<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IMMERSION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3577 94-3180138
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
2158 PARAGON DRIVE
SAN JOSE, CALIFORNIA 95131
(408) 467-1900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
LOUIS B. ROSENBERG
CHIEF EXECUTIVE OFFICER
IMMERSION CORPORATION
2158 PARAGON DRIVE
SAN JOSE, CALIFORNIA 95131
(408) 467-1900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
BRUCE SCHAEFFER, ESQ. LAIRD H. SIMONS, III, ESQ.
TOM FURLONG, ESQ. KATHERINE TALLMAN SCHUDA, ESQ.
PAMELA B. BURKE, ESQ. CYNTHIA E. GARABEDIAN, ESQ.
GRAY CARY WARE & FREIDENRICH LLP FENWICK & WEST LLP
400 HAMILTON AVENUE TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94301-1825 PALO ALTO, CALIFORNIA 94306
(650) 328-6561 (650) 494-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE(1)
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<S> <C> <C>
Common Stock ($0.001 par value)............... $53,762,500 $14,946
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</TABLE>
(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) under the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE SUCH AN OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
SHARES
IMMERSION.LOGO
COMMON STOCK
This is an initial public offering of common stock by Immersion
Corporation. The estimated initial public offering price is between $ and
$ per share.
------------------
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol IMMR.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Immersion Corporation, before expenses.......... $ $
</TABLE>
Immersion Corporation and the selling stockholders have granted the
underwriters an option for a period of 30 days to purchase up to
additional shares of common stock.
------------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
HAMBRECHT & QUIST
BEAR, STEARNS & CO. INC.
BANCBOSTON ROBERTSON STEPHENS
, 1999
<PAGE> 3
COVER PAGE ART
[Art: Rendition of a human hand reaching
out to touch a computer cursor]
Headline Above the Illustration: "Engaging the Sense of Touch'
------------------------
FIRST GATE FOLD (LEFT)
[Art: Windows desktop with Yahoo home page prominently featured]
Headline Above the Desktop Illustration: "Immersion Technology Provides
Compelling Tactile Sensations For More Natural Interaction, Enhanced
Productivity And A More Engaging Experience."
Smaller Text Below the Headline But Above the Desktop Illustration: "Even the
simple task of clicking on a Web page button is an exercise in visually
positioning the cursor on top of the icon. If users could feel the cursor engage
the button, the interaction would be more intuitive, improving productivity.
With our technology, it is now possible to touch and feel content through an
enhanced computer mouse."
[Surrounding the Yahoo home page, a series of call-outs describing how Immersion
technology adds feel to particular aspects of the home page:
Call-out from "Search" button: "Buttons users can feel are easier to activate."
Call-out from hyperlink: "With a magnetic-like pull, the cursor snaps to links,
enabling faster and easier navigation."
Call-out from slider bar: "Feeling the cursor slip into the groove of a slider
bar lets users scroll without looking away from their work."
Call-out from edge of web-page window: "Bumping against a window's edge makes
maneuvering around the desktop easier."
Call-out from lower-right corner of the Yahoo window: "Resizing a window feels
like stretching a rubber band."
Call-out from folder icon: "As content is added, folders become "heavier,"
requiring more force to move."
[Art: At lower left of left gate-fold, a wire frame globe being stretched out of
shape]
Text above the globe: "Feel objects in engineering and drawing software'
Headline at bottom left of page (below desktop): "Interacting With Graphical
Elements At A New Level'
Smaller text below headline: "Our feel technology enables software programs to
be more intuitive, especially when users must target small elements on-screen.
For example, selecting individual points of a line in a drawing program requires
extra attention to align the cursor properly. Our technology makes it possible
to feel the cursor interact with the desired graphical object."
Headline at bottom right of page (below desktop): "Enhancing On-Line
Experiences'
Smaller text below headline: "Our technology lets users feel physical sensations
such as textures, surfaces, springs, liquids and vibrations. Shopping on-line
for clothing or furniture, for example, can be enhanced by the ability to feel
physical attributes of products prior to purchase."
<PAGE> 4
FIRST GATE-FOLD (RIGHT)
[Art: Photo of Endoscopic Sinus Surgery Simulator at top of left column]
Headline below photograph: "Adding Realistic Feel To Medical Training"
Smaller text below headline: "Our technology enhances medical simulations by
enabling doctors and students to practice surgical procedures in simulated
training environments"
[Art: stethoscope in front of simulated EKG tracing at top of center column]
[Art: Photo of FEELit mouse below stethoscope further down in center column]
Headline below photograph: "Patented Technology Makes It Possible"
Smaller text below headline: "More than just a pointer, a feel-enabled mouse
delivers to the user compelling physical sensations that correspond to on-screen
events. The result is an immediate, realistic experience."
[Art: Artist's rendition of a molecule with nucleus, electrons, etc at top of
right column]
Headline below illustration: "An Enhanced Educational Resource"
Smaller text below headline: "Our technology can help communicate principles of
physics and other sciences. Students can use computers to physically experience
such forces as gravity, friction, inertia and magnetism."
[Art: Photos of a joystick and a steering wheel at bottom of right hand column]
Headline above joystick and wheel photos: "Evolving The Computer Gaming
Experience"
Smaller text below headline and above joystick and wheel photos: "From flight
simulation to action games, our feel technology helps software developers create
a more compelling experience. The vibrations of turbulence in flight, the impact
of a bat against a ball, and the rumble of a powerful engine are examples of
sensations that our technology allows software developers to simulate and users
to feel. The result: more realistic, compelling games."
------------------------
INSIDE BACK COVER
Text down right-hand column of page: Listing of all of Immersion's current
licensees
Text in left-hand column, near but not quite at the top: "Immersion Licenses Its
Technology to Peripheral Device Manufacturers'
------------------------
BACK COVER
[Art: Immersion logo of a stylized hand]
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 4
Risk Factors................................................ 6
Forward-Looking Statements.................................. 15
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Consolidated Financial Data........................ 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 27
Management.................................................. 38
Certain Transactions........................................ 46
Principal Stockholders...................................... 48
Description of Capital Stock................................ 49
Shares Eligible for Future Sale............................. 53
Underwriting................................................ 55
Legal Matters............................................... 57
Experts..................................................... 57
Where You Can Find Additional Information................... 57
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
All brand names and trademarks appearing in this prospectus are the
property of their respective holders.
3
<PAGE> 6
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information,
our financial statements and the related notes and the risks of investing in our
common stock discussed under "Risk Factors" before making an investment
decision. Except as otherwise noted, all information in this prospectus assumes
a 0.807 share for one share reverse stock split, the conversion of all
outstanding shares of preferred stock, no exercise of the underwriters'
over-allotment option and our reincorporation in Delaware.
IMMERSION CORPORATION
We are the leading provider of technologies that enable users to interact
with computers using their sense of touch. Our solution enables computer
peripheral devices such as mice and joysticks to deliver compelling tactile
sensations that correspond to on-screen events. Our feel technology includes a
combination of sophisticated hardware and software designs, for which we hold 33
U.S. patents and have over 100 additional patent applications pending in the
U.S. and abroad. We currently license our technologies to peripheral device
manufacturers including Logitech, Microsoft and InterAct. Our objective is to
proliferate our feel technology across markets, platforms and applications so
that feel becomes as common as graphics and sound in the modern computer
interface.
Early computers had crude user interfaces that only displayed text and
numbers. In the 1980s computers began to use graphics and sound to engage users'
perceptual senses more naturally, leading to the popularization of the video
game, the graphical user interface and the Web. By presenting content in ways
that engage the senses more fully, computers were "humanized," becoming more
personal, less intimidating and easier to use. While most modern computers
realistically present information to the senses of sight and sound, they still
lack the ability to convey content through the sense of touch. The absence of
touch is a substantial barrier to making computer use more natural and
intuitive.
We develop and license affordable technologies that allow users to touch
and feel computer content. Our patented designs incorporate specialized hardware
elements such as motors, control electronics and mechanisms into computer
peripheral devices. Driven by sophisticated software algorithms, these hardware
elements direct tactile sensations to the user's hand. We offer a complete
technical solution to our licensees and to software and Web developers. Our
technologies comply with leading hardware and software standards including
Universal Serial Bus (USB) and Microsoft's DirectX application programming
interface.
We are focusing our initial marketing and business development activities
on the computer entertainment and mainstream computing markets. In 1996 we
introduced I-FORCE, our feel technology designed for entertainment peripherals
such as joysticks, steering wheels and game pads. We currently license I-FORCE
to 16 manufacturing partners, including Logitech, Microsoft and InterAct. To
target the mainstream computing market, we developed FEELit, a feel technology
designed for cursor control products such as mice and trackballs. Our first
FEELit licensee, Logitech, has announced that it will begin shipping
feel-enabled mice in late 1999. We also license our technologies and sell
products into industrial, medical and scientific markets.
Key elements of our strategy are to:
- pursue a royalty-based licensing model;
- facilitate development of feel-enabled products;
- expand software support for our feel technology;
- expand market awareness of our technologies and brands;
- secure licensees in new markets for feel technology; and
- continue to develop and protect our intellectual property.
We were incorporated in California in May 1993 and intend to reincorporate
in Delaware in October 1999 prior to the completion of the offering. Our
headquarters are located at 2158 Paragon Drive, San Jose, California 95131 and
our telephone number is (408) 467-1900.
4
<PAGE> 7
THE OFFERING
Common stock offered by us................ shares
Common stock to be outstanding after this
offering.................................. shares
Use of proceeds........................... For working capital and general
corporate purposes.
Proposed Nasdaq National Market symbol.... IMMR
------------------------
The number of shares of common stock outstanding after this offering is
based on 11,032,505 shares outstanding as of June 30, 1999. This number excludes
3,344,329 shares of common stock issuable upon exercise of stock options with a
weighted average exercise price of $1.13 per share and 498,593 shares of common
stock issuable upon exercise of warrants outstanding as of June 30, 1999 with
weighted average exercise prices of $2.71. This number also excludes 1,141,493
shares of common stock available for future issuance under our 1997 Stock Option
Plan and 500,000 shares reserved for sale under our 1999 Employee Stock Purchase
Plan.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The pro forma column in the consolidated balance sheet data reflects the
automatic conversion of all shares of preferred stock into common stock upon the
closing of this offering. The pro forma as adjusted numbers in the consolidated
balance sheet data reflect the receipt of the net proceeds from the sale of
shares of common stock offered by us at the assumed initial public offering
price of $ per share after deducting the underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................. $2,737 $ 4,332 $ 5,021 $ 2,177 $ 3,503
Costs and expenses....................... 2,846 4,909 6,868 3,125 5,687
Operating loss........................... (109) (577) (1,847) (948) (2,184)
Net loss................................. (81) (527) (1,673) (869) (2,118)
Net loss per share -- basic and
diluted............................... $(0.03) $ (0.17) $ (0.43) $ (0.23) $ (0.42)
Shares used in calculating basic and
diluted net loss per share............ 2,825 3,162 3,909 3,839 5,003
Pro forma basic and diluted net loss per
share................................. $ (0.19) $ (0.21)
Shares used in calculating pro forma
basic and diluted net loss per
share................................. 8,630 10,134
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $2,204 $2,204
Working capital......................................... 3,339 3,339
Total assets............................................ 9,706 9,706
Redeemable convertible preferred stock.................. 1,479 --
Total stockholders' equity.............................. 7,370 8,849
</TABLE>
5
<PAGE> 8
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider the risks described below carefully and all of the information
contained in this prospectus before deciding whether to purchase our common
stock. If any of the following risks actually occur, our business, financial
condition and results of operations would suffer. In this case, the trading
price of our common stock could decline, and you might lose all or part of your
investment in our common stock.
THE MARKET FOR OUR TECHNOLOGIES IS AT AN EARLY STAGE AND, IF MARKET DEMAND DOES
NOT DEVELOP, WE MAY NOT ACHIEVE REVENUE GROWTH
The consumer market for feel technology is at an early stage. To date,
consumer demand for our technologies has been limited to the computer gaming
market, and sales of feel-enabled products in that market began only in late
1996. We anticipate that the first FEELit computer mouse will be introduced this
year, and it may not achieve commercial acceptance or success. In addition,
software developers may elect not to create additional games or other
applications that support our feel technology. Even if our technologies are
ultimately widely adopted by consumers, widespread adoption may take a long time
to occur. The timing and amount of royalties that we receive will depend on
whether the products marketed by our licensees achieve widespread adoption, and,
if so, how rapidly that adoption occurs. We expect that we will need to pursue
extensive and expensive marketing and sales efforts to educate prospective
licensees and consumers about the uses and benefits of our technologies and to
persuade software developers to create software that utilizes our technologies.
Our efforts may not be successful, and consumer demand may not develop to a
level that allows us to achieve and sustain revenue growth.
WE HAVE A HISTORY OF LOSSES, WILL EXPERIENCE LOSSES IN THE FUTURE AND MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY
Since 1997, we have incurred losses in every fiscal quarter and expect
losses through at least 2000. We will need to generate significant revenue to
achieve and maintain profitability. We may not achieve, sustain or increase
profitability in the future. We anticipate that our expenses will increase
substantially in the foreseeable future as we:
- expand the market for feel-enabled products;
- increase our sales efforts;
- continue to develop our technologies;
- pursue strategic relationships; and
- protect and enforce our intellectual property.
If our revenues grow more slowly than we anticipate or if our operating
expenses exceed our expectations, we may not achieve or maintain profitability.
OUR HISTORICAL FINANCIAL INFORMATION DOES NOT REFLECT OUR PRIMARY BUSINESS
STRATEGY FOR ACHIEVING REVENUE GROWTH
Historically, we have derived the substantial majority of our revenues from
product sales and development contracts. We anticipate that royalty revenue from
licensing our technologies will constitute an increasing portion of our
revenues. Accordingly, we cannot predict our future revenues based on our
historical financial information.
WE DEPEND ON OUR LICENSEES TO GENERATE ROYALTY REVENUE
Our primary business strategy is to license our intellectual property to
companies that manufacture and sell feel-enabled products. The sale of those
products generates royalty revenue
6
<PAGE> 9
for us. For us to be successful, our licensees must manufacture and distribute
feel-enabled products in a timely fashion and generate consumer demand through
marketing and other promotional activities. Feel-enabled products are generally
more difficult to design and manufacture than products that are not
feel-enabled, and these difficulties may cause product introduction delays. If
our licensees fail to stimulate and capitalize upon market demand for products
that generate royalties for us, our revenues will not grow. Peak demand for
products that incorporate our technologies, especially in the gaming market,
typically occurs in the third and fourth calendar quarters as a result of
increased demand during the year-end holiday season. If our licensees do not
succeed in shipping licensed products in a timely fashion or fail to achieve
strong sales in the second half of the calendar year, we would not receive
related royalty revenue. We do not control or influence the degree to which our
licensees promote our technologies or the prices at which they sell products
incorporating our technologies. As a result, products incorporating our
technologies may not be brought to market, achieve commercial acceptance or
generate meaningful royalty revenue for us.
IF INDUSTRY LEADERS DO NOT ADOPT OUR TECHNOLOGIES, WE MAY NOT ACHIEVE REVENUE
GROWTH
An important part of our strategy is to penetrate new markets by targeting
licensees that are leaders in those markets. This strategy is designed to
encourage other participants in those markets to also adopt our technologies. If
a high profile industry participant adopts our technologies for one or more of
its products but fails to achieve success with those products, other industry
participants' perception of our technologies could be adversely affected.
Likewise, if a market leader adopts and achieves success with a competing
technology, our revenue growth could be limited and other potential licensees
may not license our technologies.
BECAUSE LOGITECH IS CURRENTLY OUR ONLY LICENSED MANUFACTURER OF FEEL-ENABLED
MICE, WE RELY HEAVILY ON ITS SUCCESSFUL MANUFACTURING AND MARKETING EFFORTS
Logitech is currently the only licensed manufacturer of feel-enabled mice.
If Logitech does not successfully manufacture, distribute and market its
feel-enabled mouse product, our royalty revenue from feel-enabled mice will be
significantly reduced. In addition, a lack of market acceptance of the Logitech
feel-enabled mouse might dissuade other potential licensees from licensing our
technologies for feel-enabled mice and other products.
IF WE FAIL TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS, OUR ABILITY
TO LICENSE OUR TECHNOLOGIES AND TO GENERATE REVENUES WOULD BE IMPAIRED
Our business depends on generating revenues by licensing our intellectual
property rights and by selling products that incorporate our technologies. If we
are not successful in protecting and enforcing those rights, our ability to
obtain future licenses and royalty revenue could be impaired. In addition, if a
court limits the scope, declares unenforceable or invalidates any of our
patents, current licensees may refuse to make royalty payments or may themselves
choose to challenge one or more of our patents. Also it is possible that:
- our pending patent applications may not result in the issuance of
patents;
- our patents may not be broad enough to protect our proprietary rights;
- our patents could successfully be challenged by one or more third
parties, which could result in our loss of the right to prevent others
from exploiting the inventions claimed in those patents;
- current and future competitors may develop alternative technologies that
are not covered by our patents; and
- effective patent protection may not be available in every country in
which our licensees do business.
7
<PAGE> 10
We also rely on licenses, confidentiality agreements and copyright,
trademark and trade secret laws to establish and protect our proprietary rights.
It is possible that:
- laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technologies or deter others from developing
similar technologies;
- "shrinkwrap" and "clickwrap" license agreements upon which we rely to
protect some of our software are not signed by the user and may not be
enforceable under the laws of all jurisdictions;
- other companies may claim common law trademark rights based upon state or
foreign laws that precede federal registration of our trademarks;
- current federal laws that prohibit software copying provide only limited
protection from software pirates, and effective trademark, copyright and
trade secret protection may be unavailable or limited in some foreign
countries; and
- policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, particularly overseas.
IF WE ARE UNABLE TO DEVELOP NEW LICENSE RELATIONSHIPS, OUR REVENUE GROWTH MAY BE
LIMITED
Our revenue growth depends on our ability to enter into license
arrangements. Particularly with respect to those licenses which involve the
implementation of our hardware components or software solutions, we face
numerous risks in obtaining new licenses on terms consistent with our business
objectives and in maintaining, expanding and supporting our relationships with
our current licensees. These risks include:
- the lengthy and expensive process of building a relationship with
potential licensees;
- the fact that we may compete with the internal design teams of potential
licensees;
- difficulties in persuading consumer product manufacturers to work with
us, to rely on us for critical technology and to disclose to us
proprietary product development and other strategies; and
- difficulties in persuading potential licensees to bear development costs
to incorporate our technologies into their products.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE, AND IF OUR FUTURE
RESULTS ARE BELOW THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE
PRICE OF OUR COMMON STOCK IS LIKELY TO DECLINE
Our revenues and operating results are likely to vary significantly from
quarter to quarter due to a number of factors, many of which are outside our
control and any of which could cause the price of our common stock to decline.
