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exv10w37

 

EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

AGREEMENT

     This Agreement is entered into and made effective as of the Effective Date (as defined below)
by and between, on the one hand, Sony Computer Entertainment America Inc. (“SCEA,” a
Delaware corporation) and Sony Computer Entertainment Inc. (“SCEI,” a Japanese
corporation), and on the other hand, Immersion Corporation (“Immersion,” a Delaware
corporation). Each of the foregoing entities shall be referred to herein as a “Party.”

Recitals

     A. SCEA, SCEI, and Immersion were parties to a lawsuit, Immersion Corporation v. Sony Computer
Entertainment America, Inc. et al., Case No. C-02-0710 CW (WDB), in the United States District
Court for the Northern District of California (the “Lawsuit”), which has concluded.

     B. On April 7, 2005, the court entered a final amended judgment (the “Amended
Judgment”) in the Lawsuit in Immersion’s favor against SCEA and SCEI jointly and severally in
the amount of $82,000,000 in damages, plus pre-judgment interest at the prime rate in the amount of
$8,874,888, costs, and interest which accrues by law.

     C. The court entered a permanent injunction in a separate order dated March 24, 2005 (the
“Permanent Injunction Order”), which it stayed pending SCEA’s and SCEI’s appeal to the
Federal Circuit, and awarded a compulsory license fee for the duration of the stay. SCEA and SCEI
filed an appeal, which has been dismissed as of the Effective Date.

     D. With the pending appeals having been dismissed and the Amended Judgment now final and
satisfied as of the Effective Date, the Parties desire by this Agreement to establish a new
business relationship relating to matters separate from those adjudicated in the Lawsuit under
which they will each grant to the other certain rights as defined herein.

     NOW, THEREFORE, in consideration of the foregoing premises of the terms and conditions of this
Agreement, the parties agree as follows:

1. Definitions

     1.1 “Adult Product” means: (i) [****] content, access to which may be lawfully
provided solely to users who certify that they are at least 18 years of age; and (ii) media
(e.g. videos, CDs and DVDs) containing the content described in (i), but only to the extent
that the rights to create the content or media described in (i) and (ii) above have been
licensed prior to the Effective Date under the Immersion Patents to another party on an
exclusive basis.

     1.2 “Affiliate” means, with respect to a Party, an Entity controlling, controlled by
or under common control with such Party. For purposes of this Agreement, “control” means the
direct or indirect ownership of over fifty percent (50%) of the outstanding voting securities of an
Entity, or the right to receive over fifty percent (50%) of the profits or earnings of an Entity,
or

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EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

the right to make policy decisions of an Entity, including the right to choose the board of
directors. In no case shall Sony Ericsson Mobile Communications AB or any Entity it controls be
considered a Sony Entity for purposes of this Agreement.

     1.3 “Amended Judgment” shall have the meaning set forth in Recital B.

     1.4 “Automotive Product” means any hardware product, software product, or combination
of hardware and software that provides Haptic Capability to the extent used in an automobile,
truck, bus, train, or other transportation vehicle. Hardware or software whose primary function is
not the delivery of one of the foregoing functions is not an Automotive Product. Automotive
Products are not Adult Products, Consumer Products, Foundry Products, Medical Products, Industrial
Products, Mobility Products or Gambling Products, and are not in the Gaming Field of Use.

     1.5 “Capture Period” means the period commencing on the Effective Date and ending on a
date ten (10) years after the Effective Date.

     1.6 “Change of Control” means: (a) the direct or indirect acquisition (except for
transactions described in clause (b) of this paragraph below), whether in one or a series of
transactions by any Entity of (i) ownership, beneficial or otherwise, of issued and outstanding
shares of capital stock of a Party, the result of which acquisition is that such Entity possesses
50% or more of the combined voting power of all then-issued and outstanding capital stock of such
Party, or (ii) the power to elect, appoint, or cause the election or appointment of at least a
majority of the members of the board of directors (or such other governing body that exercises a
similar level of control over such Entity in the event a Party or any successor Entity is not a
corporation); or (b) a merger, consolidation or other reorganization or recapitalization of a Party
with an Entity or a direct or indirect subsidiary of such Entity, provided that the result
of such merger, consolidation or other reorganization or recapitalization, whether in one or a
series of related transactions, is that the holders of the outstanding voting stock of such Party
immediately prior to such consummation do not possess, whether directly or indirectly, immediately
after the consummation of such transaction, in excess of 50% of the combined voting power of all
then-issued and outstanding stock of the merged, consolidated, reorganized or recapitalized Entity,
its direct or indirect parent, or the surviving Entity of such transaction.

     1.7 “Console” means a proprietary consumer computer entertainment platform
manufactured and marketed for the purpose of running Game software licensed and written for that
computer entertainment platform. The PS2 is an example of a Console.

     1.8 “Consumer Products” means any tangible consumer electronics products designed and
distributed primarily for non-commercial, personal use by end-user consumers, such as televisions,
personal computers and consumer audio equipment, and that are not Adult Products, Foundry Products,
Medical Products, Automotive Products, Industrial Products, Mobility Products or Gambling Products,
and are not in the Gaming Field of Use.

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EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

     1.9 “Effective Date” means the later of the dates on which the Amended Judgment has
been satisfied and discharged and the Permanent Injunction has been dissolved.

     1.10 “Entity” means a corporation, association, partnership, business trust, joint
venture, or proprietorship that can exercise independent legal standing.

     1.11 “Excluded Products” means, collectively, Adult Products, Foundry Products,
Medical Products, Automotive Products, Industrial Products, Mobility Products and Gambling
Products.

     1.12 “First Party Haptic Game Device” means a Haptic Game Device (i) marketed and
distributed by a Sony Entity to operate on or function in conjunction with a Console of a Sony
Entity and (ii) marketed and distributed under a brand or mark owned by a Sony Entity.

     1.13 “Foundry Product” means a product which is designed by or for a third party
without substantial input from a Party or its Affiliate, and manufactured, reproduced, sold,
leased, licensed or otherwise transferred from a Party or its Affiliate to that third party (or to
customers of, or as directed by, that third party) on essentially an exclusive basis. Foundry
Products are not Adult Products, Consumer Products, Medical Products, Automotive Products,
Industrial Products, Mobility Products or Gambling Products, and are not in the Gaming Field of
Use.

     1.14 “Gambling Products” means casino and bartop amusement gaming products that are
gambling applications. Gambling Products are not Automotive Products, Adult Products, Foundry
Products, Medical Products, Consumer Products, Industrial Products, or Mobility Products, and are
not in the Gaming Field of Use.

     1.15 “Game” means the content application software that is designed, marketed and
distributed to operate on a Console. “GranTurismo” is an example of a Game.

     1.16 “Game Developer” means an Entity that develops or publishes PlayStation Games
that are not Adult Products. Under this Agreement, an Entity is a Game Developer only to the
extent that it develops or publishes the foregoing games and not for any other purpose or activity.

     1.17 “Games-in-Suit” means those 47 specific games identified in the jury verdict form
in the Lawsuit, and not any later versions of those games.

     1.18 “Gaming Field of Use” means the market for gaming products for personal
computers, Consoles, handheld video games, and arcade products, and does not include the market for
Excluded Products or Consumer Products. The Gaming Field of Use includes Consoles, Games, and
Haptic Game Devices.

     1.19 “Haptic Capability” means [****].

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EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
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     1.20 “Haptic Game Device” means a controller, peripheral device or other user input
device, such as a joystick, wheel, touchpad, gamepad, haptic control knob, or mouse, that can
provide Haptic Capability when used to play a Game on a Console.

     1.21 “Immersion Patents” means, collectively, the Non-Litigated Patents and the
Patents-in-Suit.

     1.22 “Industrial Product” means any hardware product, software product, or combination
of hardware and software that provides Haptic Capability to the extent used in an industrial
application, such as a haptic control knob or a touchscreen that provides tactile feedback to the
user. Hardware or software whose primary function is not the delivery of one of the foregoing
functions is not an Industrial Product. Products, including hardware and software, that the Sony
Entities use solely internally in their business, or provide to third parties to use solely for
development of Licensed Products, or the tools for development of Licensed Products, pursuant to
the rights granted in Section 2.1(c) below, are not Industrial Products. Industrial Products are
not Adult Products, Consumer Products, Foundry Products, Medical Products, Automotive Products,
Mobility Products or Gambling Products, and are not in the Gaming Field of Use.

     1.23 “ISLLC” means Internet Services LLC.

     1.24 “Lawsuit” shall have the meaning set forth in Recital A.

     1.25 “Licensed Products” shall be as defined in Section 2.1(c) below.

     1.26 “Litigated PlayStation Products” means the following products, to the extent they
were the subject of the Lawsuit: (i) the Games-in-Suit, (ii) the PS1 and PS2, and (iii) First
Party Haptic Game Devices marketed and distributed by the Sony Entities to operate on the PS1 or
PS2 under a brand or mark owned by a Sony Entity.

     1.27 “Medical Product” means any hardware product, software product, or combination of
hardware and software that provides Haptic Capability to the extent used in the course of medical
treatment of patients, the training of medical personnel for medical procedures, or the simulation
of any medical procedure. Hardware or software whose primary function is not the delivery of one
of the foregoing functions is not a Medical Product. Medical Products are not Adult Products,
Consumer Products, Foundry Products, Industrial Products, Automotive Products, Mobility Products or
Gambling Products, and are not in the Gaming Field of Use.

     1.28 “Mobility Product” means any hardware or software product for use in handheld
mobility applications whose primary purpose is to provide communication through transmission of
voice or text between one or more end users and that uses a combination of (a) electromagnetic
transmission or other form of transmission and/or (b) conventional or internet switching or
internet routing to permit communication to or from mobile users (such as cell phones). Mobility
Products are not Adult Products, Consumer Products, Foundry Products,

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EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Medical Products, Automotive Products, Industrial Products or Gambling Products, and are not
in the Gaming Field of Use.

     1.29 “Non-Litigated Patents” means all patents, other than the Patents-in-Suit, that
have issued as of the Effective Date, or that may issue during the Capture Period, and all patent
applications filed or that claim a priority date (including continuations-in-part) prior to the
Effective Date or during the Capture Period, in any country in the world, which are owned or
licensable by Immersion or its Affiliates, and with respect to which Immersion or its Affiliates
have the right to grant the licenses and covenants of the scope granted herein to the Sony Entities
without payment of royalties or other consideration to a third party. Non-Litigated Patents shall
not include any patents of a surviving Entity following a Change of Control of Immersion, but shall
include patents of Immersion or its Affiliates that qualified as Non-Litigated Patents before
consummation of such Change of Control of Immersion and that are held by such surviving Entity
after consummation of such Change of Control.

