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)



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                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.

        1.4     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 December 31,
                1999 (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 December 31, 1999 (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



                                      -2-   MICROSOFT AND IMMERSION CONFIDENTIAL
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                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")

        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 March 1, 1999 (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 October 31,
                1999, 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 October 31, 2000 (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 October 31, 2000 (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



                                      -3-   MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   4

                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 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,
                notwithstanding that, for example, one or more of the ancillary
                buttons, knobs or sliders in the current version may be changed
                to a different mechanical form in the replacement product, and
                notwithstanding the addition of a mechanism whereby one or more
                additional peripherals could be added or attached to the
                replacement version by the end-user as a plug-in (whether or not
                the device is shipped with such additional peripherals actually
                plugged-in), provided that any such additional peripherals would
                not include FF capabilities, and notwithstanding that the drive
                mechanism has been changed in the replacement version.



                                      -4-   MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   5

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-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



                                      -5-   MICROSOFT AND IMMERSION CONFIDENTIAL
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                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 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 50% 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



                                      -6-   MICROSOFT AND IMMERSION CONFIDENTIAL
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                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 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 May 1, 1999), and to
                        manufacture, sell, import and use successor versions of
                        such gaming software products.



                                      -7-   MICROSOFT AND IMMERSION CONFIDENTIAL
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                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 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).



                                      -8-   MICROSOFT AND IMMERSION CONFIDENTIAL
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        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 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) April 30, 2002; or (b) the final date on
                        which Microsoft or any Subsidiary or sublicensee of
                        Microsoft exercises any right pursuant to Sections 2.1
                        or 2.2 above;

                3.3.2   With respect to all other FF hardware products, on
                        December 31, 2000.

        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)



                                      -9-   MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   10

                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 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 Two Million Three
                Hundred Fifty Thousand Dollars ($2,350,000) 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



                                      -10-  MICROSOFT AND IMMERSION CONFIDENTIAL
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                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 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     MOST FAVORED ROYALTIES AND TERMS ON FUTURE PRODUCT LICENSES: As
                further consideration for entering into this Agreement,
                Immersion agrees as follows:

                5.2.1   In any future non-exclusive patent license agreement
                        entered into between the Parties after the Effective
                        Date for FF hardware devices other than the Microsoft
                        Products ("New Agreement"), Microsoft shall, subject to
                        the limitations imposed in Sections 5.2.2 and 5.2.5
                        below, be entitled to the most favorable running royalty
                        rate and/or lump-sum payment term granted by Immersion
                        (either before or after the date of the New Agreement)
                        for a non-exclusive license covering, at least,
                        comparable products (e.g., a joystick is comparable to a
                        joystick, a wheel is comparable to a wheel, a
                        laparoscopic surgical simulator is comparable to a
                        laparoscopic surgical simulator) in a similar
                        field-of-use. The consumer, arcade and industrial
                        markets are examples of fields of use. Such other
                        license agreement shall hereinafter be referred to as
                        the "Other Immersion Agreement."


                5.2.2   In order to qualify for royalty terms contained in an
                        Other Immersion Agreement and at its option, Microsoft
                        shall (a) agree to each of the basic license provisions
                        as set forth in Sections 2.3, 6.1, 6.2, 7.1, 7.2, and
                        8.1 of this Agreement; and (b) with respect to all other
                        material terms of such Other Immersion Agreement, either
                        (i) match all material terms of such Other Immersion
                        Agreement, or (ii) with respect to any material terms of
                        such Other Immersion Agreement



                                      -11-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   12

                it cannot or will not match (except for sales volume over time
                requirements, which must be matched), negotiate a reasonable
                economic equivalent to such non-matched terms, or if such an
                agreement cannot be reached by the Parties, expeditiously submit
                such issue to binding arbitration before a single arbitrator
                acceptable to both Immersion and Microsoft.

                5.2.3   Microsoft shall have the right from time to time, at its
                        own expense, to have reasonable audits of Immersion's
                        license agreements performed by an independent auditor,
                        who shall be under an obligation to preserve the
                        confidentiality of those agreements. In the event such
                        an audit reveals Immersion patent license grants
                        covering comparable products in a similar field of use
                        as the grants included in the proposed New Agreement or
                        New Agreements, and which have a lower running royalty
                        rate or lump-sum payment term than the proposed New
                        Agreement or New Agreements, the terms of such license
                        agreements (but not the identity of Immersion's
                        licensee) shall be disclosed to Microsoft pursuant to
                        the terms of a mutually-acceptable confidentiality
                        agreement.