These factors include:
- the mix of product sales, development contract and royalty revenues;
- the establishment or loss of licensing relationships;
- the timing of our expenses;
- the timing of announcements and introductions of new products and product
enhancements by our licensees and their competitors;
- our ability to develop and improve our technologies;
- our ability to attract, integrate and retain qualified personnel;
- costs related to acquisitions of technologies or businesses; and
8
<PAGE> 11
- seasonality in the demand for our licensees' products.
Because a high percentage of our operating expenses is fixed, a shortfall
of revenues can cause significant variations in operating results from period to
period.
THE HIGHER COST OF FEEL-ENABLED PRODUCTS MAY INHIBIT OR PREVENT OUR TECHNOLOGIES
FROM ACHIEVING MARKET ACCEPTANCE
Feel-enabled products are more expensive than products that are not
feel-enabled. The greater expense of products containing our technologies may be
a significant barrier to their widespread adoption and success in consumer
markets.
IF WE CANNOT EXPAND BEYOND THE PERSONAL COMPUTER GAMING PERIPHERALS MARKET, OUR
REVENUE GROWTH WILL BE LIMITED
Royalty revenue from the licensing of I-FORCE, our portfolio of feel
technology for personal computer gaming peripherals such as joysticks and
steering wheels, currently accounts for substantially all of our royalty
revenue. The personal computer gaming peripherals market is a substantially
smaller market than either the mouse market or the dedicated gaming console
market and is characterized by declining average selling prices. If we are
unable to gain market acceptance beyond the personal computer gaming peripherals
market, our revenues will not grow significantly.
COMPETITION IN THE COMPUTER PERIPHERALS MARKET COULD LEAD TO REDUCTIONS IN THE
SELLING PRICE OF LICENSED PRODUCTS, WHICH WOULD REDUCE OUR ROYALTY REVENUE
The computer peripherals market in which our licensees compete is highly
competitive and is characterized by rapid technological change, short product
life cycles, cyclical market patterns, a trend of declining average selling
prices and increasing foreign and domestic competition. We believe that
competition among computer peripheral manufacturers will continue to be intense,
and that competitive pressures will drive the price of our licensees' products
downward. Any reduction in our royalties per unit might not be offset by
corresponding increases in unit sales, and our revenues might decline.
A SMALL NUMBER OF LICENSEES ACCOUNT FOR A LARGE PORTION OF OUR ROYALTY REVENUE
We derive a significant portion of our royalty revenue from a small number
of licensees. We expect that a significant portion of our revenues will continue
to be derived from a limited number of licensees, including Logitech. If any of
this limited group of licensees fails to achieve anticipated sales volumes, our
results of operations may be adversely affected.
BECAUSE OUR TECHNOLOGIES MUST WORK WITH MICROSOFT'S OPERATING SYSTEM SOFTWARE,
OUR COSTS COULD INCREASE AND OUR REVENUES COULD DECLINE IF MICROSOFT MODIFIES
ITS OPERATING SYSTEM SOFTWARE
Our hardware and software technology is compatible with Microsoft's
operating system software, including DirectX, Microsoft's entertainment
applications programming interface. Any modifications, additions or deletions by
Microsoft to its operating system, including DirectX, could require us to modify
our technologies and could cause delays in the release of products by our
licensees. If Microsoft modifies its software products in ways that limit the
use of our other licensees' products, our costs could be increased and our
revenues could decline.
WE DEPEND ON KAWASAKI LSI TO PRODUCE OUR I-FORCE AND FEELIT PROCESSORS
Kawasaki LSI is the sole supplier of our I-FORCE and FEELit processors.
Because Kawasaki LSI manufactures and tests our processors, we have limited
control over delivery schedules, quality assurance, manufacturing capacity,
yields, costs and misappropriation of our intellectual property.
9
<PAGE> 12
Any delays in delivery of the processor, quality problems or cost increases
could cause us to lose customers and could adversely affect our relationships
with our licensees.
IF WE ARE UNABLE TO CONTINUALLY IMPROVE, AND REDUCE THE COST OF, OUR
TECHNOLOGIES, COMPANIES MAY NOT INCORPORATE OUR TECHNOLOGIES INTO THEIR PRODUCTS
AND OUR REVENUE GROWTH MAY BE IMPAIRED
Our success will depend on our continuing ability to improve, and reduce
the cost of, our technologies and to introduce these technologies to the
marketplace in a timely manner. If our development efforts are not successful or
are significantly delayed, companies may not incorporate our technologies into
their products and our revenue growth may be impaired.
THREE KEY MEMBERS OF OUR MANAGEMENT TEAM HAVE RECENTLY JOINED US AND THEY MAY
NOT SUCCESSFULLY INTEGRATE INTO OUR COMPANY
Our Chief Financial Officer, Vice President of Marketing and Vice President
of Business Development joined us in August 1999. Accordingly, each of these
individuals has limited experience with our business. Our success will depend to
a significant extent on the ability of our new officers to integrate themselves
into our daily operations, to gain the trust and confidence of other employees
and to work effectively as a team.
WE MAY BECOME INVOLVED IN COSTLY AND TIME CONSUMING LITIGATION OVER PROPRIETARY
RIGHTS
We attempt to avoid infringing known proprietary rights of third parties.
We have not, however, conducted and do not conduct comprehensive patent searches
to determine whether aspects of our technology infringe patents held by third
parties. Third parties may hold, or may in the future be issued, patents that
could be infringed by our products or technologies. Any of these third parties
might make a claim of infringement against us with respect to our products and
technologies. Between May 1995 and June 1999, we received letters from four
companies, several of which have significantly greater financial resources than
we do, asserting that some of our technologies, or those of our licensees,
infringe their intellectual property rights. Although none of these matters has
resulted in litigation to date, any of these notices, or additional notices that
we could receive in the future from these or other companies, could lead to
litigation. We might also elect to enforce our patents and other intellectual
property rights against third parties, which could result in litigation.
Any intellectual property litigation, whether brought by us or by others,
could result in the expenditure of significant financial resources and the
diversion of management's time and efforts. In addition, litigation in which we
are accused of infringement may cause product shipment delays, require us to
develop non-infringing technology or require us to enter into royalty or license
agreements even before the issue of infringement has been decided on the merits.
If any litigation were not resolved in our favor, we could become subject to
substantial damage claims from third parties and indemnification claims from our
licensees. We and our licensees could be enjoined from the continued use of the
technology at issue without a royalty or license agreement. Royalty or license
agreements, if required, might not be available on acceptable terms, or at all.
If a successful claim of infringement were made against us and we could not
develop non-infringing technology or license the infringed or similar technology
on a timely and cost-effective basis, our expenses would increase and our
revenues could decrease.
COMPETITION FROM PRODUCTS THAT DO NOT INCORPORATE OUR TECHNOLOGIES COULD LIMIT
OUR REVENUES OR CAUSE OUR REVENUES TO DECLINE
Our licensees may seek to develop products that are based on alternative
technologies that do not require a license under our intellectual property. We
did not invent the concept of force feedback, a field in which there is a
substantial history of prior art. Several companies currently market force
feedback products to non-consumer markets and may shift their focus to consumer
10
<PAGE> 13
markets if those markets continue to grow. These or other potential competitors
may have significantly greater financial, technical and marketing resources. If
existing or potential licensees do not license technology or intellectual
property from us, our revenue growth could be limited or revenues could decline.
WE MAY ENCOUNTER INCREASED COMPETITION TO OUR I-FORCE AND FEELIT PROCESSORS
To date, the market for our I-FORCE and FEELit processors has been small.
Semiconductor companies, including Intel and Mitsubishi, manufacture products
that compete with our processors. The products of these semiconductor companies
have not been optimized specifically for feel technology although, in the
future, Intel, Mitsubishi or other companies may elect to enter the market for
optimized feel processors. These companies may have greater financial,
technical, manufacturing, distribution and other resources, greater name
recognition and market presence, longer operating histories, lower cost
structures and larger customer bases than we do.
BECAUSE WE HAVE A FIXED PAYMENT LICENSE WITH MICROSOFT, OUR ROYALTY REVENUE IN
THE PERSONAL COMPUTER JOYSTICK AND STEERING WHEEL GAMING MARKET MIGHT DECLINE IF
MICROSOFT DOMINATES THAT MARKET
Under the terms of our present agreement with Microsoft, Microsoft receives
a license under our patents for its present generation of feel-enabled joystick
and steering wheel peripheral products targeted at the personal computer market,
and for a future replacement version of these joystick and steering wheel
products having essentially similar functional features. Instead of an ongoing
royalty on Microsoft's sales of licensed products, the agreement provides for a
payment of a fixed amount regardless of the volume of sales by Microsoft.
Microsoft has a significant share of the market for feel-enabled joysticks and
steering wheels for personal computers. Microsoft has significantly greater
financial, sales and marketing resources, as well as greater name recognition
and a larger customer base, than our other licensees. In the event that
Microsoft increases its market share, our royalty revenue from other licensees
in this market segment might decline.
WE MIGHT BE UNABLE TO RECRUIT OR RETAIN NECESSARY PERSONNEL, WHICH COULD SLOW
THE DEVELOPMENT AND DEPLOYMENT OF OUR TECHNOLOGIES
Our future success and ability to sustain our revenue growth depend upon
the continued service of our executive officers and other key personnel and upon
hiring additional key personnel. We intend to hire additional sales, support,
marketing and research and development personnel in calendar 1999 and 2000.
Competition for these individuals is intense, and we may not be able to attract,
assimilate or retain additional highly qualified personnel in the future. In
addition, our technologies are complex and we rely upon the continued service of
our existing engineering personnel to support licensees, enhance existing
technology and develop new technologies.
WE HAVE EXPERIENCED RAPID GROWTH AND CHANGE IN OUR BUSINESS, AND OUR FAILURE TO
MANAGE THIS AND ANY FUTURE GROWTH COULD HARM OUR BUSINESS
We are increasing the number of our employees rapidly. Our business may be
harmed if we do not integrate and train our new employees quickly and
effectively. We also cannot be sure that our revenues will continue to grow at a
rate sufficient to support the costs associated with an increasing number of
employees.
Any future periods of rapid growth may place significant strains on our
managerial, financial, engineering and other resources. The rate of any future
expansion, in combination with our complex technologies, may demand an unusually
high level of managerial effectiveness in anticipating, planning, coordinating
and meeting our operational needs as well as the needs of our licensees.
11
<PAGE> 14
PRODUCT LIABILITY CLAIMS, INCLUDING CLAIMS RELATING TO ALLEGED REPETITIVE STRESS
INJURIES, COULD BE TIME-CONSUMING AND COSTLY TO DEFEND, AND COULD EXPOSE US TO
LOSS
Claims that consumer products have flaws or other defects that lead to
personal or other injury are common in the computer peripherals industry. In
particular, manufacturers of peripheral products, such as computer mice, have in
the past been subject to claims alleging that use of their products has caused
or contributed to various types of repetitive stress injuries, including carpal
tunnel syndrome. We have not experienced any product liability claims to date.
Although our license agreements typically contain provisions designed to limit
our exposure to product liability claims, existing or future laws or unfavorable
judicial decisions could limit or invalidate the provisions. If products sold by
us or by our licensees cause personal injury, financial loss or other injury to
our or our licensees' customers, the customers, or our licensees, may seek
damages or other recovery from us. These claims would be time-consuming and
expensive to defend, distracting to management and could result in substantial
damages. In addition, the assertion of these claims, even if unsuccessful, could
damage our reputation or that of our licensees or their products. This damage
could limit the market for our licensees' feel-enabled products and harm our
results of operations.
IF WE FAIL TO DEVELOP NEW OR ENHANCED TECHNOLOGIES FOR NEW COMPUTER APPLICATIONS
AND PLATFORMS, OUR RESULTS OF OPERATIONS MIGHT BE HARMED
We expect to develop new or enhanced technologies and to license
technologies for new applications and new platforms. These initiatives may not
be favorably received by consumers and could damage our reputation or our brand.
Expanding our technology could also require significant additional expenses and
strain our management, financial and operational resources. The lack of market
acceptance of these efforts or our inability to generate additional revenues
sufficient to offset the associated costs could harm our results of operations.
FUTURE ACQUISITIONS MIGHT DILUTE STOCKHOLDER VALUE, DIVERT MANAGEMENT ATTENTION
OR CAUSE INTEGRATION PROBLEMS
As part of our business strategy, we have in the past acquired, and might
in the future acquire, businesses or intellectual property that we feel could
complement our business, enhance our technical capabilities or increase our
intellectual property portfolio. If we consummate acquisitions through an
exchange of our securities, our stockholders could suffer significant dilution.
Acquisitions could create risks for us, including:
- unanticipated costs associated with the acquisitions;
- use of substantial portions of our available cash, including the proceeds
of this offering, to consummate the acquisitions;
- diversion of management's attention from other business concerns; and
- difficulties in assimilation of acquired personnel or operations.
Any future acquisitions, even if successfully completed, might not generate
any additional revenue or provide any benefit to our business.
YEAR 2000 COMPLIANCE COSTS AND RISKS ARE DIFFICULT TO ASSESS AND COULD RESULT IN
DELAY OR LOSS OF REVENUES, DAMAGE TO OUR REPUTATION AND DIVERSION OF DEVELOPMENT
RESOURCES
Many computer programs and embedded date-reliant systems use two digits
rather than four to define the applicable year. Programs and systems that record
only the last two digits of the calendar year may not be able to distinguish
whether "00" means 1900 or 2000. If not corrected, date-related information and
data could cause these programs or systems to fail or to generate erroneous
information.
12
<PAGE> 15
To the extent that any third-party product with which our technology is
associated is not Year 2000 compliant, our reputation may be harmed. Our revenue
and operating results could become subject to unexpected fluctuations if our
licensees encounter Year 2000 compliance problems that affect their ability to
distribute licensed products. In addition, a delay or failure by our critical
suppliers to be Year 2000 compliant could interrupt our business.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE
We believe that our current cash, cash equivalents and short-term
investments, together with the proceeds of this offering, will be sufficient to
meet our operating and capital requirements for the foreseeable future. However,
we may in the future be required to raise additional funds through public or
private financing, strategic relationships or other arrangements. We cannot be
certain that any financing will be available on acceptable terms, or at all, and
our failure to raise capital when needed could limit our ability to expand our
business. Additional equity financing may be dilutive to the holders of our
common stock, and debt financing, if available, may involve restrictive
covenants. Moreover, strategic relationships, if necessary to raise additional
funds, may require that we relinquish valuable rights.
OUR STOCK MAY BE VOLATILE, WHICH MAY LEAD TO LOSSES BY INVESTORS AND TO
SECURITIES LITIGATION
The market price of our common stock is likely to be highly volatile. Our
stock price could fluctuate in response to a variety of factors, including:
- actual or anticipated variations in quarterly operating results;
- announcements of competitive products or technologies;
- announcements of new contracts or products;
- litigation over proprietary rights;
- announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments;
- loss of key employees; and
- changes in financial estimates by securities analysts.
The stock market has experienced significant price and volume fluctuations
and the market prices of securities of technology companies have been highly
volatile, often unrelated to the operating performance of such companies.
Investors may not be able to resell their shares of our common stock at or above
the initial public offering price. In the past, securities class action
litigation has often been instituted against a company following periods of
volatility in the company's stock price. This type of litigation could result in
substantial costs and could divert our management's attention and resources.
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS WILL RETAIN SIGNIFICANT
CONTROL OVER US AFTER THIS OFFERING, WHICH MAY LEAD TO CONFLICTS WITH OTHER
STOCKHOLDERS OVER CORPORATE GOVERNANCE MATTERS
We anticipate that our current directors, officers and more than 5%
stockholders will, as a group, beneficially own approximately % of our
outstanding common stock after this offering. Acting together, these
stockholders would be able to significantly influence all matters that our
stockholders vote upon, including the election of directors and mergers or other
business combinations.
Provisions in our Delaware certificate of incorporation and bylaws may have
the effect of delaying or preventing a change of control or changes in our
management. These provisions could
13
<PAGE> 16
limit the price that investors might be willing to pay in the future for shares
of our common stock. These provisions include, among others:
- the division of our board of directors into three separate classes;
- the ability of our board of directors to issue up to 5,000,000 shares of
preferred stock, and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares
without any further vote or action by the stockholders;
- advance notice requirements for stockholders to nominate directors and
bring stockholder proposals to a vote; and
- the inability of stockholders to act by written consent.
Furthermore, because we are incorporated in Delaware, we are subject to the
provisions of Section 203 of the Delaware General Corporation Law. These
provisions prohibit stockholders owning 15% or more of the outstanding voting
stock from consummating a merger or combination between us and another
corporation unless:
- 66 2/3% of the shares of voting stock not owned by the large stockholder
approve the merger or combination; or
- The board of directors approves the merger or combination or the
transaction that resulted in the large stockholder owning 15% or more of
our outstanding voting stock.
WE WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS FROM THIS OFFERING
We plan to use the proceeds from this offering for working capital and
general corporate purposes. Stockholders may not agree with the ways in which we
use the proceeds. We may not be able to invest the proceeds of this offering, in
our operations or external investments, to yield a favorable return. We may use
the proceeds in ways with which you do not agree or which prove to be
disadvantageous to our stockholders.
THERE ARE A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK
Sales of substantial numbers of shares of our common stock in the public
market after this offering, or the perception that sales may be made, could
cause the market price of our common stock to decline. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional equity securities. Based on shares outstanding as of August 31, 1999,
following this offering, we will have shares of common stock
outstanding or shares if the underwriter's overallotment is
exercised in full. shares will become available for sale 180 days
following the date of this prospectus upon the expiration of lock-up agreements,
subject to the restrictions imposed by the federal securities laws on sales by
affiliates. Hambrecht & Quist LLC, however, may waive the lock-up restrictions
at its sole discretion.
14
<PAGE> 17
FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements.
These statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors that may cause
our or our industry's actual results, level of activity, performance or
achievements to differ materially from the results, level of activity,
performance or achievements expressed or implied by the forward-look statements.
These risks and other factors include those listed under "Risk Factors" and
elsewhere in this prospectus. In some cases, you can identify forward-looking
statements by terminology such as "may," "might," "will," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue," the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined under "Risks Factors." These factors may
cause our actual results to differ materially from any forward-looking
statement.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, level of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of any of these
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform our
prior statements to actual results or revised expectations.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the
shares of common stock that we are selling in this offering will
be approximately $ , at an assumed initial offering price per share of
$ and after deducting estimated underwriting discounts and estimated
offering expense.
