, and this Lease shall terminate unless on or before such date all Rent in arrears and all costs and expenses incurred by or on behalf of Landlord hereunder shall have been paid by Tenant and all other events of default of this Lease by Tenant at the time existing shall have been fully remedied to the satisfaction of Landlord. At any time after such termination, Landlord may recover possession of the Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same, including any subtenant or subtenants notwithstanding Landlord's consent to any sublease, by any lawful means, and again repossess and enjoy the Premises without prejudice to any of the remedies that Landlord may have under this Lease, or at law or equity by any reason of Tenant's default or of such termination. Landlord hereby reserves the right, but shall not have the obligation, to recognize the continued possession of any subtenant. The delivery or surrender to Landlord by or on behalf of Tenant of keys, entry codes, or other means to bypass security at the Premises shall not terminate this Lease. (2) CONTINUATION AFTER DEFAULT. Even though an event of default may have occurred, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under Paragraph 26.B.(1) hereof, and Landlord may enforce all of Landlord's rights and remedies under this Lease and at law or in equity, including without limitation, the right to recover Rent as it becomes due, and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a landlord under Section 1951.4 of the Civil Code of the State of California or any successor code section. Acts of maintenance, preservation or efforts to lease the Premises or the appointment of a receiver under application of Landlord to protect Landlord's interest under this Lease or other entry by Landlord upon the Premises shall not constitute an election to terminate Tenant's right to possession. (3) INCREASED SECURITY DEPOSIT. If Tenant is in default under Paragraph 26.A.(2) hereof and such default remains uncured for ten (10) days after such occurrence or such default occurs more than three times in any twelve (12) month period, Landlord may require that Tenant increase the Security Deposit to the amount of three times the current month's Rent at the time of the most recent default. 14 15 C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to the provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State of California, or any successor code sections. Upon such termination, in addition to any other rights and remedies to which Landlord may be entitled under applicable law or at equity, Landlord shall be entitled to recover from Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts which had been earned at the time of termination, (2) the worth at the time of award of the amount by which the unpaid Rent and other amounts that would have been earned after the date of termination until the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; (3) the worth at the time of award of the amount by which the unpaid Rent and other amounts for the balance of the Term after the time of award exceeds the amount of such Rent loss that the Tenant proves could be reasonably avoided; and (4) any other amount and court costs necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom. The "worth at the time of award" as used in (1) and (2) above shall be computed at the Applicable Interest Rate (defined below). The "worth at the time of award" as used in (3) above shall be computed by discounting such amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). If this Lease provides for any periods during the Term during which Tenant is not required to pay Base Rent or if Tenant otherwise receives a Rent concession, then upon the occurrence of an event of default, Tenant shall owe to Landlord the full amount of such Base Rent or value of such Rent concession, plus interest at the Applicable Interest Rate, calculated from the date that such Base Rent or Rent concession would have been payable. D. LATE CHARGE. In addition to its other remedies, Landlord shall have the right without notice or demand to add to the amount of any payment required to be made by Tenant hereunder, and which is not paid and received by Landlord on or before the first day of each calendar month, an amount equal to five percent (5%) of the delinquency for each month or portion thereof that the delinquency remains outstanding to compensate Landlord for the loss of the use of the amount not paid and the administrative costs caused by the delinquency, the parties agreeing that Landlord's damage by virtue of such delinquencies would be extremely difficult and impracticable to compute and the amount stated herein represents a reasonable estimate thereof. Any waiver by Landlord of any late charges or failure to claim the same shall not constitute a waiver of other late charges or any other remedies available to Landlord. E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at the lesser of twelve percent (12%) per annum or the maximum interest rate allowed by law ("APPLICABLE INTEREST RATE") from the due date until paid. F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of the parties are cumulative and not alternative, to the extent permitted by law and except as otherwise provided herein. 27. LIENS Tenant shall at all times keep the Premises and the Project free from liens arising out of or related to work or services performed, materials or supplies furnished or obligations incurred by or on behalf of Tenant or in connection with work made, suffered or done by or on behalf of Tenant in or on the Premises or Project. If Tenant shall not, within ten (10) days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as Landlord shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord on behalf of Tenant and all expenses incurred by Landlord in connection therefor shall be payable to Landlord by Tenant on demand with interest at the Applicable Interest Rate as Additional Rent. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord, the Premises, the Project and any other party having an interest therein, from mechanics' and materialmen's liens, and Tenant shall give Landlord not less than ten (10) business days prior written notice of the commencement of any work in the Premises or Project which could lawfully give rise to a claim for mechanics' or materialmen's liens to permit Landlord to post and record a timely notice of non-responsibility, as Landlord may elect to proceed or as the law may from time to time provide, for which purpose, if Landlord shall so determine, Landlord may enter the Premises. Tenant shall not remove any such notice posted by Landlord without Landlord's consent, and in any event not before completion of the work which could lawfully give rise to a claim for mechanics' or materialmen's liens. 28. SUBSTITUTION A. At any time after execution of this Lease, Landlord may substitute for the Premises other premises in the Project (the "NEW PREMISES") upon not less than sixty (60) days prior written notice, in which event the New Premises shall be deemed to be the Premises for all purposes hereunder and this Lease shall be deemed modified accordingly to reflect the new location and shall remain in full force and effect as so modified, provided that: (1) The New Premises shall be similar in area and in function for Tenant's purposes; and (2) If Tenant is occupying the Premises at the time of such substitution, Landlord shall pay the expense of physically moving Tenant, Tenant's property and equipment to the New Premises and shall, at Landlord's sole cost, improve the New Premises with improvements substantially similar to those the Landlord has committed to provide or has provided in the Premises. Moving costs shall include incidental items related to moving, including but not limited to stationary, telephone relocation, alarm systems, etc. In no event shall these incidental costs exceed fifteen thousand dollars ($15,000.00). 29. TRANSFERS BY LANDLORD In the event of a sale or conveyance by Landlord of the Building or a foreclosure by any creditor of Landlord, the same shall operate to release Landlord from any liability upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant, to the extent required to be performed after the passing of title to Landlord's successor-in-interest. In such event, Tenant agrees to look solely to the responsibility of the successor-in-interest of Landlord under this Lease with respect to the performance of the covenants and duties of "Landlord" to be performed after the passing of title to Landlord's successor-in-interest. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant with respect to the failure to perform any of the obligations of "Landlord," to the extent required to be performed prior to the date such successor(s)-in-interest became the owner of the Building. 30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Rent. If Tenant shall fail to pay any sum of money, other than Base Rent, required to be paid by Tenant hereunder or shall fail to perform any other act on Tenant's part to be performed hereunder, including Tenant's obligations under Paragraph 11 hereof, and such failure shall continue for fifteen (15) days after notice thereof by Landlord, in addition to the other rights and remedies of Landlord, Landlord may make any such payment and perform any such act on Tenant's part. In the case of an emergency, no prior notification by Landlord shall be required. Landlord may take such actions without any obligation and without 15 16 releasing Tenant from any of Tenant's obligations. All sums so paid by Landlord and all incidental costs incurred by Landlord and interest thereon at the Applicable Interest Rate, from the date of payment by Landlord, shall be paid to Landlord on demand as Additional Rent. 31. WAIVER If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein, or constitute a course of dealing contrary to the expressed terms of this Lease. The acceptance of Rent by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Rent. Failure by Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or decrease the right of Landlord to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this Lease may only be made by a written document signed by Landlord, based upon full knowledge of the circumstances. 32. NOTICES Each provision of this Lease or of any applicable governmental laws, ordinances, regulations and other requirements with reference to sending, mailing, or delivery of any notice or the making of any payment by Landlord or Tenant to the other shall be deemed to be complied with when and if the following steps are taken: A. RENT. All Rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at Landlord's Remittance Address set forth in the Basic Lease Information, or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay Rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until such Rent and other amounts have been actually received by Landlord. B. OTHER. All notices, demands, consents and approvals which may or are required to be given by either party to the other hereunder shall be in writing and either personally delivered, sent by commercial overnight courier, mailed, certified or registered, postage prepaid or sent by facsimile with confirmed receipt (and with an original sent by commercial overnight courier), and in each case addressed to the party to be notified at the Notice Address for such party as specified in the Basic Lease Information or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days notice to the notifying party. Notices shall be deemed served upon receipt or refusal to accept delivery. Tenant appoints as its agent to receive the service of all default notices and notice of commencement of unlawful detainer proceedings the person in charge of or apparently in charge of occupying the Premises at the time, and, if there is no such person, then such service may be made by attaching the same on the main entrance of the Premises. C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of any notice of a violation or a potential or alleged violation of any Regulation that relates to the Premises or the Project, or of any inquiry, investigation, enforcement or other action that is instituted or threatened by any governmental or regulatory agency against Tenant or any other occupant of the Premises, or any claim that is instituted or threatened by any third party that relates to the Premises or the Project. 33. ATTORNEYS' FEES In an event of Default beyond the applicable cure period, if Landlord places the enforcement of this Lease, or any part thereof, or the collection of any Rent due, or to become due hereunder, or recovery of possession of the Premises in the hands of an attorney, Tenant shall pay to Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs, whether incurred at trial, appeal or review. In any action which Landlord or Tenant brings to enforce its respective rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party including reasonable attorneys' fees, to be fixed by the court, and said costs and attorneys' fees shall be a part of the judgment in said action. 34. SUCCESSORS AND ASSIGNS This Lease shall be binding upon and inure to the benefit of Landlord, its successors and assigns, and shall be binding upon and inure to the benefit of Tenant, its successors, and to the extent assignment is approved by Landlord as provided hereunder, Tenant's assigns. 35. FORCE MAJEURE If performance by a party of any portion of this Lease is made impossible by any prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes for those items, government actions, civil commotions, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform, performance by that party for a period equal to the period of that prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent, however, is not excused by this Paragraph 35. 36. SURRENDER OF PREMISES Tenant shall, upon expiration or sooner termination of this Lease, surrender the Premises to Landlord in the same condition as existed on the date Tenant originally took possession thereof, reasonable wear and tear excepted, including, but not limited to, all interior walls cleaned, all interior painted surfaces repainted in the original color, all holes in walls repaired, all carpets shampooed and cleaned, all HVAC equipment in operating order and in good repair, and all floors cleaned, waxed, and free of any Tenant-introduced marking or painting, all to the reasonable satisfaction of Landlord. Tenant shall remove all of its debris from the Project. At or before the time of surrender, Tenant shall comply with the terms of Paragraph 12.A. hereof with respect to Alterations to the Premises and all other matters addressed in such Paragraph. If the Premises are not so surrendered at the expiration or sooner termination of this Lease, the provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any part thereof shall be surrendered to Landlord upon expiration or sooner termination of the Term. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall meet with Landlord for a joint inspection of the Premises at the time of vacating, but nothing contained herein shall be construed as an extension of the Term or as a consent by Landlord to any holding over by Tenant. In the event of Tenant's failure to give such notice or participate in such joint inspection, Landlord's inspection at or after Tenant's vacating the Premises shall conclusively be deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. Any delay caused by Tenant's failure to carry out its obligations under this Paragraph 36 beyond the term hereof, shall constitute unlawful and illegal possession of Premises under Paragraph 25 hereof. Tenant improvements performed under Paragraph 38.B of the Lease to suite two-thousand one-hundred fifty (2,150) and approved by Landlord at the time of Lease execution are not subject to this paragraph thirty-six (36). Any wall penetrations between suite two-thousand one-hundred fifty (2,150) and adjacent suites are subject to restoration at Landlord's discretion. 16 17 37. MISCELLANEOUS A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their respective successors, executors, administrators and permitted assigns, according to the context hereof. B. TIME. Time is of the essence regarding this Lease and all of its provisions. C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of the State of California. D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and attachments and the Basic Lease Information, contains all the agreements of the parties hereto and supersedes any previous negotiations. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its Exhibits, addenda and attachments and the Basic Lease Information. E. MODIFICATION. This Lease may not be modified except by a written instrument signed by the parties hereto. Tenant accepts the area of the Premises as specified in the Basic Lease Information as the approximate area of the Premises for all purposes under this Lease, and acknowledges and agrees that no other definition of the area (rentable, usable or otherwise) of the Premises shall apply. Tenant shall in no event be entitled to a recalculation of the square footage of the Premises, rentable, usable or otherwise, and no recalculation, if made, irrespective of its purpose, shall reduce Tenant's obligations under this Lease in any manner, including without limitation the amount of Base Rent payable by Tenant or Tenant's Proportionate Share of the Building and of the Project. F. SEVERABILITY. If, for any reason whatsoever, any of the provisions hereof shall be unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect. G. RECORDATION. Tenant shall not record this Lease or a short form memorandum hereof. H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not constitute an option or offer to lease and this Lease is not effective otherwise until execution and delivery by both Landlord and Tenant. I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the total Rent due nor any endorsement on any check or letter accompanying any check or payment of Rent shall be deemed an accord and satisfaction of full payment of Rent, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue other remedies. All offers by or on behalf of Tenant of accord and satisfaction are hereby rejected in advance. J. EASEMENTS. Landlord may grant easements on the Project and dedicate for public use portions of the Project without Tenant's consent; provided that no such grant or dedication shall materially interfere with Tenant's Permitted Use of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and deliver to Landlord documents, instruments, maps and plats necessary to effectuate Tenant's covenants hereunder. K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this Lease has been agreed to by both the parties, that both Landlord and Tenant have consulted with attorneys with respect to the terms of this Lease and that no presumption shall be created against Landlord because Landlord drafted this Lease. Except as otherwise specifically set forth in this Lease, with respect to any consent, determination or estimation of Landlord required or allowed in this Lease or requested of Landlord, Landlord's consent, determination or estimation shall be given or made solely by Landlord in Landlord's good faith opinion, whether or not objectively reasonable. If Landlord fails to respond to any request for its consent within the time period, if any, specified in this Lease, Landlord shall be deemed to have disapproved such request. L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and attachments attached hereto are hereby incorporated herein by this reference and made a part of this Lease as though fully set forth herein. M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air or view by any structure which may be erected on lands adjacent to or in the vicinity of the Building shall in no way affect this Lease or impose any liability on Landlord. N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and Tenant and nothing herein is intended to create any third party benefit. O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the observance and performance of all of the other covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under Landlord, subject, nevertheless, to all of the other terms and conditions of this Lease. Landlord shall not be liable for any hindrance, interruption, interference or disturbance by other tenants or third persons, nor shall Tenant be released from any obligations under this Lease because of such hindrance, interruption, interference or disturbance. P. COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed an original. Q. MULTIPLE PARTIES. If more than one person or entity is named herein as Tenant, such multiple parties shall have joint and several responsibility to comply with the terms of this Lease. R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant hereunder for any fractional month shall be prorated based on a month of 30 days. As used herein, the term "fiscal year" shall mean the calendar year or such other fiscal year as Landlord may deem appropriate. 38. ADDITIONAL PROVISIONS A. ADDENDUM 1, PARAGRAPH 6, RENT BASE RENT. Base Rent, net of Basic Operating Costs per Paragraph 7 of this Lease, for the Premises shall be as follows: Months 1 - 12: Base Rent shall be $19,536.00 per month. Base Rent will increase 4% annually. In addition to Base Rent, Tenant shall also pay Tenant's Proportionate Share of Basic Operating Costs as set forth in paragraph 7 of the Lease Agreement. Basic Operating Costs, including management fee, are initially estimated to be $2,767.60 per month. Basic Operating Costs are estimated a year in advance and collected on a monthly basis. Any adjustments (up or down) will be made at the end of the calendar year.
17 18 Months 13 - 24: Base Rent shall be $20,317.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's Proportionate Share of Basic Operating Costs as set in Paragraph 7. Months 25 - 36: Base Rent shall be $21,130.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's Proportionate Share of Basic Operating Costs as set forth in Paragraph 7. Months 37 - 45: Base Rent shall be $21,975.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's Proportionate Share of Basic Operating Costs as set forth in Paragraph 7.
B TENANT IMPROVEMENT ALLOWANCE Landlord agrees to reimburse Tenant up to a maximum of Eight Thousand Dollars ($8,000.00), "Tenant Improvement Allowance" for the 16,280 square foot Premises located at Charcot Business Park, 2150-2158 Paragon Drive, San Jose, California. The "Tenant Improvement Allowance" shall be used only toward improvements to the building, to include the following; drop ceiling, sprinklers as required, carpeting, lighting, light fixtures, a new HVAC unit, interior walls, wall penetrations, distribution and electrical distribution, but not for Tenant's specific electrical connections to Tenant's specific equipment and fixtures. All Tenant Improvements are subject to restoration at Landlord discretion per Paragraph 12 of this Lease. Tenant shall submit written notice of substantial completion of Tenant Improvements and application for reimbursement to Landlord. Landlord shall reimburse Tenant for actual costs in an amount up to the Tenant Improvement Allowance (not to exceed $8,000.00) within thirty (30) days after Tenant's written notice to Landlord of Substantial Completion of Tenant Improvements. All work must be completed and all claims for reimbursement must be submitted to Landlord on or before May 1, 1999. Tenant shall cause all Alterations to be accomplished in a first-class, good and workmanlike manner, and to comply with all applicable Regulations and Paragraph 27 hereof. C. CANCELLATION OF PREVIOUS LEASE It is hereby agreed and understood that, after full execution and upon the Scheduled Term Commencement Date, this Lease shall cancel and supersede the following two leases: That certain lease between Spieker Properties, L.P., a California limited partnership, as successor-in-interest to Orchard Investment Company Number 205, a California general partnership, as Landlord, and Immersion Corporation, a California corporation, as successor in interest to Immersion Human Interface Corporation, a California corporation, as Tenant, for premises located at Charcot Business Park, Suite 2158, California, dated April 17, 1995 (the "2158 Prior Lease"), and that certain lease between Spieker Properties, L.P., a California limited partnership, as Landlord, and Immersion Corporation, a California corporation, as successor in interest to Immersion Human Interface Corporation, a California corporation, as Tenant, for premises located at Charcot Business Park, Suite 2154, California, dated November 21, 1997 (the "2154 Prior Lease", and together with the 2158 Prior Lease, collectively, the "Prior Leases"); provided that (i) Tenant is not in default of the material terms, including monetary defaults, of either of the Prior Leases; (ii) Tenant delivers the premises possessed by Tenant in connection with each of the Prior Leases to Landlord in the condition required by each of the Prior Leases at the termination of the Lease; (iii) all financial obligations of Tenant under each of the Prior Leases are paid through January 31, 1999. Notwithstanding the foregoing, Tenant shall still be obligated for reconciliation of Operating Expenses under each of the Prior Leases for the time period January 1, 1998 through January 31, 1999, and Tenant shall continue to be liable for (i) any obligations, liabilities or losses accruing during the term of either if the Prior Leases which are based on any indemnity or hold harmless agreement set forth in each of the Prior Leases, (ii) any liability or damages arising out of the release or discharge of Hazardous Materials occurring during the term of each of the Prior Leases to the extent Tenant is responsible for such release or discharge of Hazardous Materials under the terms of each of the Prior Leases, and (iii) any obligations or liabilities which survive expiration or termination of each of the Prior Leases. Landlord shall be entitled to retain the sums held by Landlord under each of the Prior Leases as the Security Deposit under this Lease. 18 19 1. JURY TRIAL WAIVER EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 39. THE PROVISIONS OF THIS PARAGRAPH 39 SHALL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and the year first above written. LANDLORD Spieker Properties, L.P., a California limited partnership By: Spieker Properties, Inc., a Maryland corporation, its general partner By: /s/ Joseph D. Russell, Jr. ------------------------------------ Joseph D. Russell, Jr. Its: Regional Senior Vice President Date: TENANT Immersion Corporation a California corporation By: /s/ Timothy Lacey ------------------------------------ Timothy Lacey Its: Chief Financial Officer Date: 19 20 EXHIBIT A INDUSTRIAL LEASE RULES AND REGULATIONS 1. Driveways, sidewalks, halls, passages, exits, entrances, elevators, escalators and stairways shall not be obstructed by tenants or used by tenants for any purpose other than for ingress to and egress from their respective premises. The driveways, sidewalks, halls, passages, exits, entrances, elevators and stairways are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgment of Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building, the Project and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of such tenant's business unless such persons are engaged in illegal activities. No tenant, and no employees or invitees of any tenant, shall go upon the roof of any Building, except as authorized by Landlord. 2. No sign, placard, banner, picture, name, advertisement or notice, visible from the exterior of the Premises or the Building or the common areas of the Building shall be inscribed, painted, affixed, installed or otherwise displayed by Tenant either on its Premises or any part of the Building or Project without the prior written consent of Landlord in Landlord's sole and absolute discretion. Landlord shall have the right to remove any such sign, placard, banner, picture, name, advertisement, or notice without notice to and at the expense of Tenant, which were installed or displayed in violation of this rule. If Landlord shall have given such consent to Tenant at any time, whether before or after the execution of Tenant's Lease, such consent shall in no way operate as a waiver or release of any of the provisions hereof or of the Lease, and shall be deemed to relate only to the particular sign, placard, banner, picture, name, advertisement or notice so consented to by Landlord and shall not be construed as dispensing with the necessity of obtaining the specific written consent of Landlord with respect to any other such sign, placard, banner, picture, name, advertisement or notice. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person or vendor approved by Landlord and shall be removed by Tenant at the time of vacancy at Tenant's expense. 3. The directory of the Building or Project will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to charge for the use thereof and to exclude any other names therefrom. 4. No curtains, draperies, blinds, shutters, shades, screens or other coverings, awnings, hangings or decorations shall be attached to, hung or placed in, or used in connection with, any window or door on the Premises without the prior written consent of Landlord. In any event with the prior written consent of Landlord, all such items shall be installed inboard of Landlord's standard window covering and shall in no way be visible from the exterior of the Building. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent or of a quality, type, design, and bulb color approved by Landlord. No articles shall be placed or kept on the window sills so as to be visible from the exterior of the Building. No articles shall be placed against glass partitions or doors which Landlord considers unsightly from outside Tenant's Premises. 5. Each tenant shall be responsible for all persons for whom it allows to enter the Building or the Project and shall be liable to Landlord for all acts of such persons. Landlord and its agents shall not be liable for damages for any error concerning the admission to, or exclusion from, the Building or the Project of any person. During the continuance of any invasion, mob, riot, public excitement or other circumstance rendering such action advisable in Landlord's opinion, Landlord reserves the right (but shall not be obligated) to prevent access to the Building and the Project during the continuance of that event by any means it considers appropriate for the safety of tenants and protection of the Building, property in the Building and the Project. 6. Tenant shall not alter any lock or access device or install a new or additional lock or access device or bolt on any door of its Premises, without the prior written consent of Landlord. If Landlord shall give its consent, Tenant shall in each case furnish Landlord with a key for any such lock. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys for all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 7. The restrooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown into them. The expense of any breakage, stoppage, or damage resulting from violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused the breakage, stoppage, or damage. 8. Tenant shall not use or keep in or on the Premises, the Building or the Project any kerosene, gasoline, or inflammable or combustible fluid or material except in strict accordance with the terms of the Lease. 9. Tenant shall not use, keep or permit to be used or kept in its Premises any foul or noxious gas or substance. Tenant shall not allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors and/or vibrations or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought or kept in or about the Premises, the Building, or the Project. 10. Except with the prior written consent of Landlord, Tenant shall not sell, or permit the sale, at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise in or on the Premises, nor shall Tenant carry on, or permit or allow any employee or other person to carry on, the business of stenography, typewriting or any similar business in or from the Premises for the service or accommodation of occupants of any other portion of the Building, or the business of a public barber shop, beauty parlor, nor shall the Premises be used for any illegal, improper, immoral or objectionable purpose, or any business or activity other than that specifically provided for in such Tenant's Lease. Tenant shall not accept hairstyling, barbering, shoeshine, nail, massage or similar services in the Premises or common areas except as authorized by Landlord. 11. If Tenant requires telegraphic, telephonic, telecommunications, data processing, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation. The cost of purchasing, installation and maintenance of such services shall be borne solely by Tenant. 12. Landlord will direct electricians as to where and how telephone, telegraph and electrical wires are to be introduced or installed. No boring or cutting for wires will be allowed without the prior written consent of Landlord. The location of burglar alarms, telephones, call boxes and other office equipment affixed to the Premises shall be subject to the prior written approval of Landlord. 20 21 13. Tenant shall not install any radio or television antenna, satellite dish, loudspeaker or any other device on the exterior walls or the roof of the Building, without Landlord's consent. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building, the Project or elsewhere. 14. Tenant shall not mark, or drive nails, screws or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof. Tenant shall not lay linoleum, tile, carpet or any other floor covering so that the same shall be affixed to the floor of its Premises in any manner except as approved in writing by Landlord. The expense of repairing any damage resulting from a violation of this rule or the removal of any floor covering shall be borne by the tenant by whom, or by whose contractors, employees or invitees, the damage shall have been caused. 15. Tenant shall not place a load upon any floor of its Premises which exceeds the load per square foot which such floor was designed to carry or which is allowed by law. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. 16. Each tenant shall store all its trash and garbage within the interior of the Premises or as otherwise directed by Landlord from time to time. Tenant shall not place in the trash boxes or receptacles any personal trash or any material that may not or cannot be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city, without violation of any law or ordinance governing such disposal. 17. Canvassing, soliciting, distribution of handbills or any other written material and peddling in the Building and the Project are prohibited and each tenant shall cooperate to prevent the same. No tenant shall make room-to-room solicitation of business from other tenants in the Building or the Project, without the written consent of Landlord. 18. Landlord shall have the right, exercisable without notice and without liability to any tenant, to change the name and address of the Building and the Project. 19. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord's judgment, is under the influence of alcohol or drugs or who commits any act in violation of any of these Rules and Regulations. 20. Without the prior written consent of Landlord, Tenant shall not use the name of the Building or the Project or any photograph or other likeness of the Building or the Project in connection with, or in promoting or advertising, Tenant's business except that Tenant may include the Building's or Project's name in Tenant's address. 21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 22. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 23. Landlord reserves the right to designate the use of the parking spaces on the Project. Tenant or Tenant's guests shall park between designated parking lines only, and shall not occupy two parking spaces with one car. No trucks, truck tractors, trailers or fifth wheel are allowed to be parked anywhere at any time within the Project other than in Tenant's own truck dock well. Vehicles in violation of the above shall be subject to tow-away, at vehicle owner's expense. Vehicles parked on the Project overnight without prior written consent of the Landlord shall be deemed abandoned and shall be subject to tow-away at vehicle owner's expense. No tenant of the Building shall park in visitor or reserved parking areas or loading areas. Any tenant found parking in such designated visitor or reserved parking areas or loading areas or unauthorized areas shall be subject to tow-away at vehicle owner's expense. The parking areas shall not be used to provide car wash, oil changes, detailing, automotive repair or other services unless otherwise approved or furnished by Landlord. Tenant will from time to time, upon the request of Landlord, supply Landlord with a list of license plate numbers of vehicles owned or operated by its employees or agents. 24. No Tenant is allowed to unload, unpack, pack or in any way manipulate any products, materials or goods in the common areas of the Project including the parking and driveway areas of the Project. All products, goods and materials must be manipulated, handled, kept, and stored within the Tenant's Premises and not in any exterior areas, including, but not limited to, exterior dock platforms, against the exterior of the Building, parking areas and driveway areas of the Project. Tenant also agrees to keep the exterior of the Premises clean and free of nails, wood, pallets, packing materials, barrels and any other debris produced from their operation. All products, materials and goods are to enter and exit the Premises by being loaded or unloaded through dock high doors into trucks and or trailers, over dock high loading platforms into trucks and or trailers or loaded or unloaded into trucks and or trailers within the Premises through grade level door access. 25. Tenant shall be responsible for the observance of all of the foregoing Rules and Regulations by Tenant's employees, agents, clients, customers, invitees and guests. 26. These Rules and Regulations are in addition to, and shall not be construed to in any way modify, alter or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any premises in the Project. 27. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all tenants of the Building. 28. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and the Project and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations herein stated and any additional rules and regulations which are adopted. 21 22 EXHIBIT B Site Plan [DIAGRAM] 22 23 EXHIBIT B.1 Property Description All that certain real property situated in the City of San Jose, County of Santa Clara, State of California, described as follows: Parcel 4, as shown on that Parcel Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on January 11, 1978, in Book 411 of Maps, page(s) 10 and 11. ARB #237-02-051.06 23 EX-10.12 6 AGREEMENT DRAFT FOR ASIC DESIGN AND DEVELOPMENT 1 EXHIBIT 10.12 AGREEMENT DRAFT FOR ASIC DESIGN AND DEVELOPMENT BY AND BETWEEN IMMERSION CORPORATION AND KAWASAKI LSI U.S.A., INC. 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 "[****] Modifications" shall mean modifications made by [****] in the course of performance under the AXIS Chip Agreement to the [****] and the [****] and the related Intellectual Property Rights. 