     1.30 “Non-Litigated PlayStation Products” means (i) Games other than the Games-in-Suit
that are designed and marketed by a Sony Entity or a third party to operate on the PS1 or PS2 and
marketed and distributed under a brand or mark owned by a Sony Entity or such third party, (ii)
First Party Haptic Game Devices, which were not the subject of the Lawsuit, marketed and
distributed by the Sony Entities to operate on the PS1 or PS2 under a brand or mark owned by a Sony
Entity, (iii) First Party Haptic Game Devices marketed and distributed by the Sony Entities to
operate on the PS3 under a brand or mark owned by a Sony Entity, (iv) the PS3, (v) PS3 Games, (vi)
the PSP and (vii) PSP Games. Non-Litigated PlayStation Products specifically do not include Adult
Products.

     1.31 “Online Communities” means

     (i) any products and services, other than Excluded Products and Consumer Products, provided
through online communities designed and marketed by a Sony Entity under a brand or mark owned by a
Sony Entity, and

     (ii) any hardware or software (by way of example only, servers), except Excluded Products and
devices (other than First Party Haptic Game Devices that are marketed and distributed by a Sony
Entity to operate on or in conjunction with a Console under a brand or mark owned by a Sony Entity)
containing the physical means that create tactile sensations that can be felt by the user, used to
support, maintain, or provide such products and services described in (i) above through those
online communities.

     1.32 “Online Communities for PSP/PS3” means

     (i) any products and services, other than Excluded Products and Consumer Products, provided
through online communities designed and marketed by a Sony Entity under a brand or mark owned by a
Sony Entity and accessed through a PS3 or PSP, and

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EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

     (ii) any hardware or software (by way of example only, servers), except Excluded Products and
devices (other than First Party Haptic Game Devices that are marketed and distributed by a Sony
Entity to operate on or in conjunction with a PlayStation Console under a brand or mark owned by a
Sony Entity) containing the physical means that create tactile sensations that can be felt by the
user, used to support, maintain, or provide such products and services described in (i) above
through those online communities. The PlayStation Network is an example of Online Communities for
PSP/PS3.

     1.33 “Patents-in-Suit” means U.S. Pat. Nos. 6,424,333 and 6,275,213.

     1.34 “PlayStation Consoles” means the PS1, PS2, PS3 and PSP.

     1.35 “PlayStation Games” means PS3 Games, PSP Games, Games-in-Suit and Games other
than the Games-in-Suit that are designed and marketed by a Sony Entity or a third party to operate
on the PS1 or PS2 and marketed and distributed under a brand or mark owned by a Sony Entity or such
third party.

     1.36 “Preexisting Products” means any finished products or services of the Sony
Entities or Game Developers that are released under Section 2.1(a) and were first commercially
distributed to end users prior to the Effective Date, to the extent not covered by the license
under section 2.1(c). Component parts that are not incorporated in a finished product are not
Preexisting Products.

     1.37 “PS1” means all versions of the computer game Console marketed and distributed by
the Sony Entities under any of the marks “PlayStation,” “playstation 1,” “PS,” “PS one,” or “PS1,”
or any other marks substantially similar to the foregoing, that natively runs Games specifically
designed for the original “PlayStation” computer entertainment platform as first released in each
respective country. PS1 does not include PSP, PS2 or PS3 or any other gaming platform.

     1.38 “PS2” means all versions of the computer game Console marketed and distributed by
the Sony Entities under any of the marks “PlayStation 2,” “playstation 2,” “PSX,” or “PS2,” or any
other marks substantially similar to the foregoing, that natively runs Games specifically designed
for the original “PlayStation 2” computer entertainment platform as first released in each
respective country. PS2 does not include PSP, PS1 or PS3 or any other gaming platform.

     1.39 “PS3” means all versions of the computer game Console marketed and distributed by
the Sony Entities under any of the marks “PLAYSTATION 3,” “playstation 3,” or “PS3,” or any other
marks substantially similar to the foregoing, that natively runs Games specifically designed for
the original “PLAYSTATION 3” computer entertainment platform as first released in each respective
country. PS3 does not include PSP, PS1 or PS2 or any other gaming platform.

     1.40 “PS3 Games” means Games that (i) are marketed and distributed by a Sony Entity or
a Game Developer to operate on the PS3, (ii) are marketed and distributed under a brand or mark
owned by a Sony Entity or such Game Developer, and (iii) are not an Adult Product.

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     1.41 “PSP” means all versions of the computer game Console marketed and distributed by
the Sony Entities under any of the marks “PlayStation Portable,” “playstation portable,” or “PSP,”
or any other marks substantially similar to the foregoing, that natively runs Games specifically
designed for the original “PlayStation Portable” computer entertainment platform as first released
in each respective country. PSP does not include PS1, PS2 or PS3 or any other gaming platform and
does not have Haptic Capability.

     1.42 “PSP Games” means Games that (i) are marketed and distributed by a Sony Entity or
a Game Developer to operate on the PSP, (ii) are marketed and distributed under a brand or mark
owned by a Sony Entity or such Game Developer, and (iii) are not an Adult Product.

     1.43 “Royalty Bearing Product” shall be as defined in Section 5.4(b).

     1.44 “Sony Entities” means Sony Corporation, SCEA, SCEI, and each of their Affiliates.
“Sony Entity” means any of those Entities.

     1.45 “Sony Patents” means all patents that have issued as of the Effective Date, or
that may issue during the Capture Period, and all patent applications filed or that claim a
priority date (including continuations-in-part) prior to the Effective Date or during the Capture
Period, in any country in the world, which are owned or licensable by the Sony Entities, and with
respect to which the Sony Entities have the right to grant the covenant not to sue of the scope
granted herein to Immersion and its Affiliates, without payment of royalties or other consideration
to a third party. Sony Patents shall not include any patents of a surviving Entity following a
Change of Control of a Sony Entity (except in the case of an acquisition by another Sony Entity),
but shall include patents of the Sony Entities that qualified as a Sony Patent before consummation
of such Change of Control of the relevant Sony Entity and that are held by such surviving Entity
after consummation of such Change of Control.

     1.46 “Term” means the period commencing on the Effective Date and ending on the date
that the last of the Non-Litigated Patents expires.

     1.47 “Third Party Haptic Game Device” means a Haptic Game Device that is marketed and
distributed by a third party to operate on or function in conjunction with a Console under a brand
or mark owned by such third party.

2. Immersion Obligations

     2.1 Licenses and Release.

     (a) Release Prior to the Effective Date. Excepting the Litigated PlayStation
Products, subject to the terms of this Agreement as of the Effective Date, Immersion, on behalf of
itself and its Affiliates, hereby irrevocably releases and discharges the Sony Entities, Game
Developers, OEMs, resellers, distributors and customers, from any and all claims, counterclaims,
demands, liabilities, suits, debts, and causes of action, whether known or unknown, for alleged
direct or indirect infringement of any of the Immersion Patents with respect to any products and

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EXHIBIT 10.37

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services other than Adult Products that had been made, or were made, used, imported, exported,
leased, licensed, offered for sale, sold or otherwise transferred or disposed of by or for Sony
Entities, or by or for Game Developers (but only as to the products set forth in Section 1.16 above
(“Game Developer” definition)), before the Effective Date.

     (b) Covenant Not to Sue on Certain Released Products. Subject to the terms of this
Agreement, Immersion, on behalf of itself and its Affiliates, hereby covenants not to sue on or
assert against Game Developers and the Sony Entities, their OEMs, resellers, distributors and
customers, any and all claims, counterclaims, demands, liabilities, suits, debts, and causes of
action for alleged direct or indirect infringement of any of the Immersion Patents with respect to
units of Preexisting Products shipped or provided after the Effective Date.

     (c) License to the Sony Entities. Subject to the terms of this Agreement, Immersion,
on behalf of itself and its Affiliates, hereby grants to the Sony Entities a worldwide,
non-transferable, non-exclusive, license under the Immersion Patents

     (i) to use, develop, have developed, manufacture and have manufactured, and

     (ii) to sell, offer for sale, lease, import, or distribute, either itself or through third
parties, in all cases for acts taken after the Effective Date, the Litigated PlayStation Products,
Non-Litigated PlayStation Products, and Online Communities for PSP/PS3 (collectively, the
“Licensed Products”).

     (d) License to Sony Entities Regarding Third Party Haptic Game Devices. Subject to
the terms of this Agreement, Immersion, on behalf of itself and its Affiliates, hereby grants to
the Sony Entities a worldwide, non-transferable, non-exclusive, license under the Immersion Patents
to use, develop, manufacture, sell, offer for sale, lease, import, and distribute, either
themselves or through third parties, after the Effective Date, (i) the PlayStation Consoles and
(ii) First Party Haptic Game Devices and PlayStation Games, to the extent the foregoing products
also operate in conjunction with Third Party Haptic Game Devices designed, marketed, and
distributed to operate on or in conjunction with a PlayStation Console. The foregoing license does
not extend to Non-PlayStation Console Haptic Game Devices (i.e., Haptic Game Devices that are
designed, marketed, or distributed to operate on or in conjunction with any Console or device other
than the PlayStation Consoles) operating in conjunction with any PlayStation Games or First Party
Haptic Game Devices. The foregoing license also does not extend to Haptic Game Devices operating
in conjunction with Games, First Party Haptic Game Devices or Third Party Haptic Game Devices that
are designed, marketed, or distributed to operate on or in conjunction with any Console or device
other than the PlayStation Consoles.

     (e) License to Game Developers. Subject to the terms of this Agreement, Immersion, on
behalf of itself and its Affiliates, hereby grants to Game Developers (but only as to the products
set forth in Section 1.16 above (“Game Developer” definition)) a worldwide, non-transferable,
non-exclusive, license under the Immersion Patents to use, develop, manufacture, sell, offer for
sale, lease, import, and distribute, either themselves or through third parties, after the
Effective Date, PlayStation Games, including operation of such PlayStation Games in

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conjunction with Haptic Game Devices designed, marketed, and distributed to operate on or in
conjunction with a PlayStation Console. The foregoing license does not extend to Non-PlayStation
Haptic Game Devices (i.e., Haptic Game Devices that are designed, marketed or distributed to
operate in conjunction with Games that are designed, marketed, and distributed to operate on or in
conjunction with any Console or device other than the PlayStation Consoles) operating in
conjunction with PlayStation Games.

     (f) Backward Compatibility Through Emulation of a PlayStation Console. Subject to the
terms of this Agreement, Immersion, on behalf of itself and its Affiliates, hereby grants to the
Sony Entities a worldwide, non-transferable, non-exclusive, license under the Immersion Patents to
include in future Consoles (that is, other than PlayStation Consoles) software, firmware or
hardware to the extent it enables such future Console to execute by emulation PlayStation Games,
including operation of those Games in conjunction with Haptic Game Devices that are designed,
marketed, and distributed to operate on or in conjunction with a PlayStation Console. The
foregoing license does not include any rights with respect to Games that are not PlayStation Games,
or any rights with respect to their use or operation in conjunction with any Haptic Game Devices.

     (g) Reservation of Rights. None of the foregoing licenses or covenants set forth in
this Section 2.1 grant any third party, including without limitation any consumer end user, any
rights with respect to any Third Party Haptic Game Device that is used, developed, manufactured,
sold, offered for sale, leased, imported or distributed without license from Immersion and that is
operated or used with any other product or service.