The principal purposes of the offering are to obtain additional working
capital, establish a public market for our common stock and facilitate our
future access to public capital markets. We currently expect to use the net
proceeds from this offering for working capital and other general corporate
purposes. We may use a portion of the net proceeds to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. We have no current commitments or agreements with respect to any
acquisition or investment. Pending these uses, we intend to invest the net
proceeds in investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain earnings, if any, to finance the growth and
development of our business. Therefore, we do not anticipate paying cash
dividends on our common stock in the foreseeable future. The decision whether to
pay dividends will be made by our board of directors from time to time in light
of conditions then existing including, among other things, our results of
operations, financial condition and capital expenditure requirements.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. The
pro forma information reflects the conversion of all outstanding shares of our
preferred stock into 5,131,100 shares of common stock upon the closing of the
offering. The pro forma as adjusted information reflects the sale of shares of
common stock offered by us at an assumed initial public offering price of $
per share and after deducting estimated underwriting discounts and estimated
offering expenses. The common stock outstanding as of June 30, 1999 excludes:
- 5,991,973 shares reserved for issuance under our stock option plans, of
which 3,344,329 shares were subject to outstanding options with a
weighted average exercise price of $1.13 per share;
- warrants to purchase 498,593 shares, with a weighted average exercise
price of $2.71 per share; and
- 500,000 shares reserved for issuance under our 1999 Employee Stock
Purchase Plan.
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Redeemable convertible preferred stock $0.001 par value;
1,071,428 shares authorized, 1,070,357 shares issued and
outstanding, actual; none authorized or issued or
outstanding, pro forma and pro forma as adjusted.......... $ 1,479 $ -- $
------- ------- -------
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 2,455,902
shares authorized, 2,422,566 shares issued and
outstanding, actual; 5,000,000 shares authorized, none
issued or outstanding, pro forma and pro forma as
adjusted............................................... 6,955 --
Common stock, $0.001 par value; 100,000,000 shares
authorized and 5,901,405 shares issued and outstanding,
actual; 100,000,000 shares authorized, pro forma and
pro forma as adjusted; 11,032,505 shares issued and
outstanding, pro forma; shares issued and
outstanding, pro forma as adjusted..................... 7,947 16,381
Warrants.................................................... 893 893
Deferred stock compensation................................. (2,075) (2,075)
Accumulated other comprehensive loss........................ -- --
Note receivable from stockholder............................ (17) (17)
Accumulated deficit......................................... (6,333) (6,333)
------- ------- -------
Total stockholders' equity............................. 7,370 8,849
------- ------- -------
Total capitalization.............................. $ 8,849 $ 8,849 $
======= ======= =======
</TABLE>
16
<PAGE> 19
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $4,008,000,
or $0.36 per share of common stock. Pro forma net tangible book value per share
represents the amount of our total tangible assets (total assets excluding
purchased patents and technology) less the amount of our total liabilities and
divided by the total number of shares of common stock outstanding after
conversion of all outstanding shares of preferred stock into common stock.
Taking into account sale of the shares of common stock offered by
us at an assumed initial public offering price of $ per share and after
deducting the estimated underwriting discounts and estimated offering expenses
and receipt of the net proceeds, our adjusted pro forma net tangible book value
as of June 30, 1999 would have been approximately $ , or $ per
share. This represents an immediate increase in as adjusted net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ per share to the new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
1999................................................... $ 0.36
Increase in net tangible book value attributable to new
investors..............................................
-------
As adjusted pro forma net tangible book value per share
after the offering........................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1999,
the difference between the number of shares of common stock purchased, the total
consideration paid and the average price per share paid by the existing
stockholders and by the new investors purchasing shares in this offering, at an
assumed initial public offering price of $ per share and before deducting
estimated underwriting discounts and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 11,032,505 % $8,590,000 % $ 0.78
New investors....................... $
---------- ----- ---------- -----
Total..................... 100.0% $ 100.0%
========== ===== ========== =====
</TABLE>
The above tables exclude 6,491,973 shares of common stock reserved for
issuance under our stock option and stock purchase plans, of which shares
3,344,329 were subject to outstanding options as of June 30, 1999 with a
weighted average price of $1.13 per share, and 498,593 shares of common stock
were subject to outstanding warrants with a weighted average price of $2.71 per
share. New investors will experience further dilution if any additional shares
of our common stock are issued upon the exercise of these options.
17
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the consolidated financial statements,
related notes and other financial information included in this prospectus. The
selected consolidated statement of operations data for the years ended December
1996, 1997, and 1998 and the consolidated balance sheet data as of December 31,
1997 and 1998 are derived from the audited consolidated financial statements
included elsewhere in this prospectus. The selected consolidated balance sheet
data as of December 31, 1996 are derived from audited consolidated financial
statements not included in this prospectus. The selected consolidated financial
data as of and for the years ended December 31, 1994 and 1995 are derived from
unaudited financial statements not included in this prospectus. The consolidated
statement of operations data for the six months ended June 30, 1998 and 1999 and
the consolidated balance sheet data as of June 30, 1999 are derived from
unaudited consolidated financial statements included elsewhere in this
prospectus. We believe that the unaudited consolidated financial statements
contain all adjustments necessary to present fairly the information included in
those statements, and that the adjustments consist only of normal recurring
adjustments. Historical results are not necessarily indicative of the results to
be expected in the future and results of interim periods are not necessarily
indicative of results for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Royalty revenue.................... $ -- $ -- $ -- $ 14 $ 321 $ 8 $ 622
Product sales...................... 444 1,068 2,022 2,908 3,725 1,604 2,133
Development contracts and other.... 117 285 715 1,410 975 565 748
------ ------ ------ ------ ------- ------ -------
Total revenues................ 561 1,353 2,737 4,332 5,021 2,177 3,503
------ ------ ------ ------ ------- ------ -------
Costs and expenses:
Cost of product sales.............. 210 540 947 1,186 1,507 641 970
Sales and marketing................ 87 224 422 658 656 361 459
Research and development........... 216 393 710 1,515 1,817 833 1,057
General and administrative......... 55 267 766 1,550 2,677 1,269 1,548
Amortization of intangibles and
stock compensation............... -- -- 1 -- 211 21 463
In-process research and
development...................... -- -- -- -- -- -- 1,190
------ ------ ------ ------ ------- ------ -------
Total costs and expenses...... 568 1,424 2,846 4,909 6,868 3,125 5,687
------ ------ ------ ------ ------- ------ -------
Operating loss....................... (7) (71) (109) (577) (1,847) (948) (2,184)
Other income......................... 2 14 28 50 174 79 66
------ ------ ------ ------ ------- ------ -------
Net loss............................. $ (5) $ (57) $ (81) $ (527) $(1,673) $ (869) $(2,118)
====== ====== ====== ====== ======= ====== =======
Basic and diluted net loss per
share.............................. $(0.01) $(0.02) $(0.03) $(0.17) $ (0.43) $(0.23) $ (0.42)
====== ====== ====== ====== ======= ====== =======
Shares used in calculating basic and
diluted net loss per share......... 2,653 2,468 2,825 3,162 3,909 3,839 5,003
====== ====== ====== ====== ======= ====== =======
Pro forma basic and diluted net loss
per share.......................... $ (0.19) $ (0.21)
======= =======
Shares used in calculating pro forma
basic and diluted net loss per
share.............................. 8,630 10,134
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................... $ 156 $ 37 $ 324 $ 490 $2,592 $2,204
Working capital............................. 149 779 1,151 2,080 3,975 3,339
Total assets................................ 308 963 1,562 2,900 5,959 9,706
Redeemable convertible preferred stock...... -- -- -- 1,471 1,476 1,479
Total stockholders' equity.................. 157 876 1,383 944 3,773 7,370
</TABLE>
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our consolidated financial statements and the notes thereto beginning on page
F-1 of this prospectus and the Selected Consolidated Financial Data above.
Except for historical information, the discussion in this prospectus contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include the risks discussed in the
section titled "Risk Factors."
OVERVIEW
Immersion was founded in 1993 to develop technologies that help improve
human to computer interaction. Historically, we have derived substantial revenue
from the sale of products and from development contracts. We began generating
royalty revenue in the first quarter of 1997 and anticipate that royalty revenue
will become an increasing percentage of our total revenues.
We began developing feel-enabled computer peripherals in 1993. In 1995, we
introduced our Impulse Engine line of high-end feel-enabled devices for
industrial, research and education markets. We manufacture and sell these
products directly to our customers. We introduced I-FORCE, our first branded
portfolio of feel technology for consumer markets, in 1995. We license I-FORCE
generally on a per unit royalty basis to computer gaming peripheral
manufacturers. In 1996, the first computer joystick incorporating I-FORCE was
introduced.
We introduced FEELit, a technology for feel-enabled cursor control products
such as mice and trackballs, in 1997. In 1998, we licensed FEELit to Logitech,
which has announced its intention to ship the first FEELit mouse in late 1999.
We have developed a custom processor for feel-enabled products that is
manufactured by Kawasaki LSI, and we began selling these processors in September
1998. In addition to selling the processors ourselves, we granted Kawasaki LSI a
limited royalty-bearing license to sell these processors to our customers.
We currently sell products in the industrial and professional markets. We
developed our first three dimensional digitizer product in 1994 and currently
sell the product under the name MicroScribe-3D. We began developing our
Softmouse line of products for the geographic information systems market in
1994. The mouse product is sold to original equipment manufacturers. We began
developing technology and products for the medical market in 1993. We derive
revenues from selling medical training and simulation products and in June 1999,
began to license technologies for the medical training and simulation market.
We have entered into numerous contracts with government agencies and
corporations since 1993. Government contracts help fund advanced research and
development, are typically less than two years in duration, are usually for a
fixed fee or for our costs plus a fixed profit, and allow the government agency
to license the resulting technology for government applications specifically
excluding any commercial activity. Corporate contracts are typically for product
development consulting, are for a fixed fee and are less than two years in
duration.
The U.S. Government accounted for 11% of our total revenues in 1996 and 13%
of our total revenues in 1997. Logitech accounted for 10% of our total revenues
in 1998 and 19% of our total revenues in the six months ended June 30, 1999.
Since inception, we have completed a number of acquisitions of patents and
technology. We capitalize the cost of patents and technology and license
agreements, except for amounts relating to acquired in-process research and
development for which there is no alternative future use. As of
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<PAGE> 22
June 30, 1999, we had capitalized patents and technology of $4.8 million, net of
accumulated amortization of $426,000. We are amortizing these patents and
technology over the estimated useful life of the technology of nine years. In
the quarter ended March 31, 1999, we expensed $1.2 million of acquired
in-process research and development.
We record product sales upon shipment. We recognize fixed-fee contract
revenue under the percentage-of-completion method based on the actual physical
completion of work performed and the ratio of costs incurred to total estimated
costs to complete the contract. We recognize allowable fees under
cost-reimbursement contracts as costs are incurred. We recognize royalty revenue
based on royalty reports or related information received from the licensee.
Our cost of product sales consists primarily of materials, labor and
overhead. There is no cost of sales associated with royalty revenue or
development contract revenue. Our research and development expenses are
comprised primarily of headcount and related compensation and benefits,
consulting fees, costs of acquired technology, tooling and supplies and an
allocation of facilities costs. Our selling and marketing expenses are comprised
primarily of employee compensation and benefits, advertising, trade shows,
brochures, travel and an allocation of facilities costs. Our general and
administrative expenses are comprised primarily of employee headcount and
related compensation and benefits, legal and professional fees, office supplies,
recruiting, travel and an allocation of facilities costs.
We recorded deferred stock compensation of $2.3 million during the six
months ended June 30, 1999 from the issuance of warrants for services and from
employee stock options. We are amortizing the deferred stock compensation over
the terms of the related option agreements, which range up to four years.
HISTORICAL RESULTS OF OPERATIONS
The following table sets forth our results of operations data as a
percentage of total revenues.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Royalty revenue................................... --% 0.3% 6.4% 0.4% 17.8%
Product sales..................................... 73.9 67.1 74.2 73.7 60.9
Development contracts and other................... 26.1 32.6 19.4 25.9 21.3
----- ----- ----- ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Cost of product sales............................. 34.6 27.4 30.0 29.4 27.7
Sales and marketing............................... 15.4 15.2 13.1 16.6 13.1
Research and development.......................... 25.9 35.0 36.2 38.2 30.2
General and administrative........................ 28.0 35.8 53.3 58.3 44.2
Amortization of intangibles and stock
compensation................................... -- -- 4.2 1.0 13.2
In-process research and development............... -- -- -- -- 34.0
----- ----- ----- ----- -----
Total costs and expenses.................. 103.9 113.4 136.8 143.5 162.4
----- ----- ----- ----- -----
Operating loss...................................... (3.9) (13.4) (36.8) (43.5) (62.4)
Other income........................................ 1.0 1.2 3.5 3.6 1.9
----- ----- ----- ----- -----
Net loss............................................ (2.9)% (12.2)% (33.3)% (39.9)% (60.5)%
===== ===== ===== ===== =====
</TABLE>
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<PAGE> 23
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1999
Total Revenues. Our total revenues increased by 61% from $2.2 million for
the six months ended June 30, 1998 to $3.5 million for the six months ended June
30, 1999. Royalty revenue increased by $614,000 from $8,000 to $622,000 due to
higher sales by our I-FORCE licensees. Product sales increased by $529,000 from
$1.6 million to $2.1 million primarily due to increased sales of industrial and
professional products. Development contract revenue increased by $183,000 from
$565,000 to $748,000 due to new government and commercial contracts entered into
in mid-1998 which were in progress during 1999.
Cost of Product Sales. Cost of product sales increased from $641,000 for
the six months ended June 30, 1998 to $970,000 for the six months ended June 30,
1999. Cost of product sales as a percentage of product sales increased from 40%
for the six months ended June 30, 1998 to 46% for the six months ended June 30,
1999. The increase in cost of product sales as a percentage of product sales was
primarily due to increased sales of our processor, which has a lower margin than
other products.
Sales and Marketing. Sales and marketing expenses increased by 27% from
$361,000 for the six months ended June 30, 1998 to $459,000 for the six months
ended June 30, 1999 primarily as a result of increased headcount and related
compensation and benefits. We expect sales and marketing expenses to increase
significantly in absolute dollars due to planned growth of our sales and
marketing organization. These planned increases include higher employee
headcount and related compensation and increased advertising and marketing
expenses.
Research and Development. Research and development expenses increased by
27% from $833,000 for the six months ended June 30, 1998 to $1.1 million for the
six months ended June 30, 1999. Research and development expenses increased due
to increases in employee headcount and related compensation, consulting services
and supplies. We believe that continued investment in research and development
is critical to our future success, and we expect these expenses to increase in
absolute dollars in future periods.
General and Administrative. General and administrative expenses increased
by 22% from $1.3 million for the six months ended June 30, 1998 to $1.5 million
for the six months ended June 30, 1999. The increase was primarily the result of
increased compensation and benefits. We expect that the dollar amount of general
and administrative expenses will increase in the future as we incur the
significant additional costs related to being a public company.
Amortization of Intangibles and Stock Compensation. Amortization of
intangibles and stock compensation increased $442,000 from $21,000 for the six
month period ended June 30, 1998 to $463,000 for the six month period ended June
30, 1999.
In-Process Research and Development. During the six months ended June 30,
1999, we incurred a charge of $1.2 million dollars for in-process research and
development resulting from the acquisition of technology from Cybernet Haptic
Systems.
Other Income. Other income consists primarily of interest income, dividend
income and capital gains from cash and cash equivalents and short-term
investments. Other income decreased from $79,000 for the six months ended June
30, 1998 to $66,000 for the six months ended June 30, 1999 primarily due to a
decrease in cash and cash equivalents and short term investments.
Income Taxes. We have not recorded provisions for income taxes other than
minimum state taxes because we have experienced net losses since our inception.
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<PAGE> 24
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Total Revenues. Our total revenues increased 58% from $2.7 million in 1996
to $4.3 million in 1997 and an additional 16% to $5.0 million in 1998. The
increase from 1996 to 1997 was primarily the result of an $886,000 increase in
product sales, principally from our MicroScribe-3D and industrial products, and
a $695,000 increase in development contract revenue, relating primarily to an
increase in government contract revenue. The increase from 1997 to 1998 was
principally the result of an $817,000 increase in product sales, primarily from
our MicroScribe-3D and industrial products, and an increase in royalty revenue
due to increased sales by our I-FORCE licensees in 1998. The increase in product
sales and royalty revenue was partially offset by a decrease in contract
revenue.
Cost of Product Sales. Cost of product sales were $947,000 in 1996, $1.2
million in 1997 and $1.5 million in 1998. Cost of product sales as a percentage
of product sales was 47% in 1996, 41% in 1997 and 40% in 1998. Cost of product
sales as a percentage of product sales decreased between 1996 and 1997 primarily
due to increased sales of higher margin industrial products and manufacturing
efficiencies resulting from higher unit sales.
Sales and Marketing. Sales and marketing expenses increased 56% from
$422,000 in 1996 to $658,000 in 1997 and remained constant at $656,000 in 1998.
The increase from 1996 to 1997 was primarily a result of increased employee
headcount and related compensation and benefits.
Research and Development. Research and development expenses increased 113%
from $710,000 in 1996 to $1.5 million in 1997 and by 20% from 1997 to $1.8
million in 1998. The increase from 1996 to 1997 was principally due to an
increase in employee headcount and related compensation, consulting services and
supplies. The increase from 1997 to 1998 was principally due to an increase in
employee headcount and related compensation.
General and Administrative. General and administrative expenses increased
102% from $766,000 in 1996 and $1.6 million in 1997 and by 73% from 1997 to $2.7
million in 1998. The increases from 1996 to 1997 were primarily a result of
higher legal and professional fees, and higher compensation and benefits. The
increase from 1997 to 1998 was principally due to an increase in employee
headcount and related compensation and benefits.
Amortization of Intangibles and Stock Compensation. Amortization of
intangibles and stock compensation expense was $211,000 in 1998, representing
amortization of licenses and patents acquired in 1998.