1.3 "[****] Preexisting Technology" shall mean [****] technology and the related Intellectual Property Rights in existence prior to the Effective Date and used in the AXIS Chip, consisting of the [****], the [****], the [****], the [****], the [****], the [****], the [****], and the [****]. 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 [****] and which (i) does not contain the same [****], (ii) does not contain any portion of the [****], (iii) does not incorporate firmware that provides [****], to the best of KLSI's knowledge, as determined by KLSI by making a reasonable inquiry, and (iv) does have the [****] through a means disclosed and described to Immersion in writing and approved by Immersion in writing. * 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. 2 3 1.6 "AXIS Chip Agreement" shall mean the written agreement between KLSI and [****] 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 [****] shall mean the [****] described in Exhibit A ("Specifications"). 1.8 [****] shall mean the [****] described in Exhibit A ("Specifications"). 1.9 "Confidential Information" shall mean: (i) the Specifications, the Product, the PLSSOP, the Prototype Units, the [****], the [****], 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 [****] shall mean the [****] 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. * 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. 3 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 [****] 1.18 [****] shall mean the Immersion [****] 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 [****] and the [****]. 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 [****] in the course of performance under the AXIS Chip Agreement, consisting of (i) modifications to the [****] and the [****] and (ii) modifications, which are specifically implemented to facilitate and support the implementation of the Force Feedback Functionality which are made to the [****], the [****], the [****], the [****], the [****], the [****], the [****], the [****], the [****], the [****] and the [****]. 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 * 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. 4 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 [****] and the [****] 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 [****], the [****] and the [****]. 1.26 [****] shall mean the [****] described in Exhibit A ("Specifications"). 1.27 "Non-Immersion Technology" shall mean the [****] Preexisting Technology, the [****] Modifications, the [****] Preexisting Technology and the [****] Modifications. 1.28 [****] shall mean the [****] 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 [****] shall mean the [****] described in Exhibit A ("Specifications"). 1.34 [****] shall mean the [****] described in Exhibit A ("Specifications"). 1.35 [****] shall mean the [****] 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. * 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. 5 6 1.37 "Services" shall mean the design and development of the Prototype Units and the fabrication and assembly of the Prototype Units. 1.38 [****] shall mean the Immersion [****]. 1.39 "Specifications" shall mean the initial technical and design specifications for the Product set forth in Exhibit A ("Specifications"). 1.40 [****] shall mean the [****] described in Exhibit A ("Specifications"). 1.41 [****] shall mean the [****] described in Exhibit A ("Specifications"). 1.42 [****] shall mean the [****] described in Exhibit A ("Specifications"). 1.43 [****] shall mean the [****] described in Exhibit A ("Specifications"). 1.44 [****] shall mean the [****] described in Exhibit A ("Specifications"). 1.45 [****] shall mean the [****] 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; * 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. 6 7 (e) Any changes in KLSI's estimate of recurring manufacturing costs for the Prototype Unit or First Articles. 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 7 8 and will notify KLSI if any items are missing. KLSI will promptly deliver any Deliverables that are missing upon notification by Immersion. (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 [****] will be assigned to Immersion, through KLSI. KLSI agrees that in no case will Immersion be required to assign any Immersion Preexisting * 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. 8 9 Technology to KLSI or [****] and KLSI agrees that KLSI's and [****]'s use of the Immersion Requested Revisions shall be limited to the licenses granted herein. (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 [****] for [****] 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 [****] for [****] 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 [****] for [****] 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 [****], 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 [****] 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 [****], the Immersion Requested Revisions and the [****] (i) to use and modify the [****], the Immersion Requested Revisions and the [****] 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 * 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. 9 10 grants KLSI a license under Immersion's Intellectual Property Rights in the [****] and the Immersion Requested Revisions (i) to use and modify the Immersion Requested Revisions and to include the [****] (but to disable such [****]) 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 [****] 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 [****] 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 [****] 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 * 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. 10 11 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, 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. 11 12 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 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 12 13 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. 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. 13 14 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. 12.4 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 [****] 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 * 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. 14 15 the addresses first above written. Either party may change its address by giving notice pursuant to this Section 12.10. 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) 15 16 President President ------------------------------ ------------------------------ (Title) (Title) 10/15/97 10/16/97 ------------------------------ ------------------------------ (Date) (Date) 16 EX-10.13 7 PATENT LICENSE AGREEMENT WITH MICROSOFT CORP 1 EXHIBIT 10.13 SUBJECT TO RULE 408 AGREEMENT PATENT LICENSE AGREEMENT This Patent License Agreement (the "Agreement") is between Microsoft Corporation ("Microsoft"), a Washington corporation, having a place of business at One Microsoft Way, Redmond, Washington 98052, and Immersion Corporation ("Immersion"), a California corporation, having a place of business at 2158 Paragon Drive, San Jose, California 95131, each a "party" and collectively the "parties". The effective date of this Agreement is the date last signed below (the "Effective Date"). WHEREAS, Immersion is a technology development business with expertise and patent rights in the field of force feedback (FF) technologies; and WHEREAS, Microsoft is also an innovator in and has expertise and patent rights in the field of FF technologies, and has contributed to the creation of a substantial market for FF gaming devices; and WHEREAS, to resolve present patent issues, the parties wish to enter into a license agreement as set forth herein; NOW, THEREFORE, in consideration of the payments and promises made hereunder, the sufficiency of which the parties acknowledge, the parties agree as follows: 1. DEFINITIONS 1.05 DIRECTINPUT refers to the dinput.dll, dinput.vxd, pid.dll, dinput.h and dinputd.h files contained in either Version 6 or in Version 7 of DirectX, as they exist as of the Effective Date, and future versions of such files to the extent (but only to the extent) they do not contain additional or modified FF-related functionality. For purposes of this Agreement, the version of DirectInput contained in DX7 which exists as of the Effective Date is build 4.07.00.0201. 1.06 END-USER means a consumer who purchases and uses DirectInput, or software or hardware into which DirectInput is integrated or with which DirectInput is bundled, solely for his or her own enjoyment or personal use. END-USERS do not include developers who use DirectInput to create commercial products such as hardware devices, software products or webpages. 1.1 FF is an abbreviation for Force Feedback. FORCE FEEDBACK means the simulation of feel or tactile sensations. 1.2 IMMERSION FF PATENT PORTFOLIO means (i) all FF-related claims in any utility patents and utility patent applications owned or acquired by, or licensed to, Immersion or its Subsidiaries (which, in the case of patents licensed to Immersion or its Subsidiaries, are permitted to be sublicensed) and that are filed as of the Effective Date of this Agreement or during the term of this Agreement, and (ii) all subsequent FF-related claims in any utility patents (i.e. divisional, continuation, continuation-in-part, reissue, reexaminations and foreign patents/applications) that claim priority based on such patents or patent applications described in (i) above. A listing of the currently-issued patents comprising the Immersion FF Patent Portfolio as of the Effective Date is attached as Exhibit A ("Immersion FF Patent Portfolio"). 1.3 IMMERSION FF PATENT PORTFOLIO LICENSEE means any person that has been or subsequently is licensed by Immersion or its Subsidiaries to practice at least some of the inventions claimed in the Immersion FF Patent Portfolio. -1- MICROSOFT AND IMMERSION CONFIDENTIAL 2 1.4 IMMERSION LICENSEE PRODUCT(S) means FF hardware devices of any kind shipped in commercial quantities by or on behalf of Immersion Patent Portfolio Licensees on or before [****] (the "Immersion Licensee Current Version"), as well as all substantially similar future versions of such devices. A device is "substantially similar" within the meaning of the foregoing sentence if it has substantially the same appearance, performance, feature set and architecture as the Immersion Licensee Current Version, notwithstanding (i) firmware and driver changes made to ensure compatibility with future versions of Microsoft operating system software; (ii) changes related to adding USB support; and (iii) cost reductions to the electronics or existing mechanical design. 1.5 IMMERSION PRODUCT(S) means FF hardware devices of any kind shipped in commercial quantities by Immersion or its Subsidiaries on or before [****] (the "Immersion FF Current Version"), and any future replacement FF hardware devices marketed and sold by Immersion or its Subsidiaries which are substantially similar to the Immersion FF Current Version. A device is "substantially similar" within the meaning of the foregoing sentence if it has substantially the same appearance, performance, feature set and architecture as the Immersion FF Current Version, notwithstanding (i) firmware and driver changes made to ensure compatibility with future versions of Microsoft operating system software; (ii) changes related to adding USB support; (iii) cost reductions to the electronics or existing mechanical design. 1.6 MICROSOFT FF PATENT PORTFOLIO means (i) all FF-related claims in any utility patents and utility patent applications owned or acquired by, or licensed to, Microsoft or its Subsidiaries (which, in the case of patents licensed to Microsoft or its Subsidiaries, are permitted to be sublicensed) and that are filed as of the Effective Date of this Agreement, and (ii) all subsequent FF-related patent claims in any utility patents (i.e. divisional, continuation, continuation-in-part, reissue, reexaminations and foreign patents/applications) that claim priority based on such patents or patent applications described in (i) above. A listing of the currently-issued patents comprising the Microsoft FF Patent Portfolio as of the Effective Date is attached as Exhibit B ("Microsoft FF Patent Portfolio") * 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. -2- MICROSOFT AND IMMERSION CONFIDENTIAL 3 1.7 MICROSOFT PRODUCTS refers collectively to the Sidewinder Force Feedback Joystick, Sidewinder Force Feedback Wheel and R-4 Force Feedback Wheel products. 1.8 R-4 FORCE FEEDBACK WHEEL means the FF user interface device manufactured by or for Saitek Ltd. which bears the "R-4 Force Feedback Wheel" product name as the primary trademark, as such product exists as of [****] (the "R-4 Current Version") and any future versions of such product which are substantially similar to the R-4 Current Version, are introduced into the commercial marketplace in commercial quantities by [****], and are branded with "R-4 Force Feedback Wheel" as the primary trademark. 1.9 SAITEK LICENSE means the Force Feedback technology license agreement between Saitek Ltd. and Microsoft as such license agreement exists as of the Effective Date or as it is amended as set forth in this Agreement. 1.10 SIDEWINDER FORCE FEEDBACK JOYSTICK means (a) the FF joystick product sold as of May 1, 1999 by Microsoft under the "Sidewinder Force Feedback Joystick" product name; (b) a replacement FF joystick product (however named or labeled) with Substantially Similar Functional Characteristics which is shipped by Microsoft or its Subsidiaries in commercial volumes on or before [****] (devices qualifying under (a) or (b) shall hereinafter be referred to as the "Sidewinder Joystick Current Version"); and (c) any future replacement FF joystick products marketed and sold by Microsoft or its Subsidiaries which are substantially similar to the Sidewinder Joystick Current Version. A product is "substantially similar" within the meaning of (c) above if it has substantially the same appearance, performance, feature set and architecture as the Sidewinder Joystick Current Version, notwithstanding (i) firmware and driver changes made to ensure compatibility with future versions of Microsoft operating system software; (ii) changes related to adding USB support; (iii) cost reductions to the electronics or existing mechanical design. 1.11 SIDEWINDER FORCE FEEDBACK WHEEL means (a) the FF steering wheel product sold as of May 1, 1999 by Microsoft under the "Sidewinder Force Feedback Steering Wheel" product name; (b) a replacement FF steering wheel product (however named or labeled) with Substantially Similar Functional Characteristics which is shipped by Microsoft or its Subsidiaries in commercial volumes on or before [****] (devices qualifying under (a) or (b) shall hereinafter be referred to as the "Sidewinder Wheel Current Version"); and (c) any future replacement FF steering wheel products marketed and sold by Microsoft or its Subsidiaries which are substantially similar to the Sidewinder Wheel Current Version. A product is "substantially similar" within the meaning of (c) above if it has substantially the same appearance, performance, feature set and architecture as the Sidewinder Wheel Current Version, notwithstanding (i) firmware and driver changes made to ensure compatibility with future * 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. -3- MICROSOFT AND IMMERSION CONFIDENTIAL 4 versions of Microsoft operating system software; (ii) changes related to adding USB support; (iii) cost reductions to the electronics or existing mechanical design. 1.12 SIDEWINDER PRODUCTS means the collective term for the Sidewinder Force Feedback Joystick and Sidewinder Force Feedback Wheel products. 1.13 SUBSIDIARY means a corporation, company or other entity: a) more than fifty percent (50%) of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, as of the Effective Date, owned or controlled, directly or indirectly, by a party, but such corporation, company, or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists; or b) which does not have outstanding shares or securities, as may be the case in a partnership, joint venture or unincorporated association, but more than fifty percent (50%) of whose ownership interest representing the right to make the decisions for such corporation, company or other entity is, as of the Effective Date, owned or controlled, directly or indirectly, by a party, but such corporation, company or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists. 1.14 SUBSTANTIALLY SIMILAR FUNCTIONAL CHARACTERISTICS means that a current version of a given product and its replacement version (e.g., a currently shipping FF joystick product and its replacement FF joystick product) bear the following relationship to each other: the replacement product has substantially the same functionality and feature set as the current version, [****] 2. IMMERSION LICENSE TO MICROSOFT 2.1 SIDEWINDER PRODUCT PATENT LICENSE: In consideration for the one-time payment made in Section 5.1 ("Microsoft One-Time Payment to Immersion") and the license and covenant-not-to-sue set forth in Section 3.2 ("License and Covenant-Not-To-Sue Under Microsoft FF Patent Portfolio"), Immersion and its Subsidiaries grant Microsoft and its Subsidiaries a worldwide, nonexclusive license under the Immersion FF Patent Portfolio (which license shall become irrevocable, perpetual, non- * 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. -4- MICROSOFT AND IMMERSION CONFIDENTIAL 5 terminable and fully paid-up upon Immersion's receipt of Microsoft's one-time payment required under Section 5.1) to make, have made, use, have used, import and have imported, sell, have sold, and offer for sale Sidewinder Products, subject to the limitation that, except for reasonable product transition overlap (including possible manufacturing overlap as well as marketing efforts to clear the distribution channels of one product while its replacement product is being introduced), the foregoing license shall extend to only one Sidewinder Force Feedback Joystick product and one Sidewinder Force Feedback Wheel product being manufactured or marketed by or for Microsoft or its Subsidiaries at any one time. Such license shall apply to Sidewinder Products without regard to whether such Sidewinder Products are marketed in a bundle with other separate products. 2.2 MICROSOFT SUBLICENSING RIGHTS: Immersion and its Subsidiaries grant to Microsoft and its Subsidiaries a worldwide, nonexclusive license under the Immersion FF Patent Portfolio (which license shall become irrevocable, perpetual, non-terminable and fully paid-up upon Immersion's receipt of Microsoft's one-time payment required under Section 5.1) (i) to sublicense third parties to manufacture Sidewinder Products on behalf of Microsoft or its Subsidiaries for sale by Microsoft or its Subsidiaries under the licenses granted herein, and (ii) to sublicense Saitek to make, have made, use, have used, import and have imported, sell and have sold and offer for sale R-4 Force Feedback Wheels, solely to the extent the Saitek License, by its terms, permits such activities as of the Effective Date. No further sublicensing rights are granted to Microsoft or its Subsidiaries by this Section 2.2 ("Microsoft Sublicensing Rights") except as expressly granted herein and to the extent the Saitek License grants to Saitek more extensive rights than those granted by Immersion to Microsoft or its Subsidiaries for sublicense to Saitek hereunder, no license by Immersion is implied. Microsoft hereby agrees that any amendments or modifications it agrees to make to the Saitek License after the Effective Date shall not in any way affect the scope of products licensed pursuant to that Agreement. 2.3 MICROSOFT REFERENTIAL USE OF IMMERSION BRANDING: During the term of this Agreement, Microsoft agrees to make referential use of the I-FORCE trademarks by including in each Microsoft Product (excluding the R-4 Force Feedback Wheel) the following reference: "Microsoft is a licensee of Immersion Corporation, the exclusive licensor, under the [INSERT I-FORCE LOGO] logo, of I-FORCE force-feedback patents and technology." Specifically, Microsoft agrees to incorporate the foregoing reference along with a reference (and, to the extent technically feasible, a hyper-text link) to Immersion's then-current corporate web site (www.force-feedback.com) in the About Box for the associated driver software control panel or comparable location. Microsoft also agrees to place or have placed on the underside (exterior) of the Sidewinder Products the following notice: "Microsoft is a licensee of Immersion Corporation, the exclusive licensor of I-FORCE force-feedback patents -5- MICROSOFT AND IMMERSION CONFIDENTIAL 6 and technology." Microsoft agrees to exercise its commercially reasonable best efforts to implement the foregoing references into Microsoft Products (excluding the R-4 Force Feedback Wheel) manufactured by or for Microsoft as promptly as possible, and commits to doing so by no later than ninety (90) days from the Effective Date. Notwithstanding the referential use described in this Section 2.3 ("Microsoft Referential Use of Immersion Branding"), no trademark license is granted to Microsoft hereunder to use the Immersion trademarks or to sublicense such Immersion trademarks to third parties. Immersion hereby agrees to defend, indemnify and hold Microsoft, its Subsidiaries, distributors and licensees harmless from and against any and all claims that Microsoft's including such reference violates a third party's trademarks or other proprietary rights. In the event Microsoft receives such a third party claim ("Indemnification Claim"), Microsoft agrees to promptly notify Immersion in writing of the Indemnification Claim and to cooperate with Immersion at Immersion's expense in defending the Indemnification Claim. Immersion's obligations under the foregoing indemnity provision, shall, however, be subject to a total dollar limit of [****] of all payments by Microsoft to Immersion hereunder (the "Indemnification Cap"); provided that in the event Immersion does not within sixty (60) days of receiving notice from Microsoft of an Indemnification Claim (or within three (3) days of such notice if the third-party claim is accompanied by a motion for preliminary injunction or temporary restraining order that would if granted prevent Microsoft from shipping product which contains such reference) agree in writing to fully and completely indemnify and hold Microsoft harmless with respect to the Indemnification Claim without regard to the Indemnification Cap, then Microsoft in its sole discretion may elect to discontinue all future referential use of the I-FORCE trademarks as set forth in this Section 2.3 in conjunction with the product sku associated with the region in which the claim is raised. At such time as the third-party claim is settled or otherwise resolved in a manner which permits Microsoft to referentially use the I-FORCE trademarks, Immersion may request, in writing, that Microsoft resume referential use of the I-Force trademark as set forth in this Section 2.3 and Microsoft agrees to do so, provided that Immersion pays Microsoft's reasonable costs and allows Microsoft a commercially reasonable amount of time to make the change. Subject to Microsoft's right to protect its own trademarks, tradenames and servicemarks, Immersion may request, in writing, that Microsoft substitute alternative tradenames, trademarks or servicemarks which may be substituted for those referred to above or that Microsoft substitute a different Immersion corporate web site (i.e., different from www.force-feedback.com) and Microsoft agrees to do so, provided that Immersion pays Microsoft's reasonable costs and allows Microsoft a commercially reasonable amount of time to make the substitution. Immersion agrees that Microsoft's obligations to include a hyper-text link under Sections 2.3 and 6.2 shall not apply to any link to a site which on a consistent basis (as opposed to the normal featuring of new products, product reviews, etc.) features a product * 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. -6- MICROSOFT AND IMMERSION CONFIDENTIAL 7 sold by a Microsoft competitor more prominently than a product sold by Microsoft. 2.4 SAITEK BRANDING REQUIREMENT: Microsoft agrees to use its commercially reasonable best efforts to require Saitek to use the I-FORCE trademarks and to incorporate them on the bottom of the R-4 Force Feedback Wheel. In addition, Microsoft agrees to use its commercially reasonable best efforts to require Saitek to include the I-FORCE logo in the About Box or comparable location on the driver software control panel associated with the R-4 Force Feedback Wheel, or if there is no About Box, in the associated product manual. Microsoft agrees to use commercially reasonable best efforts to require Saitek to implement the foregoing trademark requirements by September 15, 1999. Microsoft agrees to use commercially reasonable best efforts to impose on Saitek the obligation to include the I-FORCE logo on the product packaging for R-4 Force Feedback Wheels and in connection with advertising or promotional materials associated with the R-4 Force Feedback Wheels. Microsoft agrees to use commercially reasonable best efforts to require Saitek to permit Immersion to cite Saitek as an Immersion FF Patent Portfolio Licensee and to list Saitek in all materials that list other Immersion FF Patent Portfolio Licensees. 2.5 LIMITED SOFTWARE LICENSE: Immersion hereby grants Microsoft and its Subsidiaries a worldwide, non-exclusive license under the Immersion FF Patent Portfolio (which license shall become irrevocable, perpetual, non-terminable and fully paid-up upon Immersion's receipt of Microsoft's one-time payment required under Section 5.1): (a) to manufacture, sell, offer for sale, import and use DirectInput; and (b) to manufacture, sell, offer for sale, import and use Microsoft's FF-capable gaming software products listed in Exhibit C (all of which Microsoft represents have been distributed by Microsoft to third parties in commercial quantities on or before [****] and to manufacture, sell, import and use successor versions of such gaming software products. Microsoft and its Subsidiaries and End-Users shall not be liable to Immersion or its Subsidiaries as a contributory infringer under 35 U.S.C. Section 271(c) (or the foreign law equivalent thereof), or for inducing infringement under 35 U.S.C. Section 271(b) (or the foreign law equivalent thereof), based solely on their manufacture, importation, offer for sale, use or sale of DirectInput in combination with third-party software and/or hardware products, nor shall they be liable for direct infringement under 35 U.S.C. Section 271(a) (or the foreign equivalent thereof) based solely on their combination of DirectInput with unlicensed Microsoft or third-party hardware or software if no force feedback element of the claim or claims asserted against them is contributed by the Microsoft or third-party hardware or software which they combine with DirectInput. Except as specifically provided above, this Section 2.5 shall not be construed to * 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. -7- MICROSOFT AND IMMERSION CONFIDENTIAL 8 immunize Microsoft or its Subsidiaries from liability under 35 U.S.C. Section 271(a)-(c), or under any other provision of Title 35 of the United States Code, either expressly, by implication, by estoppel, or otherwise. However, injunctive relief in patent infringement actions brought by Immersion or its Subsidiaries based on Microsoft's or Microsoft's Subsidiaries' unlicensed hardware or software products, or the combination thereof with each other or with DirectInput, shall, unless product integration and/or bundling make it impractical, be directed to such unlicensed products, and not to DirectInput itself. 3. LICENSE AND COVENANT-NOT-TO-SUE UNDER MICROSOFT FF PATENT PORTFOLIO. 3.1 In consideration for the licenses granted herein by Immersion and its Subsidiaries, the favorable one-time royalty payment for the licenses granted them herein with respect to the Immersion FF Patent Portfolio, and the force feedback evangelism services provided for in Section 6.6, Microsoft and its Subsidiaries hereby grant Immersion and its Subsidiaries a royalty-free, worldwide, non-exclusive license (which license shall be irrevocable and non-terminable during the term set forth in Section 3.3 upon Immersion's receipt of Microsoft's one-time payment required under Section 5.1), under the Microsoft FF Patent Portfolio, to make, have made, use, have used, import and have imported, sell, have sold and offer for sale Immersion Product(s), subject to the limitation that, except for reasonable product transition overlap (including possible manufacturing overlap as well as marketing efforts to clear the distribution channels of one product while its replacement product is being introduced), the foregoing license shall extend to only one version of a given FF hardware device being manufactured or marketed by or for Immersion or its Subsidiaries at any one time (i.e., Immersion will not have a given Immersion FF Current Version and its replacement version being manufactured or marketed at the same time, but may have two or more different Immersion FF hardware devices on the market at a given time). 3.2 In further consideration for the licenses granted herein by Immersion and its Subsidiaries, the favorable one-time royalty payment for the licenses granted them herein with respect to the Immersion FF Patent Portfolio, and the force feedback evangelism services provided for in Section 6.6, Microsoft and its Subsidiaries hereby grant all present and future Immersion FF Patent Portfolio Licensees a covenant-not-to-sue such Immersion FF Patent Portfolio Licensees under the Microsoft FF Patent Portfolio with respect to Immersion Licensee Product(s), subject to the limitation that, except for reasonable product transition overlap (including possible manufacturing overlap as well as marketing efforts to clear the distribution channels of one product while its replacement product is being introduced), the foregoing covenant shall extend to only one version of a given FF hardware device being manufactured or marketed by or for Immersion FF Patent Portfolio Licensees at any one time (i.e., a given -8- MICROSOFT AND IMMERSION CONFIDENTIAL 9 Immersion FF Patent Portfolio Licensee will not have a given Immersion FF Patent Portfolio Licensee Current Version and its replacement version being manufactured or marketed at the same time, but may have two or more different Immersion FF Patent Portfolio Licensee hardware devices on the market at a given time). Microsoft warrants that no third party has or will be granted the right, as an exclusive licensee or patent assignee of Microsoft or otherwise, to assert any claim as to which Microsoft has granted the covenant-not-to-sue described above. No third party against whom Microsoft has a pending infringement claim subsequent to the Effective Date with respect to the Microsoft FF Patent Portfolio will be granted the above-described covenant-not-to-sue in the event such third party becomes an Immersion FF Patent Portfolio Licensee after Microsoft has made a claim against such third party. 3.3 The term of the license provided to Immersion under Section 3.1, and of the covenant-not-to-sue provided to Immersion's licensees under Section 3.2, shall commence on the Effective Date and end: 3.3.1 With respect to FF joysticks and steering wheels, the later of (A) [****]; or (b) [****]; 3.3.2 With respect to all other FF hardware products, on [****]. 3.4 The covenant-not-to-sue granted in Section 3.2 above shall be terminable upon written notice by Microsoft, with respect to any particular Immersion licensee, in the event such licensee (a) files suit against Microsoft or its Subsidiaries alleging infringement of any FF-related patent or other intellectual property right; (b) files suit against a Microsoft distributor, reseller or end user alleging infringement of any FF-related patent or other intellectual property right with respect to a Microsoft FF product; or (c) engages in a course of conduct which, under applicable Federal Circuit Court of Appeals case law, gives rise to a reasonable apprehension by Microsoft of such suit. 3.5 As set forth in Sections 3.1 and 3.2 above, Microsoft's license to Immersion and its Subsidiaries and its covenant not to sue Immersion's Patent Portfolio Licensees are granted by Microsoft on a royalty or fee free basis. If Microsoft or its Subsidiaries have entered or do enter into a license agreement with a third party with respect to that third party's FF related claims in patents and patent applications and such license rights are sublicensable by Microsoft or its Subsidiaries such that they become part of the Microsoft FF Patent Portfolio (hereinafter, "Third Party Patents"), then: (i) if the Third Party Patents are sublicensable by Microsoft or its Subsidiaries on a royalty free or one-time lump sum fee basis, then Immersion, its Subsidiaries and the Immersion Patent Portfolio Licensees shall immediately receive rights to such Third Party Patents * 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. -9- MICROSOFT AND IMMERSION CONFIDENTIAL 10 pursuant to Sections 3.1 and 3.2 as the case may be and Immersion, its Subsidiaries and the Immersion Patent Portfolio Licensees shall not owe Microsoft or its Subsidiaries any compensation for receiving such rights; (ii) if the Third Party Patents are sublicensable by Microsoft or its Subsidiaries solely on a royalty bearing basis, then Microsoft shall notify Immersion of the Third Party Patent license and Immersion may elect on behalf of itself, its Subsidiaries and the Immersion Patent Portfolio Licensees to take a royalty bearing sublicense (or covenant not to sue as the case may be) to such Third Party Patents subject to the terms of Sections 3.1 and 3.2 hereof (provided the parties acknowledge that such a license for Third Party Patents may not necessarily be irrevocable and non-terminable nor may they run for the term set forth in Section 3.3), in which event, Immersion, its Subsidiaries and the Immersion Patent Portfolio Licensees shall be entitled to receive, as to such Third Party Patents, the lowest royalties and best terms and conditions as compared to those paid by Microsoft, its Subsidiaries or any of their sublicensees. 4. NO MICROSOFT TRADEMARK LICENSE. No trademark license is granted to Immersion hereunder to use the Microsoft trademarks or to sublicense such Microsoft trademarks to third parties. 5. MICROSOFT ONE-TIME PAYMENT TO IMMERSION 5.1 ONE-TIME PAYMENT: Within forty (40) days after the Effective Date and Microsoft's receipt of an invoice from Immersion, Microsoft shall make a one-time payment of [****] to Immersion for the licenses granted to Microsoft and its Subsidiaries by Immersion and its Subsidiaries with respect to the Microsoft Products under the terms of Section 2.1 ("Sidewinder Product Patent License") and Section 2.2 ("Microsoft Sublicensing Rights"). If Immersion or its Subsidiaries have entered or do enter into a license agreement with a third party with respect to that third party's FF related claims in patents and patent applications and such license rights are sublicensable by Immersion or its Subsidiaries such that they become part of the Immersion Patent Portfolio (hereinafter, "Third Party Patents"), then: (i) if the Third Party Patents are sublicensable by Immersion or its Subsidiaries on a royalty free or one-time lump sum fee basis, then Microsoft and its Subsidiaries shall immediately receive rights to such Third Party Patents pursuant to Sections 2.1 and 2.2 and shall not owe Immersion or its Subsidiaries any compensation over that referenced in the first sentence of this Section 5.1 for receiving such rights; (ii) if the Third Party Patents are sublicensable by Immersion or its Subsidiaries solely on a royalty bearing basis, then Immersion shall notify Microsoft of the Third Party Patent license and Microsoft may elect on behalf of itself and its Subsidiaries to take a royalty bearing sublicense to such Third Party Patents subject to the terms of Sections 2.1, 2.2 and 2.5 hereof (provided the parties acknowledge that such a license for Third Party Patents may not necessarily be irrevocable, non-terminable and/or * 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. -10- MICROSOFT AND IMMERSION CONFIDENTIAL 11 perpetual), in which event, Microsoft and its Subsidiaries shall be entitled to receive, as to such Third Party Patents, the lowest royalties and best terms and conditions as compared to those paid by Immersion, its Subsidiaries or any of their sublicensees. 5.2 [****] 5.2.1 [****] 5.2.2 [****] 5.2.3 [****] * 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. -11- MICROSOFT AND IMMERSION CONFIDENTIAL 12 5.2.4 [****] 5.2.5 Notwithstanding the above, this Section 5.2 shall not apply to any license agreement entered into as part of a settlement of pending litigation between Immersion or its Subsidiaries, on the one hand, and Microsoft or its Subsidiaries, on the other; except that this exception shall not apply if Immersion fails to notify Microsoft of Microsoft's or its Subsidiaries' alleged infringement, and engage in license discussions, prior to filing suit. Microsoft agrees that after receiving such notice, it will not file any action or proceeding contesting the validity, enforceability or non-infringement of the patent or patents with respect to which Immersion has given it notice until after the parties have failed, despite their good faith efforts, to reach agreement on a license agreement and in no event earlier than forty-five (45) days following Microsoft's receipt of Immersion's notice. Similarly, Immersion agrees that it will not file any action or proceeding alleging infringement of the patent or patents until after the parties have failed, despite their good faith * 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. -12- MICROSOFT AND IMMERSION CONFIDENTIAL 13 efforts, to reach agreement on a license agreement and in no event earlier than thirty-five (35) days following Microsoft's receipt of Immersion's notice. In addition, statements regarding intellectual property claims made by Immersion or its Subsidiaries in connection with threatened or actual litigation with a third-party with whom Immersion has entered into an Other Immersion Agreement shall not be admissible in any arbitration conducted pursuant to Section 5.2.2 above. 6. OTHER TERMS AND CONDITIONS 6.1 PRESS RELEASE: The parties shall jointly prepare a press release announcing this Agreement, consisting of mutually agreed-upon text, press date, and city or cities of origin. Neither party shall issue any other press release, sales or marketing, promotional material, advertisements, or similar materials discussing such party's relationship to the other party, except as may be expressly authorized or required in this Agreement or with the other party's prior written agreement to the content and distribution of any such material or information. Immersion shall be free to cite Microsoft as an Immersion FF Patent Portfolio Licensee and to list Microsoft in all materials that list other Immersion FF Patent Portfolio Licensees. 