     (h) Effect of Termination as a Sony Entity. Although the releases, discharges,
licenses and covenants not to sue set forth in this Section 2.1 terminate with respect to a
particular Entity when that Entity ceases to be a Sony Entity, the releases, discharges, licenses
and covenants not to sue in this Section 2.1 shall remain effective with respect to that Entity’s
aforementioned activities before the date on which such Entity ceased to be a Sony Entity, and that
Entity will continue to be bound by the provisions of Section 9.5 (Confidentiality).

     (i) Waiver of Section 1542. In granting the releases contained in this Section 2.1,
Immersion and its Affiliates and their respective officers, directors, employees, attorneys, and
agents waive whatever rights they might otherwise have under section 1542 of the California Civil
Code, which provides that, “A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release, which if known by him,
must have materially affected his settlement with the debtor.”

     2.2 No Rights With Respect to Excluded Products. Except to the extent encompassed by
the release set forth in Section 2.1(a) above, no rights of any kind, including but not limited to
any license (express or implied), release or covenant not to sue, are granted under this Agreement
for Excluded Products or Consumer Products.

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EXHIBIT 10.37

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3. Retention of Rights by Immersion

     Except as expressly provided in this Agreement, Immersion retains all right, title and
interest in and to the Immersion Patents and reserves all rights not expressly granted herein.
Nothing in this Agreement shall be construed as granting by implication, estoppel, or otherwise any
licenses, rights or releases under patents or other intellectual property rights of Immersion or
its Affiliates other than as expressly granted herein. For the avoidance of doubt, and without
limiting the foregoing, nothing in this Agreement is intended to, or does, restrict or otherwise
abridge Immersion’s right or ability to enforce any of its intellectual property against any third
party that manufactures, uses, sells, offers for sale, imports, exports, leases, licenses,
distributes or otherwise transfers or disposes of any product or service that is not the subject of
a license from Immersion, including without limitation any unlicensed Haptic Game Device or the
combination of a Licensed Product with another product or service to form a combination not
expressly licensed under this Agreement, and Immersion grants no license, right, release or
covenant not to sue to any such third party under this Agreement.

4. [****] Option for Additional License

     [****]

     4.2 Option to Obtain a License With Respect to the Gaming Field of Use.
Immersion, on behalf of itself and its Affiliates, grants to the Sony Entities an option to
obtain from Immersion, on the terms and conditions set forth in this Section 4.2 and Section
5.3 below, a worldwide, non-transferable, royalty bearing, non-exclusive license to the Sony
Entities and Game Developers under the Immersion Patents to (1) use, develop, have developed,
manufacture, have manufactured and (2) sell, offer for sale, lease, import, or distribute,
either themselves or through third parties, in all cases for acts taken after the date of
exercise, (i) any product or service in the Gaming Field of Use that provides tactile
sensations to the user or the commands, functions or operations that provide tactile sensations
to the user and (ii) any Online Community (but with respect to Game Developers, only as to the
products set forth in Section 1.16 above (“Game Developer” definition)), in each case that is
marketed and distributed by a Sony Entity under a brand or mark owned by a Sony Entity. To
exercise the option of this Section 4.2, a Sony Entity shall give Immersion written notice of
such exercise, referencing this Section 4.2, and Immersion shall be paid the exercise fee
required in Section 5.3 below. The license set forth in the option of this Section 4.2 shall
not become effective until Immersion and the Sony Entity exercising the option on behalf of the
Sony Entities have executed a written agreement embodying the additional terms and conditions
of the license and the exercise fee set forth in Section 5.3 below has been paid. The Parties
shall negotiate and execute such written agreement without undue delay.

     4.3 Expiration of Options and Disputes Related to Options.

          (a) Notice of Belief of Infringement. If Immersion believes in good faith that
[****] then Immersion shall notify the relevant Sony Entities in writing [****] The notified
Sony Entities shall have a period of thirty (30) days after receipt of

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EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

such notice to analyze Immersion’s claims. Thereafter during an additional thirty (30) day
period, representatives of Immersion and the notified Sony Entities shall meet to discuss in
good faith [****] the representatives shall also work in good faith to reach agreement within
such thirty (30) day period [****] If at the end of the thirty (30) day discussion period,
[****] then the parties will submit such dispute to binding arbitration to be conducted in
accordance with the procedures set forth in Section 4.3(a) below and the following steps:

               [****]

          (b) Further Notices of Belief of Infringing Products. In the event that the Sony
Entities exercise the option set forth in Section 4.2, and Immersion thereafter believes in
good faith that products or services of the Sony Entities fall within the license granted by
the exercised option but Immersion and the relevant Sony Entities [****] then the procedures
set forth in Section 4.3(a) above shall be followed [****]

          (c) Dispute Resolution Procedure. In the event of a dispute with respect to which
arbitration is required in accordance with the provisions of Section 4.3(a), the parties shall
submit such dispute to binding arbitration in San Francisco, CA, in accordance with: (i) the
Federal Arbitration Act; (ii) then current commercial arbitration rules and regulations of the
American Arbitration Association (the “AAA”), and; (iii) the terms and conditions of this
Agreement. The terms of this Agreement shall control in the event of any inconsistency between it
and the AAA rules. The arbitration shall be conducted in the English language. The parties shall
mutually agree upon an arbitrator with substantial experience in patent law, and in the event that
they cannot agree to an arbitrator within ten (10) days of filing of the dispute with the AAA, the
AAA shall select an appropriate arbitrator with substantial experience in patent law. The decision
of the arbitrator on any dispute submitted to arbitration shall follow applicable substantive law
and be in writing setting forth the findings of fact and law and the reasons supporting the
decision. Such decision shall be final and binding upon the parties. Judgment upon any
arbitration award may be entered in any court having competent jurisdiction. After a demand for
arbitration is made, each party may conduct eight (8) depositions and may further request discovery
through up to thirty (30) document requests, up to twenty-five (25) written interrogatories, and up
to fifty (50) requests for admissions. The arbitrator may, on application by either party,
authorize additional discovery in the arbitrator’s discretion in order to avoid injustice.

          (d) No Other Obligations [****] The Parties shall have no obligation [****] other
than those expressly set forth in Sections 4.3(a) and 4.3(b). Without limiting the generality
of the previous sentence, the Parties shall have [****] except to the limited extent set forth
in Section 4.3(a) above with respect to an initial determination of whether [****]

     4.4 Distribution of Products Not Having Haptic Capability. The Parties agree that the
sale or distribution by the Sony Entities of products in the Gaming Field of Use that provide
tactile sensations to users only by virtue of being used with a Third Party Haptic Game Device or

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EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

other third party device will not require the Sony Entities to exercise the option in Section 4.2
to cover such products or the use thereof with any Third Party Haptic Game Device or such other
third party device.

5. Payments By and Obligations of the Sony Entities

     5.1 Covenants of the Sony Entities. The Sony Entities covenant as follows:

          (a) That none of the Sony Entities will sue Immersion or any of its Affiliates on any Sony
Patent related to Haptic Capability based on the manufacture, use, sale, offer for sale, lease,
importation, or distribution by Immersion or any of its Affiliates of any product or service,
except for any Immersion Foundry Product. The foregoing covenant will terminate with respect to a
particular Entity when such Entity ceases to be an Affiliate of Immersion, or when Immersion
becomes the subject of a Change of Control; provided, however, the covenant shall remain effective
with respect to that Entity’s or Immersion’s (as applicable) aforementioned activities before the
date on which such Entity ceased to be an Affiliate of Immersion or Immersion underwent the Change
of Control, and such Entity will continue to be bound by the provisions of Section 9.5
(Confidentiality). In addition, the covenant set forth in this Section 5.1(a) will terminate in
the event that Immersion sues a Sony Entity for patent infringement on an Adult Product, Consumer
Product, Foundry Product, Medical Product, Automotive Product, Industrial Product, Mobility Product
or Gambling Product, but only with respect to products or services within the market for the type
of product or service (i.e., Adult Product, Consumer Product, Foundry Product, Medical Product,
Automotive Product, Mobility Product or Gambling Product) that was the subject of Immersion’s
claims. In any event the Sony Entities shall be free to assert any defenses with respect to the
patents sued upon or arbitrated, including but not limited to defenses of invalidity and
unenforceability of such patents. Except to the extent encompassed by the covenant set forth in
this Section 5.1(a), no rights of any kind, including but not limited to any license (express or
implied), release or covenant not to sue, are granted to Sony Patents under this Agreement.

          (b) That none of the Sony Entities will take any action to assist, encourage, participate in,
or otherwise aid ISLLC in any lawsuit against Immersion except, and only to the extent, as may be
required by law.

     5.2 Covenant of Good Faith and Fair Dealing and Freedom of Control for Sony Entities.
The Parties acknowledge that Immersion, as part of its business licenses its intellectual property,
including to third parties who manufacture, sell or otherwise distribute devices with Haptic
Capability. The Parties also acknowledge that the Sony Entities must have freedom of control over
their Gaming Field of Use business, including control over their Consoles, Haptic Game Devices and
Games and which peripherals they choose to license for use with their Consoles. Subject to and in
the context of the foregoing acknowledgements, the Sony Entities will exercise their freedom of
control and their licensing of peripherals under a covenant of good faith and fair dealing.
Notwithstanding the foregoing, the Sony Entities shall in no way be prohibited from taking steps to
enforce any patents or other intellectual property rights of the Sony Entities against third
parties. Furthermore, nothing in this Agreement shall be construed to

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EXHIBIT 10.37

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require any of the Sony Entities to include Haptic Capability in any Console, Haptic Game Device or
Game, nor to license or allow any particular Entity to create products, whether licensed by
Immersion or not, compatible with any Console. This Section 5.2 is not intended and does not of
itself constitute a grant, express or implied, to the Sony Entities of any license or other rights
under Immersion’s intellectual property.

     5.3 Payment for Covenants and Licenses. As partial consideration for the covenants
and licenses set forth in Sections 2.1(b), 2.1(c), 2.1(d), 2.1(e), and 2.1(f) above, SCEA and SCEI
agree to pay to Immersion on the last day of each calendar quarter for twelve (12) calendar
quarters beginning on March 31, 2007 and ending on December 31, 2009, the sum of One Million Eight
Hundred Seventy-Five Thousand dollars (US$1,875,000) per quarter (for a total of Twenty-two Million
Five Hundred Thousand dollars (US$22,500,000)) by wire transfer to the following account:

	 	 	 
	Name of Bank:

	 	Wells Fargo Bank, N.A.
	 