Other Income. Other income consists primarily of interest income, dividend
income or capital gains from cash and cash equivalents and short-term
investments. Other income was $28,000 in 1996, $50,000 in 1997 and $174,000 in
1998. These increases are due to increases in cash and cash equivalents and
short-term investments for each of those respective years.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data for our six most recent quarters. This information has been
derived from our unaudited consolidated financial statements. In our opinion,
this unaudited information has been prepared on the same basis as the annual
consolidated financial statements and includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
information for the quarters presented. This information should be read in
conjunction with the consolidated financial
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<PAGE> 25
statements and related notes included elsewhere in this prospectus. Historical
results for any quarter are not necessarily indicative of the results to be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Royalty revenue................................ $ 5 $ 3 $ -- $ 313 $ 481 $ 141
Product sales.................................. 720 884 980 1,141 1,085 1,048
Development contracts and other................ 314 251 251 159 310 438
------ ------ ------ ------ ------- ------
Total revenues.......................... 1,039 1,138 1,231 1,613 1,876 1,627
------ ------ ------ ------ ------- ------
Costs and expenses:
Cost of product sales.......................... 293 348 431 435 494 476
Sales and marketing............................ 136 225 175 120 187 272
Research and development....................... 379 454 445 539 458 599
General and administrative..................... 561 708 756 652 752 796
Amortization of intangibles and stock
compensation................................. 2 19 29 161 118 345
In-process research and development............ -- -- -- -- 1,190 --
------ ------ ------ ------ ------- ------
Total costs and expenses................ 1,371 1,754 1,836 1,907 3,199 2,488
------ ------ ------ ------ ------- ------
Loss from operations............................. (332) (616) (605) (294) (1,323) (861)
Other income, net................................ 24 55 56 39 40 26
------ ------ ------ ------ ------- ------
Net loss......................................... $ (308) $ (561) $ (549) $ (255) $(1,283) $ (835)
====== ====== ====== ====== ======= ======
</TABLE>
Royalty revenue in the quarter ended June 30, 1999 decreased to $141,000
from $481,000 in the quarter ended March 31, 1999. This decline was due
primarily to a decrease in revenues from our licensing partners following the
holiday season. Sales and marketing expenses decreased from $175,000 in the
quarter ended September 30, 1998 to $120,000 in the quarter ended December 31,
1998 due primarily to the absence of any significant trade show expenses in the
quarter ended December 31, 1998. Research and development expenses decreased in
the quarter ended March 31, 1999 due to a temporary drop in the number of
employees and a reduction of consulting expenses.
Because our historical financial information does not reflect our primary
business strategy for the future, we cannot forecast future revenues based on
historical results. We base our expenses in part on future revenue projections.
Most of our expenses are fixed in nature, and we may not be able to quickly
reduce spending if revenue is lower than we have projected. We expect that our
business, operating results and financial condition would be harmed if revenues
do not meet expectations.
Our revenues and operating results are likely to vary significantly from
quarter to quarter due to a number of factors, many of which are outside our
control and any of which could cause the price of our common stock to decline.
These factors include:
- the mix of product sales, development contract and royalty revenues;
- the establishment or loss of licensing relationships;
- the timing of our expenses;
- the timing of announcements and introductions of new products and product
enhancements by our licensees and their competitors;
- our ability to develop and improve our technologies;
- our ability to attract, integrate and retain qualified personnel;
- costs related to acquisitions of technologies or businesses; and
- seasonality in the demand for our licensees' products.
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<PAGE> 26
Because a high percentage of our operating expenses is fixed, a shortfall
of revenues can cause significant variations in operating results from period to
period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily from the sale of
preferred stock. As of June 30, 1999, we had an accumulated deficit of $6.3
million and working capital of $3.3 million, including cash and cash equivalents
of $2.2 million.
Net cash used in operating activities for the six months ended June 30,
1999 was $195,000, primarily attributable to a net loss of $2.1 million, largely
offset by a $1.2 million non-cash in-process research and development charge and
$257,000 of amortization expense in connection with our acquisition of Cybernet.
In 1998, net cash used in operating activities was $1.8 million, primarily
attributable to a net loss of $1.7 million, an increase of $592,000 in accounts
receivable and an increase of $186,000 in inventories. In 1997, net cash used in
operating activities was $237,000, primarily attributable to a net loss of
$527,000, largely offset by an increase in accounts payable of $189,000. In
1996, net cash use in operating activities was $208,000, attributable primarily
to a net loss of $81,000, an increase of $131,000 in accounts receivable and an
increase of $94,000 in inventory, largely offset by an increase of $75,000 in
accrued liabilities.
Net cash used in investing activities for the six months ended June 30,
1999 was $345,000, and primarily consisted of $476,000 of purchases of property
and other assets, offset by $201,000 from sales of short-term investments. In
1998, net cash provided by investing activities was $237,000, attributable to
$3.8 million from the sale of short-term investments primarily offset by $2.9
million of purchases of short-term investments and $434,000 for purchases of
patents and technology. In 1997, net cash used in investing activities was $1.2
million, and was attributable to $1.5 million of purchases of short-term
investments and $205,000 of purchases of property, offset by $538,000 from sales
of short-term investments. In 1996, net cash used in investing activities was
$107,000, and was attributable to $325,000 of purchases of short-term
investments and $181,000 of purchases of property, offset by $399,000 from the
sale of short-term investments.
Net cash provided by financing activities for the six months ended June 30,
1999 was $152,000, and consisted primarily of net proceeds of $151,000 from the
exercise of stock options. In 1998, net cash provided by financing activities
was $3.7 million and was attributable primarily to the net proceeds of $5.4
million from the sale of preferred stock, offset by the repurchase of $1.8
million of stock. In 1997, net cash provided by financing activities was $1.6
million and was attributable primarily to the net proceeds of $1.5 million from
the sale of preferred stock. In 1996, net cash provided by financing activities
was $596,000 and was attributable primarily to the net proceeds of $590,000 from
the sale of preferred stock.
We believe that the net proceeds of this offering, together with cash on
hand, cash equivalents and short-term investments will be sufficient to meet our
working capital needs for at least the next 12 months. Thereafter, we may
require additional funds to support our working capital requirements or for
other purposes and may seek to raise additional funds through public or private
equity financing or from other sources. Additional financing may not be
available at all or, if available, may not be obtainable on terms favorable to
us. In addition, any additional financing may be dilutive.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity. Our operating results are sensitive to changes
in the general level of U.S. interest rates, particularly because most of our
cash equivalents are invested in short-term debt instruments. If market interest
rates were to change immediately and uniformly by 10% from levels at June 30,
1999, the fair value of our cash equivalents would not change by a significant
amount.
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<PAGE> 27
Foreign Currency Fluctuations. We have not had any significant transactions
in foreign currencies, nor do we have any significant balances that are due or
payable in foreign currencies at June 30, 1999. Therefore, a hypothetical 10%
change in foreign currency rates would not have a significant impact on our
financial position and results of operations. We do not hedge any of our foreign
currency exposure.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, which requires an enterprise to report, by major components and as a
single total, the change in its net assets during the period from nonowner
sources. Accumulated other comprehensive income during 1998 is comprised of
unrealized gains on short-term investments of $1,000. The FASB also issued SFAS
No. 131, Disclosures About Segments of an Enterprise and Related Information,
which establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas and major customers. We currently operate in one reportable
segment under SFAS No. 131.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for us beginning
in 2001. We believe that this statement will not have a significant impact on
our financial condition and results of operations.
YEAR 2000
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
We have reviewed the current versions of our products to determine Year
2000 readiness. Based on our review and the results of our tests, we believe
that our products, when configured properly and used in accordance with our
instructions, will function properly during the transition and into the next
century.
We have tested third-party software that is used with our products. Despite
testing by us and by customers, and assurances from developers of products sold
to operate with our products, our products may contain undetected errors or
defects associated with the Year 2000 date functions. In addition, because our
products are used in complex computer environments, they may directly or
indirectly interact with a number of other hardware and software systems with
uncertain results. We are unable to predict to what extent our business may be
affected if our products or technologies should experience Year 2000 related
problems. Known or unknown errors or defects that affect the operation of our
products could result in delay or loss of revenues, diversion of development
resources, damage to our reputation or increased service and warranty costs, any
of which could harm our business.
Our internal systems include our information technology systems and
non-information technology systems. We have completed an assessment of our
information technology systems and non-information technology systems. We have
purchased the majority of our software and hardware within the last 24 months.
Purchases have mostly been the latest software versions and the latest
commercially available hardware. We believe that the majority of this software
and hardware has
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<PAGE> 28
been built and tested for Year 2000 compliance. To the extent that we are not
able to test the technology provided by third party vendors, we are seeking
assurances from vendors that their systems are Year 2000 compliant. We are not
currently aware of any material operational issues associated with preparing our
information technology systems and non-information technology systems for the
Year 2000. However, we may experience unanticipated problems or additional costs
caused by undetected errors or defects in the technology used in our internal
information technology systems and non-information technology systems.
We have identified our significant suppliers and service providers to
determine the extent to which we are vulnerable to their failures to address
Year 2000 issues. Each of these suppliers has indicated through publicly
available information or through its Web site that the supplier believes its
applications are Year 2000 compliant. We are continuing to monitor the progress
of third parties that are critical to our business. We cannot be certain that
the representations of these third parties are accurate or that they will reach
Year 2000 compliance in a timely manner. If we determine that the progress of
specific suppliers or service providers toward Year 2000 compliance is
insufficient, we intend to change to other suppliers and service providers that
have demonstrated Year 2000 readiness. We may not find alternative suppliers or
service providers. In the event that any of our significant suppliers or
significant service providers do not achieve Year 2000 compliance in a timely
manner, and we are unable to replace them with alternate sources, our business
would be harmed.
To date, we have not incurred any material costs directly associated with
our Year 2000 compliance efforts, except for compensation expense associated
with our salaried employees who have devoted some of their time to our Year 2000
assessment and remediation efforts. We do not expect the total cost of Year 2000
problems to be material to our business, financial condition and operating
results. We would have incurred the replacement costs of non-information
technology systems regardless of the Year 2000 issue due to technology
obsolescence and our growth. We have and will continue to expense all costs
arising from Year 2000 issues, funding them from working capital.
In addition, governmental agencies, utility companies, third-party service
providers and others outside of our control might not be Year 2000 compliant.
The failure by these entities to be Year 2000 compliant could result in a
systemic failure beyond our control, for example, a prolonged telecommunications
or electrical failure. We believe the primary business risks, in the event of
these failures, would include:
- loss of telecommunication tools to support our licensees;
- lost revenue;
- increased operating costs; and
- claims of mismanagement, misrepresentation or breach of contract.
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<PAGE> 29
BUSINESS
OVERVIEW
We are the leading provider of technologies that enable users to interact
with computers using their sense of touch. While the standard user interface
incorporates advanced graphics and sound capabilities, today's computers lack
the ability to present information that users can feel. Our solution enables
computers to deliver compelling tactile sensations that correspond to on-screen
events. Our Feel technology includes a combination of sophisticated hardware and
software designs, for which we hold 33 U.S. patents and have over 100 additional
patent applications pending in the U.S. and abroad. We currently license our
technologies to manufacturers of peripheral devices such as computer mice and
gaming joysticks, including Logitech, Microsoft and InterAct. We also license
our technologies and sell products into industrial, medical and scientific
markets. Our objective is to proliferate our feel technology across markets,
platforms and applications so that feel becomes as common as graphics and sound
in the modern user interface.
INDUSTRY BACKGROUND
Early computers had crude user interfaces that only displayed text and
numbers. These machines, commonly known as "green screen" computers, were
effective at processing data but did not communicate information in an engaging
and intuitive manner. As a result, computing was limited to select scientific
and business applications. In the early 1980s, computers began to use graphics
and sound to engage users' perceptual senses more naturally. Graphics
technologies brought pictures, charts, diagrams and animation to the computer
screen. Audio technologies enabled sound and music.
By the late 1980s, graphics and audio technologies had spread to consumer
markets, initially through computer gaming applications. By the early 1990s, the
penetration of graphics and sound into consumer markets expanded beyond gaming
into mainstream productivity applications, largely due to the introduction of
the Windows 3.0 graphical user interface. By the late 1990s, the proliferation
of graphics and audio content helped transform the Internet into a highly
interactive and popular medium for communication, commerce and entertainment.
The evolution from alphanumeric characters to the modern user interface is
widely considered to be one of the great advances in computing. By presenting
content in ways that engage the senses more fully, computers were "humanized,"
becoming more personal, less intimidating and easier to use. These improvements
helped expand the audience for computer technologies, encouraging people to use
software for business, home and entertainment applications. Today, graphics and
audio technologies are standard features of most computer systems.
While most modern computers realistically present information to the senses
of sight and sound, they still are unable to convey content through the sense of
touch. The absence of touch is a substantial barrier to making computer use more
natural and intuitive. For example, the current computing environment does not
allow online shoppers to feel physical attributes of products prior to purchase
nor does it permit students to feel physical concepts like gravity and
magnetism. Software designers strive to develop compelling applications for
users to see and hear, but do not provide applications that users can feel. As a
result, software is not as engaging and informative as it would be if tactile
sensations were conveyed.
The absence of touch and feel in modern computers also limits user
productivity. The Windows interface, for example, is based on a physical
metaphor: users must move the cursor on a screen to drag, drop, stretch and
click. Users must manipulate graphical elements without the benefit of tactile
feedback. As a result, using a cursor is visually taxing. Selecting an icon,
clicking
27
<PAGE> 30
on a hyperlink or grabbing the edge of a window are common tasks that would be
easier to perform if users could feel the engagement of their cursor with the
intended target.
Like sight and sound, touch is critical for interacting with and
understanding our physical surroundings. Technology that brings the sense of
touch to computing has the potential to further humanize the computer and
increase the ease, usefulness and enjoyment of computing.
OUR SOLUTION
We develop and license affordable technologies that allow users to touch
and feel computer content. In diverse applications ranging from computer gaming
to business productivity to medical simulation to surfing the Web, our
technologies enable software applications to engage a user's sense of touch
through common peripheral devices such as mice, joysticks, steering wheels and
gamepads.
Our hardware, software and electronics work together seamlessly to enable
peripheral devices to present touch and feel sensations. Our patented designs
include specialized hardware elements such as motors, control electronics and
mechanisms, which are incorporated into common peripheral devices such as mice
and joysticks. Driven by sophisticated software algorithms, these hardware
elements direct tactile sensations corresponding to on-screen events to the
user's hand. For example, when a feel-enabled mouse is used to lift a "heavy"
object within the computer application, software directs the mouse's motors to
apply resistance to that motion to create a realistic simulation of weight. By
contrast, when the cursor is moved against a "soft" object, the motors apply
gradations of force to simulate the soft compliance of the object.
Key benefits of our solution include:
Complete Solution. We offer a complete technical solution to peripheral
device manufacturers and to software and Web developers. Our technologies allow
manufacturers to design high-quality feel-enabled peripheral devices such as
mice, joysticks, steering wheels and gamepads at a reasonable cost and in a
reasonable timeframe. Our software automatically enables users to feel the basic
user interface features of software applications running on Windows 98 without
additional developer support. Our software also enables users to feel basic Web
page features represented through standard Hypertext Markup Language (HTML),
Java and ActiveX protocols. In addition, we provide authoring tools that permit
software developers to quickly design and incorporate custom feel sensations
into their own applications.
Compatible with Industry Standards. We have designed our technologies to be
compatible with leading hardware and software standards. Our technologies
operate across multiple platforms and comply with such standards as DirectX,
Microsoft's entertainment application programming interface and USB (Universal
Serial Bus).
Cost Effective Solution. We have developed component technologies that
permit peripheral device manufacturers to design and manufacture feel-enabled
peripheral devices more cost effectively than would otherwise be possible. We
have also developed and licensed sophisticated software drivers and firmware
that permit our licensees to avoid substantial development costs and accelerate
product introduction.
Presents Information to the Sense of Touch. It is difficult to communicate
physical properties such as texture, compliance, weight and friction solely
through words or pictures. Our technologies allow computer users to use their
sense of touch to perceive these physical properties in a way that is instantly
understandable and intuitively accessible. Our solution significantly improves
the ability of software to communicate to users the physical features of a
product, the physical properties of a scientific or engineering principle or the
physical response of an object in a simulated gaming environment.
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<PAGE> 31
Improves User Productivity in Cursor Manipulation Tasks. Computer users
routinely select items on the screen using a cursor. This task involves
precisely positioning a cursor on a desired target like a menu or a hyperlink,
and then pressing a button to indicate that the target should be selected. With
a traditional mouse, users can confirm only through visual feedback that the
correct item has been selected. This task demands significant visual attention,
slows execution and distracts the user from other activities. With a
feel-enabled mouse, the user can feel each encounter between the cursor and
items on the screen. For example, the edge of a window feels like a groove
carved into the desktop--when the cursor slides into the groove, users feel a
distinct physical engagement. Users interpret these sensations intuitively
because of their similarity to real-world encounters. When selecting icons,
scrolling through a menu or clicking on a hyperlink on a Web page, the ability
to feel the encounter greatly facilitates interaction.
LOGO
Increases Satisfaction and Enjoyment of the Computing Experience. By
engaging the user's sense of touch, our technologies have the potential to make
a variety of software applications more interesting, engaging and satisfying.
Our technologies have already gained acceptance in the computer gaming market,
and we believe that our technologies will increase user satisfaction across many
additional applications, including business productivity, engineering, education
and e-commerce.
Enhances the Effectiveness of Simulation and Training Applications. Some
computer applications, such as medical training, require realism to be
effective. Companies and institutions have begun to replace traditional means of
surgical training with more accessible and versatile simulation systems for
training doctors to perform surgical procedures. Our technologies increase the
effectiveness of these systems by providing tactile feedback that simulates what
a doctor would feel when performing an actual procedure. Our technologies are
used in training systems for laparoscopic surgery, endoscopic surgery and
catheter insertion.
STRATEGY
Our objective is to proliferate our feel technology across markets,
platforms and applications so that feel becomes as common as graphics and sound
in the modern computer interface. We intend to maintain and enhance our position
as the leading provider of feel technology in consumer markets by pursuing the
following strategies:
Pursue A Royalty-Based Licensing Model. We believe that the most effective
way to proliferate our feel technology is to license our intellectual property
to computer peripheral device manufacturers. We have licensed our technologies
to manufacturers of joysticks and steering wheels targeted at game consumers and
have recently licensed our technologies to Logitech for the manufacture of
feel-enabled computer mice. We have also licensed our technologies to companies
that make industrial products, such as medical simulation hardware and arcade
systems. We intend to expand the number and scope of our licensing relationships
and expect that licensing royalties will constitute an increasingly significant
portion of our revenues in the future.