6.2 PATENT MARKING: As soon as possible after the Effective Date, and in no event later than ninety (90) days thereafter, Microsoft shall mark all newly-manufactured Sidewinder Products with (a) a label notifying purchasers that the product may be governed by one or more patents enumerated in the "About Box" or comparable location of the software component of the Product; (b) a statement in the "About Box" or comparable location that ----------------------------------------------------------- This product may be subject to one or more of the following patents owned by Immersion Corporation: __________________ ----------------------------------------------------------- (where the blank has been filled in with the numbers of the patents set forth in Exhibit A, as such list is amended by Immersion from time to time); and (c) a reference to Immersion's then-current corporate web site (www.force-feedback.com) in the About Box for the associated driver software control panel or comparable location (which reference shall, to the extent technically feasible, be a hyperlink). Changes made by Microsoft to the list of patents based on an amendment of such list by Immersion shall be made within a commercially reasonable amount of time, and Immersion agrees to compensate Microsoft for its reasonable costs necessary to make such changes. 6.3 NO ADMISSION: Microsoft's and its Subsidiaries' license of the Immersion FF Patent Portfolio and/or payment of the one-time payment under Section 5.1 ("Microsoft One-Time Payment to Immersion") and/or -13- MICROSOFT AND IMMERSION CONFIDENTIAL 14 Immersion's and its Subsidiaries' license of the Microsoft FF Patent Portfolio from Microsoft shall not be deemed to be evidence or an admission that a product infringes any patent of the other party, or that any patent of a party is valid or enforceable. 6.4 TAXES: (a) The amounts to be paid (or deemed paid) by either party to the other do not include any foreign, U.S. federal, state, local, municipal or other governmental taxes, duties, levies, fees, excises or tariffs, arising as a result of or in connection with the transactions contemplated under this Agreement including, without limitation, (i) any state or local sales or use taxes or any value added tax or business transfer tax now or hereafter imposed on the provision of any services to the other party under this Agreement, (ii) taxes imposed or based on or with respect to or measured by any net or gross income or receipts of either party, (iii) any franchise taxes, taxes on doing business, gross receipts taxes or capital stock taxes (including any minimum taxes and taxes measured by any item of tax preference), (iv) any taxes imposed or assessed after the date upon which this Agreement is terminated, (v) taxes based upon or imposed with reference to either parties' real and/or personal property ownership and (vi) any taxes similar to or in the nature of those taxes described in (i), (ii), (iii), (iv) or (v) above, now or hereafter imposed on either party (or any third parties with which either party is permitted to enter into agreements relating to its undertakings hereunder) (all such amounts, together with any penalties, interest or any additions thereto, collectively "Taxes"). Neither party is liable for any of the other party's Taxes incurred in connection with or related to the sale of goods and services under this Agreement, and all such Taxes shall be the financial responsibility of the party obligated to pay such taxes as determined by the applicable law, provided that both parties shall pay to the other the appropriate Collected Taxes in accordance with subsection (b) below. Each party agrees to indemnify, defend and hold the other party harmless from any Taxes (other than Collected Taxes) or claims, causes of action, costs (including, without limitation, reasonable attorneys' fees) and any other liabilities of any nature whatsoever related to such Taxes to the extent such Taxes relate to amounts paid under this Agreement. (b) Any sales or use taxes described in (a)(i) above that (i) are owed by either party solely as a result of entering into this Agreement and the payment of the fees hereunder, (ii) are required to be collected from that party under applicable law, and (iii) are based solely upon the amounts payable (or deemed payable) under this Agreement (such taxes the "Collected Taxes"), shall be stated separately as applicable on payee's invoices and shall be remitted by the other party to the payee, upon request payee shall remit to the other -14- MICROSOFT AND IMMERSION CONFIDENTIAL 15 party official tax receipts indicating that such Collected Taxes have been collected and paid by the payee. Either party may provide the other party an exemption certificate acceptable to the relevant taxing authority (including without limitation a resale certificate) in which case payee shall not collect the taxes covered by such certificate. Each party agrees to take such commercially reasonable steps as are requested by the other party to minimize such Collected Taxes in accordance with all relevant laws and to cooperate with and assist the other party, in challenging the validity of any Collected Taxes or taxes otherwise paid by the payor party. Each party agrees to equally share the cost of any successful other party-initiated ruling and/or appeal or other determination that concludes that a Collected Tax is not owing in whole or in part under this Agreement. Each party shall indemnify and hold the other party harmless from any Collected Taxes, penalties, interest, or additions to tax arising from amounts paid by one party to the other under this Agreement, that are asserted or assessed against one party to the extent such amounts relate to amounts that are paid to or collected by one party from the other under this Section. If any taxing authority refunds any tax to a party which the other party originally paid, or a party otherwise becomes aware that any tax was incorrectly and/or erroneously collected from the other party, then that party shall promptly remit to the other party an amount equal to such refund, or incorrect collection as the case may be plus any interest thereon. (c) If taxes are required to be withheld on any amounts otherwise to be paid by one party to the other, the paying party will deduct such taxes from the amount otherwise owed and pay them to the appropriate taxing authority. At a party's written request and expense, the parties will use reasonable efforts to cooperate with and assist each other in obtaining tax certificates or other appropriate documentation evidencing such payment, provided, however, that the responsibility for such documentation shall remain with the payee party. (d) This Section 6.4 shall govern the treatment of all taxes arising as a result of or in connection with this Agreement notwithstanding any other Section of this Agreement. 6.5 ESCALATION: In the event of any dispute arising under this Agreement, authorized representatives of each of the parties shall meet or communicate by phone or otherwise no later than ten (10) working days after receipt of notice by either party of a request for dispute resolution and shall enter into good faith negotiations aimed at resolving the dispute. If the representatives are unable to resolve the dispute in a mutually satisfactory manner within the next five (5) working days after the initial meeting or phone communication described above, the dispute shall be -15- MICROSOFT AND IMMERSION CONFIDENTIAL 16 referred to the top management level for FF-related matters in each party, and each party shall designate a top management executive with authority to resolve the dispute to meet in good faith in an attempt to resolve the dispute within thirty (30) days after receipt of the initial notice. This Section 6.5 ("Escalation") shall not limit either party's ability, after referring the dispute to the top management levels of the parties and expiration of the thirty (30) day period following receipt of the initial notice, to seek an injunction or other equitable relief for breach of obligations related to intellectual property or as may otherwise be necessary to protect any other rights of either party. 6.6 FORCE FEEDBACK EVANGELISM SERVICES: Immersion agrees that for a period of twelve (12) months following the Effective Date, it shall provide at least [****] per month of force feedback evangelism services. "Force feedback evangelism services," as used in this Section 6.6, means marketing services directed to convincing and/or assisting developers to create force feedback-capable software products. 7. TERM & TERMINATION 7.1 TERM: The term of this Agreement shall be for a period of time up through the expiration of the last of the patents in the Microsoft FF Patent Portfolio and Immersion FF Patent Portfolio. 7.2 TERMINATION FOR CAUSE: If either party materially breaches any obligation contained in this Agreement, the other party may terminate this Agreement upon sixty (60) days' written notice; provided, however, that cure of such material breach within such sixty (60) day notice period shall bar termination on account of such material breach. 7.3 EFFECT OF TERMINATION: In the event of termination of this Agreement for any reason, except non-payment of the one-time payment described in Section 5.1 ("One-Time Payment"), the provisions of Section 2 ("Immersion License to Microsoft"), Section 3 ("License and Covenant-Not-To-Sue Under Microsoft FF Patent Portfolio"), Section 6.2 ("Patent Marking"), Section 6.3 ("No Admission"), Section 7 ("Term & Termination"), Section 8 ("Confidentiality") and Section 9 ("Miscellaneous") shall remain in force and shall survive any termination. 8. CONFIDENTIALITY. 8.1 CONFIDENTIALITY: All terms and conditions of this Agreement shall be deemed Confidential Information as defined herein. The parties expressly undertake to retain in confidence all information and know-how transmitted to one party ("Receiving Party") by the other party ("Disclosing Party") that the Disclosing Party has designated as proprietary and/or confidential or that, by the nature of the circumstances surrounding the disclosure, ought in good faith to be treated as proprietary and/or confidential ("Confidential Information"). Confidential Information includes all information relating to payments and terms under this Agreement. The parties will make no use of Confidential * 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. -16- MICROSOFT AND IMMERSION CONFIDENTIAL 17 Information except under the terms and during the existence of this Agreement. Confidential Information shall not include any information that: (i) is or subsequently becomes publicly available without the Receiving Party's breach of any obligation owed the Disclosing Party; (ii) became known to Receiving Party from a source other than Disclosing Party other than by the breach of an obligation of confidentiality owed to Disclosing Party; (iii) is independently developed by Receiving Party. Nothing herein shall prevent a Receiving Party's disclosure of Confidential Information as required by applicable statutory or regulatory requirement (including, without limitation, disclosure to comply with reporting obligations associated with a legitimate corporate transaction), or of such terms as directly affect a party's licensee to said licensee in the event such licensee receives a notice of infringement from the other party hereto, or pursuant to a subpoena or document request. If a Receiving Party is subject to a subpoena or document request calling for the production of a Disclosing Party's Confidential Information, the Receiving Party shall notify the Disclosing Party as soon as practicable to permit the Disclosing Party to endeavor to minimize disclosure by obtaining a protective order or otherwise. Receiving Party's obligation under this Section 8 with respect to any particular information shall extend to the earlier of such time as such information is publicly available through no fault of Receiving Party or ten (10) years following termination of this Agreement. 9. MISCELLANEOUS 9.1 SUFFICIENT RIGHTS: Each party represents and warrants that it has all legal right and power to grant the other party the license rights granted in this Agreement, and that its execution and performance of this Agreement will not violate any law or agreement. 9.2 NOTICE: Any written notice under this Agreement shall be sent by certified mail, return receipt requested, or its equivalent, addressed as follows: FOR NOTICES TO MICROSOFT: FOR NOTICES TO IMMERSION: VICE PRESIDENT, HARDWARE LOUIS ROSENBERG, PRESIDENT MICROSOFT CORPORATION IMMERSION CORPORATION ONE MICROSOFT WAY 2158 PARAGON DRIVE REDMOND, WASHINGTON 98052 SAN JOSE, CALIFORNIA, 95131 WITH A COPY TO: WITH A COPY TO: MICROSOFT GENERAL COUNSEL STACY A. SNOWMAN, ESQ. LAW & CORPORATE AFFAIRS GRAY CARY WARE & FREIDENRICH MICROSOFT CORPORATION 139 TOWNSEND STREET, SUITE 400 ONE MICROSOFT WAY SAN FRANCISCO, CA 94107 REDMOND, WASHINGTON 98052
9.3 SEVERABILITY: If any part of this Agreement is found to be in violation of any law, or is found to be unenforceable, contrary to public policy, or otherwise legally defective, the Agreement shall be construed and interpreted without reference to that part. -17- MICROSOFT AND IMMERSION CONFIDENTIAL 18 9.4 ASSIGNMENT: This Agreement is not assignable or transferable except in the case of a merger, acquisition or assignment or transfer of all or substantially all of the assets of the Microsoft Hardware Group of Microsoft or of Immersion and only if the successor (in the case of a merger or acquisition) or assignee or transferee (in the case of an asset sale) has agreed in writing to be bound hereby to the same extent as was the predecessor entity. Any other attempt to assign or transfer this Agreement without the prior written consent of the other party shall be void. 9.5 NO OBLIGATION TO ENFORCE: Neither party shall have any obligation to enforce its patent rights against third parties. 9.6 NO INDEMNITY: Except as provided in Sections 2.3 and 9.12 hereof, neither party shall be liable to indemnify, defend, or hold harmless the other party against charges of patent infringement, trade secret infringement, trademark infringement, trade dress infringement, or the like, arising out of the subject matter of this Agreement. 9.7 DISCLAIMER: BOTH PARTIES DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, EXCEPT AS PARTICULARLY DETAILED HEREIN. THE PARTIES DO NOT WARRANT THAT THE MANUFACTURE, USE, SALE, IMPORT OR LICENSE OF THEIR PATENTED INVENTIONS ARE FREE FROM INFRINGEMENT OF THIRD PARTY PATENT OR OTHER RIGHTS. 9.8 RELEASE - IMMERSION TO MICROSOFT: Immersion and its Subsidiaries hereby fully and forever release and discharge Microsoft and its Subsidiaries, and their manufacturers, importers and distributors, licensees and users from any and all damages, liability, suits, claims and causes of action of any kind, whether known or unknown, suspected or unsuspected, arising out of patent infringement or alleged patent infringement of the Immersion FF Patent Portfolio by: (a) the manufacture, sale, offer for sale, importation and use of the Sidewinder Products prior to the Effective Date; (b) the manufacture, sale, offer for sale, importation and use of the R-4 Force Feedback Wheels manufactured and sold by or for Microsoft's sublicensee, Saitek, prior to the Effective Date; and (c) any activities occurring prior to the Effective Date that would have been licensed under Section 2.5 had they occurred after the Effective Date. 9.9 MODIFICATION OF DIRECTINPUT: In consideration for the releases granted by Immersion above, Microsoft on behalf of itself and its Subsidiaries hereby agrees that they will not modify DirectInput so as to disadvantage Immersion Products or Immersion Licensee Products being commercially distributed by or for Immersion or Immersion Licensees as of the Effective -18- MICROSOFT AND IMMERSION CONFIDENTIAL 19 Date as compared to competitive Sidewinder Products being commercially distributed by or for Microsoft or its Subsidiaries as of the Effective Date, and further agrees that DirectInput will support Immersion Products and Immersion Licensee Products being commercially distributed by Immersion or Immersion Product Licensees as of the Effective Date for a period of at least three years from the Effective Date. For purposes of satisfying these modification and support obligations, Microsoft will be deemed to be in compliance if (a) it refrains from modifying DirectInput so as to disadvantage the Wingman Force and Wingman Formula Force products currently being shipped by Logitech as compared to competitive Sidewinder Products being commercially shipped by or for Microsoft or its Subsidiaries as of the Effective Date; and (b) for the above-referenced three year period, DirectInput supports at least the Wingman Force and Wingman Formula Force products currently being shipped by Logitech. 9.10 RELEASE - MICROSOFT TO IMMERSION: Microsoft and its Subsidiaries hereby fully and forever release and discharge Immersion and its Subsidiaries, and their manufacturers, importers and distributors, licensees and users from any and all damages, liability, suits, claims, and causes of action of any kind, whether known or unknown, suspected or unsuspected, arising out of patent infringement or alleged patent infringement of the Microsoft FF Patent Portfolio by any and all FF devices manufactured, used, sold or imported by Immersion or its Subsidiaries prior to the Effective Date, which products are listed in Exhibit D hereto. 9.11 NEW INFORMATION: In connection with the waiver and relinquishment of the matters set forth in Sections 9.8 and 9.9 (hereinafter the "Released Matters"), each of the parties acknowledges that it is aware that it or its attorneys or accountants may hereafter discover claims or facts in addition to or different from those which it now knows or believes to exist with respect to the Released Matters or the other party hereto, but that it is its intention hereby fully, finally and forever to settle and release all of the Released Matters, which now exist, may exist or heretofore have existed between Immersion and Microsoft. In furtherance of this intention, the releases herein given shall be and remain in effect as full and complete mutual releases as to the Released Matters notwithstanding the discovery or existence of any such additional or different claim or fact. 9.12 ASSIGNMENT OF RELEASED MATTERS: Immersion and Microsoft each warrant and represent to the other that as of the Effective Date it is the sole and lawful owner of all right, title and interest in and to all of the respective Released Matters and that it has not heretofore voluntarily, by operation of law or otherwise, assigned or transferred or purported to assign or transfer to any person whomsoever any Released Matter or any part or portion thereof of any claim, demand or right against the other. Immersion and Microsoft shall indemnify and hold harmless the other from and against any claim, demand, damage, debt, liability, account, reckoning, obligation, cost, expense, lien, action or cause of action -19- MICROSOFT AND IMMERSION CONFIDENTIAL 20 (including payment of attorneys' fees and costs actually incurred whether or not litigation be commenced) based on or in connection with or arising out of any such assignment or transfer or purported or claimed assignment or transfer. 9.13 BENEFICIARIES: Except with respect to the license rights, covenant-not-to-sue and releases granted by this Agreement to Saitek and/or to Immersion Product Licensees, this Agreement is not for the benefit of any person who is not a party signatory hereto or specifically named a beneficiary in this paragraph or elsewhere in this Agreement. The provisions of this Agreement and the releases contained herein shall extend to and inure to the benefit of and be binding upon, in addition to Immersion and Microsoft and their Subsidiaries, just as if they had executed this Agreement: the respective legal successors and assigns of each of Immersion and Microsoft solely as permitted under the terms of Section 9.4 ("Assignment"). 9.14 REPRESENTATION: Each party acknowledges to the other party that it has been represented by independent legal counsel of its own choice throughout all of the negotiations which preceded the execution of this Agreement and that it has executed this Agreement with the consent and on the advice of such independent legal counsel. Each party further acknowledges that it and its counsel have had adequate opportunity to make whatever investigation or inquiry they may deem necessary or desirable in connection with the subject matter of this Agreement prior to the execution hereof and the delivery and acceptance of the consideration specified herein. 9.15 INDEPENDENT CONTRACTOR: Each party shall at all times act as an independent entity, and shall be solely responsible for any and all social security, unemployment, Workers' Compensation and other withholding taxes for any and all of its employees. Nothing in this Agreement shall be construed as creating a partnership, joint venture or agency relationship between the parties. Neither party has authority to make, assume or create any representation, warranty, agreement, guarantee, claim or settlement on behalf of the other party with respect to the subject matter of this Agreement or otherwise. Each party shall defend, indemnify and hold the other party, its officers, directors, and employees harmless from all claims, costs, expenses, fines, fees and damages resulting from any claim arising out of or related to a breach of the provisions of this paragraph by such party. 9.16 NO WAIVER: Failure by either party to enforce any provision of this Agreement will not be deemed a waiver of future enforcement of that or any other provision. 9.17 GOVERNING LAW: The interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Washington. -20- MICROSOFT AND IMMERSION CONFIDENTIAL 21 9.18 AMBIGUITY: This Agreement has been drafted by both Microsoft and Immersion, and no ambiguity shall be resolved against either of them by virtue of its role in drafting this Agreement. 9.19 PERSONAL INJURY AND PROPERTY DAMAGE CLAIMS: Each party or its Subsidiaries who manufactures or sells any product ("Manufacturer") shall indemnify, protect, defend and hold the other party ("Licensor") harmless from any claims, damages, liabilities, judgments, settlements, losses, costs and expenses (including court costs and reasonable attorneys' and experts' fees) (collectively, "Costs") suffered or incurred by the Licensor in respect of any third party claim 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 an FF product manufactured or sold by the Manufacturer, notwithstanding any license or covenant-not-to-sue granted the Manufacturer by the Licensor hereunder. 9.20 NEGATION OF WARRANTIES AND OTHER OBLIGATIONS: Nothing in this Agreement shall be construed: (i) as a warranty or representation by a party as to the validity or scope of any patents; (ii) as granting by implication, estoppel or otherwise any licenses or rights under patents or other intellectual property rights of a party other than expressly granted herein; (iii) to require a party to file any patent application relating to Force Feedback; (iv) as a warranty that a party will be successful in securing the grant of any patent relating to Force Feedback or any reissue or extensions thereof; or (v) to require a party to pay any maintenance fees or take any other steps to maintain such party's patent rights relating to Force Feedback. 9.21 ENTIRE AGREEMENT: This Agreement embodies the entire understanding of the parties regarding the subject matter of this document and supersedes all prior or contemporaneous understandings and agreements, whether written or oral, and can be modified only by a writing signed by both parties, or their successors. 9.22 SUGGESTIONS AND FEEDBACK: Either party may from time to time provide suggestions, comments or other feedback to the other party with respect to Confidential Information provided originally by the other party (hereinafter "Feedback"). Both parties agree that all Feedback is and shall be entirely voluntary and shall not, absent separate agreement, create any confidentiality obligation for the receiving party. However, the receiving -21- MICROSOFT AND IMMERSION CONFIDENTIAL 22 party shall not disclose the source of any feedback without the providing party's consent. Feedback shall be clearly designated as such and, except as otherwise provided herein, each party shall be free to disclose and use such Feedback as it sees fit, entirely without obligation of any kind to the other party. The foregoing shall not, however, affect either party's obligations hereunder with respect to Confidential Information of the other party. 9.23 COUNTERPARTS: This Agreement may be executed in counterparts, which when taken together shall constitute a single, binding agreement between the parties. THEREFORE, the authorized representatives of the parties have executed this Agreement in duplicate originals. MICROSOFT CORPORATION IMMERSION CORPORATION Signed: /s/ D. Stuart Ashman Signed: /s/ Louis Rosenberg ----------------------------- ----------------------- Name: D. Stuart Ashman Name: Louis Rosenberg ------------------------------- ------------------------- Title: GM Hardware Title: President ------------------------------ ------------------------ Date: 7/19/99 Date: 7/19/99 ------------------------------- ------------------------- -22- MICROSOFT AND IMMERSION CONFIDENTIAL 23 Exhibit A Immersion FF Patent Portfolio
U.S. Patent Number Issue Date Title ------------------ ---------- ----- 4,823,634 4/89 Multifunction Tactile Manipulative Control 5,185,561 2/9/93 Torque Motor as a Tactile Feedback Device in a Computer System 5,220,260 6/15/93 Actuator Having Electronically Controllable Tactile Responsiveness 5,389,865 2/14/95 Method and System for Providing a Tactile Virtual Manipulator Defining an Interface Device Therefor 5,414,337 5/9/95 Actuator Having Electronically Controllable Tactile Responsiveness 5,459,382 10/17/95 Method and System for Providing a Tactile Virtual Reality 5,513,100 4/30/96 Velocity Controller with Force Feedback 5,559,412 9/24/96 Actuator Having Electronically Controllable Tactile Responsiveness 5,576,727 11/19/96 Electromechanical Human-Computer Interface With Force Feedback 5,589,854 12/31/96 Touching Feedback Device 5,629,594 5/13/97 Force Feedback System 5,691,898 11/25/97 Safe and Low Cost Computer Peripherals With Force Feedback for Consumer Applications 5,701,140 12/23/97 Method and Apparatus for Providing a Cursor Control Interface With Force Feedback 5,721,566 2/24/98 Method and Apparatus for Providing Damping Force Feedback 5,731,804 3/21/98 Method and Apparatus for Providing High Noise
-23- MICROSOFT AND IMMERSION CONFIDENTIAL 24 Mechanical I/O for Computer Systems 5,734,373 3/31/98 Method and Apparatus for Controlling Force Feedback Interface Systems Utilizing a Host Computer 5,739,811 4/14/98 Method and Apparatus for Controlling Human Interface Systems Providing Force Feedback 5,769,640 6/23/98 Method and System for Simulating Medical Procedures including Virtual Reality and Control Method and System for Use Therein 5,754,023 5/19/98 Gyro-Stabilized Platforms for Force-Feedback B1 5,459,382 6/9/98 Method and System for Providing a Tactile Virtual Manipulator Defining an Interface Device Therefor 5,767,839 6/16/98 Method and Apparatus for Providing Passive Human-Computer Interface Systems 5,790,108 8/4/98 Controller 5,805,140 9/8/98 High Bandwidth Force Feedbck Interface Using Voice Coils and Flexures 5,821,920 10/13/98 Control Input Device for Interfacing an Elongated Flexible Object With a Computer System 5,825,308 10/20/98 Force Feedback Interface Having Isotonic and Isometric Functionality 5,828,197 10/27/98 Mechanical Interface Having Multiple Grounded Actuators 5,831,408 11/3/98 Force Feedback System 5,844,392 12/1/98 Haptic Browsing 5,872,438 2/16/99 Whole-Body Kinesthetic Display 5,880,714 3/9/99 Three-Dimensional Cursor Control Interface With Force Feedback
-24- MICROSOFT AND IMMERSION CONFIDENTIAL 25 5,889,670 3/30/99 Method and Apparatus for Tactilely Responsive User Interface 5,889,672 3/30/99 Tactilely Responsive User Interface Device and Method Therefor 5,907,487 5/25/99 Force Feedback Device With Safety Feature
-25- MICROSOFT AND IMMERSION CONFIDENTIAL 26 Exhibit B Microsoft FF Patent Portfolio [****] * 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. -26- MICROSOFT AND IMMERSION CONFIDENTIAL 27 Exhibit C Microsoft FF-Capable Gaming Products Combat Flight Simulator Flight Simulator 98 (and prior versions thereof) Cart Precision Racing Midtown Madness Motor Cross Madness Monster Truck Madness 2 (and predecessor) Mech Warrior 3 (and predecessors) Starlancer Urban Assault Baseball Version 3D Fighter Ace (online version only) Allegiance (online version only) -27- MICROSOFT AND IMMERSION CONFIDENTIAL 28 Exhibit D Released Immersion Products [****] * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -28- MICROSOFT AND IMMERSION CONFIDENTIAL EX-10.14 8 SEMICONDUCTOR DEVICE COMPONENT PURCHASE AGREEMENT 1 EXHIBIT 10.14 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. 2 1.3. "DEFECT" means (i) with respect to the Components, defects in such Components which cause such Components not to operate in conformance with the Specification and/or a defect in the materials and/or workmanship of the Component and/or (ii) with respect to the Documentation, defects in the Documentation which render the Documentation inaccurate, erroneous or otherwise unreliable. 1.4. "DELIVERABLES" shall mean the PLSSOP, the testable Prototype Units, the First Articles and Documentation, as defined and developed under the terms of the ASIC Design Agreement. 1.5. "DOCUMENTATION" means the Specification, the VHDL File for the AXIS Chip and other documentation that accompanied the Deliverables provided by KLSI to Immersion as required under the ASIC Design Agreement. 1.6. "FIRST ARTICLES" shall mean a limited number of units of the Components, in a given format (.5 CBA, .35 CBA or .35 standard cell) as mutually agreed upon by the parties, which are manufactured as a test run for review and acceptance by Immersion prior to full production of the Component for sale to Immersion under the terms of this Agreement. 1.7. "POST LAYOUT SIMULATION SIGN OFF PACKAGE" or "PLSSOP" shall mean the computer generated simulation of the Prototype Unit that is a model of the Prototype Unit and that is used to review the features and functionality which will be present in the Prototype Unit, as defined and developed under the terms of the ASIC Design Agreement. 1.8. "PROTOTYPE UNITS" shall mean initial working testable units of the Components that conform to the PLSSOP and the Specifications, as defined and developed under the terms of the ASIC Design Agreement. 1.9. "SECOND SOURCE" means an alternative silicon provider licensed by KLSI to produce a specific format (.35 CBA or .35 standard cell) of the Component for KLSI, as a "back-up" resource for KLSI's manufacturing obligations or licensed by Immersion to produce the Component for Immersion. 1.10. "SPECIFICATION" means the Component specification in Exhibit A ("Specification") for each of the .5 CBA, .35 CBA and .35 standard cell formats. 2. PURCHASE OF COMPONENTS. 2.1. PURCHASE OF COMPONENTS BY IMMERSION. 2.1.1. COMPONENTS. The parties will agree upon a limited number of units of the Components to be manufactured as First Articles and which will serve as a test run for review and acceptance by Immersion prior to full production of 2 3 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 3 4 involving new masks will be [****] longer than the usual [****] 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 [****]units per month, or [****] is designing a [****] force feedback gaming product that uses a Component requiring an analog to digital converter (each a "Migration Trigger Event"), then, within [****] 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 * 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. 4 5 complete the migration within [****] 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 [****] of the .35 standard cell Components [****] or until the date [****] 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 [****] 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 [****] 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 * 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. 5 6 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 6 7 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 5.3 ("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 [****] 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 * 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. 7 8 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 [****] 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. * 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. 8 9 3. ORDERING PROCEDURE. 3.1. FORECASTING. Immersion will require, by contract, that Immersion's customers and/or Affiliates provide Immersion with a written nonbinding [****] 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 [****] 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 [****] 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 [****] 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 * 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. 9 10 KLSI (i) advises will not be delivered as scheduled (and will be more than [****] late) or (ii) which are not delivered as scheduled (and are more than [****] 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 [****] 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 [****] 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 [****] 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 [****] 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 * 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. 10 11 each Affiliate, 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 [****] 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 [****] of KLSI's return approval notification. KLSI will ship the replacement Components * 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. 11 12 to Immersion on a priority basis. In addition, KLSI and Immersion will mutually agree upon, in writing, an appropriate test suite for use by Immersion as the basis for acceptance or rejection of the hexcode or firmware code portion of the Components ordered by Immersion for Immersion's use. 3.4. CHANGE ORDERS. Cancellation and rescheduling of Immersion's Component orders will be governed by the cancellation and rescheduling policies and fees described in Exhibit B ("Cancellation and Rescheduling Policies and Fees"). All cancellation and/or rescheduling requests will be submitted to Immersion by Immersion's customers and will be incorporated by Immersion into a cancellation and/or rescheduling request which will be submitted by Immersion to KLSI. 3.5. ANCILLARY AGREEMENT. Immersion agrees and acknowledges that Immersion's customers will be permitted to negotiate with KLSI to directly impose quality requirements on KLSI under the terms of a separate, executed agreement (the "Ancillary Agreement") and to mutually agree upon RMA procedures and hexcode or firmware code loading and spin charges. 4. LEAD TIMES AND MINIMUM ORDER QUANTITIES. The parties agree that the lead time for orders placed by Immersion to KLSI for the .5 CBA and .35 CBA format Components will be [****] from receipt of the Immersion purchase order by KLSI, subject to implementation of a Base Wafer Maintenance Purchase Order System as described in Section 7.4 ("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 [****] from receipt of the Immersion purchase order by KLSI, subject to implementation of a Die Bank System as described in Section 7.5 ("Die Bank System"). Some exceptions may be taken to the [****] 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 [****] of receipt of the forecast from Immersion). The minimum order quantity requirement is [****] 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 [****] 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 * 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. 12 13 workmanship. KLSI warrants to Immersion that for a period of [****] 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 [****] 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 [****] 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 [****] 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 * 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. 13 14 Immersion, KLSI will contact Immersion within [****] 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 [****] 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 [****] 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 * 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. 14 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 [****] 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 [****] 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 [****] of KLSI's confirmation of unacceptable Defects levels. KLSI will confirm the unacceptable Defect levels within [****]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 * 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. 15 16 Components manufactured, (ii) replace all Component units in Immersion, Immersion's customers' and/or the Affiliates' inventory, and (iii) reimburse Immersion, the Immersion customers and/or the Affiliates for any expenses and/or costs associated with implementation of such remedy. If KLSI is unable to propose and implement a remedy as described above, Immersion will be entitled to treat such failure as a Trigger Event under Section 2.2 ("Second Source") upon [****] 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 * 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. 16 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 6.2.1 ("Scope of Immersion's Indemnity"), Immersion may, in its sole discretion, (i) provide KLSI with a modification to the Immersion Preexisting Technology and/or Immersion Requested Revisions for use in the Components, or (ii) procure for Immersion a license to continue to use the Immersion Preexisting Technology and/or Immersion Requested Revisions in the Components. Each party agrees to notify the other promptly of any matters in respect to which the foregoing indemnity in Section 6.2.1 ("Scope of Immersion's Indemnity") may apply. If notified in writing of any action or claim for which Immersion is to provide indemnity, Immersion shall defend those actions or claims at Immersion's expense and pay the Costs awarded against KLSI in any such action, or pay any settlement of such action or claim entered into by Immersion. 17 18 6.2.3. EXCEPTIONS TO IMMERSION'S INDEMNITY OBLIGATION. The foregoing indemnity by Immersion will not apply to any infringement claim to the extent it arises from (i) any modification of the Immersion Preexisting Technology and/or Immersion Requested Revisions by parties other than Immersion or Immersion subcontractors under contract with Immersion, or (ii) an infringement which would not occur in the Immersion Preexisting Technology and/or Immersion Requested Revisions but which does occur when the Immersion Preexisting Technology and/or Immersion Requested Revisions are incorporated into the Components. 7. FINANCIAL TERMS. 7.1. PRICE. The pricing for the Components will be in U.S. dollars and shall be as set forth in Exhibit C ("Pricing"). KLSI has advised Immersion that there is a [****] CBA ROM spin charge per each new (or new revision of) hexcode or firmware implemented in the Components. Such charge will be paid by Immersion within [****] 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 [****] 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 [****] lead time required under the * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 18 19 terms of this Agreement with respect to the .5 CBA and .35 CBA 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 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 [****] 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 [****] 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 [****] of the applicable current unit price. An invoice will be sent by KLSI to Immersion within [****] of Immersion's cancellation or discontinuation of the program and will be due and payable by Immersion within [****] 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 [****] 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 [****] basis by KLSI and will be calculated using the upcoming month's quantity of Components as reflected in the Immersion rolling [****] 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 [****] 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 * 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. 