	 	 
	ABA #:

	 	#121000248
	 
	 	 
	Account:

	 	#[****]
	 
	 	 
	Attention:

	 	Immersion Corp. [****]

[****]

     5.4 Payment for Licenses in Section 4.2. In the event that the Sony Entities exercise
the option set forth in Section 4.2 above, Immersion shall be paid the following:

          (a) Exercise Fee. Within thirty (30) days of the issuance of written notice to
Immersion by a Sony Entity electing to exercise the option of Section 4.2, Immersion shall be
paid a non-refundable, one-time exercise fee [****] in order to exercise rights under Section
4.2. [****]

          (b) Royalties. In addition to the exercise fee, the Sony Entities shall pay to
Immersion royalties in the amount of [****] for each unit of a device that contains the
physical means, including but not limited to actuators, magnets, coils, audio or chemical
means, that create tactile sensations that can be felt by the user and is covered by at least
one Immersion Patent in the country or area where such unit is manufactured, sold, used or
distributed by or on behalf of a Sony Entity to a distributor, dealer, sales channel, customer,
end user, or other third party (a “Royalty-Bearing Product”). In the event of a
distribution of one or more Royalty-Bearing Products together in a bundle, the Sony Entities
shall owe Immersion a royalty for each such Royalty Bearing Product in the bundle, regardless
whether the products making up the bundle are separately priced or separately offered apart
from the bundle, but only for the Royalty Bearing Products in the bundle. For example, if a
Sony Entity distributes a Console, Game, and Haptic Game Device together in a bundle, whether
for a single price or otherwise, the Sony Entities shall only owe Immersion one [****]

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BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

royalty, on the Haptic Game Device, and shall not owe a royalty for the Console or Game in the
bundle. A royalty shall accrue to Immersion upon the distribution of each unit of a Royalty
Bearing Product by or on behalf of a Sony Entity to a distributor, dealer, sales channel,
customer, end user, or other third party, regardless of when, or if, a Sony Entity gets paid
for such unit. No royalty shall be due upon the resale or further distribution of a unit of a
Royalty Bearing Product for which a royalty has been paid to Immersion hereunder.

     5.5 Payment of Royalties, Reports, and Audit

          (a) Reporting and Payment of Royalties. Within forty-five (45) days after the close
of each calendar quarter, any Sony Entity that is distributing Royalty Bearing Product shall issue
a written report to Immersion detailing (i) the total number of each type of Royalty Bearing
Products, including the Sony Entity’s SKU or similar number for each type of product, that were
distributed during such quarter and for which a royalty is due to Immersion hereunder and (ii) a
computation of the royalties due hereunder with respect to the foregoing. Payment of all such
royalties shall be made in full no later than the time such report is due.

          (b) Interest on Overdue Royalties. Immersion shall be paid prorated interest charges
on overdue royalty payments hereunder at the rate of the lesser of (i) one percent (1%) per month
or (ii) the highest rate allowed by applicable law.

          (c) Records and Audit. Each Sony Entity that is distributing Royalty Bearing Product
shall keep true and accurate records and books of account containing all data reasonably required
for the computation and verification of royalties to be paid as provided herein. Such records and
books shall be retained by such Sony Entities for a period of at least three (3) years after the
reporting period to which they relate, and shall be made available for inspection and copying
during business hours by an independent auditor chosen by Immersion and approved by the Sony Entity
to be audited (which approval will not be unreasonably withheld), no more than once per calendar
year, upon at least twenty (20) days advance written notice. Any and all non-public information
related to the Sony Entities or their business revealed in the course of such audit shall be kept
confidential, and shall not be disclosed by the auditor to anyone other than employees or
professional advisors of Immersion who have a reasonable need to know in connection with such audit
or used for any purpose other than to the extent reasonably necessary to determine the correctness
of royalty payments made hereunder or to enforce rights under this Agreement. In the event such an
audit reveals an underpayment by any Sony Entity, such Sony Entity will promptly remit any
underpayment to Immersion but in any event no later than thirty (30) days after the date of the
notice from Immersion or the auditor, reasonably describing the basis of the belief that Immersion
has been underpaid, including any other relevant data used in the calculation. Immersion shall
pay for the reasonable expenses and costs of any such audit, provided however, that should it be
determined that the amount of royalties due Immersion hereunder has been under-reported or
underpaid by more than five percent (5%) for any applicable reporting period, then the Sony
Entities shall reimburse Immersion for the full reasonable cost of such audit.

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6. Indemnity

     6.1 Indemnity. [****] will defend and indemnify and hold [****] harmless
from any damages, liabilities, judgments, losses, costs and expenses (including court
costs, reasonable attorneys’ fees and license fees) suffered or incurred [****] after the
Effective Date with respect to any claim asserted against [****] provided that (i) [****]
notify [****] promptly in writing of such claim, (ii) it has been adjudicated that [****]
has the right to bring such claim against [****], (iii) [****] allow [****] to have
control, in consultation with [****] named in the suit, over the defense and settlement of
the claim (except that if such settlement would require [****] to pay any amount, whether
because of operation of the limitation of liability set forth in Section 6.2 below or
otherwise, the written approval of [****] must be received) and do not enter into any kind
of settlement or agreement with respect to such claim without the advance written consent
of [****], and (iv) [****] provide [****] with the authority, information and assistance
that [****] deems reasonably necessary for the settlement of the claim. [****]

     [****]

7. Representations and Warranties

     7.1 Mutual Representations and Warranties. Each Party represents and warrants, solely
to and for the benefit of the others, that:

          (a) it has the full right, power and authority to enter into this Agreement and perform its
obligations hereunder and to grant its respective licenses and covenants as set forth herein;

          (b) its performance of this Agreement shall not conflict with or result in a breach or
violation of any of the terms or provisions or constitute a default under any other agreement by
which it is bound or to which its assets are subject; and

          (c) when executed and delivered, this Agreement shall constitute a legal, valid and binding
obligation enforceable against it in accordance with its terms.

     7.2 Disclaimers. EXCEPT AS EXPRESSLY PROVIDED IN SECTION 7.1 ABOVE, THE IMMERSION
PATENTS ARE PROVIDED “AS IS” AND WITHOUT WARRANTY OF ANY KIND. EACH PARTY DISCLAIMS ALL IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT. Without
limiting the generality of the preceding sentence, Immersion makes no express or implied warranty
(a) as to the validity, enforceability or scope of any Immersion Patent, or the applicability of
any such patent to any product, or (b) that any product or service made, used, sold, offered for
sale, imported or distributed under any license or covenant in this Agreement is or will be free
from infringement of any rights of third parties. Nothing in this Agreement shall be construed:
(i) to require Immersion or its Affiliates to file any patent

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application; (ii) as a warranty that Immersion or its Affiliates will be successful in securing the
grant of any patent or any reissue or extensions thereof, and (iii) to require Immersion or any of
its Affiliates to pay any maintenance fees or to take any other steps to maintain Immersion’s or
its Affiliates’ patent rights.

8. Limitation of Liabilities

NEITHER PARTY WILL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR SPECIAL
DAMAGES RELATING TO THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES, EXCEPT TO THE EXTENT ANY OF THE FOREGOING CONSTITUTE THE MEASURE OF DAMAGES FOR
INFRINGEMENT OF A PARTY’S INTELLECTUAL PROPERTY RIGHTS UNDER APPLICABLE LAW.

9. General

     9.1 Entire Agreement. This Agreement and its Exhibits constitute the entire agreement
among the Parties with respect to the subject matter hereof and supersede all promises or
understandings made prior to or contemporaneously herewith with respect to such subject matter.

     9.2 Severability. In the event that any provision of this Agreement is deemed
invalid, unenforceable or void by a final, non-appealable judgment of a court of competent
jurisdiction in a proceeding initiated by a third party, the remainder of this Agreement shall be
interpreted to the extent possible to effect the overall intention of the Parties at the Effective
Date.

     9.3 Multiple Counterparts. This Agreement may be executed in counterparts, including
by exchange of facsimile signatures or electronic PDF files, each of which shall be deemed an
original, but both of which together shall constitute one and the same instrument.

     9.4 Modification. This Agreement may not be amended, modified or altered in any way,
except in a writing identified as such and signed by all Parties hereto.

     9.5 Confidentiality. From and after the Effective Date, the terms and conditions, but
not the existence, of this Agreement shall be treated as confidential by the Parties, and neither
Party shall disclose the terms or conditions of this Agreement without the prior written consent of
the other Party, except that a Party may make any of the following disclosures without prior
written consent of the other Party:

     (a) to any governmental or regulatory body including any stock exchanges having jurisdiction
and/or regulatory obligations specifically requiring such disclosure;

     (b) in response to a valid subpoena or as otherwise may be required by law;

     (c) for the purposes of disclosure in connection with the Securities Exchange Act of 1934, as
amended, the Securities Act of 1933, as amended, and any other reports filed with the

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BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Securities and Exchange Commission, or any other filings, reports or disclosures that may be
required under applicable laws or regulations; provided that before such disclosure the Party
making the disclosure shall use its commercially reasonable efforts to redact portions of this
Agreement to the extent permitted by applicable law and regulations. To the extent one Party makes
a disclosure of terms of this Agreement in accordance with this clause (c), the other Party shall
be free to disclose the same terms of this Agreement in its own filings, reports or disclosures
that may be required under applicable laws or regulations;

     (d) to a Party’s accountants, legal counsel, tax advisors, auditors and other financial and
legal advisors;

     (e) as required during the course of litigation and subject to protective order; provided,
however, that any production under a protective order would be protected under an “Attorney Eyes
Only” or higher confidentiality designation;

     (f) in confidence, in connection with a proposed merger, acquisition or similar transaction;
and

     (g) in confidence by the Sony Entities, to their Game Developers, but only with respect to the
terms and conditions applicable to such Game Developers’ rights hereunder.

     9.6 Publicity. The Parties shall issue, at approximately 1:30 p.m. Pacific Time on
March 1, 2007, the mutually agreed joint press release attached hereto as Exhibit A. Neither Party
will issue any other press release or any other announcement regarding this Agreement or the
relationship contemplated herein unless both Parties consent in advance to any proposed release in
writing. Nor will either Party disclose any term of this Agreement for purposes of promotion, or
offer for sale, of any product or service of a Party to a third party. The Parties shall direct
their representatives not to make any disclosures of the terms of this Agreement except as
permitted herein.

     9.7 Notices. Any notices given hereunder shall be in writing, will reference this
Agreement and will be deemed given when: (i) when sent by confirmed facsimile; (ii) five (5) days
after having been sent by registered or certified mail, return receipt requested, postage prepaid;
or (iii) one (1) day after written verification of receipt from a commercial overnight carrier.
All communications will be sent to the addresses set forth below or such other addresses as may be
designated by a Party by giving written notice to the other Party pursuant to this Section 9.7:

     Notices to Immersion:

Immersion
Corporation
 801 Fox Lane

San Jose, CA 95131

Attention: General Counsel

Fax: (408) 467-1901

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     Notices to the Sony Entities:

Sony Computer Entertainment America Inc.

919 East Hillsdale Blvd., 2nd Floor

Foster City, CA 94404

Attention: SCE Group General Counsel

Fax: (650) 655-8042

     With a copy to:

Sony Corporation

Intellectual Property Division

IP Alliance & Licensing Department

1-7-1 Konan, Minato-ku

Tokyo 108-0075

Japan

Attention: General Manager

Fax: 81-3-6748-3544

     9.8 Non-Waiver. The waiver of any breach of any provision of this Agreement shall not
be deemed to be a waiver of any other breach of the same or any other provision of this Agreement.