                5.2.4   In no event shall the most favorable running royalty
                        rate used in Section 5.2.1 above exceed [****] of net
                        receipts, so long as the FF hardware device covered by
                        the New Agreement is a computer peripheral intended for
                        consumer markets. In determining the net receipts to
                        which this Section shall apply, Microsoft shall be
                        entitled to the most favorable definition contained in
                        an Other Immersion Agreement whose royalty rate is
                        [****] or less. Where Microsoft bundles unlicensed (and
                        non-infringing with respect to the Immersion FF Patent
                        Portfolio) hardware or software products with the
                        licensed FF product, the maximum royalty ("Max Royalty")
                        on the licensed product shall be [****]

                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


* 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
<PAGE>   13

                        patents until after the parties have failed, despite
                        their good faith 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.



                                      -13-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   14

        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 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



                                      -14-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   15

                        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 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.



                                      -15-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   16

        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 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 fifty (50) hours 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.



                                      -16-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   17

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 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




                                      -17-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   18

                   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.

        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:



                                      -18-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   19

                (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 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



                                      -19-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   20

                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 (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").

        9.13    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.

        9.14    INDEPENDENT CONTRACTOR: Each party shall at all times act as an
                independent entity, and shall be solely responsible for any and
                all social



                                      -20-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   21

                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.

        9.15    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.

        9.16    GOVERNING LAW: The interpretation, construction, and performance
                of this Agreement shall be governed by the laws of the State of
                Washington.

        9.17    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.

        9.18    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.


        9.19    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;



                                      -21-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   22

                (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.

        9.20    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.

        9.21    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 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.

        9.22    COUNTERPARTS: This Agreement may be executed in counterparts,
                which when taken together shall constitute a single, binding
                agreement between the parties.



                                      -22-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   23

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
       ---------------------------                  ---------------------------



                                      -23-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   24

                                    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




                                      -24-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   25


                                                           
                                             3/21/98                 Method and Apparatus for

           5,731,804                                                   Providing High Noise
                                                                   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




                                      -25-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   26


                                                            
                                              3/9/99                 Three-Dimensional Cursor
           5,880,714                                               Control Interface With Force
                                                                             Feedback

           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




                                      -26-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   27

                                    Exhibit B

                          Microsoft FF Patent Portfolio

US Patent No. 5,643,087, issued 07/01/97 and entitled "Input Device Including
Digital Force Feedback Apparatus."

US Patent No. 5,709,219, issued 01/20/98 and entitled "Method and Apparatus to
Create a Complex Tactile Sensation."

US Patent No. 5,742,278, issued 04/21/98 and entitled "Force Feedback Joystick
with Digital Signal Processor Controlled by Host Processor."



                                      -27-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   28

                                    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)



                                      -28-  MICROSOFT AND IMMERSION CONFIDENTIAL
<PAGE>   29

                                    Exhibit D
                           Released Immersion Products

Impulse Engine 1000 (CIE-1000)
Impulse Engine 2000 (CIE-2000)
Impulse Engine 3000 (CIE-3000)
Impulse Engine 2000 w/passive actuators (CIE-2000B)
Impulse Stick-Impulse Engine based (CIS-SYS)
Impulse Stick I-Force based (CIS-SYS-IF)
Laparoscopic Impulse Engine (CIE-LAPARO)
Virtual Laparoscopic Interface
Catheter Insertion Simulator
Bronchoscope Simulator
Hysteroscope Simulator
Ureteroscope Simulator
Endoscope Simulator
Sinus Surgery Simulator
Needle Insertion Simulator- single axis, active
Needle Insertion Simulator- three axis, passive
Needle Insertion Simulator- three axis, active, virtual pivot point
Knob Controller Knob Controller with hat switch and push button
Video Editing Knob Controller
I-Force 1.5 Arcade System (IPCB-6030)
I-Force 2.0 Arcade System (Axis)(COEM-6050)
I-Force 2.0 Arcade System (930) (IPCB-6031)
Impulse Engine - 2 axis (COEM-6012-IE)
Impulse Engine - 3 axis (IPCB-6035)
Impulse Engine Two Axis ISA (CIE-6010)
Impulse Engine ISA 2.1 (CIE-6015)
Impulse Engine 3GM (CIE-3GM)
Impulse Engine PCI (CIE-6017)
Axis I Release System (TPG-001)
Axis II Release System (TPG-010)
Axis II Release System (TPF-001)
Picker PinPoint (CPP-ASSY)
Yoke with I-Force 1.5 (DisneyQuest)
Xulu Impulse Stick PER-Force Controller (Cybernet)
Stylin' 3D (Cybernet)
SpacePen (Cybernet)
FingerForcer (Cybernet)
Locomotion Simulator (Cybernet)
CyberImpact Stick (Cybernet)
CyberImpact Wheel (Cybernet)
CyberImpact Yoke (Cybernet)



                                      -29-  MICROSOFT AND IMMERSION CONFIDENTIAL

Source: OneCLE Business Contracts.