19 20 purchase order which is equal to one month's average usage (based on the average purchase order quantity for the previous [****]) at [****] of the applicable current unit price. An invoice will be sent by KLSI to Immersion within [****] of Immersion's cancellation or discontinuation of the program and will be due and payable by Immersion within [****] 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 [****] 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 [****] 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 [****] 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 [****] 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 * 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. 20 21 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. 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 21 22 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. 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 [****] 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. * 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. 22 23 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 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 23 24 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. 12.12. FORCE MAJEURE. Neither party shall be liable for any failure or delay in its performance under this Agreement due to causes, including, but not limited to, acts of God, acts of civil or military authority, fires, epidemics, floods, earthquakes, riots, wars, sabotage, court orders and governmental actions, which are beyond its reasonable control ("Force Majeure"); provided that the delayed party: (i) gives the other party written notice of such cause promptly; and (ii) uses its best efforts to correct such failure or delay in its performance. Notwithstanding the foregoing, KLSI agrees that failure to deliver the Components to Immersion or Immersion's customers will have a significant effect on Immersion's ability to comply with Immersion's contractual obligations to its customers. As such, KLSI agrees that delays in production of the Components in a single silicon facility, with respect to a particular format, whether at KLSI or a Second Source, including but not limited to, process problems, availability of materials, or other such manufacturing delays, shall not constitute a Force Majeure. Accordingly, KLSI will take all reasonable measures to establish, maintain and qualify Second Source capability so as to insure a continuous supply of the Components. 12.13. ENTIRE AGREEMENT. This Agreement, with the exception of the ASIC Design Agreement, constitutes the complete agreement of the parties, and supersedes any other agreements, written or oral, concerning the subject matter hereof, with the exception of the ASIC Design Agreement. IN WITNESS WHEREOF, the authorized representatives of the parties hereto have signed this Agreement as of the date and year last set forth below. KLSI: IMMERSION: KAWASAKI LSI USA. IMMERSION CORPORATION By: /s/ Hakuo Watanabe By: /s/ Louis Rosenberg ---------------------------- ------------------------------ Print Name: Hakuo Watanabe Print Name: Louis Rosenberg ----------------------- ----------------------- Title: CFO Title: President ---------------------------- ---------------------------- Date: 8/17/98 Date: Aug. 17, 1998 ---------------------------- ---------------------------- 24 EX-10.15 9 AMEND #1 TO SEMICONDUCTOR DEVICE COMPONENT AGREEMT 1 EXHIBIT 10.15 AMENDMENT NO. 1 TO SEMICONDUCTOR DEVICE PURCHASE AGREEMENT This Amendment (the "Amendment") No. 1 to the Semiconductor Device Component Purchase Agreement dated August 17, 1998, 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"), modifies and amends the Semiconductor Device Component Purchase Agreement (the "Agreement") in certain respects as follows: 1. The parties desire to amend the Agreement to permit KLSI to sell the "Components" directly to certain designated customers, and therefore Paragraph 2.1.3, entitled "KLSI Sales to Direct Customers" as described below is hereby added to the Agreement. 2. Paragraph 2.1.3.1, entitled "In General": The following Paragraph 2.1.3.1 is hereby added to the Agreement: The parties agree that Paragraph 2.1.1 ("Components") of the Agreement requires that the Components will be sold exclusively to Immersion. Notwithstanding the foregoing, Immersion may from time to time desire that KLSI sell certain designated Components ("Specific Components") directly to certain designated customers ("Direct Customers"). In such case, Immersion will issue a Direct Customer Authorization Form substantially in the form attached hereto as Schedule 1 ("Direct Customer Authorization Form") to KLSI. KLSI agrees that Immersion may define the Specific Components to include only certain formats of the Component, such as the .35 CBA format or the .35 standard cell format. Upon execution by Immersion and KLSI of each Direct Custom Authorization Form, KLSI may negotiate directly with such Direct Customer to enter into a component purchase agreement under terms mutually agreed upon by KLSI and the Direct Customer. Subject to the limitations described in Section 2.1.3.4 ("Limitations") and Section 2.1.3.7 ("Second Source Limitation"), KLSI and each Direct Customer will be free to address lead times, pricing, hexcode deliveries, quality requirements and other relevant terms as mutually agreed upon by KLSI and such Direct Customer. 3. Paragraph 2.1.3.2, entitled "Direct Customer Royalty": The following Paragraph 2.1.3.2 is hereby added to the Agreement: KLSI agrees to compensate Immersion by means of a royalty which will be due and owing for each unit of the Specific Components sold to a Direct Customer. The specific royalty due for sales of Specific Components to each Direct Customer will be described in the applicable Direct Customer Authorization Form. KLSI agrees to pay the royalties due to Immersion for each 2 shipment of Specific Components to a Direct Customer within [****] days of acceptance of the Specific Components by the Direct Customer. 4. Paragraph 2.1.3.3, entitled "Mitigation Trigger Events": The following Paragraph 2.1.3.3 is hereby added to the Agreement: Orders from Direct Customers shall be counted toward Immersion's orders for purposes of reaching the [****] units per month. 5. Paragraph 2.1.3.4, entitled "Die Bank and Base Wafer": The following Paragraph 2.1.3.4 is hereby added to the Agreement: Immersion's Die Bank System and Base Wafer Maintenance Program will not be used for Direct Customers. 6. Paragraph 2.1.3.5, entitled "Second Source Limitation": The following Paragraph 2.1.3.5 is hereby added to the Agreement: KLSI may use its Second Source to produce Specific Components for resale by KLSI to Direct Customers but KLSI may not grant Direct Customers the right to buy directly from the KLSI Second Source. 7. Paragraph 2.2.3 entitled "Terms to be Imposed on the Second Source Silicon Provider": The following language shall be added to the end of the existing paragraph 2.2.3: The parties agree that under certain circumstances where KLSI has entered into an agreement with a Direct Customer in accordance with the terms of Section 2.1.3.1 ("In General"), KLSI may be required, by the Direct Customer, to agree that in the case of a material breach by KLSI of Quality Requirements or delivery obligations, KLSI will permit the Direct Customer, as a limited remedy, to enter into a direct purchase arrangement with KLSI's Second Source for the Specific Components. Immersion hereby grants KLSI the right to enter into such an arrangement to permit Direct Customers to purchase the Specific Components under the circumstances described above, so long as KLSI imposes an obligation for the Second Source silicon provider to compensate Immersion by means of the specific royalty applicable to the Specific Components as described in the applicable Direct Customer Authorization Form within [****] days of delivery of the Specific Components by the Second Source to the Direct Customer. KLSI also agrees to insure that the obligation to pay Immersion on a timely basis is an obligation enforceable by Immersion as a third party beneficiary of the Second Source Silicon Provider Agreement. In addition to the provision set forth in Section 5.3(c) of the Agreement Draft for the ASIC Design and Development dated October 16, 1997, KLSI agrees to notify Immersion if KLSI works with any Direct Customer to design, develop and/or knowingly manufacture any integrated circuit devices for "force feedback" applications that compete with the Components. For purposes of this Agreement the term "force * 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. -2- 3 feedback" shall mean simulation of feel or tactile sensations using at least one actuator controlled by one or more microprocessors such that modulation of said actuator creates feel or tactile sensations. 8. Schedule 1 ("Direct Customer Authorization Form") attached hereto is hereby added to the Agreement as Exhibit F thereto. 9. In the event of inconsistencies between the Agreement and this Amendment, the terms and conditions of this Amendment shall be controlling. Unless specifically modified or changed by the terms of this Amendment, all terms of the Agreement shall remain in effect and shall apply fully as described and set forth in the Agreement. Capitalized terms used and not defined herein are used with the meanings set forth in the Agreement. IMMERSION: KLSI: IMMERSION CORPORATION: KAWASAKI LSI U.S.A., INC.: By: /s/ Louis Rosenberg By: /s/ Hakuo Watanabe ----------------------------- ----------------------------------- Print Name: Louis Rosenberg Print Name: Hakuo Watanabe --------------------- --------------------------- Title: President Title: Chief Financial Officer ------------------------- -------------------------------- Date: April 26, 1999 Date: April 27, 1999 ------------------------- -------------------------------- -3- 4 Schedule 1 Direct Customer Authorization Form This Direct Customer Authorization Form No. 1 contains the special terms and conditions applicable to the Direct Customer described below and will be incorporated by reference into the Semiconductor Device Component Purchase Agreement (the "Agreement") between Immersion and KLSI effective as of 8/17/98 for a term of [****]. This Direct Customer Authorization Form shall be effective on the date last executed below. All terms used in this Direct Customer Authorization Form shall retain the same meaning as defined in the Agreement and such definitions are incorporated herein by reference. 1. Name of Proposed Direct Customer: [****] 2. Royalty to be paid to Immersion: [****] [****] 3. Name of Specific Component (and [****] number, if applicable)
IN WITNESS HEREOF, the parties hereto have duly caused this Direct Customer Authorization Form to be signed by their duly authorized representatives. IMMERSION: KLSI: IMMERSION CORPORATION: KAWASAKI LSI U.S.A., INC.: By: /s/ Louis Rosenberg By: /s/ Hakuo Watanabe ----------------------------- ----------------------------------- Print Name: Louis Rosenberg Print Name: Hakuo Watanabe --------------------- --------------------------- Title: President Title: Chief Financial Officer ------------------------- -------------------------------- Date: April 26, 1999 Date: April 27, 1999 ------------------------- -------------------------------- * 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. 5 Direct Customer Authorization Form This Direct Customer Authorization Form No. 1 contains the special terms and conditions applicable to the Direct Customer described below and will be incorporated by reference into the Semiconductor Device Component Purchase Agreement (the "Agreement") between Immersion and KLSI effective as of 6/4/99 for a term of [****]. This Direct Customer Authorization Form shall be effective on the date last executed below. All terms used in this Direct Customer Authorization Form shall retain the same meaning as defined in the Agreement and such definitions are incorporated herein by reference. 1. Name of Proposed Direct Customer: [****] 2. Royalty to be paid to Immersion: [****] [****] 3. Name of Specific Component (and [****] number, if applicable)
IN WITNESS HEREOF, the parties hereto have duly caused this Direct Customer Authorization Form to be signed by their duly authorized representatives. IMMERSION: KLSI: IMMERSION CORPORATION: KAWASAKI LSI U.S.A., INC.: By: /s/ Louis Rosenberg By: /s/ Hakuo Watanabe ----------------------------- ----------------------------------- Print Name: Louis Rosenberg Print Name: Hakuo Watanabe --------------------- --------------------------- Title: President Title: Chief Financial Officer ------------------------- -------------------------------- Date: April 26, 1999 Date: April 27, 1999 ------------------------- -------------------------------- * 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. EX-10.16 10 INTERCOMPANY INTELLECTUAL PROPERTY LICENSE AGREEMT 1 EXHIBIT 10.16 INTERCOMPANY INTELLECTUAL PROPERTY LICENSE AGREEMENT IMMERSION CORPORATION AND MICROSCRIBE, LLC This Intercompany Intellectual Property License Agreement (the "Agreement") is by and between Immersion Corporation, a California corporation, with an office at 2158 Paragon Drive, San Jose, California (hereinafter "Immersion") and MicroScribe, LLC, a California limited liability company, with offices in San Jose, California (hereinafter "Licensor"), is entered into effective as of July 1, 1997 (the "Effective Date"). RECITALS A. Licensor is the owner of certain intellectual property rights related to 3D digitizing. B. The parties desire that Licensor grant a license to Immersion for the MicroScribe Technology under the MicroScribe Intellectual Property Rights to enable Immersion to manufacture, market and sell 3D digitizing technology products, on the 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. AGREEMENT 1. DEFINITIONS In this Agreement the following words and expressions shall have the following meanings: 1.1 AFFILIATES means any corporation or business entity which is controlled by, controls, or is under common control of a party. 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 MICROSCRIBE INTELLECTUAL PROPERTY RIGHTS means the patents, copyrights, trademarks, trade secrets, know-how, mask work rights and all other intellectual property rights related to the MicroScribe Technology, including without limitation the issued patents and patent applications described in Exhibit A ("MicroScribe Intellectual Property"), and any continuations, continuations in-part, divisional applications, revisions and/or re-examinations based on the foregoing. 1.3 MICROSCRIBE TECHNOLOGY means certain three dimensional ("3D") digitizing technology, including but not limited to, a mechanical digitizing arm used to input three dimensional data into a computer, and related digitizing software applications (including InScribe and Vertisketch for Lightwave) and digitizing software drivers, in object code and source code form, which technology is currently used commercially in a product line sold under the MicroScribe trademark as such product is further described in Exhibit B ("MicroScribe Technology"). 1 2 1.4 NET RECEIPTS means the gross receipts received by Immersion upon any sales of Royalty Bearing Products to unaffiliated third parties, less any actual returns and/or credits. Net Receipts shall not include freight, insurance and taxes. No other costs incurred in the manufacture, sale, distribution, or exploitation of Royalty Bearing Products shall be deducted from gross receipts in the calculation of Net Receipts. If Royalty Bearing Products are bundled with other items sold by Immersion and are not invoiced separately, royalties will be paid based on Immersion's then-current average sales price for each such Royalty Bearing Product when sold as a separate item (averaged for the applicable Quarter in which the Net Receipts are received by Immersion for the country in which the sale was made) in like quantities in arms length transactions to unrelated third parties. 1.5 ROYALTY BEARING PRODUCT means a 3D digitizing technology product which either incorporates or utilizes the MicroScribe Technology and/or would otherwise infringe the MicroScribe Design Patent [****] without a license. 2. DELIVERY AND GRANT OF LICENSES 2.1 DELIVERY. Licensor will deliver the MicroScribe Technology within five (5) days of the Effective Date of this Agreement. 2.2 GRANT OF LICENSE. Subject to the terms of this Agreement, Licensor grants to Immersion a worldwide, nonexclusive license under any MicroScribe Intellectual Property Rights owned or licensable by Licensor, to use, reproduce, modify, and create derivative works based upon the MicroScribe Technology in order to develop, use, make, and have made 3D digitizing technology products, and to sell, offer to sell, lease, license, import, demonstrate, perform, display, market and distribute such 3D digitizing technology products, with the further right to sublicense such rights through multiple tiers of sublicenses. 2.3 TRADEMARK LICENSE. Licensor hereby grants to Immersion a nonexclusive, worldwide license, to use in connection with marketing Royalty Bearing Products, the trademark(s) used by Licensor ("Marks") to identify the MicroScribe Technology and Immersion agrees to use such Marks on and in connection with the Royalty Bearing Products. Immersion acknowledges that all use of the Marks will inure to the benefit of Licensor. At Licensor's reasonable request, Immersion shall provide Licensor with samples of Immersion's use of Licensor's trademarks. Immersion agrees to abide by Licensor's reasonable written trademark policies as issued and provided to Immersion from time to time. In any case where the Marks are not used in compliance with Licensor's trademark policies and such use has been approved in writing by Licensor, upon receipt of written notice from Licensor, Immersion will promptly correct the non-compliance and submit samples of compliant use to Licensor for approval. 3. ROYALTIES 3.1 ROYALTY. Immersion shall pay Licensor a royalty based on a percentage of the Net Receipts for each Royalty Bearing Product sold by Immersion to unrelated third parties in arms * 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. -2- 3 length transactions, in accordance with the royalty schedule attached as Exhibit C ("Royalty Schedule"). 3.2 PAYMENTS AND REPORTS. The royalties to be paid by Immersion to Licensor hereunder shall be due [****] after the close of each calendar quarter. Royalty reports setting forth the royalty calculation shall be included with such payments. 3.3 AUDIT RIGHTS OF ROYALTY PAYMENTS. Licensor shall have the right, at Licensor's expense, to have an independent auditor mutually agreed upon by Licensor and Immersion audit the Net Receipts and the royalty payments of Immersion on an annual basis, unless such audit reveals any underpayment of royalties in an amount greater than [****] of actual royalties due for any Year, in which case Immersion shall promptly remit an amount equal to the underpayment and shall pay the reasonable costs of such audit. Such audit shall be preceded by at least thirty (30) business days advance written notice and shall be performed during normal business hours by the auditor. The auditor shall have access to only those books and records of Immersion which are reasonably necessary to determine the relevant royalties due for Royalty Bearing Products. 4. TERM AND TERMINATION 4.1 TERM. Unless earlier terminated in accordance with the provisions of this Agreement, this Agreement will remain in force for [****]. The parties agree that upon a Change of Control of Licensor, this Agreement will terminate, except that the parties may, by mutual written agreement, waive such termination or mutually agree on a later termination date. For purposes of this Agreement, the term "Change of Control of Licensor" shall mean the occurrence of (i) a transaction pursuant to which any person (or group of persons) other than Immersion or its affiliates (a "Third Party") acquires more than 50% of the outstanding units of Licensor, (ii) a merger or other business combination involving Licensor pursuant to which any Third Party acquires more than 50% of the outstanding units of Licensor or the entity surviving such merger or business combination or (iii) any other transaction pursuant to which any Third Party acquires control of assets of Licensor having a fair market value (as determined by Immersion in good faith) equal to more than 50% of the fair market value of all the assets of Licensor immediately prior to such transaction. 4.2 TERMINATION FOR BREACH. This Agreement may be terminated by either party upon written notice to the breaching party, if the breaching party materially breaches this Agreement and fails to remedy the breach within [****] after being given written notice thereof. 4.3 EFFECT OF TERMINATION. Notwithstanding any termination of this Agreement for any reason, Immersion agrees to pay Licensor for royalties due under this Agreement. Upon any termination of this Agreement, Immersion shall have one hundred and twenty (120) days to distribute any remaining inventory in process and/or in existence as of the effective date of the termination, subject to the obligation for Immersion to pay royalties hereunder for any such distribution by Immersion. * 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. -3- 4 5. WARRANTY OF TITLE Licensor represents and warrants that Licensor either has ownership of, or sufficient rights in, the MicroScribe Technology and MicroScribe Intellectual Property to enter into this Agreement and to grant all the rights set forth herein. 6. INDEMNIFICATION 6.1 INFRINGEMENT. Subject to prompt notification by Immersion, cooperation by Immersion and control of all litigation and/or settlement by Licensor, Licensor shall indemnify, defend and hold harmless Immersion from and against any and all costs and damages suffered or incurred by Immersion as a result of any third party claim that any MicroScribe Technology as delivered by Licensor infringes upon any third party intellectual property right. Each party agrees to notify the other promptly of any matters in respect to which the foregoing indemnity in this Section 6 ("Indemnification") may apply. If notified in writing of any action or claim for which Licensor is to provide indemnity, Licensor shall defend those actions or claims at its expense and pay the costs and damages awarded against Immersion in any such action, or pay any settlement of such action or claim entered into by Licensor. 6.2 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 or damages 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 3D digitizing technology. 7. LIMITATION OF LIABILITY 7.1 DISCLAIMER OF CERTAIN TYPES OF DAMAGES. IN NO EVENT WILL LICENSOR OR IMMERSION 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 LICENSOR AND IMMERSION HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. 7.2 LIMITATION. EXCEPT WITH RESPECT TO MICROSCRIBE'S OBLIGATIONS OF INDEMNITY, IN NO CASE WILL EITHER PARTY'S TOTAL CUMULATIVE LIABILITY OR OBLIGATIONS UNDER THE TERMS OF OR ARISING OUT OF THIS AGREEMENT EXCEED THE ROYALTIES PAID BY IMMERSION TO MICROSCRIBE. 7.3 NEGATION OF WARRANTIES AND OTHER OBLIGATIONS. 7.3.1 Nothing in this Agreement shall be construed: -4- 5 (i) as a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted in this Agreement is or will be free from infringement by patents, copyrights, trade secrets, trademarks, or other rights of third parties; (ii) as granting by implication, estoppel or otherwise any licenses or rights under patents or other intellectual property rights of Licensor other than expressly granted herein; or (iii) (a) to require Licensor to file any patent application relating to any 3D digitizing technology and (b) a warranty that Licensor will be successful in securing the grant of any patent relating to any 3D digitizing technology or any reissue or extensions thereof. 7.3.2 Except for Licensor's obligations of indemnity set forth herein, Licensor does not assume any responsibility for the manufacture of the 3D digitizing technology products, or use of any 3D digitizing technology products manufactured or sold by or for Immersion under the licenses granted herein. All warranties in connection with such products shall be made by Immersion as manufacturer or seller of such products and such warranties shall not directly or by implication obligate Licensor in any way. 8. GENERAL 8.1 ENTIRE AGREEMENT. This Agreement constitutes the complete agreement of the parties and supersedes any other agreements, written or oral concerning the subject matter hereof. 8.2 SUCCESSION AND ASSIGNMENT. Neither party may assign this Agreement without the prior written consent of the other party except that either party may assign this Agreement 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 8.2 ("Succession and Assignment") shall be void. 8.3 NOTICES. Notices required under this Agreement shall be addressed as follows, except as otherwise revised by written notice: TO IMMERSION: TO MICROSCRIBE: Louis B. Rosenberg, Ph.D. Tim Lacey President MicroScribe LLC Immersion Corporation 2158 Paragon Drive 2158 Paragon Drive San Jose, CA 95131 San Jose, CA 95131 8.4 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. -5- 6 8.5 NO AGENCY. Neither party is to be construed as the agent, partner, or joint venturer or to be acting as the agent, partner or joint venturer of the other party hereunder in any respect, solely by reason of this Agreement. 8.6 MULTIPLE COUNTERPARTS. This Agreement may be executed in several counterparts, all of which taken together shall constitute one single Agreement between the parties. 8.7 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 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. 8.8 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. 8.9 AMENDMENTS IN WRITING. Any amendment to this Agreement shall be in writing and signed by both parties hereto. 8.10 INTERPRETATION. Since this Agreement was prepared by both parties hereto, it shall not be construed against any one party as the drafting party. 8.11 SURVIVAL. Sections 3.1 ("Royalties"), 3.2 ("Payments and Reports"), 4.3 ("Effect of Termination"), 6 ("Indemnification"), 7 ("Limitation of Liability") and 8 ("General") shall survive any termination or expiration of this 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. IMMERSION CORPORATION, MICROSCRIBE, LLC, a California corporation a California limited liability company By: /s/ Louis Rosenberg By: /s/ Timothy A. Lacey --------------------------------- --------------------------------- Name: Loius Rosenberg Name: Tim Lacey --------------------------------- --------------------------------- Title: President Title: Manager --------------------------------- --------------------------------- Date: Date: --------------------------------- --------------------------------- -6- 7 EXHIBIT A MICROSCRIBE INTELLECTUAL PROPERTY Licensed Patents: [****] Trademarks: [****] *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. -7- 8 EXHIBIT B MICROSCRIBE TECHNOLOGY MicroScribe Technology includes the items listed below: (1) the following Microscribe software and source code: (a) Microscribe firmware; (b) Microscribe calibration software; (c) Inscribe; (d) Alias Driver; (e) Vertisketch; and (f) SDK (software development kit); (2) the following Microscribe manufacturing documentation: (a) Microscribe bill of materials; (b) Microscribe drawings and database; (c) Microscribe schematics; and (d) Microscribe layout files and electronics; (3) Microscribe fabrication tooling; (4) Microscribe calibration, production fixtures, and test electronics; (5) Microscribe reseller contact information; (6) Microscribe user documentation; and (7) a copy of the Microscribe calibration files. -8- 9 EXHIBIT C ROYALTY SCHEDULE Royalties shall be based on the following formula: [****] The Threshold Amount for Net Receipts shall be equal to the following: 1) [****] for calendar year 1997; 2) [****] for calendar year 1998; 3) [****] for calendar year 1999; 4) [****] for calendar year 2000; 5) [****] for calendar year 2001; and 6) [****] for all years thereafter. * 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. EX-10.17 11 PATENT LICENSE AGREEMENT WITH MICROSCRIBE, LLC 1 EXHIBIT 10.17 PATENT LICENSE AGREEMENT This Patent License Agreement (the "Agreement") is by and between Immersion Corporation, a California corporation, with an office at 2158 Paragon Drive, San Jose, California (hereinafter "Immersion") and MicroScribe, LLC, a California limited liability company, with an office in San Jose, California (hereinafter "Licensor"). This Agreement is entered into effective as of July 1, 1997 (the "Effective Date"). RECITALS A. Licensor is the owner of certain patents and patent applications which may have applicability to Immersion's force feedback products. B. The parties desire that Licensor grant an exclusive license for applications and implementations involving force feedback functionality under the patents and patent applications. NOW, THEREFORE, in consideration of the promises and agreements set forth below and the other considerations cited herein, the parties agree as follows. AGREEMENT 1. Definitions. In this Agreement, the following words and expressions shall have the following meanings: 1.1 Affiliates means any corporation or business entity which is controlled by, controls, or is under common control of a party. 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 Licensed Patents means the patent continuation applications described in Exhibit A ("Licensed Patents") and any issued patents, continuations, continuations-in-part, or divisional applications derived from the foregoing, and any divisions, reissues and re-examinations based on any of the foregoing. 1.3 Force Feedback Field of Use means applications and implementations involving a human to computer interactive interface that provides controlled resistance, force sensations, or computer simulated tactile sensations to the human operator during manipulation. 2. Grant of License. Licensor grants to Immersion a worldwide, royalty free, exclusive, irrevocable, perpetual (for the duration of each Licensed Patent) license under the Licensed Patents to make, have made, use, sell, offer to sell and import products in the Force Feedback Field of Use and to sublicense such rights to Affiliates and to third parties, through multiple tiers of sublicenses. 1 2 3. Consideration. Immersion assigned the Licensed Patents to Licensor in exchange for [****] and [****] of Licensor pursuant to the terms of an Exchange Agreement dated effective as of July 1, 1997, subject to Licensor's grant of the license granted in Section 2 ("Grant of License and Limitations"). 4. Term. This Agreement will remain in force and effect up until the expiration of the [****]. 5. Warranty of Title. Licensor represents and warrants that Licensor is the owner of the Licensed Patents and has sufficient rights to grant the rights granted herein. 6. Limitation of Liability. IN NO EVENT WILL LICENSOR OR IMMERSION 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 LICENSOR AND IMMERSION HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. 7. Negation of Warranties and Other Obligations. Nothing in this Agreement shall be construed: (i) as a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted in this Agreement is or will be free from infringement by patents, copyrights, trade secrets, trademarks, or other rights of third parties; (ii) as granting by implication, estoppel or otherwise any licenses or rights under patents or other intellectual property rights of Licensor other than expressly granted herein; (iii) (a) to require Licensor to file any patent application relating to any technology or (b) a warranty that Licensor will be successful in securing the grant of any patent relating to any technology or any reissue or extensions thereof; or (iv) to require Licensor to assume any responsibility for the manufacture of any products manufactured or sold by or for Immersion under the license granted herein. All warranties in connection with such products shall be made by Immersion, the Immersion Affiliates or other licensees as manufacturers or sellers of such products and such warranties shall not directly or by implication obligate Licensor in any way. * 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. 2 3 8. General. 8.1 Entire Agreement. This Agreement constitutes the complete agreement of the parties and supersedes any other agreements, written or oral concerning the subject matter hereof. 8.2 Succession and Assignment. Neither party may assign this Agreement without the prior written consent of the other party except that either party may assign this Agreement 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 8.2 ("Succession and Assignment") shall be void. 8.3 Notices. Notices required under this Agreement shall be addressed as follows, except as otherwise revised by written notice: To Immersion: To MicroScribe: Louis B. Rosenberg, Ph.D. Tim Lacey President MicroScribe LLC Immersion Corporation 2158 Paragon Drive 2158 Paragon Drive San Jose, CA 95131 San Jose, CA 95131 8.4 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. 8.5 No Agency. Neither party is to be construed as the agent, partner, or joint venturer or to be acting as the agent, partner or joint venturer of the other party hereunder in any respect, solely by reason of this Agreement. 8.6 Multiple Counterparts. This Agreement may be executed in several counterparts, all of which taken together shall constitute one single Agreement between the parties. 8.7 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 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. 3 4 8.8 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. 8.9 Amendments in Writing. Any amendment to this Agreement shall be in writing and signed by both parties hereto. 8.10 Interpretation. Since this Agreement was prepared by both parties hereto, it shall not be construed against any one party as the drafting party. 4 5 IN WITNESS WHEREOF, the authorized representatives of the parties hereto have signed this Agreement. IMMERSION CORPORATION, MICROSCRIBE, LLC, a California corporation a California limited liability company By: /s/ Louis Rosenberg By: /s/ Timothy A. Lacey -------------------------------- ---------------------------------- Name: Louis Rosenberg Name: Timothy A. Lacey ------------------------------- ------------------------------- Title: President Title: Manager ------------------------------ ------------------------------- Date: Date: ------------------------------- ------------------------------- 5 6 Exhibit A The Licensed Patents include the following: (1) [****]. (2) [****]. * 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. 6 EX-10.18 12 INTELLECTUAL PROPERTY LICENSE AGRMT WITH LOGITECH 1 EXHIBIT 10.18 INTELLECTUAL PROPERTY LICENSE AGREEMENT IMMERSION CORPORATION AND LOGITECH, INC. This Intellectual Property License Agreement (the "Agreement") between Immersion Corporation, a California corporation, with principal offices in San Jose, California (hereinafter "Immersion") and Logitech Inc., a California corporation, with principal offices in Fremont, California (hereinafter "Logitech"), is entered into as of [****] (the "Effective Date"). RECITALS A. Immersion is the owner of several United States patent applications and one issued United States patent relating to certain force-feedback technology. B. Concurrently with this Agreement, Immersion and Logitech are entering into a Technology Product Development Agreement dated the same date as this Agreement. Pursuant to the Technology Product Development Agreement, Immersion will develop and deliver to Logitech certain deliverables which are covered by copyrights and trade secret rights owned by Immersion, as well as patents now held or that may issue to Immersion in the future. C. Logitech intends to develop "[****]" (as defined below) which may or may not incorporate or utilize the deliverables to be delivered under the Technology Product Development Agreement. D. The parties desire that Immersion grant a license to Logitech under the foregoing intellectual property rights of Immersion to develop and distribute [****], whether or not they incorporate or utilize the deliverables to be delivered under the Technology Product Development Agreement, all on the 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 AFFILIATES. This means any corporation or business entity which is controlled by, controls, or is under common control of a Party. For this purpose, the meaning of the word "control" shall include, without limitation, direct or indirect * 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. 1 2 ownership of more than fifty percent (50%) of the voting shares of interest of such corporation or business entity. 1.2 DEFECT. This means, with respect to any non-software Deliverable, failure to materially conform to the applicable then-current Specifications for such non-software Deliverable. 1.3 DEFECT CORRECTION. This means either a modification or addition that eliminates or works around a Defect in a non-software Deliverable so as to cause the non-software Deliverable to comply with the applicable then-current Specification. 1.4 DELIVERABLES. This means the various deliverables, which are tangible implementations or items including interim deliverables or final prototype deliverables, identified as such and described in any development schedule to the Development Agreement and delivered to Logitech thereunder. 1.5 DEVELOPMENT AGREEMENT. This means the Technology Product Development Agreement between Immersion and Logitech dated the same date as this Agreement. 1.6 ENHANCEMENT OR ENHANCEMENTS. This means any force-feedback modification or addition made by Immersion, under the terms of Section 6.7 ("Other Development") and Section 7.2 ("Enhancements by Immersion") of the Development Agreement for the [****], and which is a tangible implementation other than a Defect Correction or Error Correction, that when incorporated into the [****], materially reduces product costs of a [****] or materially changes the functional capability or form factor (e.g., joystick to steering wheel). 1.7 ERROR. This means, with respect to any software Deliverable, failure of any such software Deliverable to materially conform to the applicable then-current Specification for such software Deliverable. 1.8 ERROR CORRECTION. This means either a modification or addition that eliminates or works around an Error in the software Deliverable so as to cause the software Deliverable to comply with the then-current Specification. 1.9 FINAL PROTOTYPE. This means a Deliverable which is the final functional form of the [****], if any, including software and hardware, produced by Immersion under a development schedule to the Development Agreement, which prototype serves as a model for the final production version of the [****], if any, and which conforms to the applicable Specification. 