     9.9 Non-Agency. Nothing contained in this Agreement or the performance thereof is
intended to or shall be construed to create any relationship of agency, partnership or joint
venture between or among the Parties.

     9.10 Enforcing Patents. Nothing in this Agreement shall be construed as an agreement
by Immersion to bring actions or suits against third parties for infringement of the Immersion
Patents, or conferring any right to the Sony Entities to bring actions or suits against third
parties for infringement of the Immersion Patents.

     9.11 Assignment. Neither Party may assign this Agreement without the prior written
consent of the other Party, which the other Party may grant or deny in its sole discretion, except
that either Party may assign this Agreement without the other Party’s written consent in connection
with a Change of Control of such Party. The assigning Party shall give the other Party written
notice of such assignment within thirty (30) days after consummation of such Change of Control.
Any attempted or purported assignment or delegation by a Party in violation of this Section 9.11
shall be null and void. Subject to the foregoing, this Agreement shall be binding upon, and shall
inure to the benefit of, the Parties and their respective successors and permitted assigns.
Notwithstanding anything to the contrary in this Agreement, in the event of any permitted
assignment by a Party pursuant to this Section 9.11, in no event will the assignee be deemed to
have released any claims other than the claims of the assigning Party (i.e. Sony Entity or
Immersion) which are expressly released by the assigning Party hereunder. If either

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Party is acquired by a third party, in no event will that third party be deemed to have released
any claims that it possessed prior to the acquisition that are independent of or unrelated to the
acquired Party and that are the subject of this Agreement. Nothing in this provision shall
restrict or prevent Immersion or its Affiliates from transferring, assigning or licensing any of
the Immersion Patents without prior written notice or consent of the Sony Entities, but subject to
the benefits granted hereunder.

     9.12 Governing Law and Venue. This Agreement will be governed by and construed in
accordance with applicable federal law and the internal laws of the State of California without
regard to or application of choice of law rules or principles. Each Party consents to exclusive
jurisdiction and venue in the federal courts sitting in San Francisco County, California, unless no
federal subject matter jurisdiction exists, in which case each Party consents to exclusive
jurisdiction and venue in the Superior Court of San Francisco County, California. Each Party
waives all defenses of lack of personal jurisdiction and forum non-conveniens with respect to the
preceding named courts.

     9.13 Cumulation. All rights and remedies enumerated in this Agreement will be
cumulative and none will exclude any other right or remedy permitted herein or by law.

     9.14 Representation by Counsel. Each of the Parties acknowledges that it has been
represented by counsel in connection with the negotiation, drafting and execution of this
Agreement. The language used in this Agreement shall be deemed to be language chosen by all
Parties to express their mutual intent, and no rule of strict construction against any Party shall
be applied to any term or provision hereof.

     9.15 Captions. The captions to the sections or subsections of this Agreement are
solely for the convenience of the Parties, are not a part of this Agreement, and shall not be used
for the interpretation of, or determination of the validity of, this Agreement or any provision
hereof. Where the singular is used in this Agreement, the same shall be construed as meaning the
plural where the context so admits or requires and the converse shall hold as applicable.

     9.16 Duration. This Agreement shall expire on the last day of the Term.

     9.17 Termination of Licenses and Covenants Not to Sue.

          (a) By Immersion Upon Certain Occurrences. The licenses and covenants set forth in
Sections 2.1(b), 2.1(c), 2.1(d), 2.1(e), and 2.1(f) may be terminated by Immersion upon twenty (20)
days written notice to the Sony Entities in the event of the occurrence of any of the following:

               (i) If any of the Sony Entities or a third party acting on behalf of the Sony Entities,
challenges or disputes the validity or enforceability of any of the Immersion Patents in any
judicial or administrative proceeding, other than an arbitration as expressly set forth in Section
5.1(a); notwithstanding the foregoing, in the event that Immersion or an Affiliate of Immersion or
a third party acting on any of their behalf initiates a patent infringement lawsuit

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against any of the Sony Entities (and there is no then-current pending action by the Sony Entities
against Immersion or its Affiliates), the foregoing covenant shall not apply with respect to the
patent(s) asserted by Immersion in such lawsuit;

               (ii) If any Sony Entity breaches any of the covenants set forth in Section 5.1 above; or

               (iii) If the Sony Entities fail to make any of the payments required under Section 5.3 above
when due, and do not cure such failure within the ten (10) day period after receipt of written
notice from Immersion.

          For the avoidance of doubt, the termination of the licenses set forth in Sections 2.1(b),
2.1(c), 2.1(d), 2.1(e), and 2.1(f) shall occur automatically and without further notice upon the
expiration of the ten (10) day notice period, unless, in the case of clause (iii) only, the Sony
Entities have cured the failure to make timely payment within such ten (10) day period.

          (b) By Immersion for Failure to Pay Royalties. In the event that the Sony Entities
exercise the option set forth in Section 4.2 above, the licenses set forth in Section 4.2 may be
terminated by Immersion upon twenty (20) days written notice to the Sony Entities in the event that
the Sony Entities fail to make any applicable royalty payments in accordance with Sections 5.3 and
5.4 above. For the avoidance of doubt, the termination of such licenses shall occur automatically
and without further notice upon the expiration of the twenty (20) day notice period, unless the
Sony Entities have cured such failure within such twenty (20) day period.

          (c) By the Sony Entities. The covenants set forth in Section 5.1 above may be
terminated by the Sony Entities upon ten (10) days written notice to Immersion in the event that
Immersion breaches any of the covenants set forth in Section 2 above. For the avoidance of doubt,
the termination of the covenants set forth in Section 5.1 shall occur automatically and without
further notice upon the expiration of the ten (10) day notice period.

          (d) Effect of Termination. Termination of the licenses and covenants not to sue by
either Immersion or the Sony Entities in accordance with this Section 9.17 shall not operate to
terminate the remaining provisions of this Agreement, which shall remain in full force and effect
throughout the Term. In addition, no such termination shall affect Immersion’s right to retain or
to collect all payments made or owing from the Sony Entities to Immersion under this Agreement.
Termination shall not operate to revoke the licenses and covenants for products shipped prior to
such termination.

     9.18 No Refund. In order to promote a smooth commercial relationship between the
parties and to minimize the risk of future litigation as between the Parties, the amount paid by
the Sony Entities to Immersion under this Agreement or otherwise provided to Immersion will not
be diminished, and the Sony Entities shall not be entitled to any credit or refund, in whole or
in part, of any amounts paid hereunder. The Sony Entities agree that they will not bring any
action or make any demands, for any reason, for Immersion to refund, credit or return, in whole
or in part, any sums paid or otherwise provided to Immersion [****].

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BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

     9.19 Recitals and Exhibits. The recitals and exhibits are hereby incorporated into
this Agreement by this reference.

     9.20 No Admissibility. In the event a Party asserts a claim for patent infringement
against another Party, in any such proceeding (whether a lawsuit, arbitration or otherwise) the
royalty rate set forth in Section 5.4(b) above shall not be admissible for any purpose, nor offered
into evidence or otherwise referred to by any Party. In the event a Party asserts a claim for
patent infringement against another Party, in any such proceeding (whether a lawsuit, arbitration
or otherwise) neither party shall argue the fact that the term “Haptic Capability” is used in this
Agreement or the way in which such term is used in this Agreement as evidence against the other
Party with respect to the scope of any patent or with respect to any theory of damages or secondary
liability.

     9.21 Survival of Rights in Event of Transfer of Patents. In the event that Immersion
transfers one or more of the Immersion Patents, such transfer shall be made subject to the license
rights granted to the Sony Entities and Game Developers hereunder with respect to such transferred
patents.

[remainder of this page intentionally left blank]

21

 

EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

     IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to be executed
through its duly authorized representative below.

	 	 	 	 	 	 	 	 	 	 	 
	Sony Computer Entertainment America, Inc.	 	 	 	Immersion Corporation	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Printed Name:

	 	 	 	 	 	Printed Name:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Sony Computer Entertainment, Inc.	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	Printed Name:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

22

 

EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Exhibit A

Joint Press Release

Contacts:

A&R Edelman

Alexandra Skillman

+1 650.762.2842

askillman@ar-edelman.com

Sony Computer Entertainment America

Dave Karraker

+1-650-655-6044

Sony Computer Entertainment Inc.

Corporate Communications

+81-3-6438-8686

Immersion and Sony Computer Entertainment Conclude

Litigation and Enter into Business Agreement

SAN JOSE and FOSTER CITY, Calif., March 1, 2007 (BUSINESS WIRE) 3⁄4 Immersion Corporation,
(Nasdaq: IMMR), a leading developer and licensor of touch feedback technology, and Sony Computer
Entertainment (SCE) today announced the companies have agreed to conclude their patent litigation
at the U.S. Court of Appeals for the Federal Circuit and have entered into a new business agreement
to explore the inclusion of Immersion technology in PlayStation format products.

“We are pleased to have put this litigation behind us,” said Immersion CEO Victor Viegas. “Our new
business agreement with Sony Computer Entertainment is specifically intended to enable advanced
vibration capability for the benefit of the PlayStation gaming community. We are happy to provide
our technology in this regard and hope to make technical proposals very soon with respect to use of
our technology in the PlayStation products.”

Immersion will receive the amount of the judgment entered by the District Court, which includes
damages, pre-judgment interest, costs, and interest, in addition to retaining compulsory license
fees ordered by the District Court which were already paid. Terms of the business agreement
between the parties provide SCE with certain new rights with respect to Immersion’s patent
portfolio. Additional financial terms are not being disclosed. The conclusion of this litigation
and the agreement will have no material impact on Sony’s consolidated earnings forecast announced
on January 30, 2007.

“We look forward to exploring with Immersion exciting new ways to bring the largest and
best range of gameplay experiences to our customers,” said Kazuo Hirai, President and Group Chief
Operating Officer, Sony Computer Entertainment Inc. “We are very excited about our new partnership
with Immersion and the potential for new and innovative products incorporating their technologies.”

23

 

EXHIBIT 10.37

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE
BEEN OMITTED AND REPLACED WITH [****] AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

About Immersion (www.immersion.com) 

Founded in 1993, Immersion Corporation is a recognized
leader in developing, licensing, and marketing digital touch technology and products. Using
Immersion’s advanced touch feedback technology, electronic user interfaces can be made more
productive, compelling, entertaining, or safer. Immersion’s technology is deployed across
automotive, entertainment, industrial controls, medical training, mobility, and three-dimensional
simulation markets. Immersion’s patent portfolio includes over 600 issued or pending patents in the
U.S. and other countries.

About SCEA

Sony Computer Entertainment America Inc. continues to redefine the entertainment lifestyle with its
PlayStation® and PS oneTM game console, the PlayStation®2 and PLAYSTATION®3 computer entertainment
systems and the PSP® (PlayStation®Portable) system.