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Facilitate Development of Feel-Enabled Products. We will continue to devote
significant resources to facilitate development by our manufacturing licensees
of feel-enabled products. We offer complete design packages that include
reference designs and software and firmware, and offer our technical expertise
on a consulting basis. To facilitate development of feel-enabled products, we
offer optimized device components, such as specialized microprocessors for
controlling the motors in mice, joysticks and steering wheels. We will continue
to invest in research and development to improve our technologies, with a
particular emphasis on reducing the cost of feel-enabled products.
Expand Software Support for Our Feel Technology. In addition to licensing
our technologies to computer peripheral device manufacturers and supporting
their product development efforts, we have focused on expanding software support
for our feel technology. We have developed software that enables users to
automatically feel icons, menus and other objects in software running in Windows
98 applications or on Web pages. We offer specialized authoring tools that
simplify adding feel to software applications and Web pages. We also are
promoting an efficient file format, called ".ifr," to facilitate the creation
and storage of custom feel sensations.
Expand Market Awareness. We promote adoption of our feel technology by
increasing market awareness among peripheral device manufacturers, software
developers and consumers. We devote significant resources to working directly
with our licensees to encourage and assist their product development efforts. We
encourage software developers to add feel content to their applications by
providing them with our authoring tools and technical support. As part of our
license agreements, we require our licensees to use our trademarks and logos to
create brand awareness among consumers. We intend to devote significant
resources in the future to expand market awareness of our feel technology and
our brands.
Secure Licensees in New Markets for Feel Technology. We believe that our
feel technology can be used in virtually all areas of computing. We initially
focused on the computer entertainment market where we have experienced rapid
acceptance of our technologies by key licensees. We have recently broadened our
focus to include mainstream computing and have licensed our technologies for use
in feel-enabled computer mice. We intend to expand our market opportunities by
addressing new platforms such as dedicated game consoles and set-top boxes.
Develop and Protect Feel Technology. We hold 40 U.S. patents and have more
than 125 patent applications pending in the U.S. and abroad. Our success depends
on our ability to license and commercialize our intellectual property and to
continue to expand our intellectual property portfolio. We devote substantial
resources to research and development and are engaged in projects focused on
expanding the scope and application of our technologies. We have also secured
technology by acquisition. We intend to continue to invest in technology
development and potential acquisitions and to protect our intellectual property
rights.
MARKET APPLICATIONS
While we believe that our technologies are broadly applicable, we are
focusing our initial marketing and business development activities on the
following target markets:
Computer Entertainment. We initially introduced our feel technology for
consumer gaming peripherals in 1996 and branded this technology under the name
I-FORCE. We have licensed our I-FORCE technology to 16 manufacturers, including
Logitech, Microsoft and InterAct. According to PC Data, feel-enabled joysticks
accounted for approximately 3% of domestic PC joystick sales by unit volume in
1997 and doubled to approximately 6% of the domestic PC joystick sales by unit
volume in 1998. In addition, we have developed I-FORCE technologies for gaming
applications in arcade and location-based entertainment markets. We intend to
expand our I-FORCE licensing business to include new product categories for the
PC platform such as gamepads and flight yokes, and to target additional gaming
platforms.
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Mainstream Computing. In order to bring feel technology to every desktop,
we have targeted the computer mouse market. To address this large opportunity,
we developed FEELit, a feel technology designed for cursor control products that
enables all the basic functionality of a traditional mouse but also presents
information to the sense of touch. In 1998, we entered into a license with
Logitech under which Logitech will manufacture mice incorporating our feel
technology. We plan to expand the FEELit licensing business with new types of
controllers and platforms.
Medical and Other Professional Computing. We have identified and addressed
demand for our feel technology in industrial, medical and scientific markets. We
currently have both product manufacturing and product licensing business
relationships in these markets.
TECHNOLOGY LICENSING AND PRODUCTS
Technology Licensing
We currently license our intellectual property to manufacturers that
produce peripheral devices incorporating our feel technology. In general, our
licenses permit manufacturers to produce only a particular category of product
within a specified field of use. We grant licenses for gaming products such as
joysticks, steering wheels and game pads under the I-FORCE brand. We grant
licenses for cursor control products, such as mice or trackballs, and for our
medical simulation devices under the FEELit brand. We make our reference designs
available to our licensees for an additional fee. A reference design is a
package consisting of a technology binder, an electronic database and a hardware
prototype that can be used in the development of a feel-enabled product.
Our basic licensing model includes a per unit royalty paid by the
manufacturer that is a percentage of the wholesale selling price of the
feel-enabled product. In addition, each licensee must abide by a branding
obligation. The prominent display of I-FORCE and FEELit logos on retail
packaging generates customer awareness for our technologies.
I-FORCE.LOGO FEELit.LOGO
Consumer Products. We license joysticks and steering wheel gaming peripherals
targeted at the PC platform. Currently, there are three consumer joysticks sold
under the I-FORCE brand: the Wingman Force Feedback Joystick from Logitech, the
Sidewinder Force Feedback Joystick from Microsoft and the Force-FX Joystick from
CH Products. Currently, there are ten I-FORCE steering wheel gaming peripherals
licensed under the I-FORCE brand, including the Wingman Formula Force from
Logitech, the Force GT from Thrustmaster, the Sidewinder Force Feedback Wheel
from Microsoft and the V4 Force Feedback Racing Wheel and FX Force Feedback
Racing Wheel from InterAct.
Logitech has announced that it will ship the first computer mouse
incorporating our feel technology in late 1999. This mouse, to be called the
Wingman Force Feedback Mouse, will
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automatically allow users to feel basic desktop controls in Windows 98 and
standard interface elements of Web pages and will be marketed with an
entertainment focus.
Medical Products. We license our feel technology to HT Medical Systems for
use in medical simulation products including CathSim, PreOp Endoscopic Simulator
and PreOp Endovascular Simulator. These devices are used for training purposes
and enable clinicians to feel simulations of sensations experienced during
medical procedures, such as encountering an unexpected obstruction in an artery.
Arcade and Location-Based Entertainment Products. HAPP Controls, one of the
largest manufacturers of arcade peripheral devices, licenses our feel technology
to manufacture joystick and steering wheel arcade units. These applications help
increase consumer awareness of feel technology in gaming applications.
Software and Developer Products
We have developed two types of software products that facilitate the
addition of feel simulation to software applications: end-user software that
provides automatic support for feel sensations across applications and authoring
tools that help programmers add feel content to their software applications. We
also have developed an efficient file format, called an ".ifr" file, for
representing, storing, and transmitting feel sensations. This file format allows
the development of feel sensation libraries that facilitate development of
feel-enabled applications.
Automatic Support
- FEELit Desktop adds feel to many of the basic Windows 98 controls, such
as icons, menus, buttons, sliders and windows. It immediately makes any
application running under Windows 98 more interesting and enhances
productivity during mouse use. It includes a control panel that gives
users the ability to customize the feel of their desktop. We expect that
this product will be bundled with each feel-enabled mouse.
- FEELtheWEB adds feel to web pages accessed through Internet Explorer and
Netscape Navigator. In conjunction with the FEELit Desktop, it allows the
user to feel the standard interface elements of Web pages such as
hyperlinks, check boxes and menus. It also allows users to feel custom
sensations that have been added to Web pages. We expect that this product
will be bundled with each feel-enabled mouse.
Authoring Tools
- I-FORCE Studio is a fully animated graphical environment that allows game
developers to design feel sensations for their software titles by
adjusting physical parameters and feel sensations. Each feel file that a
developer creates may be saved into an ".ifr" file and can be quickly
inserted into gaming applications and Web pages during the development
process.
- FEELit Studio is an authoring tool that allows developers of mainstream
productivity, Web and gaming software to design feel sensations into
their software titles. Like I-FORCE Studio, it employs an intuitive
graphical interface that allows feel sensations to be rapidly designed,
implemented and saved as ".ifr" files.
- FEELtheWEB Designer is an easy-to-use authoring tool that allows Web
developers to add feel sensations to Web pages. Any HTML Web page can be
loaded into the tool and modified to support feel sensations.
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Custom Processors
We develop, license and sell custom processors to support the requirements
of our feel technology in gaming and PC peripheral products. We believe that
these processors are cost effective components that allow our licensees to
reduce their costs of goods and the amount of custom development that must be
performed to bring a product to market, speeding the development cycle.
We have invested in this technology because we believe it is important as
an enabling technology for low-cost feel-enabled devices. By incorporating
commonly used components on a single piece of silicon, our processors reduce the
number of discreet components and can help lower overall system costs for our
licensees. This level of integration simplifies the manufacture of feel-enabled
products while increasing performance and reliability.
Specialty Products
Medical Simulation and Other Medical Equipment. We have developed numerous
technologies that can be used for medical training and simulation. By allowing
computers to deliver feel sensations to users, our technologies can support
realistic simulations that are effective in teaching medical students and
doctors what it feels like to perform a given procedure. Currently, we
manufacture a number of low volume medical products, including:
- Virtual Laparoscopic Interface, a fully integrated tool designed to allow
developers, researchers and educators to simulate minimally invasive
surgical procedures;
- Laparoscopic Impulse Engine, a three-dimensional interface for virtual
reality simulations of laparoscopic and endoscopic surgical procedures
that allow users to feel actual surgical tools as if they were performing
these procedures;
- PinPoint, a stereotactic arm manufactured for Picker International, Inc.,
which is integrated with Picker CT scanners to enable image guided
biopsies and radiation therapy; and
- Endoscopic Sinus Surgery Simulation Trainer, an electro-mechanical system
that recreates an operating room environment to simulate endoscopic
procedures.
Arcade and Location-Based Entertainment Products. We manufacture versions
of force feedback joysticks and steering wheel products with enhanced durability
for the arcade and location-based entertainment markets. We sell these products
directly to prominent entertainment companies that operate entertainment
centers.
MicroScribe-3D. Our MicroScribe-3D product allows users to create
three-dimensional computer models directly from physical objects. It contains
sensor and microprocessor technologies that allow users to digitize physical
objects simply by tracing the contours of the object with a stylus. The computer
records the three-dimensional geometry of an object and reproduces it on the
screen as a three-dimensional computer model. The MicroScribe-3D is designed to
support the needs of game developers, engineers, animators, film makers,
industrial designers and other professionals who need to create realistic
three-dimensional computer images quickly and easily.
Softmouse. We also manufacture a high performance mouse for geographic
information systems and the map-making industry. This product has a two-handed
interface with 10 buttons and a rotary thumbwheel. We currently sell this
product to several major manufacturers, including Intergraph, Vision
International and LH Systems. End users of Softmouse include the U.S. Geological
Survey, NASA and the U.S. Department of Defense.
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TECHNOLOGY
Feel simulation, also known as force feedback, haptic feedback or force
reflection, refers to the technique of adding feel sensations to computer
software by imparting physical forces upon the user's hand. These forces are
imparted by actuators, usually motors, that are incorporated into consumer
peripheral devices such as mice, joysticks, steering wheels or gamepads, or into
more sophisticated interfaces designed for industrial, medical or scientific
applications. Feel-enabled peripheral devices can impart to users physical
sensations like rough textures, smooth surfaces, viscous liquids, compliant
springs, jarring vibrations, heavy masses and rumbling engines.
As a user manipulates a feel-enabled device, such as a mouse, motors within
the device apply computer modulated forces that either resist or assist the
manipulations. These forces are generated based on mathematical models that
simulate the desired sensations. For example, when simulating the feel of a
rigid wall with a force feedback mouse, motors within the mouse apply forces
that simulate the feel of encountering the wall. As the user moves the mouse to
penetrate the wall, the motors apply a force that resists the penetration. The
harder the user pushes, the harder the motors push back. The end result is a
sensation that feels like a physical encounter with an obstacle.
FEEL-ENABLED PRODUCT ARCHITECTURE
[DIAGRAM]
The mathematical models that control the motors may be simple, modulating
forces based on a function of time, such as jolts and vibrations, or may be more
complex, modulating forces based on user manipulations such as surfaces,
textures, springs, and liquids. Complex sensations can be created by combining a
number of simpler sensations. For example, a series of simulated surfaces can be
combined to give the seamless feel of a complex object like a sports car or a
telephone. Textures can be added to such complex surfaces so that the windshield
of the sportscar feels smooth and the tires feel rubbery.
To simplify the process of generating feel sensations, we have developed a
parallel processing architecture in which a dedicated processor sits on board
the peripheral device and handles the complex mathematics. The dedicated
processor offloads the processing burden from the host computer. This
distributed processing architecture, along with specialized software, provides a
software developer with an easy-to-use high-level application programming
interface that abstracts
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feel programming into a perceptual rather than mathematical level. The
application programming interface allows programmers to easily define and
initiate feel sensations with software routines with descriptive physical names
such as "wall," "vibration" or "liquid." Programmers can easily adjust multiple
parameters to customize different types of sensations.
We have developed two application programming interfaces, one for gaming
markets and one for productivity markets. The gaming application programming
interface is called the I-FORCE API. The productivity application programming
interface is called the FEELit API. Both allow software developers to quickly
incorporate feel sensations into software applications. In 1997, Microsoft
included support for our I-FORCE API into DirectX, Microsoft's standard gaming
device application programming interface for the Windows platform.
Most computer interface devices, such as mice and joysticks, are input-only
devices, meaning that they track a user's physical manipulations but provide no
manual feedback. As a result, information flows in only one direction, from the
peripheral to the computer. Feel-enabled devices are input-output devices,
meaning that they track a user's physical manipulations (input) and provide
realistic physical sensations coordinated with on-screen events (output). The
computer and the device need to communicate quickly in order to present
realistic sensations.
We have developed an efficient processing techniques to minimize the amount
of information that needs to be communicated between the computer and the
peripheral. We use dedicated processors in the device to produce feel sensations
in response to high level commands from the host computer. Our control
architecture has the added benefit of performing force feedback computations in
parallel with the computer's execution of a software application.
SALES, MARKETING AND SUPPORT
We establish licensing relationships and sell a number of our products
through our direct sales efforts. We also sell some of our products indirectly
through distributors and value-added resellers.
Consistent with our intellectual property licensing strategy, we have
focused our marketing activities on developing relationships with potential
licensees and on participating with existing licensees in their marketing and
sales efforts. To generate awareness of our technologies and our licensees'
products, we participate in industry trade shows, maintain ongoing contact with
industry press, provide product information over our Web site and advertise in
entertainment and game industry publications.
Another focus of our marketing efforts is to promote the adoption of our
feel technology by software and Web developers. We have developed the Feel
Foundation Classes Software Development Kits to facilitate the implementation of
feel effects into software applications. We currently distribute this software
to software developers at no cost. Our software support staff also works closely
with developers to assist them in developing compelling feel-enabled
applications. We provide sample feel sensations to developers through our Web
site and through our I-FORCE Studio and FEELtheWEB Designer authoring tools. We
intend to devote substantial resources to supporting software developers and Web
page designers in the creation of feel-enabled software applications, including
hiring additional software engineers and other technical personnel.
We anticipate allocating substantially more resources to sales and
marketing to proliferate our technology and to support the sales of our licensed
products. To date, we have not focused on marketing to end users of our
licensees' products. However, we believe that it is important to increase
awareness of our feel technology among potential end users. As part of our
strategy to increase our visibility and promote our feel technology, our license
agreements generally require our licensees to display the I-FORCE or FEELit
logos on licensed products they distribute. In addition, we intend to
substantially increase our advertising and marketing efforts to end users.
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RESEARCH AND DEVELOPMENT
Our success depends on our ability to improve, and reduce the costs of, our
technologies in a timely manner. We have assembled a team of highly skilled
engineers who possess experience in the disciplines required for feel technology
development, including mechanical engineering, electrical engineering, and
computer science.
Our research and development expenses were approximately $710,000 in 1996,
$1.5 million in 1997, $1.8 million in 1998 and $1.1 million in the six months
ended June 30, 1999. Our research and development efforts have been focused on
technology development, including hardware, software and designs. We have
entered into numerous contracts with government agencies and corporations that
help fund advanced research and development. We expect to continue to invest
substantially in research and development activities.
COMPETITION
We are aware of several companies that claim to possess feel technology
applicable to the consumer market, but we do not believe that these companies or
their licensees have introduced feel-enabled products. Several companies also
currently market force feedback products to non-consumer markets and may shift
their focus to the consumer market. In addition, our licensees may develop
products that compete with products employing our feel technology but are based
on alternative technologies. Many of our licensees, including Microsoft and
Logitech, and other potential competitors have greater financial and technical
resources to draw upon in developing computer peripheral technologies that do
not make use of our feel technology.
Our competitive position is partially dependent on our licensees'
competitive positions. Our licensees' markets are highly competitive. We believe
that the principal competitive factors in our licensees' markets include price,
performance, user-centric design, ease of use, quality and timeliness of
products, as well as the manufacturer's responsiveness, capacity, technical
abilities, established customer relationships, retail shelf space, advertising,
promotion programs and brand recognition. Feel-related benefits may be viewed as
enhancements, and products incorporating our feel technology might face
competition from computer peripheral devices that are not feel-enabled as well
as from peripheral devices which use simple vibration technology, sometimes
referred to as "dual shock" or "rumble shock."
Semiconductor companies, including Intel and Mitsubishi, manufacture
products that compete with the I-FORCE and FEELit processors but which have not
been optimized specifically for feel technology. We are not aware of any
companies that currently produce optimized feel processors.
There are several companies that currently sell high-end simulation
products that compete with our professional and medical products. The principal
bases for competition in these markets are technological sophistication and
price. We believe we compete favorably on these bases.
INTELLECTUAL PROPERTY
We rely on a combination of patents, copyrights, trade secrets, trademarks,
employee and third-party nondisclosure agreements and licensing arrangements to
protect our intellectual property, and we consider our ability to protect our
intellectual property to be critical to our success.
We hold 40 U.S. patents and more than 125 patent applications, both
domestic and foreign, are pending. These patents and patent applications cover a
variety of hardware and software innovations relating primarily to force
feedback. Our current U.S. patents expire between the years 2011 and 2016. Our
failure to obtain or maintain adequate protection of our intellectual property
rights for any reason could hurt our competitive position. Patents may not issue
from any patent applications that we have filed or may file. Our issued patents
may be challenged, invalidated or circumvented, or claims of our patents may not
be of sufficient scope or strength, or issued in the proper geographic regions,
to provide meaningful protection or any commercial advantage.
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In addition, others may develop technologies that are similar or superior
to our technologies, duplicate our technologies or design around our patents.
Effective intellectual property protection may be unavailable or limited in some
foreign countries. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise use aspects of our methods
and devices that we regard as proprietary. If our intellectual property
protection is insufficient to protect our intellectual property rights, we could
face increased competition in the market for our technologies, or be unable to
persuade or require companies to enter into royalty-bearing license
arrangements.