1.10 [****] * 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. 2 3 1.11 [****] 1.12 IMMERSION PRODUCT MODEL TECHNOLOGY. This means that subset of Immersion Technology delivered as a Deliverable under the terms of a development schedule of the Development Agreement, or as an Enhancement or New Technology, which is actually utilized in or in connection with and/or embedded in the final production version of the Joystick Product, any subsequent Product Model of the Joystick Product or any Product Model of any [****]. 1.13 [****] 1.14 IMMERSION TECHNOLOGY. This means any and all technology created or acquired by Immersion, or licensed to Immersion by third parties, including but not limited to software created by employees or consultants of Immersion, (i) first developed or reduced to practice before or after the Effective Date solely by Immersion independent of the scope of the work under the Development Agreement or (ii) first developed or reduced to practice after the Effective Date and within the scope of a Deliverable developed solely by Immersion (a) under a development schedule in effect under the terms of the Development Agreement, (b) as an Enhancement or (c) as New Technology. 1.15 INTELLECTUAL PROPERTY RIGHTS. This means the Licensed Patents and utility models, copyrights and mask work rights, including without limitation all applications and registrations with respect thereto, rights in trade secrets, know-how, and all other intellectual property rights, excluding trademarks and tradenames and patents other than the Licensed Patents. 1.16 JOYSTICK PRODUCT. This means the final production version of the joystick described in the Specification in the first Exhibit A ("Specifications") of the Development Agreement which utilizes and/or contains Immersion Product Model Technology, including but not limited to the applicable [****], documentation, Defect Corrections and Error Corrections thereto. 1.17 LICENSED PATENTS. This means (i) United States patent no. 5,576,727, titled "Electricalmechanical Human-Computer Interface with Force Feedback", (ii) all * 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. 3 4 patents that may issue based upon any of the United States patent applications listed in Schedule A1 and A2 hereto or upon any corresponding foreign patent applications that have been or may be filed, or upon any continuations, continuations-in-part, or divisional applications related to any of the foregoing that have been or may be filed, and (iii) any divisions, reissues and reexaminations based on any of the foregoing. 1.18 NET RECEIPTS. This means the gross receipts received by Logitech and its Affiliates without taking into account any foreign withholding taxes that may apply to transfers between Logitech and its affiliates upon any sales of Royalty Bearing Products to unaffiliated third parties, [****] No other costs incurred in the manufacture, sale, distribution, or exploitation of Royalty Bearing Products shall be deducted from gross receipts in the calculation of Net Receipts. If Royalty Bearing Products are bundled with other items sold by Logitech or its Affiliates and are not invoiced separately, royalties will be paid based on Logitech's (or if no Logitech averages sales price exists, the applicable Affiliate average sales price) then-current average sales price for each such Royalty Bearing Product when sold as a separate item (averaged for the applicable Quarter in which the Net Receipts are received by Logitech or its Affiliates, as applicable, for the country in which the sale was made) in like quantities in arms length transactions to unrelated third parties other than Logitech or Logitech Affiliates). 1.19 NEW TECHNOLOGY. This means any force-feedback technology modification or addition made by Immersion, for the [****], other than a Defect Correction or Error-Correction, that when incorporated into the Joystick Product or other [****], materially changes the utility, efficiency, market value, functional capability or application, and which is developed by Immersion on a non-exclusive basis and made "generally available" for use in [****] in the [****] and which is delivered by Immersion to Logitech as a tangible implementation pursuant to the terms of Section 7.4 ("New Technology") of the Development Agreement. For purposes of this definition, "generally available" shall mean offered under nonexclusive license to any one unaffiliated third party (other than the original third party for whom the technology, modification or addition was originally developed) for use in [****] in the [****]. 1.20 OEM OR OEMS. This means any third party (not including Affiliates) that does not manufacture [****] and that wishes to purchase finished [****] for sale in the [****] under its own brand name. 1.21 PARTY OR PARTIES. This means Immersion and/or Logitech. 1.22 PRODUCT LAUNCH. This means the date on which first commercial-level shipping of the Joystick Product or any Product Model commences to third party unaffiliated customers of Logitech or a Logitech Affiliate. * 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. 4 5 1.23 PRODUCT MODEL. This means a single model of the Joystick Product or any other [****]. "Product Model" shall mean each variation of a Joystick Product or [****] which (i) differs by virtue of addition of or alteration through an Enhancement or (ii) constitutes a change in form factor (e.g. joystick to steering wheel) or (iii) incorporates a material change in force-feedback functionality made by a party other than Immersion. Purely cosmetic alterations (e.g., color or styling) to the physical appearance of the Joystick Product or a [****], or changes that do not alter the force-feedback functionality but reduce manufacturing costs shall not be deemed a Product Model. 1.24 ROYALTY BEARING PRODUCT. This means a [****] which either (1) incorporates or utilizes Immersion Product Model Technology that is not otherwise made generally available to the public by Immersion without charge or (2) is covered (a) by a Licensed Patent or (b) by a copyright of Immersion embodied in any Immersion Product Model Technology that is not otherwise made generally available to the public by Immersion without charge. 1.25 QUARTER OR QUARTERS. This means Logitech's yearly fiscal quarters. Specifically, Logitech's yearly fiscal quarters begin and end on the following dates: first quarter, April 1 - June 30; second quarter, July 1 - September 30; third quarter, October 1 - December 31; and fourth quarter, January 1 - March 31. 1.26 SPECIFICATION(S). This means the Joystick Product specification attached as the original Exhibit A ("Specification") to the Development Agreement and each [****] specification associated with a development schedule which is attached by amendment to the Development Agreement. 1.27 YEAR. This means any full four-Quarter period. 1.28 Any reference to the words "PURCHASE," "SALE," or "SELL," when used in connection with intellectual property, shall mean license. 2. GRANT OF LICENSES 2.1 GRANT WITH RESPECT TO THE LICENSED PATENTS. Subject to the terms of this Agreement, Immersion grants to Logitech a [****]. Except as provided in Section 2.3 ("Right to Sublicense"), no right to sublicense the Licensed Patents is granted by Immersion to Logitech. 2.2 GRANT WITH RESPECT TO THE IMMERSION PRODUCT MODEL TECHNOLOGY. Subject to the terms of this Agreement, Immersion grants to Logitech a [****]. * 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. 5 6 No access rights or license to the source code for the [****] are granted to Logitech except as provided under the terms of Section 13 ("Source Code Escrow") of the Development Agreement. Logitech and its Affiliates have no right and Logitech agrees not to disassemble or decompile any portion of the software portions of the Immersion Product Model Technology. 2.3 RIGHT TO SUBLICENSE. Subject to the terms of Section 2.6 ("Trademark License from Immersion"), Immersion grants to Logitech the right to [****]. Logitech agrees that any act or omission by a Logitech Affiliate that is inconsistent with Logitech's obligations under the terms of this Agreement shall be deemed to be an act or omission by Logitech and a breach of this Agreement by Logitech. 2.4 DURATION. Subject to the obligation to pay royalties, the licenses set forth above will extend to the full end of the term for which any Licensed Patent is issued or any other Intellectual Property Right of Immersion licensed hereunder is in force, unless sooner terminated as provided in this Agreement. 2.5 LABEL REQUIREMENTS. Subject to the terms of Section 2.6 ("Trademark License for Immersion") and Section 2.7 ("Administration Procedure"), Logitech shall place belly labels on [****] which are Royalty Bearing Products which shall include the language and related logo: "I-Force(TM) Force Feedback Technology Licensed from Immersion Corporation" (hereinafter the "Legend"). Logitech shall also place or have placed the Legend on retail manuals and boxes as designated in Exhibit B ("Immersion Package Labeling Specification"). If OEM customers object to belly label marking, the Parties will mutually agree upon a reasonable solution in writing in advance. Logitech shall not remove Immersion's copyright notices from any copies of the [****]. 2.6 TRADEMARK LICENSE FROM IMMERSION. Subject to the procedures set forth in subsection 2.7 below and Immersion's prior written approval, Immersion hereby grants to Logitech a nonexclusive, nontransferable, worldwide license, to use in connection with marketing the Joystick Product or any [****], the trademark(s) used by Immersion ("Marks") to identify the Immersion Product Model * 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. 6 7 Technology and/or Licensed Patents and Logitech agrees to use such Marks on and in connection with Royalty Bearing Products except in the case of OEM products where, if the OEM customer objects, the parties will mutually agree upon a reasonable solution in writing, in advance. Logitech acknowledges that all use of the Marks will inure to the benefit of Immersion. Logitech shall not register Immersion's Marks in any jurisdiction and will not adopt any trademark for use on the Joystick Product or [****] which is confusingly similar to any trademark of Immersion or which includes a prominent portion of any trademark of Immersion. At Immersion's reasonable request, Logitech shall provide Immersion with samples of Logitech's use of Immersion trademarks. Logitech agrees to abide by Immersion's reasonable written trademark policies as issued and provided to Logitech from time to time. In any case where the Marks are not used in compliance with Immersion's trademark policies and such use has been approved in writing by Immersion, upon receipt of written notice from Immersion, Logitech will promptly correct the non-compliance and submit samples of compliant use to Immersion for approval. 2.7 ADMINISTRATIVE PROCEDURES. The Parties agree that in order to provide Immersion with appropriate information necessary for the orderly administration of the Licensed Patents and Marks, Logitech will provide Immersion with prompt written notice prior to Product Launch of each Product Model and will enclose an information package which contains two prototypes or production units of the Product Model sufficient to enable Immersion to determine which of the Licensed Patents cover the Product Model and to review and approve the use of the Marks. If in any case Immersion believes that the quality of the Product Model does not meet Immersion's commercially reasonable standards, Logitech will not be permitted to ship the Product Model with the Marks until the quality issue is resolved, but Logitech may in is discretion ship such Product Model without the Marks and shall be relieved of its obligation to use the Marks on that Product Model. 2.8 GRANT WITH RESPECT TO KNOW-HOW. Subject to the terms of this Agreement, each party grants to the other a worldwide, nonexclusive license to use any know-how of such party disclosed to the other party pursuant to the Development Agreement. 3. ROYALTIES 3.1 NEW TECHNOLOGY ROYALTIES. As provided in Section 9.6 ("New Technology") of the Development Agreement, New Technology will be provided to Logitech subject to royalties which are mutually agreed upon in writing by Immersion and Logitech. 3.2 PER PRODUCT MODEL ROYALTY. Except as provided by Section 3.1 above, Logitech shall pay Immersion a royalty based on a percentage of the Net Receipts for each Product Model of a Royalty Bearing Product sold by Logitech or any Logitech * 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. 7 8 Affiliates to unrelated third parties (other than Logitech or Logitech Affiliates) in arms length transactions, in accordance with the following. [****] Shipments of Royalty Bearing Products between Logitech and the Logitech Affiliates or between Logitech Affiliates will not be considered to be sold or otherwise transferred until sold to an unrelated customer of Logitech or a Logitech Affiliate. 3.3 [****] * 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. 8 9 3.4 PAYMENTS AND REPORTS. The royalties to be paid by Logitech to Immersion hereunder shall be due [****] days after the close of each Quarter. Royalty reports setting forth the royalty calculation by Product Model and identifying whether the sales were made by Logitech or Logitech Affiliates shall be included with such payments. Logitech will pay and account to Immersion for royalties due hereunder with respect to sales or other disposition of Royalty Bearing Products by any Logitech Affiliates, and for that purpose, sales of Royalty Bearing Products by any Logitech Affiliate (other than sales or other disposition by an Affiliate to Logitech or to another Logitech Affiliate) will be deemed to be sales by Logitech. 3.5 AUDIT RIGHTS OF ROYALTY PAYMENTS. Immersion shall have the right to have an independent auditor mutually agreed by Logitech and Immersion audit the method used to calculate the average sales price, as well as the sales data pursuant to Section 1.19 ("Net Receipts") and the royalty payments of Logitech for itself and its Affiliates on an annual basis, but shall pay the costs of such audit, unless such audit reveals any underpayment of royalties in an amount greater than [****] of actual royalties due for any Year, in which case Logitech shall promptly remit an amount equal to the underpayment and shall pay the reasonable costs of such audit. Such audit shall be preceded by at least five (5) business days advance written notice and shall be performed during normal business hours by the auditor. The auditor shall have access to only those books and records of Logitech which are reasonably necessary to determine the relevant sales royalties due for Royalty Bearing Products for Logitech itself and its Affiliates and the correctness of the royalty payments hereunder. Any and all non-public information related to Logitech, its Affiliates, or their business revealed in the course of such audit shall be kept confidential by the auditor and by Immersion, and shall not be disclosed by the auditor to anyone other than employees or professional advisors of Immersion who have a reasonable need to know in connection with such audit, or used for any purpose, except to the extent reasonably necessary to determine the correctness of royalty payments made hereunder. * 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. 9 10 4. TERM AND TERMINATION 4.1 TERM. Unless earlier terminated in accordance with the provisions of this Agreement, this Agreement will extend until the [****] 4.2 TERMINATION BY LOGITECH. 4.2.1 TERMINATION WITHOUT CAUSE. Logitech may terminate this Agreement without cause upon [****] written notice, and such written notice under the terms of this Agreement shall also serve as written notice of the termination of the Development Agreement, if such Agreement is still in effect at such time, and the Development Agreement will then terminate within [****] of such notice pursuant to the terms of Section 12.1 ("Termination by Logitech Without Cause") and such termination shall be deemed to be a termination without cause by Logitech and will be construed in accordance with the terms of Section 12.3 ("Effect of Termination") therein. 4.2.2 TERMINATION WITH CAUSE. Logitech may terminate this Agreement by written notice to Immersion if Immersion has materially breached the terms of this Agreement and fails to cure the breach after written notice of breach to Immersion and a [****] time period to cure. 4.3 TERMINATION BY IMMERSION FOR FAILURE TO PAY ROYALTIES. Immersion may terminate this Agreement by written notice to Logitech in the event that Logitech or any Logitech Affiliate breaches the terms of Section 3 ("Royalties") including but not limited to any failure to pay any royalties due and payable by Logitech and/or any of the Logitech Affiliates under this Agreement and Logitech fails to cure such breach after written notice of breach and a [****] time period to cure. If Immersion issues a written notice of termination to Logitech under the terms of this Section 4.3 ("Termination by Immersion for Failure to Pay Royalties") such notice shall also serve as written notice of termination for cause by Immersion under the terms of Section 12.2 ("Termination for Cause") of the Development Agreement, if such Agreement is still in effect at such time. If the breach described in the aforementioned written notice of termination is not cured in accordance with the terms of this Section 4.3 ("Termination by Immersion for Failure to Pay Royalties"), the Development Agreement will then terminate within [****] of such notice pursuant to the terms of Section 12.2 ("Termination for Cause") and such termination will be deemed to be a termination for cause by Immersion for purposes of Section 12.3 ("Effect of Termination") and the effects of termination will be construed in accordance with the terms of Section 12.3 ("Effects of Termination") therein. 4.4 TERMINATION BY IMMERSION FOR BREACH OF PATENT LICENSE. Immersion may terminate this Agreement in the event that Logitech engages in activity which exceeds the scope of the patent license granted in Section 2.1 or breaches the labeling * 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. 10 11 requirement of Section 2.5 and fails to cure the breach after written notice of breach and a [****] time period to cure. Except as set forth in this Section 4.4 or Section 4.3, the patent license granted in Section 2.1 shall not be terminable by Immersion. If Immersion issues a written notice of termination to Logitech under the terms of this Section 4.4 ("Termination by Immersion for Breach") such notice shall also serve as written notice of termination for cause by Immersion under the terms of Section 12.2 ("Termination for Cause") of the Development Agreement, if such Agreement is still in effect at such time. If the breach described in the aforementioned written notice of termination is not cured in accordance with the terms of this Section 4.4 ("Termination by Immersion for Breach"), the Development Agreement will then terminate within [****] of such notice pursuant to the terms of Section 12.2 ("Termination for Cause") and such termination will be deemed to be a termination for cause by Immersion for purposes of Section 12.3 ("Effect of Termination") and the effects of termination will be construed in accordance with the terms of Section 12.3 ("Effects of Termination") therein. 4.5 TERMINATION OF LICENSES TO IMMERSION PRODUCT MODEL TECHNOLOGY BY IMMERSION FOR BREACH. Immersion may terminate the licenses granted with respect to Immersion Product Model Technology in Section 2.2 above in the event that Logitech engages in activity which exceeds the scope of such license or breaches the terms of Section 2.3 or the labeling requirement of Section 2.5 and fails to cure the breach after written notice of breach and a [****] time period to cure. Termination of the licenses with respect to the Immersion Product Model Technology shall not affect the patent licenses granted hereunder. Except as set forth in this Section 4.5 or Section 4.3, the licenses granted in Section 2.2 shall not be terminable by Immersion. 4.6 EFFECT OF TERMINATION. Notwithstanding any termination of this Agreement for any reason, Logitech agrees to pay Immersion for royalties due under this Agreement from Logitech or any Logitech Affiliate. Upon a termination of this Agreement for cause or without cause, Logitech and each Affiliate shall have [****] to distribute any remaining inventory in process and in existence as of the effective date of the termination, subject to the obligation for Logitech to pay royalties hereunder for any such distribution by Logitech and/or any Logitech Affiliates. EXCEPT FOR DIRECT DAMAGES RESULTING FROM A BREACH OF THE TERMS OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO A BREACH BY LOGITECH OR ANY LOGITECH AFFILIATE OF SECTION 2 ("GRANT OF LICENSES"), NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY SORT AS A RESULT OF TERMINATING THIS AGREEMENT IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT. 5. WARRANTY Immersion represents and warrants that Immersion either has ownership of, or sufficient rights in, the Immersion Product Model Technology to be delivered under the terms of the Development Agreement and the Licensed Patents to enter into this * 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. 11 12 Agreement and grant all the rights set forth herein. As of the Effective Date of the Agreement, Immersion is not aware of and has not received any notice of any claim by a third party that the copyrights, patents, trade secrets, trademarks or other intellectual property rights of any third party are infringed by the Immersion Product Model Technology that Immersion, in its sole discretion intends to, as of the Effective Date, use to comply with Immersion's development obligations under the terms of the Development Agreement, except as disclosed to Logitech in writing prior to the date of this Agreement. Immersion further represents and warrants that (i) it neither holds nor has applied for a patent that is dominant to the Licensed Patents and (ii) that Schedule A contains all patent applications filed or contemplated to be filed as of the Effective Date that relate to force-feedback technology. 6. INDEMNIFICATION 6.1 TRADEMARK INFRINGEMENT INDEMNIFICATION BY IMMERSION. Subject to the limitations on cumulative liability under Section 7.1 ("Disclaimers of Certain Types of Damages") and Section 7.3 ("Limitations of Liability with Respect to Indemnity Obligations"), and Immersion's approval for Logitech to use the Legend and the Marks pursuant to Section 2.5 ("Label Requirements"), Section 2.6 ("Trademark License") and Section 2.7 ("Administrative Procedures") and further subject to prompt notification by Logitech, cooperation by Logitech and control of all litigation and/or settlement by Immersion, Immersion shall indemnify, defend and hold Logitech harmless from and against any and all claims, damages, liabilities, judgments, settlements, losses, costs and expenses (including court costs and reasonable attorneys' and experts' fees) (collectively, "Costs") suffered or incurred by Logitech arising out of a claim of infringement of any Immersion Mark or Legend used by Logitech on a [****]in the [****] which is based on Logitech's use under the labeling requirement of Section 2.5 ("Label Requirements") and/or the terms of Section 2.6 ("Trademark License") and Section 2.7 ("Administrative Procedures"). In the case of an infringement or alleged infringement by any such Immersion Mark or Legend used by Logitech on a [****] in the [****]: (i) Logitech will have the right to remove such Marks and/or Legend from Logitech [****] while any dispute or litigation concerning the same is pending, and shall begin using such marks again only after such infringement claims or disputes have been settled or dismissed with prejudice, and (ii) Immersion will have the right to require Logitech to stop using such Marks and/or Legend and will provide a new trademark to be used in connection with the Immersion Product Model Technology and/or Licensed Patents, as applicable. Each party agrees to notify the other promptly of any matters in respect to which the foregoing indemnity in this Section 6.1 may apply. If notified in writing of any action or claim for which Immersion is to provide indemnity, Immersion shall defend, subject to the limitations of liability set forth in Section 7.1 ("Disclaimer of Certain Types of Damages") and 7.3 ("Limitations of Liability With Respect to Indemnity Obligations"), those actions or claims at Immersion's expense and pay the Costs awarded against Logitech in any such action, or pay any settlement of such action or claim entered into by Immersion. * 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. 12 13 6.2 COPYRIGHT INFRINGEMENT AND TRADE SECRET MISAPPROPRIATION INDEMNIFICATION BY IMMERSION. 6.2.1 SCOPE. Subject to the limitations of cumulative liability under Section 7.1 ("Disclaimer of Certain Types of Damages") and Section 7.3 ("Limitations of Liability With Respect to Indemnity Obligations") and further subject to prompt notification by Logitech, cooperation by Logitech and control of all litigation and/or settlement by Immersion, Immersion shall indemnify, defend and hold Logitech harmless from and against any and all Costs suffered or incurred by Logitech as a result of any third party claim that any Immersion Product Model Technology delivered by Immersion to Logitech infringes any copyright or misappropriates any trade secret of any third party. In the case of any third party claim involving the [****] portion of the Immersion Product Model Technology, Immersion may, in its sole discretion, provide Logitech with a modification to the affected [****] so that the [****] portion of the Immersion Product Model Technology becomes noninfringing or in the alternative, may provide Logitech other software which is functionally equivalent. Each party agrees to notify the other promptly of any matters in respect to which the foregoing indemnity in this Section 6.2 ("Copyright Infringement and Trade Secret Misappropriation Indemnification by Immersion") may apply. If notified in writing of any action or claim for which Immersion is to provide indemnity, Immersion shall defend, subject to the limitations of liability set forth in Section 7.1 ("Disclaimer of Certain Types of Damages") and 7.3 ("Limitations of Liability With Respect to Indemnity Obligations"), those actions or claims at Immersion's expense and pay the Costs awarded against Logitech in any such action, or pay any settlement of such action or claim entered into by Immersion. 6.2.2 EXCEPTIONS. The foregoing indemnity will not apply to any infringement claim to the extent it arises from (i) any modification of any Immersion Product Model Technology by parties other than Immersion or Immersion subcontractors under contract with Immersion, (ii) use of any Immersion Product Model Technology in conjunction with other non-Immersion products or components where there would be no infringement absent such use with such other products or components or (iii) an infringement which would not occur in the Immersion Product Model Technology or any Final Prototype in which such Immersion Product Model Technology is incorporated but which does occur in the final production version of a [****]. 6.3 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 [****]. * 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. 13 14 6.4 PRODUCT LIABILITY INSURANCE. The Parties agree that they shall each secure insurance covering product liability. Such insurance shall provide coverage of at least [****] per occurrence and shall remain in effect during the term of this Agreement. Each party will promptly cause the other party to be named as an additional insured. 6.5 PATENT INFRINGEMENT INDEMNIFICATION BY IMMERSION. 6.5.1 SCOPE. Subject to the limitations of cumulative liability under Section 7.1 ("Disclaimer of Certain Types of Damages") and Section 7.3 ("Limitations of Liability With Respect to Indemnity Obligations"), and further subject to prompt notification by Logitech, cooperation by Logitech and control of all litigation and/or settlement by Immersion, [****] Each Party agrees to notify the other promptly of any matters in respect to which the foregoing indemnity in this Section 6.5 may apply. If notified in writing of any action or claim for which Immersion is to provide indemnity, Immersion shall defend, subject to the limitations of liability set forth in Section 7.1 ("Disclaimer of Certain Types of Damages") and 7.3 ("Limitations of Liability With Respect to Indemnity Obligations") and the provisions of Section 6.5.3 below, those actions or claims at its expense and pay the Costs awarded against Logitech in any such action, or pay any settlement of such action or claim entered into by Immersion. In any such action, Logitech will make available to Immersion all defenses against such action or claim known or available to Logitech. 6.5.2 EXCEPTIONS TO THE SCOPE OF THE INDEMNITY. Immersion shall have no liability or obligation with respect to any claim of patent infringement to the extent it arises from [****] * 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. 14 15 6.5.3 [****] (a) [****] (b) [****] * 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. 15 16 (c) [****] 6.6 REMEDIES IN THE EVENT OF PROHIBITION OF USE. The provisions and remedies set forth in Section 6.6 shall continue to be applicable with respect to any copyright infringement or trade secret misappropriation under the terms of Section 6.2 ("Copyright Infringement and Trade Secret Misappropriation"), and any After-Issued Patents for which Immersion does not supply written notice to Logitech in accordance with Section 6.5.3(a) above and any U.S. Patents issued prior to the Effective Date of this Agreement. If a preliminary or final judgment shall be obtained against Logitech's use, sale or distribution of a [****] that incorporates any Immersion Product Model Technology based infringement within the scope of the indemnity set forth in Section 6.1, 6.2 or 6.5 (subject to the exceptions set forth therein), or if any Immersion Product Model Technology is, or in Immersion's opinion, is likely to become, subject to a claim for such infringement, then Immersion shall, at its expense, either (a) modify the Immersion Product Model Technology so that the incorporated Immersion Product Model Technology becomes noninfringing, or (b) procure for Logitech the right to continue to use such Immersion Product Model Technology, or (c) substitute for the infringing Immersion Product Model Technology other technology that conforms to the Specifications in Exhibit A of the development agreement (which shall itself be deemed to be Immersion Product Model Technology). [****] * 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. 16 17 6.7 INDEMNITY BY LOGITECH. Subject to the limitations of liability set forth in Section 7 below, and subject to prompt notification by Immersion, cooperation by Immersion and control of all litigation and/or settlement by Logitech, Logitech shall [****] 7. LIMITATIONS OF LIABILITY 7.1 DISCLAIMER OF CERTAIN TYPES OF DAMAGES. IN NO EVENT WILL LOGITECH OR IMMERSION 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 LOGITECH AND IMMERSION HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. 7.2 LIMITATIONS OF LIABILITY OTHER THAN INDEMNITY OBLIGATIONS. EXCEPT WITH RESPECT TO THE PARTIES' OBLIGATIONS OF INDEMNITY, INCLUDING, BUT NOT LIMITED TO COSTS OF DEFENSE AND "COSTS" (AS DEFINED ABOVE) SET FORTH IN SECTION 6 ABOVE WHICH ARE LIMITED BY THE TERMS OF SECTION 7.3 ("LIMITATIONS OF LIABILITY WITH RESPECT TO INDEMNITY OBLIGATIONS") AND WITH RESPECT TO ANY ROYALTIES DUE AND PAYABLE BY LOGITECH HEREUNDER, IN NO CASE WILL EITHER PARTY'S TOTAL CUMULATIVE LIABILITY OR OBLIGATIONS UNDER THE TERMS OF OR ARISING OUT OF THIS AGREEMENT EXCEED [****] 7.3 LIMITATIONS OF LIABILITY WITH RESPECT TO INDEMNITY OBLIGATIONS. IN NO CASE WILL EITHER PARTY'S TOTAL CUMULATIVE LIABILITY WITH RESPECT TO ITS OBLIGATIONS OF INDEMNITY INCLUDING, BUT NOT LIMITED TO COSTS OF DEFENSE AND "COSTS" (AS DEFINED ABOVE) UNDER SECTION 6 ABOVE EXCEED THE GREATER OF [****] * 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. 17 18 7.4 NEGATION OF WARRANTIES AND OTHER OBLIGATIONS. 7.4.1 Nothing in this Agreement shall be construed: (i) as a warranty or representation by Immersion as to the validity or scope of any Licensed Patents; (ii) as a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted in this Agreement is or will be free from infringement by patents, copyrights, trade secrets, trademarks, or other rights of third parties; (iii) as granting by implication, estoppel or otherwise any licenses or rights under patents or other Intellectual Property Rights of Immersion other than expressly granted herein, regardless of whether such patents are dominant or subordinate to any Licensed Patents, or (iv) (a) to require Immersion to file any patent application relating to force-feedback in [****], (b) a warranty that Immersion will be successful in securing the grant of any patent relating to force- feedback in [****] or any reissue or extensions thereof, and (c) to require Immersion to pay any maintenance fees or take any other steps to maintain Immersion's patent rights relating to force feedback in [****], provided, however, that in the event Immersion elects not to pay any maintenance fee or take any step to maintain such patents, Immersion shall so notify Logitech a reasonable period in advance and Logitech may, at its option, pay such maintenance fee or take such steps. 7.4.2 Except for Immersion's obligations of indemnity set forth herein, Immersion does not assume any responsibility for the definition of the Specifications, the manufacture of the [****], or use of any [****] which is manufactured or sold by or for Logitech or the Logitech Affiliates under the Licensed Patent licenses granted herein. All warranties in connection with such [****] shall be made by Logitech or the Logitech Affiliates as manufacturers or sellers of such [****] and such warranties shall not directly or by implication obligate Immersion in any way. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 18 19 8. THIRD PARTY ENFORCEMENT Immersion shall not have any obligation or duty under this Agreement to any party, including but not limited to Logitech, to enforce any patents or Licensed Patents against any third party infringing any claim or claims of any patent and/or the Licensed Patents provided, however, that should Logitech become aware of any actual infringement of the Licensed Patents by a [****] distributed in the [****] by a third party, which [****] directly competes (e.g. Joystick to Joystick or wheel to wheel) with a [****] currently shipped by Logitech which is covered by the Licensed Patents, Logitech will promptly communicate the details to Immersion. Immersion shall thereupon have the right to take no action or whatever action Immersion deems necessary, including cease and desist letters, negotiation, the filing of lawsuits, and/or settlement to terminate such infringement and the strategy and/or conclusion of such action or settlement shall be within Immersion's sole discretion. Logitech shall cooperate with Immersion if Immersion takes any such action but all expenses of Immersion shall be borne by Immersion. If Immersion recovers any damages or compensation for any action Immersion takes hereunder, including any settlement, Immersion shall retain [****] of such damages. If Immersion does not elect to take any action hereunder within [****] days of being made aware of such infringement by Logitech, then Logitech shall have the right, but not the obligation, to provide Immersion with a Patent Enforcement Justification, as defined below, and if the proposed enforcement action meets the Patent Enforcement Justification criteria, Logitech may take and control any such action, subject to Immersion's absolute right to control any and all assertions or admissions which relate to the scope or validity of Immersion's Licensed Patents. For purposes of this Section 8, a Patent Enforcement Justification is a written report prepared by Logitech which includes: (i) the name and address of the entity manufacturing the [****] that is allegedly infringing the Licensed Patents and the names and addresses of any entities distributing such [****], (ii) an analysis of which of the Licensed Patent claims are infringed, (iii) a comparison of the allegedly infringing [****] and the affected [****] distributed by Logitech with which such allegedly infringing [****] competes (which comparison analyzes the competitive threat as to (a) feature and function, (b) positioning, and (c) price point), (iv) the number of units of the [****] sold by Logitech in the most recent [****] full Quarters and, if known or reasonably estimable, the number or estimate of the number of units of the allegedly infringing [****] sold in the most recent [****] full Quarters, on a geographic area basis. The criteria which must be met by such report, in order to permit Logitech to "justify" and to go forward with an infringement action, as are follows: (i) Logitech must be selling over [****] units of the affected [****] in the market in which the infringement is occurring during the most recent [****] full Quarters or, if the Product Launch occurred during the most recent [****] full Quarters, Logitech reasonably estimates in good faith that it will sell over [****] units of the affected [****] in the * 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. 19 20 market in which the infringement is occurring during the next [****] full Quarters; (ii) the allegedly infringing [****] must be substantially similar to the affected [****] as to features and functions such that the allegedly infringing [****] is having or reasonably will have a serious impact on the sales of the affected Logitech [****]; (iii) the Licensed Patents to be enforced against the allegedly infringing [****] also cover the affected Logitech [****]; and (iv) the number of units of the allegedly infringing [****] sold in the market in which the infringement is occurring in the most recent [****] full Quarters or reasonably estimated in good faith to be sold in the next [****] full Quarters must meet or exceed [****] units. If the aforementioned criteria are met, Immersion will cooperate with Logitech, at Logitech's expense, including but not limited to joining any legal proceedings as a named plaintiff to the extent required to confer jurisdiction, and all of Logitech's expenses will be borne by Logitech. Immersion may elect to have counsel of its own choosing participate at Immersion's sole expense in any legal proceedings instituted by Logitech, but Logitech shall retain [****] of any damages Logitech recovers for any such proceedings including any settlement, provided however that (i) Logitech shall first reimburse Immersion for Immersion's Costs to participate in such action out of any recovery which exceeds Logitech's Costs for such action. Immersion must agree to any settlement of any infringement or of any action brought hereunder by Logitech, which consent will not be unreasonably withheld. 