Recognized as the undisputed industry leader, Sony Computer Entertainment America Inc. markets the
PlayStation family of products and develops, publishes, markets and distributes software for the PS
one game console, the PlayStation 2 and PLAYSTATION 3 computer entertainment systems and the PSP
system for the North American market. Based in Foster City, Calif. Sony Computer Entertainment
America Inc. serves as headquarters for all North American operations and is a wholly owned
subsidiary of Sony Computer Entertainment Inc.

About SCEI

Recognized as the global leader and company responsible for the progression of consumer-based
computer entertainment, Sony Computer Entertainment Inc. (SCEI) manufacturers, distributes and
markets the PlayStation® game console, the PlayStation®2 computer entertainment system, the PSP®
(PlayStation®Portable) handheld entertainment system and the upcoming, much-anticipated
PLAYSTATION®3 (PS3TM) system. PlayStation has revolutionized home entertainment by introducing
advanced 3D graphic processing, and PlayStation 2 further enhances the PlayStation legacy as the
core of home networked entertainment. PSP is a new handheld entertainment system that allows users
to enjoy 3D games, with high-quality full-motion video, and high-fidelity stereo audio. PS3 is an
advanced computer system, incorporating the state-of-the-art Cell processor with super computer
like power. SCEI, along with its subsidiary divisions Sony Computer Entertainment America Inc.,
Sony Computer Entertainment Europe Ltd., and Sony Computer Entertainment Korea Inc. develops,
publishes, markets and distributes software, and manages the third party licensing programs for
these platforms in the respective markets worldwide. Headquartered in Tokyo, Japan, Sony Computer
Entertainment Inc. is an independent business unit of the Sony Group.

Immersion and the Immersion logo are trademarks of Immersion Corporation.

“PlayStation” and “PLAYSTATION” are registered trademarks of Sony Computer Entertainment, Inc.

All other trademarks are the property of their respective owners.

###

24exv10w01

 

Exhibit 10.01

PDF SOLUTIONS, INC.

2001 STOCK PLAN

AS AMENDED OCTOBER 23, 2006

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	SECTION 1. INTRODUCTION
	 	 	1	 
	SECTION 2. DEFINITIONS
	 	 	1	 
	(a) “Affiliate”
	 	 	1	 
	(b) “Award”
	 	 	1	 
	(c) “Board”
	 	 	1	 
	(d) “Change In Control”
	 	 	1	 
	(e) “Code”
	 	 	2	 
	(f) “Committee”
	 	 	2	 
	(g) “Common Stock”
	 	 	2	 
	(h) “Company”
	 	 	2	 
	(i) “Consultant”
	 	 	2	 
	(j) “Director”
	 	 	2	 
	(k) “Disability”
	 	 	3	 
	(l) “Employee”
	 	 	3	 
	(m) “Exchange Act”
	 	 	3	 
	(n) “Exercise Price”
	 	 	3	 
	(o) “Fair Market Value”
	 	 	3	 
	(p) “Grant”
	 	 	3	 
	(q) “Incentive Stock Option” or “ISO”
	 	 	3	 
	(r) “Key Employee”
	 	 	3	 
	(s) “Non-Employee Director”
	 	 	4	 
	(t) “Nonstatutory Stock Option” or “NSO”
	 	 	4	 
	(u) “Option”
	 	 	4	 
	(v) “Optionee”
	 	 	4	 
	(w) “Parent”
	 	 	4	 
	(x) “Participant”
	 	 	4	 
	(y) “Plan”
	 	 	4	 
	(z) “Restricted Stock”
	 	 	4	 
	(aa) “Restricted Stock Agreement”
	 	 	4	 
	(bb) “Securities Act”
	 	 	4	 
	(cc) “Service”
	 	 	4	 

-i-

 

TABLE OF CONTENTS
(continued)

	 	 	 	 	 
	 	 	Page	 
	(dd) “Share”
	 	 	4	 
	(ee) “Stock Option Agreement”
	 	 	4	 
	(ff) “Stock Purchase Right”
	 	 	4	 
	(gg) “Subsidiary”
	 	 	4	 
	(hh) “10-Percent Shareholder”
	 	 	5	 
	SECTION 3. ADMINISTRATION
	 	 	5	 
	(a) Committee Composition
	 	 	5	 
	(b) Authority of the Committee
	 	 	5	 
	(c) Indemnification
	 	 	6	 
	SECTION 4. ELIGIBILITY
	 	 	6	 
	(a) General Rules
	 	 	6	 
	(b) Incentive Stock Options
	 	 	6	 
	(c) Non-Employee Director Options
	 	 	6	 
	SECTION 5. SHARES SUBJECT TO PLAN
	 	 	7	 
	(a) Basic Limitation
	 	 	7	 
	(b) Annual Addition
	 	 	7	 
	(c) Additional Shares
	 	 	7	 
	(d) Limits on Options
	 	 	7	 
	(e) Limits on Stock Purchase Rights
	 	 	7	 
	SECTION 6. TERMS AND CONDITIONS OF OPTIONS
	 	 	8	 
	(a) Stock Option Agreement
	 	 	8	 
	(b) Number of Shares
	 	 	8	 
	(c) Exercise Price
	 	 	8	 
	(d) Exercisability and Term
	 	 	8	 
	(e) Modifications or Assumption of Options
	 	 	8	 
	(f) Transferability of Options
	 	 	8	 
	(g) No Rights as Stockholder
	 	 	9	 
	(h) Restrictions on Transfer
	 	 	9	 
	SECTION 7. PAYMENT FOR OPTION SHARES
	 	 	9	 
	(a) General Rule
	 	 	9	 
	(b) Surrender of Stock
	 	 	9	 

-ii-

 

TABLE OF CONTENTS
(continued)

	 	 	 	 	 
	 	 	Page	 
	(c) Promissory Note
	 	 	9	 
	(d) Other Forms of Payment
	 	 	9	 
	SECTION 8. TERMS AND CONDITIONS FOR AWARDS OF STOCK PURCHASE RIGHTS
	 	 	10	 
	(a) Time, Amount and Form of Awards
	 	 	10	 
	(b) Agreements
	 	 	10	 
	(c) Payment for Restricted Stock
	 	 	10	 
	(d) Vesting Conditions
	 	 	10	 
	(e) Assignment or Transfer of Restricted Stock
	 	 	10	 
	(f) Trusts
	 	 	10	 
	(g) Voting and Dividend Rights
	 	 	10	 
	SECTION 9. PROTECTION AGAINST DILUTION
	 	 	11	 
	(a) Adjustments
	 	 	11	 
	(b) Participant Rights
	 	 	11	 
	SECTION 10. EFFECT OF A CHANGE IN CONTROL
	 	 	11	 
	(a) Merger or Reorganization
	 	 	11	 
	(b) Acceleration
	 	 	11	 
	SECTION 11. LIMITATIONS ON RIGHTS
	 	 	11	 
	(a) Retention Rights
	 	 	11	 
	(b) Stockholders’ Rights
	 	 	12	 
	(c) Regulatory Requirements
	 	 	12	 
	SECTION 12. WITHHOLDING TAXES
	 	 	12	 
	(a) General
	 	 	12	 
	(b) Share Withholding
	 	 	12	 
	SECTION 13. DURATION AND AMENDMENTS
	 	 	12	 
	(a) Term of the Plan
	 	 	12	 
	(b) Right to Amend or Terminate the Plan
	 	 	13	 
	SECTION 14. EXECUTION
	 	 	13	 

-iii-

 

PDF SOLUTIONS, INC.

2001 STOCK PLAN

AS AMENDED OCTOBER 23, 2006

SECTION 1. INTRODUCTION.

     The Company’s Board of Directors adopted the PDF Solutions, Inc. 2001 Stock Plan on June 12,
2001 (the “Adoption Date”), and the Company’s stockholders approved the Plan on July 6, 2001. The
Plan is effective on the date of our initial public offering.

     The purpose of the Plan is to promote the long-term success of the Company and the creation of
shareholder value by offering Key Employees an opportunity to acquire a proprietary interest in the
success of the Company, or to increase such interest, and to encourage such selected persons to
continue to provide services to the Company and to attract new individuals with outstanding
qualifications. The Plan seeks to achieve this purpose by providing for Awards in the form of
Stock Purchase Rights granting Restricted Stock and Options which may be Incentive Stock Options or
Nonstatutory Stock Options.

     The Plan shall be governed by, and construed in accordance with, the laws of the State of
Delaware (except its choice-of-law provisions). Capitalized terms shall have the meaning provided
in Section 2 unless otherwise provided in this Plan or the applicable Stock Option Agreement or
Restricted Stock Agreement.

SECTION 2. DEFINITIONS.

     (a) “Affiliate” means any entity other than a Subsidiary, if the Company and/or one or more
Subsidiaries own not less than 50% of such entity. For purposes of determining an individual’s
“Service,” this definition shall include any entity other than a Subsidiary, if the Company, a
Parent and/or one or more Subsidiaries own not less than 50% of such entity.

     (b) “Award” means any award of an Option or Stock Purchase Right under the Plan.

     (c) “Board” means the Board of Directors of the Company, as constituted from time to time.

     (d) “Change In Control” except as may otherwise be provided in a Stock Option Agreement or
Restricted Stock Agreement, means the occurrence of any of the following:

	 	(i)	 	The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity’s
securities outstanding immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders of
the Company immediately prior to such merger, consolidation or other
reorganization;

 

	 	(ii)	 	The sale, transfer or other disposition of all or substantially
all of the Company’s assets;
	 
	 	(iii)	 	A change in the composition of the Board, as a result of which
fewer that one-half of the incumbent directors are directors who either (i) had
been directors of the Company on the date 24 months prior to the date of the
event that may constitute a Change in Control (the “original directors”) or
(ii) were elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the aggregate of the original directors who
were still in office at the time of the election or nomination and the
directors whose election or nomination was previously so approved;
	 
	 	(iv)	 	Any transaction as a result of which any person becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing at least 20% of the
total voting power represented by the Company’s then outstanding voting
securities. For purposes of this Paragraph (iii), the term “person” shall have
the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act
but shall exclude:

	 	(A)	 	A trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a subsidiary of the
Company;
	 
	 	(B)	 	A corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions
as their ownership of the common stock of the Company; and
	 
	 	(C)	 	The Company; or

	 	(v)	 	A complete liquidation or dissolution of the Company.

     (e) “Code” means the Internal Revenue Code of 1986, as amended.

     (f) “Committee” means a committee consisting of one or more members of the Board that is
appointed by the Board (as described in Section 3) to administer the Plan.

     (g) “Common Stock” means the Company’s common stock.

     (h) “Company” means PDF Solutions, Inc.

     (i) “Consultant” means an individual who performs bona fide services to the Company, a Parent,
a Subsidiary or an Affiliate other than as an Employee or Director or Non-Employee Director.

     (j) “Director” means a member of the Board who is also an Employee.

-2-

 

     (k) “Disability” means that the Key Employee is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a continuous period
of not less than 12 months.