We have acquired patents from third parties and also license some
technologies from third parties. We must rely upon the owner of the patent or
the technology for information on the origin and ownership of the acquired or
licensed technology. As a result, our exposure to infringement claims may
increase. We generally obtain representations as to the origin and ownership of
acquired or licensed technology and indemnification to cover any breach of these
representations. However, representations may not be accurate and
indemnification may not provide adequate compensation for breach of the
representations.
From time to time, we have received claims from third parties that our
technologies, or those of our licensees, infringe the intellectual property
rights of such third parties. Between May 1995 and June 1999, we have received
four such letters. After examination of these claims and consultation with
counsel, we believe that these claims are without merit. To date, none of these
companies have filed legal actions against us. However, these or other matters
might lead to litigation in the future. Intellectual property claims, whether or
not they have merit, could be time-consuming to defend, cause product shipment
delays, lead to an award of damages against us, or require us to cease utilizing
the technology unless we can enter into royalty or licensing agreements. Such
royalty or licensing agreements might not be available on terms acceptable to us
or at all. Furthermore, claims could also result in claims from our licensees
under the indemnification provisions of their agreements with us.
From time to time, we initiate claims against third parties that we believe
infringe our intellectual property rights. To date, these claims have not led to
any litigation. However, any litigation to protect and enforce our intellectual
property rights could be costly, time consuming and distracting to management
and could result in the impairment or loss of portions of our intellectual
property assets.
EMPLOYEES
As of August 31, 1999, we had 50 full-time employees including 21 in
research and development, 11 in sales and marketing and 18 in finance,
administration and operations. We also employ one independent contractor and
five temporary seasonal employees. None of our employees is represented by a
labor union, and we consider our employee relations to be good. Competition for
qualified personnel in our industry is extremely intense, particularly for
engineers and technical staff. Our future success will depend in part on our
continued ability to attract, hire and retain qualified personnel.
FACILITIES
We are located in San Jose, California and have 16,280 square feet of
office space. Our lease for this building expires on October 31, 2002. We
anticipate that we may need to add office space over the next year in order to
accommodate new employees.
LEGAL MATTERS
We are not currently involved in any legal or arbitration proceedings, nor
have we been involved in any such proceedings during the past 12 months.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The following table sets forth information regarding our executive
officers, directors and key employees and their ages as of August 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Louis Rosenberg, Ph.D.................... 30 Chairman of the board, President and Chief
Executive Officer
Bruce Schena............................. 35 Vice President, Chief Technology Officer,
Secretary and Director
Victor Viegas............................ 42 Chief Financial Officer
Timothy Lacey............................ 29 Vice President, Finance and Director
J. Stuart Mitchell....................... 46 Vice President, Business Development
Jennifer Saffo........................... 45 Vice President, Marketing
Steven Blank............................. 45 Director
KEY EMPLOYEES
Richard Abramson......................... 43 Director of Litigation and Intellectual Property
Adam Braun............................... 28 Director of Embedded Systems
Dean Chang, Ph.D......................... 32 Director of Platforms and Applications
Craig Factor............................. 31 General Counsel
Michael Levin............................ 34 Director of Professional and Industrial Products
Kenneth Martin........................... 34 Director of Product Development
</TABLE>
Dr. Louis Rosenberg is a founder of Immersion and has served as our
President, Chief Executive Officer and Chairman of our board of directors since
May 1993. Since April 1997 Dr. Rosenberg has served as a manager of MicroScribe
LLC, a licensing company in which we hold a membership interest. Dr. Rosenberg
holds bachelor of science, master of science and doctorate degrees in mechanical
engineering from Stanford University.
Mr. Bruce Schena has served as our Chief Technology Officer, Secretary,
Vice President and a member of our board of directors since January 1995. Since
April 1997 Mr. Schena has served as a manager of MicroScribe LLC, a licensing
company in which we hold a membership interest. From June 1993 to December 1994,
Mr. Schena consulted for Pandemonium Product Development, a product design
company owned by Mr. Schena. Mr. Schena holds bachelor of science and master of
science degrees in mechanical engineering from Massachusetts Institute of
Technology and a degree of engineer in mechanical engineering from Stanford
University.
Mr. Victor Viegas has served as our Chief Financial Officer since August
1999. From June 1996 to August 1999, he served as vice president, finance and
administration and chief financial officer of Macrovision Corporation, a
developer and licensor of video and software copy protection technologies. From
October 1986 to June 1996, he served as vice president of finance and chief
financial officer of Balco Incorporated, a manufacturer of advanced automotive
service equipment. He holds a bachelor of science degree in accounting and a
master of business administration degree from Santa Clara University. Mr. Viegas
is also a certified public accountant in the State of California.
Mr. Timothy Lacey is a founder of Immersion and has served as Vice
President, Finance since August 1999 and a member of our board of directors
since May 1993. From May 1993 to August 1999, Mr. Lacey served as our chief
financial officer. Since April 1997 Mr. Lacey has served as a manager of
MicroScribe LLC, a licensing company in which we hold a membership interest.
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Mr. Lacey holds bachelor of science and master of science degrees in mechanical
engineering from Stanford University.
Mr. J. Stuart Mitchell has served as our Vice President, Business
Development since August 1999. From February 1987 to February 1999, Mr. Mitchell
served as vice president of sales and marketing, systems products division and
vice president of worldwide OEM business for Adobe Systems, Inc., a desktop
publishing and graphics software company. From May 1982 to January 1987, Mr.
Mitchell served in various sales and management marketing positions for Zentec
Corporation, a computer systems and display terminal company and from April 1977
to April 1982, Mr. Mitchell served in various sales and marketing positions for
Xerox Corporation, an information technology and document systems company. Mr.
Mitchell holds a bachelor of science degree in engineering physics with a minor
in business from the University of Colorado, Boulder.
Ms. Jennifer Saffo has served as Vice President, Marketing since August
1999. From January 1991 to August 1999, Ms. Saffo served as interim vice
president marketing for Jenco, a sole proprietor that is a marketing company.
From 1987 to 1990, Ms. Saffo served as director of marketing for Adobe Systems,
Inc., a desktop publishing and graphics software company. From 1984 to 1987, Ms.
Saffo was founder and director of Aldus Corporation, an electronic publishing
software company. Ms. Saffo holds a bachelor of arts degree from University of
Colorado, Boulder.
Mr. Steven Blank has served as a member of our board of directors since
October 1996. From November 1996 to August 1999, Mr. Blank served as executive
vice president of marketing for E.piphany Marketing, an enterprise software
company. From February 1993 to October 1996, he served as chief executive
officer of Rocket Science Games, a video game software company.
Mr. Richard Abramson has served as our Director of Litigation and
Intellectual Property since February 1999. Since 1998, Mr. Abramson also has
served as an adjunct professor at the University of California at Berkeley,
Boalt Hall School of Law. From September 1991 to February 1999, Mr. Abramson was
a litigation partner at the law firm of Heller Ehrman White & McAuliffe,
specializing in patent and other intellectual property litigation. From August
1984 to 1991, Mr. Abramson was a litigation associate and partner at the law
firm of Irell & Manella. Mr. Abramson holds a bachelor of arts degree from
Claremont McKenna College and a juris doctorate degree from the University of
California at Berkeley, Boalt Hall School of Law.
Mr. Adam Braun has served as our Director of Embedded Systems since
September 1995. From May 1994 to September 1995, Mr. Braun was an embedded
systems engineer at Autonomous Effects Inc., a consulting company. Mr. Braun
holds a bachelor of science degree in mechanical engineering from Brown
University and a master of science degree in mechanical engineering from
Stanford University.
Dr. Dean Chang has served as our Director of Platforms and Applications
since July 1995. Dr. Chang holds bachelor of science and master of science
degrees from the Massachusetts Institute of Technology and a doctorate degree in
mechanical engineering from Stanford University.
Mr. Craig Factor has served as our General Counsel since September 1997.
From January 1995 to January 1997, Mr. Factor was an associate at the law firm
of Wilson Sonsini Goodrich & Rosati. From September 1993 to January 1995, Mr.
Factor was an associate at the law firm of Wiley, Rein & Fielding. Mr. Factor
holds a bachelor of arts degree in social studies from Harvard University and a
juris doctorate degree from the Duke University School of Law.
Mr. Michael Levin has served as our Director of Professional and Industrial
Products since July 1995. From July 1990 to May 1995, Mr. Levin served as
manager of automation at Merck & Co., Inc., a pharmaceutical company. Mr. Levin
holds a bachelor of science degree in aeronautics and astronautics and a master
of science degree in mechanical engineering from Massachusetts Institute of
Technology.
39
<PAGE> 42
Mr. Kenneth Martin has served as our Director of Product Development since
April 1996. From June 1994 to April 1996, Mr. Martin served as a design engineer
at IDEO Product Development Inc., a product design company. Mr. Martin holds a
bachelor of applied science degree from the University of Toronto and a master
of science degree in manufacturing systems engineering from Stanford University.
BOARD COMPOSITION
Our board of directors currently consists of four members. Our board of
directors is divided into three classes, with each director serving a three-year
term and one class being elected at each year's annual meeting of stockholders.
Messrs. Blank and Schena will be in the class of directors whose term expires at
the 2000 annual meeting of stockholders. Mr. Lacey will be in the class of
directors whose term expires at the 2001 annual meeting of the stockholders. Dr.
Rosenberg will be in the class of directors whose term expires at the 2002
annual meeting of stockholders.
At each annual meeting of the stockholders, the successors to each class of
directors will be elected to serve for three year terms from the time of
election and qualification until the next annual meeting at which the director's
class stands for election.
Executive officers are elected by the board of directors on an annual basis
and serve until their successors have been duly elected and qualified. There are
no family relationships among any of our directors or officers.
BOARD COMMITTEES
Audit Committee. The board of directors has established an audit committee
consisting of Mr. Blank and an independent director to be elected to our board
of directors. The audit committee reviews with our independent auditors the
scope and timing of their audit services and any other services that they are
asked to perform, the auditor's report on our consolidated financial statements
following completion of their audit, and our policies and procedures with
respect to internal accounting and financial controls. In addition, the audit
committee makes annual recommendations to our board of directors for the
appointment of independent auditors for the upcoming year.
Compensation Committee. The board of directors has established a
compensation committee consisting of Mr. Blank and an independent director to be
elected to our board of directors. The compensation committee makes
recommendations to the board concerning salaries and incentive compensation for
our officers and employees and administers our employee benefit plans.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors. Under our 1997 stock option plan, nonemployee directors are eligible
to receive stock option grants at the discretion of the board of directors. In
November 1996, we issued an option to purchase 80,700 shares of common stock at
an exercise price of $0.17 per share to Mr. Blank. This option contains a
provision providing Mr. Blank with the right to maintain his percentage interest
of stock in our company. This right will terminate upon the closing of this
offering. Pursuant to this
40
<PAGE> 43
provision, we have granted to Mr. Blank additional options to purchase shares of
our common stock as follows:
<TABLE>
<CAPTION>
SHARES SUBJECT EXERCISE PRICE
DATE OF GRANT TO OPTION PER SHARE
------------- -------------- --------------
<S> <C> <C>
June 18, 1997 18,157 $0.25
December 12, 1997 6,052 0.37
March 16, 1998 20,336 1.24
April 22, 1999 20,175 3.66
June 21, 1999 3,228 3.66
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
None of the members of our compensation committee has at any time since our
formation been one of our officers or employees. None of our executive officers
currently serves or in the past has served as a member of a compensation
committee or board of directors of any other entity that has one or more
executive officers serving as a member of our board of directors or compensation
committee.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table presents information
concerning compensation received during the year ended December 31, 1998 by our
chief executive officer and each of our two other executive officers whose total
salary and bonus earned during that year exceeded $100,000. In accordance with
the rules of the Securities and Exchange Commission, the compensation described
in this table does not include perquisites and other personal benefits received
by these executive officers that do not exceed the lesser of $50,000 or 10% of
the total salary and bonus reported for these officers.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY OPTIONS(#)
---------------------------- ------------ ------------
<S> <C> <C>
Louis Rosenberg, Ph.D. ..................................... $138,615 72,468
President and Chief Executive Officer
Bruce Schena................................................ 121,683 22,819
Vice President, Chief Technology Officer and Director
Timothy Lacey............................................... 107,628 26,210
Chief Financial Officer and Director
</TABLE>
Mr. Lacey was serving as our Chief Financial Officer as of December 31,
1998. In August 1999, Mr. Lacey resigned as our Chief Financial Officer and was
appointed vice president, finance.
41
<PAGE> 44
Option Grants in Fiscal Year Ended December 31, 1998. The following table
presents information with respect to stock options granted to our executive
officers listed in the summary compensation table during 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM
OPTIONS TO EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED(#) DURING PERIOD ($/SHARE) DATE 5% 10%
---- ---------- ---------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Louis Rosenberg, Ph.D..... 605 0.13% $0.68 02/24/03 $ 3,191 $ 5,326
605 0.13 0.68 03/03/03 3,191 5,326
1,210 0.26 1.36 03/24/03 5,558 9,827
403 0.09 1.36 03/31/03 1,853 3,276
1,210 0.26 1.36 04/15/03 5,558 9,827
63,591 13.83 1.36 03/16/08 291,973 516,261
1,210 0.26 0.41 01/15/03 6,713 10,982
3,631 0.79 4.02 11/06/03 7,021 19,829
Bruce Schena.............. 605 0.13 0.62 02/24/08 3,229 5,364
605 0.13 0.62 03/03/08 3,229 5,364
21,004 4.57 1.24 03/16/08 99,043 173,126
605 0.13 3.66 11/06/08 1,391 3,526
Timothy Lacey............. 26,210 5.70 1.36 03/16/03 120,342 212,787
</TABLE>
The potential realizable represents the hypothetical gains of the options
granted based on assumed annual compound stock appreciation rates of 5% and 10%
over the fair market value of the common stock $3.66 as of December 31, 1998, as
determined by our board of directors. The 5% and 10% assumed annual rates of
stock price appreciation are required by the rules of the Securities and
Exchange Commission and do not represent our estimate or projection of future
common stock prices.
In 1998, we granted options to purchase an aggregate of 721,976 shares to
employees and consultants.
The exercise price of each option grant to Dr. Rosenberg and Mr. Lacey was
equal to 110% of the fair market value of the common stock on the date of grant
as determined by the board of directors.
Dr. Rosenberg's option to purchase 63,591 shares of common stock vests as
to 1/24 of the shares per month for 24 months. Dr. Rosenberg's option to
purchase 605 shares with an expiration date of February 24, 2003 and option to
purchase 1,210 shares with an expiration of January 15, 2003 are fully vested.
His remaining options vest as to 1/12 of the shares per month for 12 months.
Mr. Schena's option to purchase 21,004 shares of common stock vests as to
1/24 of the shares per month for 24 months. His remaining options vest as to
1/12 of the shares per month for 12 months.
Mr. Lacey's option to purchase 26,210 shares of common stock vests as to
1/24 of the shares per month for 24 months.
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<PAGE> 45
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Values. The following table presents information for our executive officers
listed in the summary compensation table concerning option exercises during 1998
and the value of exercisable and unexercisable options held as of December 31,
1998 by these officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1998(#) DECEMBER 31, 1998($)
ACQUIRED ON REALIZED ----------------------- ------------------------
NAME EXERCISE(#) ($) VESTED UNVESTED VESTED UNVESTED
---- ----------- -------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Louis Rosenberg, Ph.D................ 129,120 $ 85,200 985,218 91,090 $3,408,535 $254,225
Bruce Schena......................... 80,700 27,000 399,630 34,909 1,402,184 105,573
Timothy Lacey........................ 250,948 228,155 150,865 35,683 496,313 102,852
</TABLE>
The value realized upon exercise of options is calculated based on the fair
market value of the common stock on the date of exercise less the exercise
price. It does not necessarily indicate that the option holder sold the stock
for the amount listed. The value of unexercised in-the-money options represents
the positive difference between the exercise price of the stock options and
$3.66, the fair market value of the common stock as of December 31, 1998, as
determined by our board of directors.
CHANGE OF CONTROL ARRANGEMENTS
Our 1994 stock option plan provides that, in the event of a change in
control, our board of directors may either:
- arrange with the acquiring corporation that outstanding options be
assumed or that equivalent options be substituted by the acquiring
corporation; or
- provide that any unexercisable or unvested portion of the outstanding
option shall be immediately exercisable and vested in full.
The options terminate if they are not assumed, substituted or exercised prior to
a change of control.
STOCK PLANS
1997 Stock Option Plan. Our 1997 stock option plan was adopted by our board
of directors in June 1997 and approved by our stockholders in July 1997. The
stock option plan was amended in July 1999. We are authorized to issue under
this plan up to 3,166,793 shares of common stock. The number of shares may be
increased with the approval of our stockholders. The 1997 option plan is
currently administered by the board of directors. The plan allows grants of
incentive stock options, within the meaning of Section 422 of the Internal
Revenue Code of 1986, to employees, including officers and employee directors.
In addition, it allows grants of nonstatutory stock options to employees,
non-employee directors and consultants. Incentive stock options may not be
granted after June 2007, although the plan may be terminated sooner by the board
of directors.
The exercise price of incentive stock options granted under the 1997 stock
option plan must not be less than the fair market value of the common stock on
the date of grant. In the case of nonstatutory stock options, the exercise price
must not be less than 85% of fair market value. With respect to any option
holder who owns stock representing more than 10% of the voting power of all
classes of our outstanding capital stock, the exercise price of any incentive
stock option must be equal to at least 110% of the fair market value of the
common stock on the date of grant, and the term of the option may not exceed
five years. The terms of all other options may not exceed ten years. The
aggregate fair market value of the common stock for which an incentive stock
option may become exercisable for the first time may not exceed $100,000 in any
calendar year. The fair
43
<PAGE> 46
market value will be determined as of the date of the option grant. The board of
directors or any committee administering the 1997 stock option plan has
discretion to determine exercise schedules and vesting requirements, if any, of
all options granted under the plan. In the event of a change in control, the
acquiring or successor corporation may assume or substitute for the outstanding
options granted under our 1997 stock option. The outstanding options will
terminate to the extent that they are neither exercised nor assumed or
substituted for by the acquiring or successor corporation.
As of June 30, 1999, 274,935 shares of common stock had been issued upon
exercise of options outstanding under this plan. Options to purchase 1,750,635
shares of common stock, at a weighted average exercise price of $3.46, were also
outstanding, while 1,141,493 shares remained available for future grants.
1994 Stock Option Plan. Our 1994 stock option plan was adopted by our board
of directors in August 1994 and approved by our stockholders in August 1994.