9. GENERAL 9.1 ENTIRE AGREEMENT. This Agreement and its Appendices, together with the Development Agreement and its Exhibits, constitutes the complete agreement of the parties and supersedes any other agreements, written or oral (including all correspondence, emails and the letter regarding [****] and the letter regarding [****], and the two letters each dated [****] regarding extension of the [****] letter and continued business relationship between the Parties and all such subsequent extension letters) concerning the subject matter hereof and such materials do not have any effect upon the rights and obligations of the Parties under this Agreement. 9.2 SUCCESSION AND ASSIGNMENT. Either party may assign this Agreement provided that the other party has consented in writing to the assignment or delegation and provided, further, that the rights and obligations of the parties may be assigned to a corporate successor in interest in the case of a merger or acquisition or in the case of a * 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. 20 21 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 9.2 shall be void. 9.3 NOTICES. Notices required under this Agreement shall be addressed as follows, except as otherwise revised by written notice: TO IMMERSION: TO LOGITECH: Louis B. Rosenberg, Ph. D. General Counsel President Logitech, Inc. Immersion Corporation 6505 Kaiser Drive 2158 Paragon Drive Fremont, CA 94555-3615 San Jose, CA 95131 9.4 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. 9.5 NO AGENCY. Neither party is to be construed as the agent, partner, or joint venturer or to be acting as the agent, partner or joint venturer of the other party hereunder in any respect. 9.6 NO RECRUITMENT. During the term of this Agreement and for one (1) year after the termination or expiration of this Agreement, each Party agrees not to recruit any employee of the other Party. 9.7 MULTIPLE COUNTERPARTS. This Agreement may be executed in several counterparts, all of which taken together shall constitute one single Agreement between the parties. 9.8 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 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. 9.9 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. 21 22 9.10 AMENDMENTS IN WRITING. Any amendment to this Agreement shall be in writing and signed by both parties hereto. 9.11 INTERPRETATION. Since this Agreement was prepared by both parties hereto, it shall not be construed against any one party as the drafting party. 9.12 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. 9.13 SURVIVAL. Sections 3.2, 3.4, 3.5, 4.6, 5, 7 and 9 shall survive any termination or expiration of this Agreement. In addition, the provisions of Sections 6.1, 6.2, 6.5, 6.6 and 6.7 shall survive with respect to any units of a Product Model of Royalty Bearing Products sold or otherwise distributed by Logitech before the termination or expiration of this Agreement, provided, however, that Immersion's obligations of indemnity under Sections 6.1, 6.2, 6.5 and 6.6 shall not survive in the event Immersion terminates this Agreement for cause, including but not limited to, failure by Logitech to pay royalties due hereunder. 9.14 FORCE MAJEURE. With the exception of the obligation to pay monies due and owing, each Party hereto shall be excused from performance hereunder for any period and to the extent that it is prevented from performing any services pursuant hereto, in whole or in part, as a result of delays caused by the other Party or an act of God, war, civil disturbance, court order, governmental action, laws, orders, regulations, directions or requests, or as a result of events such as acts of public enemies, earthquakes, fires, floods, strikes or other labor disturbances of the other Party or any third party, or other cause beyond its reasonable control and which it could not have prevented by reasonable precautions, and such nonperformance shall not be a default hereunder or a ground for termination hereof. 22 23 9.15 RESTRICTED USE OF SCHEDULE A. Logitech agrees to keep the serial numbers of the pending patent applications set forth in Schedules A1 and A2 confidential until such applications issue or such information is otherwise made available to the public by Immersion, and agrees not to use the information in Schedule A for any purpose other than the performance or enforcement of this Agreement, including but not limited to using the information to initiate interference proceedings. Upon execution of this Agreement, Schedule A1 shall be supplied by Immersion to Logitech in an envelope marked "IMMERSION CONFIDENTIAL INFORMATION SCHEDULE A1 TO INTELLECTUAL PROPERTY LICENSE AGREEMENT. TO BE SEEN BY LOGITECH INC. PRESIDENT, CHAIRMAN OF THE BOARD, GENERAL COUNSEL AND OUTSIDE COUNSEL ONLY." Schedule A1 shall include the serial numbers (for issued License Patents) and the application numbers (of pending Licensed Patent applications), and the jurisdictions where such patents have issued and where such applications have been filed. Schedule A1 may only be reviewed by Logitech Inc.'s President, Chairman, General Counsel and outside lawyers. Schedule A1 shall be maintained in a sealed envelope in a secure location with Logitech. Upon execution of the Agreement, Schedule A2 shall be supplied by Immersion to Logitech in a sealed envelope marked "IMMERSION CONFIDENTIAL INFORMATION SCHEDULE A2 TO INTELLECTUAL PROPERTY LICENSE AGREEMENT. TO BE SEEN BY LOGITECH INC. PRESIDENT, CHAIRMAN OF THE BOARD, GENERAL COUNSEL AND OUTSIDE COUNSEL ONLY." Schedule A2 shall include all the information included in Schedule A1 as well as the titles and filing dates of the applications. Schedule A2 will not be opened except as may be necessary to perform or enforce this Agreement. Schedule A2 shall be maintained in a sealed envelope in a secure location within Logitech. IN WITNESS WHEREOF, the authorized representatives of the parties hereto have signed this Agreement as of the date and year last set forth below. LOGITECH, INC. IMMERSION CORPORATION By: /s/ B. Zwarenstein By: /s/ Louis Rosenberg -------------------------- ---------------------------------- Name: B. Zwarenstein Name: Louis Rosenberg -------------------------- ---------------------------------- Title: CFO Title: President/CEO -------------------------- ---------------------------------- Date: 4/2/97 Date: 4/2/97 -------------------------- ---------------------------------- 23 EX-10.19 13 INTELLECTUAL PROPERTY LICENSE AGRMT WITH LOGITECH 1 EXHIBIT 10.19 INTELLECTUAL PROPERTY LICENSE AGREEMENT IMMERSION CORPORATION AND LOGITECH, INC. This Intellectual Property License Agreement (the "Agreement") between Immersion Corporation, a California corporation, with principal offices in San Jose, California (hereinafter "Immersion") and Logitech Inc., a California corporation, with principal offices in Fremont, California (hereinafter "Logitech"), is entered into as of [****] (the "Effective Date"). RECITALS A. Immersion is the owner of several United States patent applications and several issued United States patents relating to certain force-feedback technology. B. Concurrently with this Agreement, Immersion and Logitech are entering into a Technology Product Development Agreement and an OEM Purchase Agreement, each of which are dated the same date as this Agreement. Pursuant to the Technology Product Development Agreement, Immersion will develop and deliver to Logitech certain deliverables which are covered by copyrights and trade secret rights owned by Immersion, as well as patents now held or that may issue to Immersion in the future. Pursuant to the OEM Purchase Agreement, Immersion will supply certain components to Logitech to be used in peripheral devices produced by Logitech. C. Logitech intends to develop "Planar Force Feedback Cursor Control Devices" (as defined below) which may or may not incorporate or utilize the deliverables to be delivered under the Technology Product Development Agreement. D. The parties desire that Immersion grant a license to Logitech under the foregoing intellectual property rights of Immersion to develop and distribute Planar Force Feedback Cursor Control Devices, which incorporate or utilize the deliverables to be delivered under the Technology Product Development Agreement, all on the 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 AFFILIATES. This means any corporation or business entity which is controlled by, controls, or is under common control of a Party. 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. * 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. 2 1.2 DEFECT CORRECTION. This means either a modification or addition that eliminates or works around a Defect in a non-software Deliverable so as to cause the non-software Deliverable to comply with the applicable then-current Specification. 1.3 DEFECT. This means, with respect to any non-software Deliverable, failure to materially conform to the applicable then-current Specifications for such non-software Deliverable. 1.4 DELIVERABLES. This means the various deliverables, which are tangible implementations or items including interim deliverables or final prototype deliverables, identified as such and described in any development schedule to the Development Agreement and delivered to Logitech thereunder. 1.5 DEVELOPMENT AGREEMENT. This means the Technology Product Development Agreement between Immersion and Logitech dated the same date as this Agreement. 1.6 ENHANCEMENT OR ENHANCEMENTS. This means any force-feedback modification or addition made by Immersion, under the terms of Section 6.7 ("Other Development") and Section 7.2 ("Enhancements by Immersion") of the Development Agreement for the [****], and which is a tangible implementation other than a Defect Correction or Error Correction, that when incorporated into the Planar Force Feedback Cursor Control Device, materially reduces product costs of a Planar Force Feedback Cursor Control Device or materially changes the functional capability or form factor. 1.7 ERROR CORRECTION. This means either a modification or addition that eliminates or works around an Error in the software Deliverable so as to cause the software Deliverable to comply with the then-current Specification. 1.8 ERROR. This means, with respect to any software Deliverable, failure of any such software Deliverable to materially conform to the applicable then-current Specification for such software Deliverable. 1.9 FEELIT MOUSE PRODUCT. This means the final production version of the mouse product described in the Specification in the first Exhibit A ("Specifications") of the Development Agreement which utilizes and/or contains Immersion Product Model Technology, including but not limited to the applicable [****], documentation, Defect Corrections and Error Corrections thereto. 1.10 FINAL PROTOTYPE. This means a Deliverable which is the final functional form of the Planar Force Feedback Cursor Control Device, if any, including software and hardware, produced by Immersion under a development schedule to the Development Agreement, which prototype serves as a model for the final production version of the Planar Force Feedback Cursor Control Device, if any, and which conforms to the applicable Specification. 1.11 IMMERSION PRODUCT MODEL TECHNOLOGY. This means that subset of Immersion Technology delivered as a Deliverable under the terms of a development schedule of the * 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. 2 3 Development Agreement, or as an Enhancement or New Technology, which is actually utilized in or in connection with and/or embedded in the final production version of the FEELit Mouse Product, any subsequent Product Model of the FEELit Mouse Product or any Product Model of any Planar Force Feedback Cursor Control Device. 1.12 [****] 1.13 IMMERSION TECHNOLOGY. This means any and all technology created or acquired by Immersion, or licensed to Immersion by third parties, including but not limited to software created by employees or consultants of Immersion, (i) first developed or reduced to practice before or after the Effective Date solely by Immersion independent of the scope of the work under the Development Agreement or (ii) first developed or reduced to practice after the Effective Date and within the scope of a Deliverable developed solely by Immersion (a) under a development schedule in effect under the terms of the Development Agreement, (b) as an Enhancement or (c) as New Technology. 1.14 INTELLECTUAL PROPERTY RIGHTS. This means the Licensed Patents and utility models, copyrights and mask work rights, including without limitation all applications and registrations with respect thereto, rights in trade secrets, know-how, and all other intellectual property rights, excluding trademarks and tradenames and patents other than the Licensed Patents. 1.15 LICENSED PATENTS. This means any and all patents owned or licensable by Immersion at any time during the term of this Agreement containing one or more claims which cover any Planar Force Feedback Cursor Control Device. 1.16 [****] 1.17 [****] * 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. 3 4 1.18 NET RECEIPTS. This means the gross receipts received by Logitech and its Affiliates without taking into account any foreign withholding taxes that may apply to transfers between Logitech and its affiliates upon any sales of Royalty Bearing Products to unaffiliated third parties, [****] No other costs incurred in the manufacture, sale, distribution, or exploitation of Royalty Bearing Products shall be deducted from gross receipts in the calculation of Net Receipts. If Royalty Bearing Products are bundled with other items sold by Logitech or its Affiliates and are not invoiced separately, royalties will be paid based on Logitech's then-current average sales price for each such Royalty Bearing Product (or if no Logitech averages sales price exists, the applicable Affiliate average sales price) when sold as a separate item (averaged for the applicable Quarter in which the Net Receipts are received by Logitech or its Affiliates, as applicable, for the country in which the sale was made) in like quantities in arms length transactions to unrelated third parties other than Logitech or Logitech Affiliates). 1.19 NEW TECHNOLOGY. This means any force-feedback technology modification or addition made by Immersion, for the [****], other than a Defect Correction or Error Correction, that when incorporated into the FEELit Mouse Product or other Planar Force Feedback Cursor Control Device, materially changes the utility, efficiency, market value, functional capability or application, and which is developed by Immersion on a non-exclusive basis and made "generally available" for use in Planar Force Feedback Cursor Control Devices in the [****] and which is delivered by Immersion to Logitech as a tangible implementation pursuant to the terms of Section 7.4 ("New Technology") of the Development Agreement. For purposes of this definition, "generally available" shall mean offered under nonexclusive license to any one unaffiliated third party (other than the original third party for whom the technology, modification or addition was originally developed) for use in Planar Force Feedback Cursor Control Devices in the [****]. 1.20 OEM OR OEMS. This means any third party (not including Affiliates) that does not manufacture Planar Force Feedback Cursor Control Devices and that wishes to purchase finished Planar Force Feedback Cursor Control Devices for sale in the [****] under its own brand name. * 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. 4 5 1.21 PARTY OR PARTIES. This means Immersion and/or Logitech. 1.22 PRODUCT LAUNCH. This means the date on which first commercial-level shipping of the FEELit Mouse Product or any Product Model commences to third party unaffiliated customers of Logitech or a Logitech Affiliate. 1.23 PRODUCT MODEL. This means a single model of the FEELit Mouse Product or any other Planar Force Feedback Cursor Control Device. "Product Model" shall mean each variation of a FEELit Mouse Product or Planar Force Feedback Cursor Control Device which (i) differs by virtue of addition of or alteration through an Enhancement or (ii) constitutes a change in form factor or (iii) incorporates a material change in force-feedback functionality made by a party other than Immersion. Purely cosmetic alterations (e.g., color or styling) to the physical appearance of the FEELit Mouse Product or a Planar Force Feedback Cursor Control Device, or changes that do not alter the force-feedback functionality but reduce manufacturing costs shall not be deemed a Product Model. 1.24 QUARTER OR QUARTERS. This means Logitech's yearly fiscal quarters. Specifically, Logitech's yearly fiscal quarters begin and end on the following dates: first quarter, April 1 - June 30; second quarter, July 1 - September 30; third quarter, October 1 - December 31; and fourth quarter, January 1 - March 31. 1.25 ROYALTY BEARING PRODUCT. This means a Planar Force Feedback Cursor Control Device which either (1) incorporates or utilizes Immersion Product Model Technology that is not otherwise made generally available to the public by Immersion without charge or (2) is covered (a) by a Licensed Patent or (b) by a copyright of Immersion embodied in any Immersion Product Model Technology that is not otherwise made generally available to the public by Immersion without charge. 1.26 SPECIFICATION(S). This means the FEELit Mouse Product specification attached as the original Exhibit A ("Specification") to the Development Agreement and each Planar Force Feedback Cursor Control Device specification associated with a development schedule which is attached by amendment to the Development Agreement. 1.27 YEAR. This means any full four-Quarter period. 1.28 Any reference to the words "PURCHASE," "SALE," or "SELL," when used in connection with intellectual property, shall mean license. 2. GRANT OF LICENSES 2.1 GRANT WITH RESPECT TO THE LICENSED PATENTS. Subject to the terms of this Agreement, Immersion grants to Logitech a [****] * 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. 5 6 2.2 GRANT WITH RESPECT TO THE IMMERSION PRODUCT MODEL TECHNOLOGY. Subject to the terms of this Agreement, Immersion grants to Logitech a [****]. No access rights or license to the [****] for the [****] are granted to Logitech except (i) as provided under the terms of Section 13 ("[****] Escrow") of the Development Agreement and (ii) as provided under the terms of Section 2.2.1 ("Firmware [****]"). Logitech and its Affiliates have no right and Logitech agrees not to disassemble or decompile any portion of the software portions of the Immersion Product Model Technology. 2.2.1 FIRMWARE [****]. Immersion may elect, from time to time, and in its sole discretion, to (i) disclose portions of the Immersion firmware to Logitech in [****] form solely for informational purposes and as Confidential Information under the terms of Section 16 ("Confidentiality") of the Technology Product Development Agreement and (ii) to deliver portions of the Immersion firmware (which is Immersion Product Model Technology and delivered as a Deliverable or an Enhancement under the terms of the Technology Product Development Agreement) to Logitech in [****] form solely for informational purposes and as Confidential Information under the terms of Section 16 ("Confidentiality"). Such firmware [****], if delivered to Logitech, will not be used by Logitech for other than informational purposes unless Immersion notifies Logitech, in writing, that such specific firmware [****] is classified as "Authorized For Modification." With respect to firmware [****] which has been designated by Immersion as "Authorized For Modification," Immersion grants to Logitech a [****]. No license to distribute the firmware [****] in [****] form is granted herein. 2.3 RIGHT TO SUBLICENSE. Subject to the terms of Section 2.6 ("Trademark License from Immersion"), Immersion grants to Logitech the right to sublicense any of the rights set forth in Section 2.1 ("Grant With Respect to the Licensed Patents") and Section 2.2 ("Grant With Respect to the Immersion Product Model Technology") above subject to the limitations of this Agreement: (i) to any Affiliate of Logitech and (ii) to any non-Affiliate third party of Logitech * 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. 6 7 solely for the purpose of assisting Logitech in the design or development of Planar Force Feedback Cursor Control Devices in the [****]. Logitech agrees that any act or omission by a Logitech Affiliate that is inconsistent with Logitech's obligations under the terms of this Agreement shall be deemed to be an act or omission by Logitech and a breach of this Agreement by Logitech. 2.4 DURATION. Subject to the obligation to pay royalties, the licenses set forth above will extend to the full end of the term for which any Licensed Patent is issued or any other Intellectual Property Right of Immersion licensed hereunder is in force, unless sooner terminated as provided in this Agreement. 2.5 LABEL REQUIREMENTS. Subject to the terms of Section 2.6 ("Trademark License for Immersion") and Section 2.7 ("Administration Procedure"), Logitech shall place belly labels on Force Feedback Cursor Control Devices which are Royalty Bearing Products which shall include the language and related logo: "FEELitTM Force Feedback Technology Licensed from Immersion Corporation" (hereinafter the "Legend"). Logitech shall also place or have placed the Legend on retail manuals and boxes as designated in Exhibit B ("Immersion Package Labeling Specification"). Logitech shall not remove Immersion's copyright notices from any copies of the [****]. The parties agree that in the case of each Planar Force Feedback Cursor Control Device noticed by Logitech to Immersion under the terms of Section 2.7 ("Administrative Procedures"), Immersion will provide Logitech with a list of applicable Licensed Patents which will identify the "Key Licensed Patents" which will be identified on the belly label of the particular device and will also identify the "Document Patents" which will be identified in the product documentation included with the device. The language on the belly label for the Key Licensed Patents will read as follows: "{List Key License Patents} and other patents listed in associated documentation." If OEM customers object to belly label marking or the inclusion of patents in the documentation as described above, the Parties will mutually agree upon a reasonable solution in writing in advance. 2.6 TRADEMARK LICENSE FROM IMMERSION. Subject to the procedures set forth in Section 2.7 ("Administrative Procedures") below and Immersion's prior written approval, Immersion hereby grants to Logitech a nonexclusive, nontransferable, worldwide license, to use in connection with marketing the FEELit Mouse Product or any Planar Force Feedback Cursor Control Device, the trademark(s) used by Immersion ("Marks") to identify the Immersion Product Model Technology and/or Licensed Patents and Logitech agrees to use such Marks on and in connection with Royalty Bearing Products except in the case of OEM products where, if the OEM customer objects, the parties will mutually agree upon a reasonable solution in writing, in advance. Logitech acknowledges that all use of the Marks will inure to the benefit of Immersion. Logitech shall not register Immersion's Marks in any jurisdiction and will not adopt any trademark for use on the FEELit Mouse Product or Planar Force Feedback Cursor Control Device which is confusingly similar to any trademark of Immersion or which includes a prominent portion of any trademark of Immersion. At Immersion's reasonable request, Logitech shall provide Immersion with samples of Logitech's use of Immersion trademarks. Logitech agrees to abide by Immersion's reasonable written trademark policies as issued and provided to Logitech from time to time. In any case where the Marks are not used in compliance with * 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. 7 8 Immersion's trademark policies and such use has been approved in writing by Immersion, upon receipt of written notice from Immersion, Logitech will promptly correct the non-compliance and submit samples of compliant use to Immersion for approval. 2.7 ADMINISTRATIVE PROCEDURES. The Parties agree that in order to provide Immersion with appropriate information necessary for the orderly administration of the Licensed Patents and Marks, Logitech will provide Immersion with prompt written notice prior to Product Launch of each Product Model and will enclose an information package which contains two prototypes or production units of the Product Model sufficient to enable Immersion to determine which of the Licensed Patents cover the Product Model and to review and approve the use of the Marks. If in any case Immersion believes that the quality of the Product Model does not meet Immersion's commercially reasonable standards, Logitech will not be permitted to ship the Product Model with the Marks until the quality issue is resolved, but Logitech may in is discretion ship such Product Model without the Marks and shall be relieved of its obligation to use the Marks on that Product Model. 2.8 GRANT WITH RESPECT TO KNOW-HOW. Subject to the terms of this Agreement, each party grants to the other a worldwide, nonexclusive license to use any know-how of such party disclosed to the other party pursuant to the Development Agreement. 3. ROYALTIES 3.1 NEW TECHNOLOGY ROYALTIES. As provided in Section 9.2 ("New Technology Royalties") of the Development Agreement, New Technology will be provided to Logitech subject to royalties which are mutually agreed upon in writing by Immersion and Logitech. 3.2 PER PRODUCT MODEL ROYALTY. Except as provided by Section 3.1 ("New Technology Royalties"), Logitech shall pay Immersion a royalty based on a percentage of the Net Receipts for each Product Model of a Royalty Bearing Product sold by Logitech or any Logitech Affiliates to unrelated third parties (other than Logitech or Logitech Affiliates) in arms length transactions, in accordance with the following. The royalty percentage for each Product Model shall be [****] for all units of a Royalty Bearing Product sold. Shipments of Royalty Bearing Products between Logitech and the Logitech Affiliates or between Logitech Affiliates will not be considered to be sold or otherwise transferred until sold to an unrelated customer of Logitech or a Logitech Affiliate. 3.3 [****] * 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. 8 9 3.4 PAYMENTS AND REPORTS. The royalties to be paid by Logitech to Immersion hereunder shall be due [****] after the close of each Quarter. Royalty reports setting forth the royalty calculation by Product Model and identifying whether the sales were made by Logitech or Logitech Affiliates shall be included with such payments. Logitech will pay and account to Immersion for royalties due hereunder with respect to sales or other disposition of Royalty Bearing Products by any Logitech Affiliates, and for that purpose, sales of Royalty Bearing Products by any Logitech Affiliate (other than sales or other disposition by an Affiliate to Logitech or to another Logitech Affiliate) will be deemed to be sales by Logitech. 3.5 AUDIT RIGHTS OF ROYALTY PAYMENTS. Immersion shall have the right to have an independent auditor mutually agreed by Logitech and Immersion audit the method used to calculate the average sales price, as well as the sales data pursuant to Section 1.19 ("Net Receipts") and the royalty payments of Logitech for itself and its Affiliates on an annual basis, but shall pay the costs of such audit, unless such audit reveals any underpayment of royalties in an amount greater than [****] of actual royalties due for any Year, in which case Logitech shall promptly remit an amount equal to the underpayment and shall pay the reasonable costs of such audit. Such audit shall be preceded by at least five (5) business days advance written notice and shall be performed during normal business hours by the auditor. The auditor shall have access to only those books and records of Logitech which are reasonably necessary to determine the relevant sales royalties due for Royalty Bearing Products for Logitech itself and its Affiliates and the correctness of the royalty payments hereunder. Any and all non-public information related to Logitech, its Affiliates, or their business revealed in the course of such audit shall be kept confidential by the auditor and by Immersion, and shall not be disclosed by the auditor to anyone other than employees or professional advisors of Immersion who have a * 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. 9 10 reasonable need to know in connection with such audit, or used for any purpose, except to the extent reasonably necessary to determine the correctness of royalty payments made hereunder. 4. TERM AND TERMINATION 4.1 TERM. Unless earlier terminated in accordance with the provisions of this Agreement, this Agreement will extend until the [****] 4.2 TERMINATION BY LOGITECH. 4.2.1 TERMINATION WITHOUT CAUSE. Logitech may terminate this Agreement without cause upon [****] written notice, and such written notice under the terms of this Agreement shall also serve as written notice of the termination of the Development Agreement, if such Agreement is still in effect at such time, and the Development Agreement will then terminate within [****] of such notice pursuant to the terms of Section 12.1 ("Termination by Logitech Without Cause") and such termination shall be deemed to be a termination without cause by Logitech and will be construed in accordance with the terms of Section 12.3 ("Effect of Termination") therein. 4.2.2 TERMINATION WITH CAUSE. Logitech may terminate this Agreement by written notice to Immersion if Immersion has materially breached the terms of this Agreement and fails to cure the breach after written notice of breach to Immersion and a [****] day time period to cure. 4.3 TERMINATION BY IMMERSION FOR FAILURE TO PAY ROYALTIES. Immersion may terminate this Agreement by written notice to Logitech in the event that Logitech or any Logitech Affiliate breaches the terms of Section 3 ("Royalties") including but not limited to any failure to pay any royalties due and payable by Logitech and/or any of the Logitech Affiliates under this Agreement and Logitech fails to cure such breach after written notice of breach and a [****] time period to cure. If Immersion issues a written notice of termination to Logitech under the terms of this Section 4.3 ("Termination by Immersion for Failure to Pay Royalties") such notice shall also serve as written notice of termination for cause by Immersion under the terms of Section 12.2 ("Termination for Cause") of the Development Agreement, if such Agreement is still in effect at such time. If the breach described in the aforementioned written notice of termination is not cured in accordance with the terms of this Section 4.3 ("Termination by Immersion for Failure to Pay Royalties"), the Development Agreement will then terminate within [****] of such notice pursuant to the terms of Section 12.2 ("Termination for Cause") and such termination will be deemed to be a termination for cause by Immersion for purposes of Section 12.3 ("Effect of Termination") and the effects of termination will be construed in accordance with the terms of Section 12.3 ("Effect of Termination") therein. 4.4 TERMINATION BY IMMERSION FOR BREACH OF PATENT LICENSE. Immersion may terminate this Agreement in the event that Logitech engages in activity which exceeds the scope * 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. 10 11 of the patent license granted in Section 2.1 ("Grant With Respect to the Licensed Patents") or breaches the labeling requirement of Section 2.5 ("Label Requirements") and fails to cure the breach after written notice of breach and a [****] time period to cure. Except as set forth in this Section 4.4 or Section 4.3 ("Termination by Immersion for Failure to Pay Royalties"), the patent license granted in Section 2.1 ("Grant With Respect to the Licensed Patents") shall not be terminable by Immersion. If Immersion issues a written notice of termination to Logitech under the terms of this Section 4.4 ("Termination by Immersion for Breach") such notice shall also serve as written notice of termination for cause by Immersion under the terms of Section 12.2 ("Termination for Cause") of the Development Agreement, if such Development Agreement is still in effect at such time. If the breach described in the aforementioned written notice of termination is not cured in accordance with the terms of this Section 4.4 ("Termination by Immersion for Breach"), the Development Agreement will then terminate within [****] of such notice pursuant to the terms of Section 12.2 ("Termination for Cause") and such termination will be deemed to be a termination for cause by Immersion for purposes of Section 12.3 ("Effect of Termination") and the effects of termination will be construed in accordance with the terms of Section 12.3 ("Effects of Termination") therein. 4.5 TERMINATION OF LICENSES TO IMMERSION PRODUCT MODEL TECHNOLOGY BY IMMERSION FOR BREACH. Immersion may terminate the licenses granted with respect to Immersion Product Model Technology in Section 2.2 ("Grant With Respect to the Licensed Patents") in the event that Logitech engages in activity which exceeds the scope of such license or breaches the terms of Section 2.3 ("Right to Sublicense") or the labeling requirement of Section 2.5 ("Label Requirements") and fails to cure the breach after written notice of breach and a [****] time period to cure. Termination of the licenses with respect to the Immersion Product Model Technology shall not affect the patent licenses granted hereunder. Except as set forth in this Section 4.5 ("Termination of Licenses to Immersion Product Model Technology by Immersion for Breach") or Section 4.3 ("Termination by Immersion for Failure to Pay Royalties"), the licenses granted in Section 2.2 ("Grant With Respect to the Licensed Patents") shall not be terminable by Immersion. 4.6 EFFECT OF TERMINATION. Notwithstanding any termination of this Agreement for any reason, Logitech agrees to pay Immersion for royalties due under this Agreement from Logitech or any Logitech Affiliate. Upon a termination of this Agreement for cause or without cause, Logitech and each Affiliate shall have [****] to distribute any remaining inventory in process and in existence as of the effective date of the termination, subject to the obligation for Logitech to pay royalties hereunder for any such distribution by Logitech and/or any Logitech Affiliates. EXCEPT FOR DIRECT DAMAGES RESULTING FROM A BREACH OF THE TERMS OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO A BREACH BY LOGITECH OR ANY LOGITECH AFFILIATE OF SECTION 2 ("GRANT OF LICENSES"), NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY SORT AS A RESULT OF TERMINATING THIS AGREEMENT IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT. * 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. 11 12 5. WARRANTY Immersion represents and warrants that Immersion either has ownership of, or sufficient rights in, the Immersion Product Model Technology to be delivered under the terms of the Development Agreement and the Licensed Patents to enter into this Agreement and grant all the rights set forth herein. As of the Effective Date of the Agreement, Immersion is not aware of and has not received any notice of any claim by a third party that the copyrights, patents, trade secrets, trademarks or other intellectual property rights of any third party are infringed by the Immersion Product Model Technology that Immersion, in its sole discretion intends to, as of the Effective Date, use to comply with Immersion's development obligations under the terms of the Development Agreement, except as disclosed to Logitech in writing prior to the date of this Agreement. Immersion further represents and warrants that it neither holds nor has applied for a patent that is dominant to the Licensed Patents. 6. INDEMNIFICATION 6.1 TRADEMARK INFRINGEMENT INDEMNIFICATION BY IMMERSION. Subject to the limitations on cumulative liability under Section 7.1 ("Disclaimers of Certain Types of Damages") and Section 7.3 ("Limitations of Liability with Respect to Indemnity Obligations"), and Immersion's approval for Logitech to use the Legend and the Marks pursuant to Section 2.5 ("Label Requirements"), Section 2.6 ("Trademark License") and Section 2.7 ("Administrative Procedures") and further subject to prompt notification by Logitech, cooperation by Logitech and control of all litigation and/or settlement by Immersion, Immersion shall indemnify, defend and hold Logitech harmless from and against any and all claims, damages, liabilities, judgments, settlements, losses, costs and expenses (including court costs and reasonable attorneys' and experts' fees) (collectively, "Costs") suffered or incurred by Logitech arising out of a claim of infringement of any Immersion Mark or Legend used by Logitech on a Planar Force Feedback Cursor Control Device in the [****] which is based on Logitech's use under the labeling requirement of Section 2.5 ("Label Requirements") and/or the terms of Section 2.6 ("Trademark License") and Section 2.7 ("Administrative Procedures"). In the case of an infringement or alleged infringement by any such Immersion Mark or Legend used by Logitech on a Planar Force Feedback Cursor Control Device in the [****]: (i) Logitech will have the right to remove such Marks and/or Legend from Logitech Planar Force Feedback Cursor Control Devices while any dispute or litigation concerning the same is pending, and shall begin using such marks again only after such infringement claims or disputes have been settled or dismissed with prejudice, and (ii) Immersion will have the right to require Logitech to stop using such Marks and/or Legend and will provide a new trademark to be used in connection with the Immersion Product Model Technology and/or Licensed Patents, as applicable. Each party agrees to notify the other promptly of any matters in respect to which the foregoing indemnity in this Section 6.1 ("Trademark Infringement indemnification by Immersion") may apply. If notified in writing of any action or claim for which Immersion is to provide indemnity, Immersion shall defend, subject to the limitations of liability set forth in Section 7.1 ("Disclaimer of Certain Types of Damages") and 7.3 ("Limitations of Liability With Respect to Indemnity Obligations"), * 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. 12 13 those actions or claims at Immersion's expense and pay the Costs awarded against Logitech in any such action, or pay any settlement of such action or claim entered into by Immersion. 6.2 COPYRIGHT INFRINGEMENT AND TRADE SECRET MISAPPROPRIATION INDEMNIFICATION BY IMMERSION. 6.2.1 SCOPE. Subject to the limitations of cumulative liability under Section 7.1 ("Disclaimer of Certain Types of Damages") and Section 7.3 ("Limitations of Liability With Respect to Indemnity Obligations") and further subject to prompt notification by Logitech, cooperation by Logitech and control of all litigation and/or settlement by Immersion, Immersion shall indemnify, defend and hold Logitech harmless from and against any and all Costs suffered or incurred by Logitech as a result of any third party claim that any Immersion Product Model Technology delivered by Immersion to Logitech infringes any copyright or misappropriates any trade secret of any third party. In the case of any third party claim involving the [****] portion of the Immersion Product Model Technology, Immersion may, in its sole discretion, provide Logitech with a modification to the affected [****] so that the [****] portion of the Immersion Product Model Technology becomes noninfringing or in the alternative, may provide Logitech other software which is functionally equivalent. Each party agrees to notify the other promptly of any matters in respect to which the foregoing indemnity in this Section 6.2 ("Copyright Infringement and Trade Secret Misappropriation Indemnification by Immersion") may apply. If notified in writing of any action or claim for which Immersion is to provide indemnity, Immersion shall defend, subject to the limitations of liability set forth in Section 7.1 ("Disclaimer of Certain Types of Damages") and 7.3 ("Limitations of Liability With Respect to Indemnity Obligations"), those actions or claims at Immersion's expense and pay the Costs awarded against Logitech in any such action, or pay any settlement of such action or claim entered into by Immersion. 