     (l) “Employee” means any individual who is a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.

     (m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     (n) “Exercise Price” means, in the case of an Option, the amount for which a Share may be
purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement.

     (o) “Fair Market Value” means the market price of Shares, determined by the Committee as
follows:

	 	(i)	 	If the Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the last trading price
reported by the applicable composite transactions report for such date;
	 
	 	(ii)	 	If the Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair Market
Value shall be equal to the last trading price quoted by the NASDAQ Global
Market system for such date;
	 
	 	(iii)	 	If the Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the Fair
Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the NASDAQ Global Market system
for such date; and
	 
	 	(iv)	 	If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.

     Whenever possible, the determination of Fair Market Value by the Committee shall be based on
the prices reported in the Wall Street Journal. Such determination shall be conclusive and binding
on all persons.

     (p) “Grant” means any grant of an Award under the Plan.

     (q) “Incentive Stock Option” or “ISO” means an incentive stock option described in Code
section 422(b).

     (r) “Key Employee” means an Employee, Director, Non-Employee Director or Consultant who has
been selected by the Committee to receive an Award under the Plan.

-3-

 

     (s) “Non-Employee Director” means a member of the Board who is not an Employee.

     (t) “Nonstatutory Stock Option” or “NSO” means a stock option that is not an ISO.

     (u) “Option” means an ISO or NSO granted under the Plan entitling the Optionee to purchase
Shares.

     (v) “Optionee” means an individual, estate or other entity that holds an Option.

     (w) “Parent” means any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, if each of the corporations other than the Company owns stock
possessing fifty percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

     (x) “Participant” means an individual or estate or other entity that holds an Award.

     (y) “Plan” means this PDF Solutions, Inc. 2001 Stock Plan as it may be amended from time to
time.

     (z) “Restricted Stock” means a Share awarded under the Plan pursuant to a Stock Purchase
Right.

     (aa) “Restricted Stock Agreement” means the agreement described in Section 8 evidencing
Restricted Stock that may be purchased following the Award of a Stock Purchase Right.

     (bb) “Securities Act” means the Securities Act of 1933, as amended.

     (cc) “Service” means service as an Employee, Director, Non-Employee Director or Consultant.

     (dd) “Share” means one share of Common Stock.

     (ee) “Stock Option Agreement” means the agreement described in Section 6 evidencing each Grant
of an Option.

     (ff) “Stock Purchase Right” means the right to acquire Restricted Stock pursuant to Section 8.

     (gg) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations in such chain. A

-4-

 

corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall
be considered a Subsidiary commencing as of such date.

     (hh) “10-Percent Shareholder” means an individual who owns more than ten percent (10%) of the
total combined voting power of all classes of outstanding stock of the Company, its Parent or any
of its subsidiaries. In determining stock ownership, the attribution rules of section 424(d) of
the Code shall be applied.

SECTION 3. ADMINISTRATION.

     (a) Committee Composition. A Committee appointed by the Board shall administer the Plan. The
Board shall designate one of the members of the Committee as chairperson. If no Committee has been
approved, the entire Board shall constitute the Committee. Members of the Committee shall serve
for such period of time as the Board may determine and shall be subject to removal by the Board at
any time. The Board may also at any time terminate the functions of the Committee and reassume all
powers and authority previously delegated to the Committee.

     With respect to officers or directors subject to Section 16 of the Exchange Act, the Committee
shall consist of those individuals who shall satisfy the requirements of Rule 16b-3 (or its
successor) under the Exchange Act with respect to Awards granted to persons who are officers or
directors of the Company under Section 16 of the Exchange Act. Notwithstanding the previous
sentence, failure of the Committee to satisfy the requirements of Rule 16b-3 shall not invalidate
any Awards granted by such Committee.

     The Board may also appoint one or more separate committees of the Board, each composed of one
or more directors of the Company who need not qualify under Rule 16b-3, who may administer the Plan
with respect to Key Employees who are not considered officers or directors of the Company under
Section 16 of the Exchange Act, may grant Awards under the Plan to such Key Employees and may
determine all terms of such Awards.

     Notwithstanding the foregoing, the Board shall constitute the Committee and shall administer
the Plan with respect to all Awards granted to Non-Employee Directors.

     (b) Authority of the Committee. Subject to the provisions of the Plan, the Committee shall
have full authority and discretion to take any actions it deems necessary or advisable for the
administration of the Plan. Such actions shall include:

	 	(i)	 	selecting Key Employees who are to receive Awards under the
Plan;
	 
	 	(ii)	 	determining the type, number, vesting requirements and other
features and conditions of such Awards;
	 
	 	(iii)	 	interpreting the Plan;
	 
	 	(iv)	 	adopting such plans or subplans as may be deemed necessary or
appropriate to provide for the participation by Key Employees of the Company
and its Subsidiaries and Affiliates who reside outside the U.S., which plans
and/or subplans shall be attached hereto as Appendices; and

-5-

 

	 	(v)	 	making all other decisions relating to the operation of the
Plan.

     The Committee may adopt such rules or guidelines, as it deems appropriate to implement the
Plan. The Committee’s determinations under the Plan shall be final and binding on all persons.

     (c) Indemnification. Each member of the Committee, or of the Board, shall be indemnified and
held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or resulting from any claim,
action, suit, or proceeding to which he or she may be a party or in which he or she may be involved
by reason of any action taken or failure to act under the Plan or any Stock Option Agreement or
Restricted Stock Agreement, and (ii) from any and all amounts paid by him or her in settlement
thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any
such claim, action, suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Company’s Certificate of Incorporation or Bylaws, by contract, as a
matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold
them harmless.

SECTION 4. ELIGIBILITY.

     (a) General Rules. Only Employees, Directors, Non-Employee Directors and Consultants shall be
eligible for designation as Key Employees by the Committee.

     (b) Incentive Stock Options. Only Key Employees who are common-law employees of the Company,
a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, a Key Employee who
is a 10-Percent Shareholder shall not be eligible for the grant of an ISO unless the requirements
set forth in section 422(c)(5) of the Code are satisfied.

     (c) Non-Employee Director Options. Non-Employee Directors shall also be eligible to receive
Options as described in this Section 4(c) from and after the date the Board has determined to
implement this provision.

	 	(i)	 	Each eligible Non-Employee Director elected or appointed after
the effective date of the Company’s initial public offering shall automatically
be granted an NSO to purchase 30,000 Shares (after giving effect to the June
2001 stock split) (subject to adjustment under Section 9) as a result of his or
her initial election or appointment as a Non-Employee Director. Upon the
conclusion of each regular annual meeting of the Company’s stockholders
following his or her initial appointment, each eligible Non-Employee Director
who will continue serving as a member of the Board
and who received an initial grant thereafter shall receive an NSO to
purchase 15,000 Shares (after giving effect to the June 2001 stock split)
(subject to adjustment under Section 9). All NSOs granted pursuant to this
Section 4 shall vest and become exercisable provided the individual is

-6-

 

	 	 	 	serving as a director of the Company as of the vesting date as follows: 25%
one year from the date of grant, then in 36 equal monthly installments
commencing on the date one month and one year after the date of grant.
	 
	 	(ii)	 	All NSOs granted to Non-Employee Directors under this Section
4(c) shall become exercisable in full in the event of Change in Control with
respect to the Company.
	 
	 	(iii)	 	The Exercise Price under all NSOs granted to a Non-Employee
Director under this Section 4(c) shall be equal to one hundred percent (100%)
of the Fair Market Value of a Share of Common Stock on the date of grant,
payable in one of the forms described in Section 7.
	 
	 	(iv)	 	All NSOs granted to a Non-Employee Director under this Section
4(c) shall terminate on the earlier of:

	 	(1)	 	The 10th anniversary of the date of grant; or
	 
	 	(2)	 	The date ninety (90) days after the termination
of such Non-Employee Director’s Service for any reason.

SECTION 5. SHARES SUBJECT TO PLAN.

     (a) Basic Limitation. The stock issuable under the Plan shall be authorized but unissued
Shares or treasury Shares. The aggregate number of Shares reserved for Awards under the Plan shall
not exceed 3,000,000 Shares (after giving effect to the June 2001 stock split).

     (b) Annual Addition. Beginning with the first fiscal year of the Company beginning after the
Effective Date, on the first day of each fiscal year, Shares will be added to the Plan equal to the
lesser of (i) 3,000,000 Shares (after giving effect to the June 2001 stock split), (ii) five
percent (5%) of the outstanding shares on the last day of the prior fiscal year, or (iii) such
lesser number of Shares as may be determined by the Board in its sole discretion.

     (c) Additional Shares. If Awards are forfeited or terminate for any other reason before being
exercised, then the Shares underlying such Awards shall again become available for Awards under the
Plan.

     (d) Limits on Options. No Key Employee shall receive Options to purchase Shares during any
fiscal year covering in excess of 1,000,000 Shares (after giving effect to the June 2001 stock
split), or 2,000,000 Shares (after giving effect to the June 2001 stock split) in the first fiscal
year of a Key Employee’s employment with Company.

     (e) Limits on Stock Purchase Rights. No Key Employee shall receive an Award of Stock Purchase
Rights during any fiscal year covering in excess of 500,000 Shares (after giving effect to the June
2001 stock split), or 1,000,000 Shares (after giving effect to the June 2001 stock split) in the
first fiscal year of a Key Employee’s employment with Company.

-7-

 

SECTION 6. TERMS AND CONDITIONS OF OPTIONS.

     (a) Stock Option Agreement. Each Grant under the Plan shall be evidenced by a Stock Option
Agreement between the Optionee and the Company. Such Option shall be subject to all applicable
terms and conditions of the Plan and may be subject to any other terms and conditions that are not
inconsistent with the Plan and that the Committee deems appropriate for inclusion in a Stock Option
Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need
not be identical. A Stock Option Agreement may provide that new Options will be granted
automatically to the Optionee when he or she exercises the prior Options. The Stock Option
Agreement shall also specify whether the Option is an ISO or an NSO.

     (b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are
subject to the Option and shall provide for the adjustment of such number in accordance with
Section 9.

     (c) Exercise Price. An Option’s Exercise Price shall be established by the Committee and set
forth in a Stock Option Agreement. The Exercise Price of an ISO shall not be less than 100% of the
Fair Market Value (110% for 10-Percent Shareholders) of a Share on the date of Grant. In the case
of an NSO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the NSO is outstanding.

     (d) Exercisability and Term. Each Stock Option Agreement shall specify the date when all or
any installment of the Option is to become exercisable. The Stock Option Agreement shall also
specify the term of the Option; provided that the term of an ISO shall in no event exceed ten (10)
years from the date of Grant. An ISO that is granted to a 10-Percent Shareholder shall have a
maximum term of five (5) years. No Option can be exercised after the expiration date provided in
the applicable Stock Option Agreement. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee’s death, disability or retirement or other events and
may provide for expiration prior to the end of its term in the event of the termination of the
Optionee’s service. A Stock Option Agreement may permit an Optionee to exercise an Option before
it is vested, subject to the Company’s right of repurchase over any Shares acquired under the
unvested portion of the Option (an “early exercise”), which right of repurchase shall lapse at the
same rate the Option would have vested had there been no early exercise. In no event shall the
Company be required to issue fractional Shares upon the exercise of an Option.