Prior to the adoption of the 1997 stock option plan, a total of 2,381,330 shares
of Common Stock were reserved for issuance under the 1994 stock option plan. In
July 1997, upon the adoption of the 1997 stock option plan, our board of
directors terminated the 1994 stock option plan. While no additional options
will be granted under that plan, options to purchase 1,210,639 shares of common
stock are outstanding and remain subject to the provisions of the 1994 stock
option plan. The plan is administered by the board of directors.
The 1994 stock option plan allowed the grant of incentive stock options and
nonstatutory stock options. The exercise price of incentive stock options
granted under the plan must not be less than the fair market value of the common
stock on the date of grant. With respect to any option holder who owns stock
representing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of any stock option must be equal to at least
110% of the fair market value of the common stock on the date of grant and the
term of the option may not exceed five years. The terms of all other options may
not exceed ten years. The aggregate fair market value of the common stock for
which an incentive stock option may become exercisable for the first time may
not exceed $100,000 in any calendar year. The board of directors or any
committee administering the 1994 stock option plan has discretion to determine
exercise schedules and vesting requirements, if any, of all option grants under
that plan. In the event of a change in control, our board of directors may
either:
- arrange with the acquiring corporation that outstanding options be
assumed or that equivalent options be substituted by the acquiring
corporation; or
- provide that any unexercisable or unvested position of the outstanding
option shall be immediately exercisable and vested in full.
The outstanding options will terminate to the extent that such options are
neither exercised nor assumed or substituted for by the acquiring or successor
corporation.
As of June 30, 1999, 1,170,677 shares of common stock had been issued upon
exercise of options outstanding under this plan. Options to purchase 1,210,639
shares of common stock, at a weighted average exercise price of $0.10, were also
outstanding.
1999 Employee Stock Purchase Plan. In August 1999, our board of directors
adopted, subject to approval by our stockholders, our 1999 employee stock
purchase plan. We have reserved a total of 500,000 shares of common stock for
issuance under the 1999 employee stock purchase plan, none of which have been
issued as of the effective date of this offering. The share reserve will
automatically be increased on January 1, 2001 and on each January 1 thereafter
until and including January 1, 2010, by an amount equal to the lesser of 500,000
shares per year or such lesser number of shares as determined by the board of
directors.
44
<PAGE> 47
The employee stock purchase plan is intended to qualify under Section 423
of the Internal Revenue Code. Employees, including officers and employee
directors, of us or any subsidiary designated by the board for participation in
the plan, are eligible to participate in the plan if they are customarily
employed for more than 20 hours per week and more than five months per year.
Eligible employees may begin participating at the start of any offering period.
The first offering period will run for approximately 24 months and will be
divided into four consecutive purchase periods of approximately six months. The
first offering period and the first purchase period commence on the date of this
offering. The first offering period will terminate on the last day of January
2002. The first purchase period will terminate on the last day of January 2000.
Subsequent purchase periods will generally have a duration of approximately six
months. Purchasing periods after the initial purchase period will commence on
the first day of February and August of each year. The board may change the
dates or duration of one or more offering periods, but no offering may exceed 27
months. Participants will purchase shares on the last day of each purchase
period of the initial offering period and on the last day of each subsequent six
month offering period.
The employee stock purchase plan permits eligible employees to purchase
common stock through payroll deductions at a price equal to 85% of the lower of
the fair market value of the common stock on the first day of the offering, or
the purchase date. Participants generally may not purchase more than 1,000
shares on any purchase date or stock having a value greater than $25,000 in any
calendar year as measured at the beginning of the offering period. In the event
of a change in control, the board may accelerate the purchase date of the then
current offering period to a date prior to the change in control, unless the
acquiring or successor corporation assumes or replaces the purchase rights
outstanding under the employee stock purchase plan. Our board of directors may
amend or terminate the 1999 employee stock purchase plan at any time, as long as
such amendment or termination does not impair outstanding purchase rights.
401(k) Plan. We have a 401(k) retirement and deferred savings plan covering
all eligible employees that is intended to qualify as a tax-qualified plan under
the Internal Revenue Code. Employees are eligible to participate in the plan
after completing one month of service with us. Employees may participate in the
plan beginning on the first day of the calendar quarter immediately following
satisfaction of the eligibility requirement. The plan provides that each
participant may contribute up to 15% of his or her pre-tax gross compensation,
up to a statutory limit, which was $10,000 in the 1998 calendar year. All
amounts contributed by participants and earnings on such contributions are
immediately vested. We may contribute an amount up to 6% of the participant's
annual compensation if such amount is less than or equal to the amount of the
participant's contribution which will vest on the last day of the plan year for
employees employed on that date. We may also make discretionary non-matching
contributions. These contributions would vest ratably over six years or seven
years depending on the nature of the contribution. Continued employment is a
condition of vesting.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF DIRECTORS'
LIABILITY
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
45
<PAGE> 48
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive offices and may indemnify other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether Delaware law would permit indemnification.
In addition to indemnification provisions in our bylaws, we have entered
into agreements to indemnify our directors and executive officers. These
agreements provide for indemnification of our directors and executive officers
for some types of expenses, including attorneys' fees, judgments, fines and
settlement amounts incurred by persons in any action or proceeding, including
any action by or in the right of Immersion, arising out of their services as our
director or executive officer. We believe that these provisions and agreements
are necessary to attract and retain qualified persons as directors and executive
officers.
CERTAIN TRANSACTIONS
Since January 1, 1996 there has not been, nor is there currently, any
transaction or series of similar transactions to which we were or are a party in
which the amount involved exceeds $60,000 and in which any of our directors,
executive officers or holders of more than 5% of our capital stock had or will
have a direct or indirect material interest other than:
- the agreements which are described in "Management;" and
- the transactions described below.
FINANCING TRANSACTIONS
After this offering, outstanding shares of preferred stock will
automatically convert into shares of common stock as follows:
- each share of Series A and Series B preferred stock will convert into
4.035 shares of common stock; and
- each share of Series C and Series D preferred stock will convert into
0.807 shares of common stock.
In November 1996, we issued 98,334 shares of Series B preferred stock to
individuals for an aggregate purchase price of $590,004. Of these shares, we
issued 5,000 shares to Bruce Paul, a holder of more than 5% of our capital
stock. In November 1996, we also issued Mr. Paul a warrant to purchase 8,000
shares of Series B preferred stock at an exercise price of $6.00 per share. In
December 1996, we issued Mr. Paul a warrant to purchase 10,000 shares of Series
B preferred stock at an exercise price of $6.00 per share. We amended these
warrants in September 1998 to extend their term from two years to five years.
In June 1997, we issued 1,071,428 shares of Series C preferred stock for an
aggregate purchase price of $1,500,005. Of these shares, we issued 642,861
shares to Intel, a holder of more than 5% of our capital stock. In connection
with this sale of Series C preferred stock to Intel, we issued Intel a warrant
to purchase 91,191 shares of common stock at an exercise price of $0.19 per
share. In connection with this sale, we agreed to provide the holders of Series
C preferred stock with registration rights with respect to the common stock
issuable upon conversion of the Series C preferred stock and upon exercise of
Intel's warrant.
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<PAGE> 49
In April 1998, we issued shares of our Series D preferred stock to Intel
and Logitech, each a holder of more than 5% of our capital stock. Intel
purchased 222,552 shares and Logitech purchased 1,483,680 shares of our Series D
preferred stock at a purchase price of $3.37 per share for an aggregate purchase
price of $5,750,002. In connection with this sale, we agreed to provide each of
Intel and Logitech with registration rights with respect to the common stock
issuable upon conversion of this Series D preferred stock.
OTHER TRANSACTIONS
Share Repurchase. In May 1998, we repurchased 502,014 shares of our common
stock at $3.66 per share from shareholders who elected to participate in the
repurchase, including:
<TABLE>
<CAPTION>
NUMBER OF
STOCKHOLDER SHARES SOLD CONSIDERATION PAID
----------- ----------- ------------------
<S> <C> <C>
Louis Rosenberg................................. 257,838 $ 942,531
Bruce Schena.................................... 79,922 292,159
Timothy Lacey................................... 107,190 391,837
</TABLE>
Logitech Agreement. In October 1996, we entered into a royalty-based
license agreement and a technology product development agreement with Logitech
that allows Logitech to use certain of our technologies to develop and
distribute gaming products. We have derived royalty revenue of $242,000 in 1997
and $149,000 in 1998 from these agreements.
In April 1998, we entered into a royalty-based license agreement and a
technology product development agreement with Logitech that allows Logitech to
use certain of our technologies to develop and deliver cursor control devices.
We have derived royalty revenue of $161,000 in 1998 and $190,000 for the six
months ended June 30, 1999 from these agreements.
MicroScribe Agreements. In July 1997, we entered into an exchange
agreement, patent license agreement and an intellectual property license
agreement with MicroScribe LLC. Pursuant to the exchange agreement and the
patent license agreement, we assigned certain of our patents to MicroScribe in
exchange for a worldwide, royalty-free, exclusive, irrevocable license and all
of the class 1 membership interests in MicroScribe. All of the class 2
membership interests of MicroScribe were distributed to shareholders of our
company at the time of the exchange agreement. Distributable cash from normal
business operations of MicroScribe is distributed 99% to the class 2 members and
1% to us, as the sole class 1 member. Pursuant to the terms of the license
agreement, MicroScribe granted us rights to use intellectual property of
MicroScribe for the development and distribution of 3D digitizing products. We
have paid MicroScribe $116,487 in 1998 and $67,696 for the six months ended June
30, 1999.
Cybernet Agreements. In March 1999, we acquired patents and in-process
technology from Cybernet Systems Corporation in exchange for 1,291,200 shares of
our common stock. In addition, we entered into a consulting services agreement
with Cybernet, pursuant to which we issued Cybernet a warrant to purchase
322,800 shares of common stock at an exercise price of $3.66 and agreed to pay
Cybernet $300,000, of which we paid $150,000 in March 1999 and must pay $75,000
in January 2000 and $75,000 in January 2001. In connection with this acquisition
and consulting arrangement, we agreed to provide Cybernet with registration
rights with respect to this common stock and the common stock issuable upon
exercise of this warrant.
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<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of
our common stock as of August 31, 1999, and as adjusted to reflect the sale of
common stock offered by this prospectus:
- each stockholder known by us to own beneficially more than five percent
of our common stock,
- each of the executive officers listed in our summary compensation table
on page 42,
- each director, and
- all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
----------------------- ------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
------------------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
Cybernet Systems Corporation................... 1,557,510 13.6%
727 Airport Boulevard
Ann Arbor, Michigan 48108-1639
Intel Corporation.............................. 789,578 7.1
2200 Mission College Boulevard
M&A Portfolio Manager, RN 6-46
Santa Clara, California 95052
Logitech International S.A. ................... 1,197,329 10.8
6505 Kaiser Drive
Fremont, California 94555-3615
Bruce Paul..................................... 781,781 7.0
One Hampton Road
Purchase, NY 10577
EXECUTIVE OFFICERS AND DIRECTORS
Louis Rosenberg, Ph.D. ........................ 2,534,720 20.9
Bruce Schena................................... 866,480 7.5
Timothy Lacey.................................. 1,081,340 9.6
Steven Blank................................... 145,958 1.3
All executive officers and directors as a group
(7 persons).................................. 4,628,498 36.1
</TABLE>
As of August 31, 1999, there were 11,105,444 shares of common stock
outstanding, assuming conversion of all shares of preferred stock into common
stock. The column that shows the percentage of shares outstanding after the
offering assumes that the underwriters' over-allotment option is not exercised.
If the over-allotment option is exercised in full, we will sell a total of
shares of common stock and selling stockholders will sell a total of
shares of common stock. The following table presents information as to
the beneficial ownership of our common stock as of
48
<PAGE> 51
August 31, 1999, assuming the exercise of the over-allotment option in full, as
adjusted to reflect the sale of common stock offered by each selling
stockholder:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
----------------------- ------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
------------------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
</TABLE>
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission. All shares of the common stock subject to options currently
exercisable or exercisable within 60 days after August 31, 1999 are treated as
outstanding and beneficially owned by the person holding them for the purpose of
computing the number of shares beneficially owned and the percentage of
ownership of that person. They are not, however, treated as outstanding and
beneficially owned for the purpose of computing the percentage ownership of any
other person. Except where indicated and subject to applicable community
property laws, based on information provided by the persons named in the table,
these persons have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them.
Shares listed as held by Cybernet consist of 1,246,008 shares and 311,502
shares issuable upon exercise of warrants exercisable within 60 days of August
31, 1999.
Shares listed as held by Intel consist of 698,387 shares and 91,191 shares
issuable upon exercise of warrants exercisable within 60 days of August 31,
1999.
Shares listed as held by Bruce Paul consist of 467,051 shares and 72,630
shares issuable upon exercise of warrants exercisable within 60 days of August
31, 1999. In addition, Mr. Paul's shares include 242,100 shares held by Mr. Paul
as custodian for his minor children under the California uniform transfers to
minors act. Mr. Paul disclaims beneficial ownership of these shares.
Shares listed as held by the persons listed in the table below include
shares subject to options exercisable within 60 days of August 31, 1999 as
follows:
<TABLE>
<CAPTION>
SHARES SUBJECT
STOCKHOLDER TO OPTIONS
----------- --------------
<S> <C>
Louis Rosenberg............................................. 1,035,720
Bruce Schena................................................ 429,723
Timothy Lacey............................................... 200,188
Steven Blank................................................ 61,224
---------
All directors and executive officers as a group............. 1,726,855
=========
</TABLE>
In addition, Mr. Schena's shares include 2,734 shares held by Rita Schena,
as custodian for Mr. Schena's minor child under the California uniform transfers
to minors act. Mr. Schena disclaims beneficial ownership of these shares.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock will consist of 100,000,000 shares of common
stock, $0.001 par value per share, and 5,000,000 shares of preferred stock,
$0.001 par value per share. The following summary of certain provisions of the
common stock and preferred stock is subject to, and
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<PAGE> 52
qualified in its entirety by our certificate of incorporation and bylaws and by
the provisions of applicable law.
COMMON STOCK
As of August 31, 1999, there were 11,105,444 shares of common stock
outstanding held by approximately 100 stockholders of record. Subject to
preferences that may be applicable to any preferred stock outstanding at the
time, the holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available at those times and in those amounts as
the board from time to time may determine in its sole discretion. Holders of
common stock are entitled to one vote for each share held on all matters
submitted to a vote of stockholders. Cumulative voting for the election of
directors is not authorized by our certificate of incorporation, which means
that the holders of a majority of the shares voted can elect all of the
directors then standing for election. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. In the event
of our liquidation, dissolution or winding-up, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation of any preferred stock. Each outstanding share of common
stock is, and all shares of common stock to be outstanding upon completion of
this offering will be, upon payment, duly and validly issued, fully paid and
nonassessable. The rights, preferences and privileges of the holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of any shares of preferred stock which we may issue in the future.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred
stock will be converted into an aggregate of 5,131,100 shares of common stock,
and up to 5,000,000 shares of undesignated preferred stock will be authorized
for issuance. Our board of directors has the authority, without further action
by the stockholders, to issue such preferred stock in one or more series. In
addition, the board may do the following:
- fix the designations, powers, preferences, privileges and relative
participating, optional or special rights; and
- set the qualifications, limitations or restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences.
Any or all of these rights may be greater than the rights of the common
stock. The board of directors, without stockholder approval, may issue preferred
stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of common stock. Preferred stock
could thus be issued quickly with terms calculated to delay or prevent a change
in our control or make removal of management more difficult. Additionally, the
issuance of preferred stock may have the effect of decreasing the market price
of the common stock. We have no present plans to issue any shares of preferred
stock.
REGISTRATION RIGHTS
Some of our stockholders have registration rights under the Securities Act.
Piggyback Registration. If we elect to register any of our shares of stock
in a public offering involving an underwriting, the holders of 4,505,589 shares
of our common stock and 402,693 shares of common stock issuable upon exercise of
warrants, or their permitted transferees, are entitled to include their
securities in the registration, subject to the ability of underwriters to limit
the number of shares included in the offering.
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<PAGE> 53
Form S-3 Registration. If we qualify for registration on Form S-3, holders
of 2,240,707 shares of our common stock and 91,191 shares of common stock
issuable upon exercise of warrants, or their permitted transferees, may request
that we register these securities on Form S-3, provided that at least 121,050
shares are to be registered.
Demand Registration. The holders of 2,240,707 shares of our common stock
and 91,191 shares of common stock issuable upon exercise of warrants, or their
permitted transferees, upon the vote of 50% of these securities, may demand on
two occasions that we file a registration statement for an underwritten public
offering covering some or all of these securities. The underwriters may reduce
the number of shares proposed to be registered in view of market conditions.
We will pay all expenses in connection with any of these registrations,
other than underwriting discounts, fees or commissions or fees of legal counsel
for the holders.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make more difficult the acquisition of our company by means of a tender
offer, a proxy contest or otherwise, or the removal of incumbent officers and
directors. We expect these provisions to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of our company to first negotiate with our board of
directors. We believe that the benefits provided by our ability to negotiate
with the proponent of an unfriendly or unsolicited proposal outweigh the
disadvantages of discouraging such proposals. We believe the negotiation of an
unfriendly or unsolicited proposal could result in an improvement of its terms.
We are subject to section 203 of the Delaware General Corporation Law. This
provision generally prohibits any Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
following the date the stockholder became an interested stockholder, unless:
- prior to that date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
- upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
began; or
- on or following that date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines a business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation in a transaction involving the interested
stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
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<PAGE> 54
In general, section 203 defines an interested stockholder as an entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by that entity or person.
Our certificate of incorporation provides that the board of directors be
divided into three classes of directors, with each class serving a staggered
three-year term. The term of the first class of directors expires at the 2000
annual meeting. The term of the second class expires at the 2001 annual meeting.
The term of the third class expires at the 2002 annual meeting. At each annual
meeting, one class of directors will be elected for a three-year term.
We believe that a classified board of directors will help to assure the
continuity and stability of the board of directors and our business strategies
and policies as determined by the board of directors, since a majority of the
directors at any given time will have had prior experience as directors of our
company. We believe that this, in turn, will permit the board of directors to
more effectively represent the interests of stockholders.
With a classified board of directors, at least two annual meetings of
stockholders will generally be required to effect a change in the majority of
the board of directors. As a result, a classified board of directors may
discourage proxy contests for the election of directors or purchases of a
substantial block of the common stock because it could prevent obtaining control
of the board of directors in a relatively short period of time. The
classification provision could also have the effect of discouraging a third
party from making a tender offer or to otherwise attempt to obtain control of
our company. Under the Delaware General Corporation Law, a director on a
classified board may be removed by the stockholders of the corporation only for
cause. Our certificate of incorporation does not provide for cumulative voting
in the election of directors. The amendment of the provisions relating to the
classified board requires approval by 66 2/3% or more of the outstanding common
stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Bank Boston, N.A.