6.2.2 EXCEPTIONS. The foregoing indemnity will not apply to any infringement claim to the extent it arises from (i) any modification of any Immersion Product Model Technology by parties other than Immersion or Immersion subcontractors under contract with Immersion, (ii) use of any Immersion Product Model Technology in conjunction with other non-Immersion products or components where there would be no infringement absent such use with such other products or components or (iii) an infringement which would not occur in the Immersion Product Model Technology or any Final Prototype in which such Immersion Product Model Technology is incorporated but which does occur in the final production version of a Planar Force Feedback Cursor Control Device. 6.3 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 Planar Force Feedback Cursor Control Devices. 6.4 PRODUCT LIABILITY INSURANCE. The Parties agree that they shall each secure insurance covering product liability. Such insurance shall provide coverage of at least [****] * 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. 13 14 per occurrence and shall remain in effect during the term of this Agreement. Each party will promptly cause the other party to be named as an additional insured. 6.5 PATENT INFRINGEMENT INDEMNIFICATION BY IMMERSION. 6.5.1 SCOPE. Subject to the limitations of cumulative liability under Section 7.1 ("Disclaimer of Certain Types of Damages") and Section 7.3 ("Limitations of Liability With Respect to Indemnity Obligations"), and further subject to prompt notification by Logitech, cooperation by Logitech and control of all litigation and/or settlement by Immersion, [****] Each Party agrees to notify the other promptly of any matters in respect to which the foregoing indemnity in this Section 6.5 ("Patent Infringement Indemnification by Immersion") may apply. If notified in writing of any action or claim for which Immersion is to provide indemnity, Immersion shall defend, subject to the limitations of liability set forth in Section 7.1 ("Disclaimer of Certain Types of Damages") and 7.3 ("Limitations of Liability With Respect to Indemnity Obligations") and the provisions of Section 6.5.3 ("Exceptions With Respect to Patents Issued After the Effective Date"), those actions or claims at its expense and pay the Costs awarded against Logitech in any such action, or pay any settlement of such action or claim entered into by Immersion. In any such action, Logitech will make available to Immersion all defenses against such action or claim known or available to Logitech. 6.5.2 EXCEPTIONS TO THE SCOPE OF THE INDEMNITY. Immersion shall have no liability or obligation with respect to any claim of patent infringement to the extent it arises from [****] * 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. 14 15 6.5.3 [****] (a) [****] (b) [****] (c) [****] * 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. 15 16 6.6 REMEDIES IN THE EVENT OF PROHIBITION OF USE. The provisions and remedies set forth in this Section 6.6 ("Remedies In the Event of Prohibition of Use") shall continue to be applicable with respect to any copyright infringement or trade secret misappropriation under the terms of Section 6.2 ("Copyright Infringement and Trade Secret Misappropriation"), and any After-Issued Patents for which Immersion does not supply written notice to Logitech in accordance with Section 6.5.3(a) ("Notice by Immersion and Supply of Modified or Substitute Technology") and any U.S. Patents issued prior to the Effective Date of this Agreement. If a preliminary or final judgment shall be obtained against Logitech's use, sale or distribution of a Planar Force Feedback Cursor Control Device that incorporates any Immersion Product Model Technology based infringement within the scope of the indemnity set forth in Section 6.1 ("Trademark Infringement indemnification by Immersion"), 6.2 ("Copyright Infringement and Trade Secret Misappropriation Indemnification by Immersion") or 6.5 (Patent Infringement Indemnification by Immersion") (subject to the exceptions set forth therein), or if any Immersion Product Model Technology is, or in Immersion's opinion, is likely to become, subject to a claim for such infringement, then Immersion shall, at its expense, either (a) modify the Immersion Product Model Technology so that the incorporated Immersion Product Model Technology becomes noninfringing, or (b) procure for Logitech the right to continue to use such Immersion Product Model Technology, or (c) substitute for the infringing Immersion Product Model Technology other technology that conforms to the Specifications in Exhibit A of the Development Agreement (which shall itself be deemed to be Immersion Product Model Technology). [****] 6.7 INDEMNITY BY LOGITECH. Subject to the limitations of liability set forth in Section 7 ("Limitations of Liability"), and subject to prompt notification by Immersion, cooperation by Immersion and control of all litigation and/or settlement by Logitech, Logitech shall [****] * 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. 16 17 7. LIMITATIONS OF LIABILITY 7.1 DISCLAIMER OF CERTAIN TYPES OF DAMAGES. IN NO EVENT WILL LOGITECH OR IMMERSION 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 LOGITECH AND IMMERSION HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. 7.2 LIMITATIONS OF LIABILITY OTHER THAN INDEMNITY OBLIGATIONS. EXCEPT WITH RESPECT TO THE PARTIES' OBLIGATIONS OF INDEMNITY, INCLUDING, BUT NOT LIMITED TO COSTS OF DEFENSE AND "COSTS" (AS DEFINED ABOVE) SET FORTH IN SECTION 6 ("INDEMNIFICATION") WHICH ARE LIMITED BY THE TERMS OF SECTION 7.3 ("LIMITATIONS OF LIABILITY WITH RESPECT TO INDEMNITY OBLIGATIONS") AND WITH RESPECT TO ANY ROYALTIES DUE AND PAYABLE BY LOGITECH HEREUNDER, IN NO CASE WILL EITHER PARTY'S TOTAL CUMULATIVE LIABILITY OR OBLIGATIONS UNDER THE TERMS OF OR ARISING OUT OF THIS AGREEMENT EXCEED [****] 7.3 LIMITATIONS OF LIABILITY WITH RESPECT TO INDEMNITY OBLIGATIONS. IN NO CASE WILL EITHER PARTY'S TOTAL CUMULATIVE LIABILITY WITH RESPECT TO ITS OBLIGATIONS OF INDEMNITY INCLUDING, BUT NOT LIMITED TO COSTS OF DEFENSE AND "COSTS" (AS DEFINED ABOVE) UNDER SECTION 6 ("INDEMNIFICATION") EXCEED THE GREATER OF [****] 7.4 NEGATION OF WARRANTIES AND OTHER OBLIGATIONS. 7.4.1 Nothing in this Agreement shall be construed: (i) as a warranty or representation by Immersion as to the validity or scope of any Licensed Patents; * 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. 17 18 (ii) as a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted in this Agreement is or will be free from infringement by patents, copyrights, trade secrets, trademarks, or other rights of third parties; (iii) as granting by implication, estoppel or otherwise any licenses or rights under patents or other Intellectual Property Rights of Immersion other than expressly granted herein, regardless of whether such patents are dominant or subordinate to any Licensed Patents, or (iv) (a) to require Immersion to file any patent application relating to force-feedback in Planar Force Feedback Cursor Control Devices, (b) a warranty that Immersion will be successful in securing the grant of any patent relating to force-feedback in Planar Force Feedback Cursor Control Devices or any reissue or extensions thereof, and (c) to require Immersion to pay any maintenance fees or take any other steps to maintain Immersion's patent rights relating to force feedback in Planar Force Feedback Cursor Control Devices, provided, however, that in the event Immersion elects not to pay any maintenance fee or take any step to maintain such patents, Immersion shall so notify Logitech a reasonable period in advance and Logitech may, at its option, pay such maintenance fee or take such steps. 7.4.2 Except for Immersion's obligations of indemnity set forth herein, Immersion does not assume any responsibility for the definition of the Specifications, the manufacture of the Planar Force Feedback Cursor Control Devices, or use of any Planar Force Feedback Cursor Control Device which is manufactured or sold by or for Logitech or the Logitech Affiliates under the Licensed Patent licenses granted herein. All warranties in connection with such Planar Force Feedback Cursor Control Devices shall be made by Logitech or the Logitech Affiliates as manufacturers or sellers of such Planar Force Feedback Cursor Control Devices and such warranties shall not directly or by implication obligate Immersion in any way. 8. THIRD PARTY ENFORCEMENT Immersion shall not have any obligation or duty under this Agreement to any party, including but not limited to Logitech to enforce any patents or Licensed Patents against any third party infringing any claim or claims of any patent and/or the Licensed Patents provided, however, that should Logitech become aware of any actual infringement of the Licensed Patents by a Planar Force Feedback Cursor Control Device distributed in the [****] by a third party, which Planar Force Feedback Cursor Control Device directly competes with a Planar Force Feedback Cursor Control Device currently shipped by Logitech as a formal product release which is covered by the Licensed Patents, Logitech will * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 18 19 promptly communicate the details to Immersion. Immersion shall thereupon, within [****] of being made aware by Logitech of such infringement, send copies of the relevant Licensed Patents to such third party, however, Immersion shall have the right to take no further action or whatever action Immersion deems necessary, including cease and desist letters, negotiation, the filing of lawsuits, and/or settlement to terminate such infringement and the strategy and/or conclusion of such action or settlement shall be within Immersion's sole discretion. Logitech shall cooperate with Immersion if Immersion takes any such action but all expenses of Immersion shall be borne by Immersion. If Immersion recovers any damages or compensation for any action Immersion takes hereunder, including any settlement, Immersion shall retain [****] of such damages. If Immersion does not elect to take such further action hereunder within [****] of being made aware of such infringement by Logitech, then Logitech shall have the right, but not the obligation, to provide Immersion with a Patent Enforcement Justification, as defined below, and if the proposed enforcement action meets the Patent Enforcement Justification criteria, Logitech may take and control any such action, subject to Immersion's absolute right to control any and all assertions or admissions which relate to the scope or validity of Immersion's Licensed Patents. For purposes of this Section 8 ("Third Party Enforcement"), a Patent Enforcement Justification is a written report prepared by Logitech which includes: (i) the name and address of the entity manufacturing the Planar Force Feedback Cursor Control Device that is allegedly infringing the Licensed Patents and the names and addresses of any entities distributing such Planar Force Feedback Cursor Control Device, (ii) an analysis of which of the Licensed Patent claims are infringed, (iii) a comparison of the allegedly infringing Planar Force Feedback Cursor Control Device and the affected Planar Force Feedback Cursor Control Device distributed by Logitech with which such allegedly infringing Planar Force Feedback Cursor Control Device competes (which comparison analyzes the competitive threat as to (a) feature and function, (b) positioning, and (c) price point), (iv) the number of units of the Planar Force Feedback Cursor Control Device sold by Logitech in the most recent [****] full Quarters and, if known or reasonably estimable, the number or estimate of the number of units of the allegedly infringing Planar Force Feedback Cursor Control Device sold in the most recent [****] full Quarters, on a geographic area basis. The criteria which must be met by such report, in order to permit Logitech to "justify" and to go forward with an infringement action, as are follows: (i) Logitech must be selling over [****] units of the affected Planar Force Feedback Cursor Control Device in the market in which the infringement is occurring during the most recent [****] full Quarters or, if the Product Launch occurred during the most recent [****] full Quarters, Logitech reasonably estimates in good faith that it will sell over [****] units of the affected Planar Force Feedback Cursor Control Device in the market in which the infringement is occurring during the next [****] full Quarters; (ii) the allegedly infringing Planar Force Feedback Cursor Control Device must be substantially similar to the affected Planar Force Feedback Cursor Control Device as to features and functions such that the allegedly infringing Planar Force Feedback Cursor Control Device is having or reasonably will have a serious impact on the sales of the affected Logitech Planar Force Feedback Cursor Control Device; * 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. 19 20 (iii) the Licensed Patents to be enforced against the allegedly infringing Planar Force Feedback Cursor Control Device also cover the affected Logitech Planar Force Feedback Cursor Control Device; (iv) the number of units of the allegedly infringing Planar Force Feedback Cursor Control Device sold in the market in which the infringement is occurring in the most recent four (4) full Quarters or reasonably estimated in good faith to be sold in the next four (4) full Quarters must meet or exceed [****] units; and (v) Logitech has included the applicable Licensed Patent numbers on the affected Planar Force Feedback Cursor Control Device in accordance with the terms of Section 2.5 ("Label Requirements"). If the aforementioned criteria are met, Immersion will cooperate with Logitech, at Logitech's expense, including but not limited to joining any legal proceedings as a named plaintiff to the extent required to confer jurisdiction, and all of Logitech's expenses will be borne by Logitech. Immersion may elect to have counsel of its own choosing participate at Immersion's sole expense in any legal proceedings instituted by Logitech, but Logitech shall retain [****] of any damages Logitech recovers for any such proceedings including any settlement, provided however that (i) Logitech shall first reimburse Immersion for Immersion's Costs to participate in such action out of any recovery which exceeds Logitech's Costs for such action. Immersion must agree to any settlement of any infringement or of any action brought hereunder by Logitech, which consent will not be unreasonably withheld. 9. GENERAL 9.1 ENTIRE AGREEMENT. This Agreement, together with the Development Agreement and its Exhibits, constitutes the complete agreement of the parties and supersedes any other agreements, written or oral (including all correspondence, emails and the letter regarding [****] concerning the subject matter hereof and such materials do not have any effect upon the rights and obligations of the Parties under this Agreement. This Agreement and the Development Agreement in no way supersede or affect the Intellectual Property License Agreement between Immersion and Logitech dated [****] and/or the Technology Product Development Agreement between Immersion and Logitech dated [****]. 9.2 SUCCESSION AND ASSIGNMENT. Either party may assign this Agreement provided that the other party has consented in writing to the assignment or delegation and provided, further, that the rights and obligations of the parties 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. In the case of any permissible assignment of this Agreement by Immersion, the obligation for Logitech to include the phrase "from Immersion Corporation" at the end of the Legend will be waived. Any attempt to assign this Agreement in violation of the provisions of this Section 9.2 ("Succession and Assignment") shall be void. 9.3 NOTICES. Notices required under this Agreement shall be addressed as follows, except as otherwise revised by written notice: * 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. 20 21 TO IMMERSION: TO LOGITECH: Louis B. Rosenberg, Ph. D. General Counsel President Logitech, Inc. Immersion Corporation 6505 Kaiser Drive 2158 Paragon Drive Fremont, CA 94555-3615 San Jose, CA 95131 9.4 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. 9.5 NO AGENCY. Neither party is to be construed as the agent, partner, or joint venturer or to be acting as the agent, partner or joint venturer of the other party hereunder in any respect. 9.6 NO RECRUITMENT. During the term of this Agreement and for one (1) year after the termination or expiration of this Agreement, each Party agrees not to recruit any employee of the other Party. 9.7 MULTIPLE COUNTERPARTS. This Agreement may be executed in several counterparts, all of which taken together shall constitute one single Agreement between the parties. 9.8 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 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. 9.9 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. 9.10 AMENDMENTS IN WRITING. Any amendment to this Agreement shall be in writing and signed by both parties hereto. 9.11 INTERPRETATION. Since this Agreement was prepared by both parties hereto, it shall not be construed against any one party as the drafting party. 9.12 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 21 22 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. 9.13 SURVIVAL. Sections 3.2 ("Per Product Model Royalty"), 3.4 ("Payments and Reports"), 3.5 ("Audit Rights of Royalty Payment"), 4.6 ("Effect of Termination"), 5 ("Warranty"), 7 ("Limitations of Liability") and 9 ("General") shall survive any termination or expiration of this Agreement. In addition, the provisions of Sections 6.1 ("Trademark Infringement Indemnification by Immersion"), 6.2 ("Copyright Infringement and Trade Secret Misappropriation Indemnification by Immersion"), 6.5 ("Patent Infringement Indemnification by Immersion"), 6.6 ("Remedies In the Event of Prohibition of Use") and 6.7 ("Indemnity by Logitech") shall survive with respect to any units of a Product Model of Royalty Bearing Products sold or otherwise distributed by Logitech before the termination or expiration of this Agreement, provided, however, that Immersion's obligations of indemnity under Sections 6.1 ("Trademark Infringement Indemnification by Immersion"), 6.2 ("Copyright Infringement and Trade Secret Misappropriation Indemnification by Immersion"), 6.5 ("Patent Infringement Indemnification by Immersion"), and 6.6 ("Remedies In the Event of Prohibition of Use") shall not survive in the event Immersion terminates this Agreement for cause, including but not limited to, failure by Logitech to pay royalties due hereunder. 9.14 FORCE MAJEURE. With the exception of the obligation to pay monies due and owing, each Party hereto shall be excused from performance hereunder for any period and to the extent that it is prevented from performing any services pursuant hereto, in whole or in part, as a result of delays caused by the other Party or an act of God, war, civil disturbance, court order, governmental action, laws, orders, regulations, directions or requests, or as a result of events such as acts of public enemies, earthquakes, fires, floods, strikes or other labor disturbances of the other Party or any third party, or other cause beyond its reasonable control and which it could not have prevented by reasonable precautions, and such nonperformance shall not be a default hereunder or a ground for termination hereof. 22 23 IN WITNESS WHEREOF, the authorized representatives of the parties hereto have signed this Agreement as of the date and year last set forth below. Logitech: Immersion: LOGITECH, INC. IMMERSION CORPORATION By: /s/ By: /s/ Louis Rosenberg ------------------------------ --------------------------------- Title: S.V.P./ G.M. Title: President ------------------------------ --------------------------------- Date: April 13, 1998 Date: April 13, 1998 ------------------------------ --------------------------------- 23 EX-10.20 14 TECHNOLOGY PRODUCT DEVELOPMENT AGRMT WITH LOGITECH 1 EXHIBIT 10.20 TECHNOLOGY PRODUCT DEVELOPMENT AGREEMENT IMMERSION CORPORATION AND LOGITECH, INC. This Technology Product Development Agreement (the "Agreement") between Immersion Corporation, a California corporation, with principal offices in San Jose, California (hereinafter "Immersion") and Logitech Inc., a California corporation, with principal offices in Fremont, California (hereinafter "Logitech"), is entered into as of [****] (the "Effective Date"). RECITALS WHEREAS, Logitech and Immersion desire to establish a mutually beneficial business relationship and to develop, verify and launch under their best efforts high quality and competitively priced "FEELit Mouse" force-feedback [****]; and, WHEREAS, Immersion is in the business of developing certain computer peripheral force feedback industrial, business, gaming, arcade and medical devices, and represents it is the owner and/or licensee of certain know-how, trade secrets and issued or pending patents; and, WHEREAS, Logitech is in the business of developing, manufacturing and distributing software and electrical computer peripheral devices such as input data, gaming, and control devices including, but not limited to, [****], and represents it is the owner and/or licensee of certain know-how, trade secrets and issued or pending patents; and, WHEREAS, Logitech desires to develop internally and with third parties, use, manufacture and distribute [****] which utilize FEELit Mouse technology. NOW, THEREFORE, in consideration of the promises and agreements set forth below and the other consideration cited herein, the parties agree as follows: 1. PURPOSE AND SCOPE OF THE AGREEMENT 1.1 PURPOSE. The purpose of this Agreement is to expressly define the terms and conditions of Logitech's and Immersion's business relationship with respect to force-feedback [****] projects. * 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. 2 1.2 SCOPE. The scope of this Agreement encompasses Immersion's and Logitech's respective development, service and support rights and obligations regarding [****] projects provided for herein. 2. DEFINITIONS In this Agreement, including the Exhibits hereto, the following words and expressions shall have the following meanings: 2.1 AFFILIATES. This means any corporation or business entity which is controlled by, controls, or is under common control of a Party. 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. 2.2 DEFECT. This means, with respect to any non-software Deliverable, failure to materially conform to the applicable then-current Specifications for such non-software Deliverable. 2.3 DEFECT CORRECTION. This means either a modification or addition that eliminates or works around a Defect in a non-software Deliverable so as to cause the non-software Deliverable to comply with the applicable then-current Specification. 2.4 DELIVERABLES. This means the various deliverables, which are tangible implementations or items, including interim deliverables or final prototype deliverables, identified as such and described in Exhibit B ("Development Schedule"), or any subsequent development schedule attached hereto by amendment. 2.5 ENHANCEMENT OR ENHANCEMENTS. This means any force-feedback modification or addition made by Immersion under the terms of Section 6.7 ("Other Development") and Section 7.2 ("[****]"), for the [****], and which is a tangible implementation, other than a Defect Correction or Error Correction, that when incorporated into the [****], materially reduces the product cost of a [****], or materially changes the functional capability, or form factor. 2.6 ERROR. This means, with respect to any software Deliverable, failure of any such software Deliverable to materially conform to the applicable then-current Specification for such software Deliverable. 2 * 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. 3 2.7 ERROR CORRECTION. This means either a modification or addition that eliminates or works around an Error in the software Deliverable so as to cause the software Deliverable to comply with the then-current Specification. 2.8 FEELIT MOUSE PRODUCT. This means the final production version of the mouse described in the first Exhibit A ("Specifications") which utilizes and/or contains Immersion Product Model Technology, including but not limited to the applicable [****], documentation, Defect Corrections and Error Corrections thereto. 2.9 FINAL PROTOTYPE. This means a Deliverable which is the final functional form of the [****], if any, including software and hardware, produced by Immersion under a development schedule, which prototype serves as a model for the final production version of the [****], if any, and which conforms to the applicable Specification. 2.10 IMMERSION PRODUCT MODEL TECHNOLOGY. This means that subset of Immersion Technology delivered as a Deliverable under the terms of a development schedule, or as an Enhancement or New Technology, which is actually utilized in or in connection with and/or embedded in the final production version of the FEELit Mouse Product, any subsequent Product Model of the FEELit Mouse Product or any Product Model of any [****]. 2.11 [****] 2.12 IMMERSION TECHNOLOGY. This means any and all technology created or acquired by Immersion, or licensed to Immersion by third parties, including but not limited to software created by employees or consultants of Immersion, (i) first developed or reduced to practice before or after the Effective Date solely by Immersion independent of the scope of the work under this Agreement or (ii) first developed or reduced to practice after the Effective Date and within the scope of a Deliverable developed solely by Immersion (a) under a development schedule in effect under the terms of this Agreement, (b) as an Enhancement or (c) as New Technology. 3 * 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. 4 2.13 INTELLECTUAL PROPERTY LICENSE AGREEMENT. This means the Intellectual Property License Agreement between Immersion and Logitech dated the same date as this Agreement. 2.14 JOINT TECHNOLOGY. This means any and all technology created and/or invented jointly by Immersion and Logitech employees or consultants after the Effective Date and within the scope of development of the FEELit Mouse Product or any [****] and/or any Enhancements under the terms of this Agreement. The term "Joint Technology" specifically excludes Immersion Technology and Logitech Technology. 2.15 LOGITECH PRODUCT MODEL TECHNOLOGY. This means that subset of Logitech Technology which is actually utilized in or in connection with and/or embedded in the final production version of the FEELit Mouse Product, any subsequent Product Model of the FEELit Mouse Product or any Product Model of any [****]. 2.16 LOGITECH TECHNOLOGY. This means any and all technology created or acquired by Logitech, or licensed to Logitech by third parties, including but not limited to software created by employees or consultants of Logitech (i) first developed or reduced to practice before or after the Effective Date solely by Logitech independent of the scope of the work under this Agreement or (ii) first developed or reduced to practice after the Effective Date solely by Logitech and within the scope of a development schedule in effect under the terms of this Agreement. 2.17 [****] 2.18 [****] 4 * 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. 5 2.19 NEW TECHNOLOGY. This means any force-feedback technology modification or addition made by Immersion, for the [****], other than a Defect Correction or Error-Correction, that when incorporated into a [****], materially changes the utility, efficiency, market value, functional capability or application, and which is developed by Immersion on a non-exclusive basis and made "generally available" for use in [****] in the [****] and which is delivered by Immersion to Logitech as a tangible implementation pursuant to the terms of Section 7.4 ("New Technology"). For purposes of this definition, "generally available" shall mean offered under nonexclusive license to any one unaffiliated third party (other than the original third party for whom the technology, modification or addition was originally developed) for use in [****] in the [****]. 2.20 OEM OR OEMS. This means any third party (not including Affiliates) that does not manufacture [****] and that wishes to purchase finished [****] for sale in the [****] under its own brand name. 2.21 PARTY OR PARTIES. This means Immersion and/or Logitech. 2.22 PRODUCT LAUNCH. This means the date on which first commercial-level shipping of the FEELit Mouse Product or any Product Model commences to third party unaffiliated customers of Logitech or a Logitech Affiliate. 2.23 PRODUCT MODEL. This means a single model of the FEELit Mouse Product or any other [****]. "Product Model" shall mean each variation of a FEELit Mouse Product or [****] which (i) differs by virtue of addition of or alteration through an Enhancement or (ii) constitutes a change in form factor or (iii) incorporates a material change in force-feedback functionality made by a party other than Immersion. Purely cosmetic alterations (e.g., color or styling) to the 5 *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. 6 physical appearance of the FEELit Mouse Product or a [****], or changes that do not alter the force-feedback functionality but reduce manufacturing costs shall not be deemed a Product Model. 2.24 QUARTER OR QUARTERS. This means Logitech's yearly fiscal quarters. Specifically, Logitech's yearly fiscal quarters begin and end on the following dates: first quarter, April 1 - June 30; second quarter, July 1 - September 30; third quarter, October 1 - December 31; and fourth quarter, January 1 - March 31. 2.25 ROYALTY BEARING PRODUCT. This means a [****] which either (1) incorporates or utilizes Immersion Product Model Technology that is not otherwise made generally available to the public by Immersion without charge or (2) is covered by a Licensed Patent as defined in the Intellectual Property License Agreement or by a copyright of Immersion embodied in any Immersion Product Model Technology that is not otherwise made generally available to the public by Immersion without charge generally. 2.26 SPECIFICATION(S). This means the FEELit Mouse Product specification attached hereto as Exhibit A ("Specification") and each [****] specification associated with a development schedule which is attached by amendment to this Agreement. 2.27 YEAR. This means any full four-Quarter period. 2.28 Any reference to the words "PURCHASE," "SALE," or "SELL," when used in connection with intellectual property, shall mean license. 3. EXHIBITS The following Exhibits shall be attached hereto and incorporated in their entirety by this reference. EXHIBIT A ("Specification"), the Specification, contains the description of the FEELit Mouse Product. EXHIBIT B ("Development Schedule"), the Development Schedule, contains the Milestones, Deliverables and Deliverable Due Dates. The parties agree to complete Exhibit B within thirty (30) days of the Effective Date and add such Exhibit B to this Agreement by written amendment within such time period. EXHIBIT C ("Change Order Form"), is the Change Order Form. EXHIBIT D ("Software License Agreement") is the end user software license agreement. 6 *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. 7 EXHIBIT E ("Immersion Packaging Labeling Specification") is the Immersion Packaging Labeling specification. 4. TERM The initial term of this Agreement shall be for a period of [****] 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 [****] periods, unless either party terminates the Agreement by written notice at least [****] prior to the end of the initial term or any renewal term. 5 ENGAGEMENT OF SERVICES 5.1 PROJECT ASSIGNMENT. Subject to the terms of this Agreement, Immersion and Logitech will render the services and develop the Deliverables described in Exhibit B ("Development Schedule"), based upon Exhibit A ("Specifications"), which development schedule and/or Specification may be modified by the Parties from time to time in accordance with the procedures described in Section 6.6 ("Modification of Specification"). Immersion shall dedicate full-time employees of sufficient technical and professional caliber to define, develop, complete and verify the [****] it develops with Logitech in accordance with Exhibit B ("Development Schedule"), based on Exhibit A ("Specifications"), and will assist Logitech in launching and supporting the resulting [****] in accordance with the terms of Section 7.1 ("Technical Service and Support"). 5.2 PERFORMANCE OF SERVICES. Logitech has selected Immersion to perform the services described in this Agreement based upon Logitech receiving Immersion's personal services. Immersion may not, therefore, subcontract or otherwise assign and delegate its obligations under this Agreement without Logitech's prior written consent. 5.3 PRESS RELEASE. Each of the Parties agree to credit appropriately the other Party in all press releases, promotions, advertisement and announcements that mention the force feedback [****]. Prior to a Party releasing any information that references the other Party, the publishing Party shall obtain the other Party's prior written approval. The parties shall announce their FEELit Mouse partnership within six months of the Effective Date. 7 *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. 8 6.[****] DEVELOPMENT 6.1 FUNDING. Logitech shall fund all costs related to its internal development of the [****]. In consideration of the duties and obligations of Immersion with respect to its development obligations hereunder for Logitech, Logitech will pay Immersion on a reasonable time and material basis. Immersion will be liable for all taxes levied against Immersion which arise in connection with Immersion's performance under this Agreement and the payments received from Logitech. Any payment designated as due and payable based upon completion of development of a specified Deliverable(s) and acceptance by Logitech shall not be payable until Logitech's acceptance thereof. 6.1.1 FEELIT MOUSE PRODUCT FUNDING. In consideration of the duties and obligations of Immersion with respect to development pursuant to Exhibit B ("Development Schedule") by Immersion, Logitech will pay Immersion a total amount of [****] (US Dollars) ("Development Fee"), which sum is in addition to the [****] to be paid by Logitech to Immersion under the terms of the Parties' Phase 0 Term Sheet, receipt of which previous payment is hereby acknowledged by Immersion. The Development Fee will be payable based on a segmented development schedule with scheduled deliverables as described in Exhibit B ("Development Schedule"). 6.2 DEVELOPMENT MILESTONES. Immersion's development obligation under the terms of this Agreement as described in Exhibit B ("Development Schedule") shall be conducted on a first priority basis. The FEELit Mouse Product development schedule is described with particularity in Exhibit B ("Development Schedule") and the schedule is divided into milestones ("Milestones"), each of which require the delivery of one or more Deliverables on specific Deliverable due dates ("Deliverable Due Dates"). Upon completion of each Milestone associated with a Deliverable under Exhibit B ("Development Schedule") as amended in writing by the Parties from time to time, Immersion shall promptly deliver to Logitech the applicable Deliverable called for under such Milestone. Logitech agrees to promptly complete and deliver to Immersion Deliverables required to be completed and delivered by Logitech pursuant to the terms of Exhibit B ("Development Schedule"). 6.3 DELIVERY AND ACCEPTANCE OF DELIVERABLES BY LOGITECH. Upon completion of each Deliverable, Immersion shall deliver to Logitech such Deliverable, including documentation, if included as part of the Deliverable requirement, for evaluation by Logitech. Logitech shall review, test, and evaluate each Deliverable and where indicated in the Development Schedule, accept or reject each Deliverable in 8 *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. 9 accordance with Exhibit B ("Development Schedule") and make the associated payment, if any, for accepted Deliverables. Logitech shall provide Immersion with written acceptance of each Deliverable (for which acceptance is indicated as a requirement in the Development Schedule), or a written statement of Defects and/or Errors to be corrected within [****)] business days after such delivery unless a different acceptance time period for a Deliverable is described in Exhibit B ("Development Schedule") or as otherwise mutually agreed upon in a writing signed by the Parties. Immersion shall promptly correct such Defects and/or Errors and return the corrected Deliverables for retesting and reevaluation, and unless otherwise provided for in Exhibit B ("Development Schedule"), Logitech shall within [****] business days after such redelivery provide Immersion with written acceptance or a statement of Defects and/or Errors to be corrected. The foregoing procedure shall be repeated until Logitech accepts the Deliverable or finally rejects the Deliverable and either terminates the Agreement or the development project related to the unacceptable Deliverable pursuant to Section 12 ("Termination"). 6.4 PROGRAM MANAGERS. Immersion and Logitech shall each appoint a program manager ("Program Manager"). Each Party reserves the right to change such Program Manager, at any time, upon written notice to the other Party. Immersion's appointed Program Manager as of the Effective Date is [****]. Logitech's appointed Program Manager as of the Effective Date is [****]. 6.5 STATUS MEETINGS. The Parties shall notify each other of any anticipated problems and any indication of delay in fixed or tentative schedules. At least once each month, the Parties shall conference, as mutually agreed, for progress discussions describing in detail the status of the work performed and discussion of possible resolution of any problems which have arisen. 6.6 MODIFICATION OF SPECIFICATION. Logitech may modify the Specifications at any time during development after consulting with Immersion. If any such modification requires an increase in the time or cost to perform by Immersion, an equitable adjustment shall be negotiated and mutually agreed upon in writing by Immersion and Logitech. Such changes will be implemented only pursuant to a change order form in the form of Exhibit C ("Change Order Form"), signed by both Parties. Such changes will become effective and will be deemed incorporated into the Agreement as an amendment to the applicable exhibit or section of the Agreement. This procedure is used to control the technical configuration of the Deliverables, as well as to control and document costs and schedules. Logitech shall not be liable for any work performed by Immersion which differs from the then-current Specification and/or development schedule prior to such work being authorized in a signed Change Order Form. 9 *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. 