     (e) Modifications or Assumption of Options. Within the limitations of the Plan, the Committee
may modify, extend or assume outstanding options or may accept the cancellation of outstanding
options (whether granted by the Company or by another issuer) in return for the grant of new
Options for the same or a different number of Shares and at the same or a different
Exercise Price. The foregoing notwithstanding, no modification of an Option shall, without
the consent of the Optionee, alter or impair his or her rights or obligations under such Option.

     (f) Transferability of Options. Except as otherwise provided in the applicable Stock Option
Agreement and then only to the extent permitted by applicable law, no Option shall be transferable
by the Optionee other than by will or by the laws of descent and distribution.

-8-

 

Except as otherwise
provided in the applicable Stock Option Agreement, an Option may be exercised during the lifetime
of the Optionee only or by the guardian or legal representative of the Optionee. No Option or
interest therein may be assigned, pledged or hypothecated by the Optionee during his lifetime,
whether by operation of law or otherwise, or be made subject to execution, attachment or similar
process.

     (g) No Rights as Stockholder. An Optionee, or a transferee of an Optionee, shall have no
rights as a stockholder with respect to any Common Stock covered by an Option until such person
becomes entitled to receive such Common Stock by filing a notice of exercise and paying the
Exercise Price pursuant to the terms of such Option.

     (h) Restrictions on Transfer. Any Shares issued upon exercise of an Option shall be subject
to such rights of repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall apply in addition to any restrictions that may
apply to holders of Shares generally and shall also comply to the extent necessary with applicable
law.

SECTION 7. PAYMENT FOR OPTION SHARES.

     (a) General Rule. The entire Exercise Price of Shares issued upon exercise of Options shall
be payable in cash at the time when such Shares are purchased, except as follows:

	 	(i)	 	In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. he Stock Option Agreement may specify that payment may be made in
any form(s) described in this Section 7.
	 
	 	(ii)	 	In the case of an NSO granted under the Plan, the Committee may
in its discretion, at any time accept payment in any form(s) described in this
Section 7.

     (b) Surrender of Stock. To the extent that this Section 7(b) is applicable, payment for all
or any part of the Exercise Price may be made with Shares which have already been owned by the
Optionee for such duration as shall be specified by the Committee. Such Shares shall be valued at
their Fair Market Value on the date when the new Shares are purchased under the Plan.

     (c) Promissory Note. To the extent that this Section 7(c) is applicable, payment for all or
any part of the Exercise Price may be made with a full-recourse promissory note.

     (d) Other Forms of Payment. To the extent that this Section 7(d) is applicable, payment may
be made in any other form that is consistent with applicable laws, regulations and rules.

-9-

 

SECTION 8. TERMS AND CONDITIONS FOR AWARDS OF STOCK PURCHASE RIGHTS.

     (a) Time, Amount and Form of Awards. Awards under this Section 8 may be granted in the form
of Stock Purchase Rights pursuant to which Restricted Stock will be awarded to a Key Employee.
Such Rights may also be awarded in combination with NSOs, and such an Award may provide that the
Restricted Stock will be forfeited in the event that the related NSOs is exercised.

     (b) Agreements. Each Award of a Stock Purchase Right under the Plan shall be evidenced by a
Restricted Stock Agreement between the Participant and the Company. Such Awards shall be subject
to all applicable terms and conditions of the Plan and may be subject to any other terms and
conditions that are not inconsistent with the Plan and that the Committee deems appropriate for
inclusion in the applicable Agreement. The provisions of the various Agreements entered into under
the Plan need not be identical.

     (c) Payment for Restricted Stock. Restricted Stock may be issued pursuant to the Award of a
Stock Purchase Right with or without cash consideration under the Plan.

     (d) Vesting Conditions. Each Award of Restricted Stock shall become vested, in full or in
installments, upon satisfaction of the conditions specified in the applicable Agreement. An
Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability
or retirement or other events.

     (e) Assignment or Transfer of Restricted Stock. Except as provided in Section 13, or in a
Restricted Stock Agreement, or as required by applicable law, an Award granted under this Section 8
shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to
any creditor’s process, whether voluntarily, involuntarily or by operation of law. Any act in
violation of this Section 8(e) shall be void. However, this Section 8(e) shall not preclude a
Participant from designating a beneficiary who will receive any outstanding Restricted Stock in the
event of the Participant’s death, nor shall it preclude a transfer of Restricted Stock by will or
by the laws of descent and distribution.

     (f) Trusts. Neither this Section 8 nor any other provision of the Plan shall preclude a
Participant from transferring or assigning Restricted Stock to (a) the trustee of a trust that is
revocable by such Participant alone, both at the time of the transfer or assignment and at all
times thereafter prior to such Participant’s death, or (b) the trustee of any other trust to the
extent approved in advance by the Committee in writing. A transfer or assignment of Restricted
Stock from such trustee to any person other than such Participant shall be permitted only to the
extent approved in advance by the Committee in writing, and Restricted Stock held by such trustee
shall be subject to all of the conditions and restrictions set forth in the Plan and in the
applicable Restricted Stock Agreement, as if such trustee were a party to such Agreement.

     (g) Voting and Dividend Rights. The holders of Restricted Stock acquired pursuant to a Stock
Purchase Right awarded under the Plan shall have the same voting, dividend and other rights as the
Company’s other stockholders. A Restricted Stock Agreement, however, may require that the holders
of Restricted Stock invest any cash dividends received in additional Restricted Stock. Such
additional

-10-

 

Restricted Stock shall be subject to the same conditions and restrictions as the Award
with respect to which the dividends were paid. Such additional Restricted Stock shall not reduce
the number of Shares available under Section 5.

SECTION 9. PROTECTION AGAINST DILUTION.

     (a) Adjustments. In the event of a subdivision of the outstanding Shares, a declaration of a
dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an
amount that has a material effect on the price of Shares, a combination or consolidation of the
outstanding Shares (by reclassification or otherwise) into a lesser number of Shares, a
recapitalization, reorganization, merger, liquidation, spin-off or a similar occurrence, the
Committee shall make such adjustments as it, in its reasonable discretion, deems appropriate in
order to prevent the dilution or enlargement of rights hereunder in one or more of:

	 	(i)	 	the number of Shares available for future Awards and the per
person Share limits under Section 5;
	 
	 	(ii)	 	the number of Shares covered by each outstanding Award; or
	 
	 	(iii)	 	the Exercise Price under each outstanding Option.

     (b) Participant Rights. Except as provided in this Section 9, a Participant shall have no
rights by reason of any issue by the Company of stock of any class or securities convertible into
stock of any class, any subdivision or consolidation of shares of stock of any class, the payment
of any stock dividend or any other increase or decrease in the number of shares of stock of any
class.

SECTION 10. EFFECT OF A CHANGE IN CONTROL.

     (a) Merger or Reorganization. In the event that the Company is a party to a merger or other
reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization.
Such agreement may provide, without limitation, for the assumption of outstanding Awards by the
surviving corporation or its parent, for their continuation by the Company (if the Company is a
surviving corporation), for accelerated vesting or for their cancellation with or without
consideration.

     (b) Acceleration. Except as otherwise provided in the applicable Stock Option Agreement or
Restricted Stock Agreement, in the event that a Change in Control occurs with respect to the
Company and the applicable agreement of merger or reorganization provides for assumption or
continuation of Awards pursuant to Section 10(a), no acceleration of vesting shall occur. In the
event that a Change in Control occurs with respect to the Company and there is no assumption or
continuation of Awards pursuant to Section 10(a), all Awards shall vest and become immediately
exercisable.

SECTION 11. LIMITATIONS ON RIGHTS.

     (a) Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed
to give any individual a right to remain an employee, consultant or director of the

-11-

 

Company, a
Parent, a Subsidiary or an Affiliate. The Company and its Parents and Subsidiaries and Affiliates
reserve the right to terminate the Service of any person at any time, and for any reason, subject
to applicable laws, the Company’s Certificate of Incorporation and Bylaws and a written employment
agreement (if any).

     (b) Stockholders’ Rights. A Participant shall have no dividend rights, voting rights or other
rights as a stockholder with respect to any Shares covered by his or her Award prior to the
issuance of a stock certificate for such Shares. No adjustment shall be made for cash dividends or
other rights for which the record date is prior to the date when such certificate is issued, except
as expressly provided in Section 9.

     (c) Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation
of the Company to issue Shares under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Shares pursuant to any Award prior to the
satisfaction of all legal requirements relating to the issuance of such Shares, to their
registration, qualification or listing or to an exemption from registration, qualification or
listing.

SECTION 12. WITHHOLDING TAXES.

     (a) General. A Participant shall make arrangements satisfactory to the Company for the
satisfaction of any withholding tax obligations that arise in connection with his or her Award.
The Company shall not be required to issue any Shares or make any cash payment under the Plan until
such obligations are satisfied.

     (b) Share Withholding. If a public market for the Company’s Shares exists, the Committee may
permit a Participant to satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Shares that otherwise would be issued to him or
her or by surrendering all or a portion of any Shares that he or she previously acquired. Such
Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be
withheld in cash. In no event may the Company allow Shares to be withheld in an amount that
exceeds the minimum statutory withholding rates for federal and state tax purposes, including
payroll taxes. Any payment of taxes by assigning Shares to the Company may be subject to
restrictions, including, but not limited to, any restrictions required by rules of the Securities
and Exchange Commission.

SECTION 13. DURATION AND AMENDMENTS.

     (a) Term of the Plan. The Plan, as set forth herein, shall become effective on the date of
its adoption by the Board, subject to the approval of the Company’s stockholders. No Options shall
be exercisable until such stockholder approval is obtained. In the event that the stockholders
fail to approve the Plan within twelve (12) months after its adoption by the Board, any Awards made
shall be null and void and no additional Awards shall be made. The Plan shall
terminate on the date that is ten (10) years after its adoption by the Board and may be
terminated on any earlier date pursuant to Section 13(b).

-12-

 

     (b) Right to Amend or Terminate the Plan. The Board may amend or terminate the Plan at any
time and for any reason. The termination of the Plan, or any amendment thereof, shall not affect
any Award previously granted under the Plan. No Awards shall be granted under the Plan after the
Plan’s termination. An amendment of the Plan shall be subject to the approval of the Company’s
stockholders only to the extent required by applicable laws, regulations or rules.

SECTION 14. EXECUTION.

     To record the adoption of the Plan by the Board, the Company has caused its duly authorized
officer to execute this Plan on behalf of the Company.

	 	 	 	 	 	 	 
	 	 	PDF SOLUTIONS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Keith A. Jones	 	 
	 

	 	 	 	 	 	 
	 

	 	Title
	 	Chief Financial Officer	 	 

-13-

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