10 6.7 OTHER DEVELOPMENT. Should Logitech desire to have Immersion design other [****] after the FEELit Mouse Product and/or Enhancements, the Parties will mutually agree in writing upon a supplemental development schedule substantially in the form of Exhibit B ("Development Schedule"), and reasonable associated development fees, and an accompanying Exhibit A ("Specifications") and shall amend this Agreement to incorporate such project. Except as provided in Section 7.4 ("New Technology"), all terms and conditions of this Agreement, and the Intellectual Property License Agreement including royalty rates set forth in the Intellectual Property License Agreement, Section 3 ("Royalties"), shall apply to any [****] developed under this Agreement unless otherwise mutually agreed in writing. 7. IMMERSION'S POST-DEVELOPMENT OBLIGATIONS 7.1 TECHNICAL SERVICE AND SUPPORT. Immersion shall provide Logitech with ongoing engineering and technical support up to at least [****] hours per week for the [****], as reasonably requested by Logitech. [****] In consideration of any such support, whether on a priority or as-available basis, Logitech shall pay Immersion at a reasonable time and materials rate. 7.1.1 EXCEPTION. Immersion shall promptly provide Error Corrections without charge for any Errors, including software Errors in any [****] including any firmware. 7.2 [****] 7.3 OEM REFERRAL. Should an OEM contact Immersion concerning manufacture of a [****] for the [****], Immersion agrees to direct such OEM to contact Logitech with respect to manufacturing such [****]. 10 *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. 11 The obligation of Immersion to direct OEMs to Logitech is independent of Logitech having [****] and is not required for such referrals. Logitech agrees that when contacted by any OEM referred by Immersion, Logitech will include Immersion Product Model Technology and/or technology covered by the Licensed Patents as defined in the Intellectual Property License Agreement in any initial proposals or designs for manufacturing a [****] for such OEM. If Logitech's proposal or design incorporating Immersion Product Model Technology and/or technology covered by the Licensed Patents as defined in the Intellectual Property License Agreement is accepted, Logitech agrees to make good faith efforts to utilize Immersion Product Model Technology and/or technology covered by the Licensed Patents as defined in the Intellectual Property License Agreement in the [****] manufactured for such OEM and to pay royalties therefor to Immersion in accordance with this Agreement. If the OEM in its own discretion elects to reject Logitech's proposal and/or design which incorporates Immersion Product Model Technology and/or technology covered by the Licensed Patents as defined in the Intellectual Property License Agreement, then (i) Immersion agrees and acknowledges that Logitech may manufacture a [****] for the OEM without incorporating Immersion Product Model Technology and/or technology covered by the Licensed Patents and (ii) Logitech agrees and acknowledges that Immersion may enter into an agreement with the OEM with respect to [****] in the [****]. 7.4 NEW TECHNOLOGY. [****], which royalty terms may or may not be as favorable as the royalty terms in the Intellectual Property License Agreement Section 3 ("Royalties"). [****]. 7.5 NOTICE OF IMMERSION MANUFACTURE. Immersion shall provide Logitech with [****] months' written notice prior to commencement by Immersion of distribution of a [****] for the 11 *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. 12 [****] to be manufactured by Immersion or manufactured by a third party on Immersion's behalf for distribution by Immersion under Immersion's name. Upon expiration of this notice period, Immersion may, but shall no longer be obligated to offer Logitech Enhancements in accordance with Section 7.2 ("[****]"), may but shall no longer be obligated to offer OEMs to Logitech in accordance with Section 7.3 ("OEM Referral"), and may but shall no longer be obligated to provide New Technology under Section 7.4 ("New Technology"). 7.6 LOGITECH PREEMPTION PROTECTION. Provided that Logitech is in compliance with its development obligations under the terms of this Agreement, which will be measured by Logitech making substantial progress toward meeting its milestones as indicated in Exhibit B ("Development Schedule"), [****] 7.7 ADVISEMENT PERIOD. [****] For purposes of this Agreement, the Advisement Period shall be a period which commences on the Effective Date of this Agreement and ends [****] after the Product Launch Commitment Date. 8. LOGITECH'S OBLIGATIONS 8.1 DEVELOPMENT. Logitech shall (i) work with Immersion to produce each set of Exhibit A ("Specifications") which shall include product features, performance and design criteria, power requirements, schematics, quality requirements, and the preliminary component summary; and Exhibit B ("Development Schedule"), including technical assistance in the development thereof; (ii) review, test and evaluate the Immersion Deliverables for conformance with the applicable Specification, and (iii) deliver the Logitech Deliverables to Immersion for use in 12 *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. 13 development in accordance with Exhibit B ("Development Schedule"). Immersion agrees not to disclose or copy for any purpose Logitech's Specifications and Deliverables without the express written consent of Logitech or in fulfillment of Immersion's obligations under this Agreement. 8.2 PREFERRED CUSTOMER STATUS. 8.2.1 REQUIREMENTS. Logitech shall have [****] during the first [****] quarter period (the "Initial Period") following the Product Launch. If the Product Launch falls within the first half of a Quarter, such Quarter will be counted as the first such Quarter. If the Product Launch falls in the second half of a Quarter, the next Quarter will be counted as the first such Quarter. Thereafter, except as provided in Section 7.5 ("Notice of Immersion Manufacture"), for so long as (i) Logitech continues to timely pay royalties to Immersion according to the Intellectual Property License Agreement Section 3 ("Royalties") in an amount equal to at least [****] ("Minimum Annual Revenue Requirement") per [****] Quarter period (a "Revenue Period") beginning at the expiration of the Initial Period, payable on a quarterly basis as set forth in Section 8.2.2 ("Minimum Annual Revenue Requirement"); and (ii) Logitech is not distributing (directly or through OEMs) any force-feedback [****] which is not a Royalty Bearing Product, Immersion agrees to grant Logitech "preferred customer status." Notwithstanding the foregoing, Logitech may, by written notice given at least [****] days prior to the first day of any given Revenue Period terminate the [****] for the upcoming Revenue Period. Upon termination of [****] as described herein all of the obligations of Immersion and Logitech, and any provisions in this Agreement, which are contingent upon [****] shall be null and void and of no further force or effect upon expiration of the then current four Quarter period. If Logitech does not send a termination notice as permitted herein, the [****] will continue for the duration of the upcoming Revenue Period, except as otherwise provided herein. If Immersion does not receive a termination notice from Logitech as provided herein, Immersion will send a notice to Logitech, confirming that no termination notice has been received, within [****] days after the subject Revenue Period commences; however a failure by Immersion to send such notice will not be a material breach and will in no way change Logitech's "preferred customer status." 13 *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. 14 8.2.2 MINIMUM ANNUAL REVENUE REQUIREMENT. Each Minimum Annual Revenue Requirement shall consist of [****] payments of [****] each. Each quarterly payment shall be referred to as a "Quarterly Payment". Each such Quarterly Payment shall be due on the last day of each Quarter ("Preferred Status Quarter") and is payable within [****] days after the end of each Preferred Status Quarter. Royalties accrued in each Preferred Status Quarter as provided in the Intellectual Property License Agreement Section 3 ("Royalties") shall be credited toward the Quarterly Payments due for such Preferred Status Quarter. If the actual royalties due for the Preferred Status Quarter are less than the Quarterly Payment due, Logitech will submit the actual royalty payment and Logitech will pay the difference between the Quarterly Payment due and the actual royalties due for the Preferred Status Quarter. If the actual royalties due for the Preferred Status Quarter are greater than the Quarterly Payment due, such excess amount shall be credited toward future Quarterly Payments within the same Revenue Period. Actual royalties paid in excess of the Minimum Annual Revenue Requirement for a given Revenue Period will not be applied as a credit toward Quarterly Payments due for Preferred Status Quarters in a later Revenue Period. Should Logitech not timely pay any required Quarterly Payment and fail to make such payment within ten (10) days of receiving written notice from Immersion and unless otherwise agreed to in writing by the Parties, preferred customer status benefits as described in Sections 7.1 ("Technical Services and Support"), 7.2 ("Enhancement by Immersion") and 7.4 ("New Technology") shall no longer be in force or effect, effective as of the date on which such Quarterly Payment was due. 8.2.3 TERMINATION OF PREFERRED CUSTOMER STATUS. [****] Upon expiration of such notice period, (i) Logitech shall no longer be obligated to pay the Quarterly Payments starting on the date the next Quarterly Payment would have come due after the expiration of the [****] notice, however, Logitech will submit a pro rata Quarterly Payment for the portion of the Quarter in which the [****] was in effect prior to the expiration date of the [****] notice which shall be applied in accordance with Section 8.2.2 ("Minimum Annual Revenue Requirement") and (ii) all of the obligations of Immersion and Logitech, and any provisions in this Agreement which are contingent upon 14 *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. 15 [****] shall be null and void and of no further force or effect upon expiration of the notice period. 8.3 DEVELOPER UNITS. Subject to the timely completion of Immersion's development obligations under the terms of this Agreement, Logitech agrees to produce [****] FEELit Mouse units (PVT) at least [****] prior to the Product Launch. Immersion shall be responsible for providing such units to software developers in a timely manner. 8.4 PRODUCT LAUNCH COMMITMENT. Logitech agrees to use reasonable efforts to launch the FEELit Mouse Product with a "Product Availability Date" or "PAD" on or before [****] (such date (and not the actual shipment date) shall be referred to as the "Product Launch Commitment Date"). Immersion recognizes that the actual shipment date may be adjusted to a later date due to unforeseen events, manufacturing issues, and/or sourcing issues and that Logitech, by way of this provision, is merely confirming Logitech's commitment of the resources and priority level to make Product Launch by [****] a strong possibility. The parties have designated a date in the milestone schedule in Exhibit B ("Milestone Schedule") as the "Design Freeze" date, after which Immersion shall not be responsible for schedule delays resulting from subsequent Logitech changes to the design specification of the FEELit Mouse. Immersion acknowledges that Immersion may be responsible for several time sensitive and critical steps in a given milestone schedule which will need to be completed prior to the Design Freeze date. The parties agree that the Product Launch Commitment Date of [****] is dependent upon this Design Freeze date identified in the milestone schedule in Exhibit B ("Milestone Schedule") being met. Therefore, the parties agree that for each day that the Design Freeze is adjusted to a later date substantially due to Immersion's failure to complete milestones which are substantially Immersion's responsibility to complete and substantially within Immersion's control and upon which the Design Freeze date is dependent, the Product Launch Commitment Date will be moved back one day not including weekends. 8.5 OEM SOLE SOURCE INITIATIVE. The parties intend to negotiate in good faith to sign an OEM Purchase Agreement under which, for the first [****] of such agreement, Logitech agrees to purchase all of its peripheral device components requirements which can be met by certain FEELit Mouse Controller Chip and Custom Actuator Core components as defined in the OEM Purchase Agreement. 15 *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. 16 9. FINANCIAL TERMS 9.1 DEVELOPMENT FEES. Development of the FEELit Mouse Product will be funded in accordance with the terms of Section 6.1 ("Funding") and any subsequent development will be funded as provided under the terms of Section 6.7 ("Other Development"). 9.2 NEW TECHNOLOGY ROYALTIES. New Technology will be provided under royalties which are subject to the terms of Section 7.4 ("New Technology") and which are mutually agreed upon in writing by Immersion and Logitech. 10. OWNERSHIP OF TECHNOLOGY 10.1 IMMERSION TECHNOLOGY. Immersion shall retain ownership of all Immersion Technology (and Immersion Product Model Technology). 10.2 LOGITECH TECHNOLOGY. Logitech shall retain ownership of all Logitech Technology (and Logitech Product Model Technology). 10.3 JOINT TECHNOLOGY. All Joint Technology shall be jointly owned by Immersion and Logitech. Exploitation of and subsequent development of Joint Technology, including commercial development and/or licensing, will be by each Party without financial accounting to, or the consent of, the other Party. Each Party agrees to assist the other Party in any reasonable manner to obtain and enforce intellectual property rights with respect to the Joint Technology for the requesting Party's benefit in any and all countries, and each Party agrees to execute, when requested, applications and assignments to the requesting Party and any other lawful documents deemed necessary by the requesting Party to carry out the ownership provisions of this Agreement. If called upon to render assistance under this Section 10.3 ("Joint Technology"), a Party will be entitled to a fair and reasonable fee, in addition to reimbursement of expenses incurred, at the prior written request of the other Party. 10.4 JOINT TECHNOLOGY COPYRIGHTS. Each Party agrees to execute, upon written request of the other Party, a signed transfer of an undivided one-half interest in any Joint Technology copyright to the other Party (so that the Parties are joint owners of the copyright). 10.5 JOINT TECHNOLOGY INVENTIONS. Immersion and Logitech will determine whether any Joint Technology inventions were conceived or first actually or constructively reduced to practice within the scope of development of the FEELit Mouse Product, or any [****] and/or any Enhancements during the term of the Agreement, and the Parties will discuss the circumstances of the invention. The Parties will discuss whether a patent 16 *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. 17 application should be filed for a particular Joint Technology invention or, in the alternative, the Joint Technology invention should be kept as a trade secret by the Parties. If the Parties mutually agree to file a patent for a particular Joint Technology invention, the Parties will discuss the patent filing details, including but not limited to which Party shall file and prosecute the U.S. and any foreign patent applications. The cost of such filing and prosecution shall be evenly distributed between the Parties. If the Parties cannot mutually agree to file for a patent for a particular Joint Technology invention, such Joint Invention shall be treated as a trade secret by both Parties provided, however, such treatment shall not prevent either party from shipping a product based upon such trade secret. In any case where the Parties mutually agree to file for a patent, the application shall include all inventors and the Parties shall jointly own the patent. Should both Parties agree not to file for a patent such Joint Invention shall be treated as a trade secret by both Parties, provided, however, such treatment shall not prevent either party from shipping a product based upon such trade secret. Assignment of patent(s) issuing from application(s) for Joint Technology inventions shall be made jointly to Immersion and Logitech. 10.6 SURVIVAL OF JOINT TECHNOLOGY OBLIGATIONS. The obligations set forth in this Section 10 ("Ownership of Technology") shall survive the expiration or termination of this Agreement. 11. LOGITECH DEVELOPMENT LICENSE TO IMMERSION Logitech grants Immersion a non-exclusive license to use the Logitech Technology under Logitech's intellectual property rights, provided to Immersion hereunder for purposes of performing Immersion's development obligations under any development schedule attached to this Agreement, to have and distribute internally Logitech Technology and to modify or copy the materials exclusively for the purpose of performing the development activities required under this Agreement. Immersion's intellectual property license to Logitech with respect to all Deliverables delivered hereunder and all development performed under the terms of this Agreement, with the exception of Joint Technology is described and subject to the terms and conditions of the Intellectual Property License Agreement. 12. TERMINATION 12.1 TERMINATION BY LOGITECH WITHOUT CAUSE. Logitech may terminate this Agreement and/or any development project without cause upon [****] written notice. 12.2 TERMINATION FOR CAUSE. Immersion may terminate this Agreement and/or any development project by written notice if Logitech materially breaches Section 16 *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. 17 18 ("Confidentiality") or if Logitech fails to make development payments as provided in this Agreement and any Exhibit B ("Development Schedule"). Immersion's termination shall become effective upon [****] written notice of breach, provided Logitech fails to cure its breach within the notice period. Logitech may terminate this Agreement upon [****] written notice if Immersion materially breaches this Agreement and fails to cure its breach during the notice period. 12.3 EFFECT OF TERMINATION. If either Party terminates this Agreement and/or a development project hereunder, both Parties will stop all work in progress and minimize all related costs (e.g. pending materials orders). If a Party independently elects to proceed with its work in progress it shall be solely responsible for related costs. If Logitech requests that Immersion complete work in progress, Logitech shall be responsible for related costs according to the applicable Exhibit B ("Development Schedule"). If Immersion terminates the Agreement as provided in Section 12.2 ("Termination for Cause"), or Logitech terminates the Agreement or an Exhibit B ("Development Schedule") without cause Logitech shall pay Immersion for Deliverables due and delivered up to the effective date of termination and Logitech shall also pay for development fees then owing under this Agreement based upon a pro rata portion of the number of calendar days elapsed since completion of the last Deliverable for which payment was due and the number of the days between such Deliverable and the next sequent Deliverable for work done for such deliverable. If Logitech terminates this Agreement or an Exhibit B ("Development Schedule") for cause, no further payments shall be due under this Agreement except for Deliverables accepted up to the date of termination. In no event, however, will either Party's liability under this Agreement for any development project of a [****] exceed the amounts set forth in the applicable Exhibit B ("Development Schedule"). NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY SORT AS A RESULT OF TERMINATING THIS AGREEMENT IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT. 12.4 THIRD PARTY ACQUISITION OF IMMERSION. 12.4.1 SPECIAL HANDLING PROVISIONS. In the case of a merger or acquisition where Immersion is not the surviving entity or in the case of a sale of assets by Immersion in accordance with the terms of Section 18.2 ("Succession and Assignment"), Immersion is not required to obtain Logitech's prior approval to assign this Agreement, however, Immersion will provide Logitech with written notice as soon as possible, consistent with and subject to Immersion's obligations of confidentiality with respect to such merger, acquisition or sale of assets transaction. Immersion *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 18 19 recognizes that Logitech may have concerns with respect to the assignee of this Agreement ("Assignee") if such Assignee is viewed by Logitech to be a competitor, however, notwithstanding competitive concerns, Logitech may not desire to terminate this Agreement. Immersion therefore agrees to permit Logitech to be able to require that the following "special handling" provisions described in this Section 12.4 ("Third Party Acquisition of Immersion") be implemented if so requested by Logitech, in writing. 12.4.2 CONFIDENTIAL INFORMATION SPECIAL HANDLING. If Logitech desires to prevent the Assignee from accessing Logitech's confidential information after assignment of this Agreement because such Assignee is viewed by Logitech as a competitor, Logitech may so notify Immersion in writing and Immersion will implement special procedures to keep the Logitech confidential information separate from the Assignee's information and will limit disclosure of the Logitech confidential information to those employees who had previously had access prior to the assignment of the Agreement. In such case, the Logitech confidential information will be stored and used in a separate area in order to limit access to only those former Immersion employees who are authorized to work with such Logitech confidential information. If invoked, such special procedures will be observed for at least [****] from the date of notice by Logitech so as to give Logitech time to assess the situation, however, Logitech must cancel the special procedures or terminate this Agreement in accordance with Section 12.1 ("Termination by Logitech Without Cause"), effective one year from the date of the written notice which invoked the special procedures unless the Assignee, in its sole discretion, agrees in writing to continue the special procedures, for the mutual benefit of the Parties. Upon Logitech's request Immersion shall return any and all copies of Logitech's confidential information or, at Logitech's option, Immersion shall destroy such copies and notify Logitech in writing when such copies have been destroyed, however if Logitech requests such return or destruction, immersion shall be released from all obligations under this Agreement which Immersion is unable to perform without access to such confidential information, if any. 12.4.3 TERMINATION OF OBLIGATIONS. After receipt by Logitech of notice from Immersion as described in Section 12.4.1 ("Special Handling Provisions"), Immersion may but shall no longer be obligated to refer OEMs to Logitech in accordance with Section 7.3 ("OEM Referral") and (iii) provide New Technology under Section 7.4 ("New Technology"). For [****] after receipt of such notice, Immersion shall continue to *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. 19 20 provide to End User in accordance with Section 7.2 ("[****]") on a reasonable (versus priority) commercial basis. 13. [****] ESCROW. Logitech may request Immersion to deposit [****] materials and if so, then Immersion shall promptly provide to a mutually agreeable escrow agent, under the terms of a mutually agreeable escrow agreement, all [****] [****], drawings, specifications, and other information necessary for Logitech to continue development or support of each Final Prototype or Deliverable described in the applicable Exhibit B ("Development Schedule") ("[****] Materials"), which is being developed under Exhibit B ("Development Schedule"). Immersion shall promptly deposit any future updates or revisions with the escrow agent. Under the terms of the escrow agreement, the escrow agent shall be instructed to deliver such [****] Materials to Logitech upon a certification from Logitech that Immersion has become bankrupt and is unable to perform any of its material software development obligations relating to software, including firmware, pursuant to Exhibit B ("Development Schedule") prior to completion of the Final Prototype of any [****] and acceptance by Logitech pursuant to the terms of this Agreement and/or fails to perform any of its material software development obligations relating to software, including firmware, pursuant to Exhibit B ("Development Schedule") prior to completion of the Final Prototype of any [****] and acceptance by Logitech pursuant to the terms of this Agreement or Logitech terminates the Agreement for cause based on Immersion's failure to perform any of its material software development obligations relating to software, including firmware, pursuant to Exhibit B ("Development Schedule") prior to completion of the Final Prototype of any [****] and acceptance by Logitech pursuant to the terms of this Agreement. If Logitech elects to disclose [****] materials (other than firmware [****] designated by Immersion as "Authorized For Modification" pursuant to Section 2.2.1 of the Intellectual Property License Agreement) to any Affiliate and prior to any disclosure, Logitech shall enter into a written agreement with such Affiliate and such written agreement shall contain terms similar to subsections (i)-(v) below. Logitech will not disclose [****] material (other than firmware [****] designated by Immersion as "Authorized For Modification" pursuant to Section 2.2.1 of the Intellectual Property License Agreement) to any third parties without Immersion's prior written consent. Such disclosures, if any, shall be upon terms similar to subsections (i)-(v) below. The escrow agreement will include the following minimum terms and conditions, which shall not be applicable to the firmware [****] that is designated by Immersion as "Authorized For Modification" pursuant to Section 2.2.1 of the Intellectual Property License Agreement, use of which is governed by the Intellectual Property License Agreement: (i) Immersion will grant Logitech the right to use the [****] Materials solely for the purpose of maintaining object code versions of the [****] *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. 20 21 portion of the Immersion Product Model Technology in the [****] or to continue development or support of the [****]. (ii) Logitech will acknowledge and agree that use of the [****] Materials is furnished to Logitech on a confidential and secret basis for the sole and exclusive use of Logitech, and not for copying, distribution, sale, sublicense or disclosure to third parties except as provided under the Intellectual Property License Agreement signed by the Parties. In the event that Logitech obtains the [****] Materials pursuant to the terms of the escrow agreement, Logitech will agree that it will not publish, disclose or otherwise divulge the Immersion [****] to any person, except officers, employees and independent contractors of Logitech who have entered into non-disclosure agreements and need access to the Immersion [****] Materials to perform their duties. Logitech may make [****] machine-readable copy of the Immersion [****] Materials solely for backup and archival purposes. Logitech agrees to reproduce and include all copyright and other proprietary notices appearing in or on any and all Immersion [****] Materials provided to Logitech by the escrow agent on any copy made by Logitech. (iii) Logitech will agree to take all necessary steps to prevent unauthorized disclosure of the Immersion [****] Materials, including but not limited to the following: (a) The building in which Logitech uses the Immersion [****] Materials shall have restricted access [****] a day; (b) The Immersion [****] Materials shall be used only in a location within such building to which access is further restricted to persons authorized to use the Immersion [****]; (c) Logitech shall prevent telephone or other remote access to the Immersion [****] Materials from other locations; and (d) The Immersion [****] Materials shall be installed only on a single computer system which is password protected, and all Immersion [****] Materials files will be password protected. (iv) Logitech shall be liable to Immersion or its successor company for all direct and indirect, consequential, special and incidental damages resulting from any unauthorized disclosure by Logitech of the Immersion [****]. To the extent, if any this Section 13 ("[****] Escrow") is inconsistent or conflicts with any provision of this Agreement, this Section 13 ("[****] Escrow") shall be controlling. *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. 21 22 (v) The obligations of this Section 13 ("[****] Escrow") shall survive any termination or expiration of the escrow agreement. 14. LOGITECH WARRANTY. Logitech represents and warrants that it will not knowingly provide to Immersion any data, specifications, designs or similar information that infringe upon or violate any intellectual property rights of a third party. 15. TRADEMARK INFRINGEMENT INDEMNIFICATION BY IMMERSION Subject to prompt notification by Logitech, cooperation by Logitech and control of all litigation and/or settlement by Immersion, Immersion shall indemnify, defend and hold Logitech harmless from and against any and all claims, damages, liabilities, judgments, settlements, costs and expenses (including reasonable attorneys' fees) suffered or incurred by Logitech arising out of a claim of infringement of any Immersion trademark, service mark, or trade name resulting from the labeling requirement of Intellectual Property License Agreement Section 2.5 ("Label Requirements"). In the case of an infringement or alleged infringement of any such Immersion trademark, service mark, or trade name, Immersion will have the right to require Logitech to stop using such trademark, service mark, or trade name and will provide a new trademark to be used in connection with the Immersion Product Model Technology. 16. CONFIDENTIALITY. 16.1 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, 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 *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. 22 23 Discloser's request a 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. 16.2 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. 17. LIMITATION OF LIABILITY. 17.1 EXCEPT AS PROVIDED IN SECTION 13 ("[****] ESCROW"), IN NO EVENT WILL LOGITECH OR IMMERSION 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 LOGITECH AND IMMERSION HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. 17.2 EXCEPT WITH RESPECT TO THE PARTIES' OBLIGATIONS SET FORTH IN SECTION 13 ("[****] ESCROW") AND WITH RESPECT TO ANY QUARTERLY PAYMENTS DUE AND PAYABLE BY LOGITECH HEREUNDER, IN NO CASE WILL EITHER PARTY'S TOTAL CUMULATIVE LIABILITY OR OBLIGATIONS UNDER THE TERMS OF OR ARISING OUT OF THIS AGREEMENT EXCEED [****] 18. GENERAL PROVISIONS 18.1 ENTIRE AGREEMENT. This Agreement and its exhibits, together with the Intellectual Property License Agreement, constitutes the complete agreement of the parties and supersedes any other agreements, written or oral (including all correspondence, emails, such as but not limited to the letter regarding [****] concerning the subject matter hereof and such materials do not have any effect upon the rights and obligations of the Parties under this Agreement. This Agreement and the Intellectual Property License Agreement in no way supersede or affect the Intellectual Property License Agreement between Immersion and Logitech dated [****] and/or the *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. 23 24 Technology Product Development Agreement between Immersion and Logitech dated [****]. 18.2 SUCCESSION AND ASSIGNMENT. Either party may assign this Agreement provided that the other party has consented in writing to the assignment or delegation and provided, further, that the rights and obligations of the parties 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 18.2 ("Succession and Assignment") shall be void. 18.3 NOTICES. Notices required under this Agreement shall be addressed as follows, except as otherwise revised by written notice: TO IMMERSION: TO LOGITECH: Louis B. Rosenberg, Ph.D. General Counsel President Logitech, Inc. Immersion Corporation 6505 Kaiser Drive 2158 Paragon Drive Fremont, CA 94555-3615 San Jose, CA 95131 18.4 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. 18.5 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. 18.6 NO RECRUITMENT. During the term of this Agreement and for one (1) year after the termination or expiration of this Agreement, each Party agrees not to recruit any employee of the other Party. 18.7 MULTIPLE COUNTERPARTS. This Agreement may be executed in several counterparts, all of which taken together shall constitute one single Agreement between the parties. 18.8 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 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 * 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. 24 25 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. 18.9 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. 18.10 AMENDMENTS IN WRITING. Any amendment to this Agreement shall be in writing and signed by both parties hereto. 18.11 INTERPRETATION. Since this Agreement was prepared by both parties hereto, it shall not be construed against any one party as the drafting party. 18.12 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 legations of confidentially, 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 Circuit. 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. 18.13 SURVIVAL. Sections 6.1 ("Funding"), 6.1.1 ("FEELit Mouse Product Funding"), 10 ("Ownership of Technology"), 12.3 ("Effect of Termination"), 12.4 ("Third Party Acquisition of Immersion"), 13 ("[****] Escrow"), 14 ("Logitech Warranty"), 15 ("Trademark Infringement Indemnification by Immersion"), 16 ("Confidentiality"), 17 ("Limitation of Liability") and 18 ("General Provisions") will continue after the expiration or termination of this Agreement. *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. 25 26 18.14 FORCE MAJEURE. With the exception of the obligation to pay monies due and owing, each Party hereto shall be excused from performance hereunder for any period and to the extent that it is prevented from performing any services pursuant hereto, in whole or in part, as a result of delays caused by the other Party or an act of God, war, civil disturbance, court order, governmental action, laws, orders, regulations, directions or requests, or as a result of events such as acts of public enemies, earthquakes, fires, floods, strikes or other labor disturbances of the other Party or any third party, or other cause beyond its reasonable control and which it could not have prevented by reasonable precautions, and such nonperformance shall not be a default hereunder or a ground for termination hereof. IN WITNESS WHEREOF, the authorized representatives of the parties hereto have signed this Agreement as of the date and year last set forth below. LOGITECH: IMMERSION: LOGITECH, INC. IMMERSION CORPORATION By: /s/ W.H. Hausen By: /s/ Louis Rosenberg ------------------------------ ------------------------- Name: W.H. Hausen Name: Louis Rosenberg ------------------------------ ------------------------- Title: SVP/GM Title: President ------------------------------ ------------------------- Date: 4/13/98 Date: April 13, 1998 ------------------------------ ------------------------- 26 27 EXHIBIT A [****] *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. 27 28 EXHIBIT B MILESTONE SCHEDULE [INTENTIONALLY LEFT BLANK] 28 29 EXHIBIT C Change Order Form Date: Change Control Form No.: Description of Change: Reason for Change: Man Hours: Impact on Schedule: Affect on Cost: Accepted by Logitech: Accepted by Immersion: LOGITECH, INC. IMMERSION CORPORATION By: By: ---------------------------- ------------------------ Name: Name: ---------------------------- ------------------------ Title: Title: ---------------------------- ------------------------ Date: Date: ---------------------------- ------------------------ 29 30 EXHIBIT D Software License Agreement SOFTWARE LICENSE AGREEMENT. LOGITECH IS WILLING TO LICENSE THE ENCLOSED SOFTWARE TO YOU ONLY ON THE CONDITION THAT YOU ACCEPT ALL OF THE TERMS CONTAINED IN THIS LICENSE AGREEMENT. This is a legal agreement between (either an individual end-user or an entity) and Logitech. By opening the software package, you are agreeing to be bound by the terms and conditions of the Agreement. If you do not agree to the terms of this Agreement, promptly return the software package and other items that are part of this product in their original package with your payment receipt to your point of purchase for a full refund. GRANT OF LICENSE. Logitech and its suppliers grant you a nonexclusive license to use one copy of the enclosed software program ("Software") on one computer only with the Logitech product you have purchased. No other rights are granted. The Software is in use if it is loaded on the computer's permanent or temporary memory. For backup purposes only, you may make one copy of the Software. You must include on the backup copy all copyright and other notices included on the Software as supplied by Logitech. Installation on a network server for the sole purpose of your internal distribution of the Software is permitted only if you have purchased an individual Software package for each networked computer to which the Software is distributed. RESTRICTIONS. Logitech and its suppliers retain ownership of the Software. You shall not decompile, disassemble, reverse-engineer, or modify the Software in any way. You may not transmit the Software over a network (except as expressly permitted by above), by telephone, or electronically using any means. You may not transfer the software except upon a permanent transfer of the enclosed Logitech product provided that all software updates are included in the transfer, you do not retain a copy of the Software, and the transferee agrees to be bound by the terms and conditions in the license. Upon any violation of the provisions of this Agreement, rights to use the Software shall automatically terminate and the Software must be returned to Logitech or all copies of the Software destroyed. 30 31 EXHIBIT E Immersion Packaging Labeling Specification Logitech must place or have placed the following notice or other similar mark, at Immersion's request, on the underside (exterior) of those products which incorporate Licensed Technology as well as on the packaging and manuals for such products: "FEELit(TM) Force Feedback Technology Licensed from Immersion Corporation". Logitech must also place or have placed the following FEELit Mouse logo (or future derivative of the mark as reasonably approved by Logitech) at Immersion's request, prominently on retail packaging and manuals such that the logo is clearly legible and occupies a rectangular area of no less than 0.70 inches by 0.825 inches. The mark must be displayed on at least two surfaces of the retail packaging, including the front surface and specifically not including the bottom surface. [FEELIT LOGO] --------------------- .70" --------------------- .825" 31 -----END PRIVACY-ENHANCED MESSAGE-----