52
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this initial public offering, there has not been a public market
for our common stock. Future sales of substantial amounts of common stock in the
public market could adversely affect the trading price of the common stock.
Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options to purchase common stock
subsequent to . Of these shares, the shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act, whose sales would
be subject to the limitations and restrictions described below.
The remaining shares of common stock outstanding upon
completion of this offering will be "restricted securities" as defined in Rule
144. These securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144 or 701 under the
Securities Act, which are summarized below. Sales of these restricted securities
in the public market, or the availability of these shares for sale, could
adversely affect the trading price of the common stock.
The number of restricted securities that will be available for sale in the
public market, subject in some cases to the volume limitations and other
restrictions of Rule 144, will be as follows:
- no shares will be eligible for immediate sale as of the date of this
prospectus;
- approximately additional shares will be eligible for sale
beginning 181 days after the date of this prospectus pursuant to Rules
144 and 701 upon expiration of the lock-up agreements; and
- approximately additional shares will be eligible for sale
beginning 1 year after the date of this prospectus pursuant to Rule 144.
Approximately remaining restricted securities will not be
eligible for sale pursuant to Rule 144 until the expiration of their applicable
one-year holding periods, which will expire between 2000 and
2000.
Lock-up Agreements. All of our officers and directors and substantially all
of our stockholders have signed lock-up agreements that prohibit them from
offering, selling or otherwise disposing of any shares of common stock, options
or warrants to acquire shares of common stock or securities exchangeable for or
convertible into shares of common stock owned by them without the prior written
consent of Hambrecht & Quist LLC during the 180-day period following date of
this prospectus. Hambrecht & Quist LLC may choose to release some of these
shares from these restrictions prior to the expiration of this 180-day period,
although it has no current intention to do so.
Rule 144. In general, under Rule 144, beginning 90 days after the date of
this prospectus, a person, or persons whose shares are aggregated, who has
beneficially owned restricted securities for at least one year, including the
holding period of any prior owner except our affiliates, would be entitled to
sell within any three-month period a number of shares not to exceed the greater
of
- one percent of the number of outstanding shares of common stock which
will equal approximately shares immediately after this
offering or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
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<PAGE> 56
Sales under Rule 144 are also subject to certain manner-of-sale and notice
requirements, as well as to the availability of current public information about
us.
Rule 144(k). Under Rule 144(k), a person who has not been considered our
affiliate at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except our affiliates, is
entitled to sell such shares without complying with the manner-of-sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701. Shares issued upon exercise of options granted by us prior to the
date of this prospectus will be available for sale in the public market under
Rule 701 of the Securities Act. Rule 701 permits resales of these shares in
reliance upon Rule 144 but without compliance with various restrictions,
including the holding period requirement, imposed under Rule 144.
Stock Options. We have reserved a total of 6,491,973 shares of common stock
for issuance pursuant to our stock option plans and our stock purchase plan. As
of June 30, 1999, options to purchase a total of 3,344,329 shares of common
stock were outstanding under our stock option plans. We intend to file
registration statements on Form S-8 under the Securities Act approximately 180
days after the date of this prospectus to register a total of
shares of common stock issued or reserved for issuance under the stock option
plans and the purchase plan. Shares of common stock issued under these plans
after the filing of the registration statement will be freely tradeable in the
public market, subject to the Rule 144 limitations in the case of our
affiliates, the lock-up agreements and vesting restrictions imposed by us.
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<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Hambrecht & Quist LLC,
Bear, Stearns & Co. Inc. and BancBoston Robertson Stephens Inc., have severally
agreed to purchase from us the following respective numbers of shares of our
common stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
Hambrecht & Quist LLC.......................................
Bear, Stearns & Co. Inc. ...................................
BancBoston Robertson Stephens Inc. .........................
----------
Total.......................................................
==========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to conditions, including the absence of any material
adverse change in our business and the receipt of certificates, opinions and
letters from us, our counsel and independent auditors. The nature of the
underwriters' obligations requires that they purchase all shares of common stock
offered in this offering if they purchase any of the shares in this offering.
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to dealers at that price less a concession not in excess of
$ per share. The underwriters may allow and the dealers may reallow a
concession not in excess of $ per share to other dealers. After the public
offering of the shares, the underwriters may change the offering price and other
selling terms. The representatives have advised us that the underwriters do not
intend to confirm discretionary sales in excess of 5% of the shares of common
stock offered by this prospectus.
We and certain selling stockholders have granted to the underwriters an
option, exercisable no later than 30 days after the date of the effective date
of this offering, to purchase up to additional shares of common
stock at the initial public offering price, less the underwriting discount, set
forth on the cover page of this prospectus. To the extent that the underwriters
exercise this option, each underwriter will have a firm commitment to purchase
approximately the same percentage that the number of shares of common stock to
be purchased by it shown in the above table bears to the total number of shares
of common stock offered in this offering. We and the selling stockholders will
be obligated to sell shares to the underwriters to the extent the option is
exercised. The underwriters may exercise the option only to cover over-
allotments made in connection with the sale of common stock offered in this
offering.
The following table shows the per share and total public offering price,
the underwriting discount and the proceeds before expenses to us.
<TABLE>
<CAPTION>
TOTAL
----------------------
WITHOUT WITH
OVER- OVER-
ALLOTMENT ALLOTMENT
PER SHARE OPTION OPTION
--------- --------- ---------
<S> <C> <C> <C>
Public offering price...................................
Underwriting discount...................................
Proceeds, before expenses, to Immersion.................
</TABLE>
55
<PAGE> 58
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ .
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We and, if the underwriters' over-allotment option is exercised, the
selling stockholders, have agreed to indemnify the underwriters against
liabilities connected to this offering, including liabilities under the
Securities Act, and to contribute to payments the underwriters may be required
to make in respect of those liabilities.
Substantially all of our stockholders, including all of our executive
officers and directors and the selling stockholders, who will own in the
aggregate shares of common stock after the offering, have agreed
that they will not, without the prior written consent of Hambrecht & Quist LLC,
offer, sell or otherwise dispose of any shares of common stock, options or
warrants to acquire shares of common stock or securities exchangeable for or
convertible into shares of common stock owned by them during the 180-day period
following the date of this prospectus. We have agreed that we will not, without
the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise
dispose of any shares of common stock, options or warrants to acquire shares of
common stock or securities exchangeable for or convertible into shares of common
stock during the 180-day period following the date of this prospectus, except
that we may issue shares upon the exercise of options granted before the date of
this prospectus, and may grant additional options under our stock option plans,
provided that, without the prior written consent of Hambrecht & Quist LLC, the
additional options will not be exercisable during such period.
Prior to this offering, there has been no public market for our shares. The
initial public offering price will be negotiated among us and the underwriters.
Among the factors to be considered in determining the initial public offering
price of the shares, in addition to prevailing market conditions, will be our
historical performance, estimates of our business potential and earnings
prospects, an assessment of management and the consideration of the above
factors in relation to market valuations of companies in related businesses. The
estimated initial public offering price range set forth on the cover of this
preliminary prospectus is subject to change as a result of market conditions and
other factors.
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol IMMR.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be
56
<PAGE> 59
discontinued by the underwriters at any time. These transactions may be effected
on the Nasdaq National Market, in the over-the-counter market or otherwise.
LEGAL MATTERS
Gray Cary Ware & Freidenrich LLP, Palo Alto, California will pass upon the
validity of the issuance of the shares of common stock offered by this
prospectus. Fenwick & West LLP, Palo Alto, California will pass upon certain
legal matters for the underwriters.
EXPERTS
The consolidated financial statements as of December 31, 1997, and 1998 and
for each of the three years in the period ended December 31, 1998, included in
this prospectus and the related financial statement schedule included elsewhere
in the registration statement have been audited by Deloitte and Touche LLP,
independent auditors, as stated in their reports appearing in this prospectus
and elsewhere in the registration statement, and have been so included in
reliance upon the reports of that firm given upon their authority as experts in
auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered by this prospectus. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement. Some of that information is contained in exhibits to the
registration statement as permitted by the rules and regulations of the
Securities and Exchange Commission. For further information with respect to us
and our common stock being offered by this prospectus, please see the
registration statement and related exhibits. Statements made in this prospectus
concerning the contents of any document referred to in this prospectus are not
necessarily complete. With respect to each document filed with the Securities
and Exchange Commission as an exhibit to the registration statement, please see
the exhibit for a more complete description of the matter involved. The
registration statement, and related exhibits, may be inspected without charge at
the principal office of the Securities and Exchange Commission, located at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of all or any part of these
documents may be obtained from the Securities and Exchange Commission's public
reference rooms at the same location and at the Securities and Exchange
Commission's regional offices located at Seven World Trade Center, New York, New
York 10048 and Citicorp Center, 5000 West Madison Street, Chicago, Illinois
60661 upon payment of the fees prescribed by them. The Securities and Exchange
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with them. The address of that web site is http://www.sec.gov. Information
concerning our company may also be inspected at the offices of the Nasdaq
National Market, Reports Section, 1735 K Street, N.W. Washington, D.C. 20006.
57
<PAGE> 60
IMMERSION CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and June 30, 1999 (unaudited)............................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and the six months ended
June 30, 1998 and 1999 (unaudited)........................ F-4
Consolidated Statements of Stockholders' Equity and
Comprehensive Loss for the years ended December 31, 1996,
1997 and 1998 and the six months ended June 30, 1999
(unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and the six months ended
June 30, 1998 and 1999 (unaudited)........................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Immersion Corporation:
We have audited the accompanying consolidated balance sheets of Immersion
Corporation and its subsidiary (the Company) as of December 31, 1997 and 1998,
and the related consolidated statements of operations, stockholders' equity and
comprehensive loss and cash flows for each of the three years in the period
ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Immersion Corporation and its
subsidiary at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
San Jose, California
April 2, 1999
(August 31, 1999 as to Note 14)
To the Board of Directors and Stockholders
of Immersion Corporation:
The consolidated financial statements included herein have been adjusted to
give effect to the reincorporation in Delaware and related 0.807- for -one
reverse common stock split as described in the second paragraph of Note 14 to
the consolidated financial statements. The above report is in the form that will
be signed by Deloitte & Touche LLP upon effectiveness of such event assuming
that from August 31, 1999 to the effective date of such event, no other events
shall have occurred that would affect the accompanying consolidated financial
statements or notes thereto.
DELOITTE & TOUCHE LLP
San Jose, California
August 31, 1999
F-2
<PAGE> 62
IMMERSION CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
------ ------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 490 $ 2,592 $ 2,204
Short-term investments.................................. 1,212 402 200
Accounts receivable (net of allowances for doubtful
accounts of: 1997, $38; 1998, $92; and 1999, $76)..... 519 1,111 1,094
Inventories............................................. 295 481 606
Prepaid expenses and other assets....................... 49 99 92
------ ------- -------
Total current assets............................. 2,565 4,685 4,196
Property--net............................................. 334 329 398
Purchased patents and technology.......................... -- 945 4,841
Other assets.............................................. 1 -- 271
------ ------- -------
Total assets..................................... $2,900 $ 5,959 $ 9,706
====== ======= =======
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 288 $ 410 $ 394
Accrued compensation.................................... 125 171 224
Other accrued liabilities............................... 5 82 179
Customer advances....................................... 64 46 59
Income taxes payable.................................... 3 1 1
------ ------- -------
Total current liabilities........................ 485 710 857
------ ------- -------
Commitments and contingencies (Notes 6 and 13)
Redeemable convertible preferred stock, Series C--no par
value; 1,071,428 shares designated; shares issued and
outstanding: 1997, 1,071,428; 1998 and 1999, 1,070,357;
pro forma, none (liquidation preference $1,500,005)..... 1,471 1,476 1,479
------ ------- -------
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 5,000,000
shares authorized, actual and pro forma:
Series A--no par value; 618,500 shares designated;
shares issued and outstanding: 1997, 611,000; 1998
and 1999, 618,500; pro forma, none (liquidation
preference $244,400)................................ 976 1,012 1,012
Series B--no par value; 116,334 shares designated;
shares issued and outstanding: 1997, 98,334; 1998
and 1999, 97,834; pro forma, none (liquidation
preference $590,004)................................ 569 566 566
Series D--no par value; 1,721,068 shares designated;
shares issued and outstanding: 1997, none; 1998 and
1999, 1,706,232; pro forma, none (liquidation
preference $5,750,002).............................. -- 5,377 5,377
Common stock--$0.001 par value; 100,000,000 shares
authorized, actual and pro forma; shares issued and
outstanding: 1997, 3,418,495; 1998, 4,164,231; 1999,
5,901,405; pro forma, 11,032,505...................... 57 961 7,947 $16,381
Warrants................................................ 33 85 893 893
Deferred stock compensation............................. -- -- (2,075) (2,075)
Accumulated other comprehensive loss.................... 2 1 -- --
Note receivable from stockholder........................ -- (17) (17) (17)
Accumulated deficit..................................... (693) (4,212) (6,333) (6,333)
------ ------- ------- -------
Total stockholders' equity....................... 944 3,773 7,370 8,849
------ ------- ------- -------
Total liabilities, redeemable preferred stock and
stockholders' equity.................................... $2,900 $ 5,959 $ 9,706
====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 63
IMMERSION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Royalty revenue................................... $ -- $ 14 $ 321 $ 8 $ 622
Product sales..................................... 2,022 2,908 3,725 1,604 2,133
Development contracts and other................... 715 1,410 975 565 748
------ ------ ------- ------ -------
Total revenues............................ 2,737 4,332 5,021 2,177 3,503
Costs and expenses:
Cost of product sales............................. 947 1,186 1,507 641 970
Sales and marketing............................... 422 658 656 361 459
Research and development.......................... 710 1,515 1,817 833 1,057
General and administrative........................ 766 1,550 2,677 1,269 1,548
Amortization of intangibles and deferred stock
compensation................................... 1 -- 211 21 463
In-process research and development............... -- -- -- -- 1,190
------ ------ ------- ------ -------
Total costs and expenses.................. 2,846 4,909 6,868 3,125 5,687
------ ------ ------- ------ -------
Operating loss...................................... (109) (577) (1,847) (948) (2,184)
Other income........................................ 28 50 174 79 66
------ ------ ------- ------ -------
Net loss............................................ (81) (527) (1,673) (869) (2,118)
Redeemable preferred stock accretion................ -- 3 6 3 3
------ ------ ------- ------ -------
Net loss applicable to common stockholders.......... $ (81) $ (530) $(1,679) $ (872) $(2,121)
====== ====== ======= ====== =======
Basic and diluted net loss per share................ $(0.03) $(0.17) $ (0.43) $(0.23) $ (0.42)
====== ====== ======= ====== =======
Shares used in calculating basic and diluted net
loss per share.................................... 2,825 3,162 3,909 3,839 5,003
====== ====== ======= ====== =======
Pro forma basic and diluted net loss per share
(Note 1).......................................... $ (0.19) $ (0.21)
======= =======
Shares used in calculating pro forma basic and
diluted net loss per share (Note 1)............... 8,630 10,134
======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 64
IMMERSION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK DEFERRED OTHER
------------------ ------------------ STOCK COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT WARRANTS COMPENSATION INCOME (LOSS)
--------- ------ --------- ------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996.......... 581,000 $ 910 3,311,334 $ 28 $ 12 $ -- $15
Net loss............................
Change in net unrealized gains from
short-term investments............ (10)
Comprehensive loss..................
Issuance of Series B convertible
preferred stock, net of issuance
costs of $21...................... 98,334 569 21
Issuance of warrant................. (6) 6
Collection of stockholder note
receivable........................
Exercise of stock options........... 2,017 --
Stock compensation.................. 1
--------- ------ --------- ------ ---- ------- ---
Balances at December 31, 1996........ 679,334 1,473 3,313,351 29 39 -- 5
Net loss............................
Change in net unrealized gains from
short-term investments............ (3)
Comprehensive loss..................
Issuance of warrants in connection
with issuance of Series C
redeemable convertible preferred
stock............................. 6
Exercise of Series A preferred stock
warrant........................... 30,000 72 (12)
Exercise of stock................... 105,144 23
Issuance of stock options for
license agreement................. 5
Preferred stock accretion...........
--------- ------ --------- ------ ---- ------- ---
Balances at December 31, 1997........ 709,334 1,545 3,418,495 57 33 -- 2
Net loss............................
Change in net unrealized gains from
short-term investments............ (1)
Comprehensive loss..................
Issuance of Series D convertible
preferred stock, net of issuance
costs of $374..................... 1,706,232 5,376 17
Exercise of Series A preferred stock
warrants.......................... 7,500 36 (6)
Exercise of common stock warrants... 85,945 4
Extension of Series B preferred
stock warrants.................... 41
Exercise of stock options........... 1,024,615 114
Issuance of common stock and options
for patents....................... 137,190 720
Issuance of stock options for
consulting services............... 68
Repurchase of stock................. (500) (2) (502,014) (2)
Preferred stock accretion...........
--------- ------ --------- ------ ---- ------- ---
Balances at December 31, 1998........ 2,422,566 $6,955 4,164,231 $ 961 $ 85 $ -- $ 1
Net loss*...........................
Change in net unrealized gains from
short-term investments*........... (1)
Comprehensive loss*.................
Issuance of common stock and options
for services*..................... 8,070 140
Exercise of common stock
warrants*......................... 7,061 1
Warrants issued for services*....... 808 (808)
Exercise of stock options*.......... 342,073 151
Issuance of common stock and options
for patents*...................... 1,379,970 5,092
Issuance of stock options for
license agreement*................ 129
Deferred stock compensation*........ 1,473 (1,473)
Amortization of stock
compensation*..................... 206
Preferred stock accretion*..........
--------- ------ --------- ------ ---- ------- ---
Balances at June 30, 1999*........... 2,422,566 $6,955 5,901,405 $7,947 $893 $(2,075) $--
========= ====== ========= ====== ==== ======= ===
<CAPTION>
NOTE
RECEIVABLE TOTAL
FROM ACCUMULATED COMPREHENSIVE
STOCKHOLDER DEFICIT TOTAL LOSS
----------- ----------- ------- -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1996.......... $ (6) $ (82) $ 877
Net loss............................ (81) (81) $ (81)
Change in net unrealized gains from
short-term investments............ (10) (10)
-------
Comprehensive loss.................. $ (91)
=======
Issuance of Series B convertible
preferred stock, net of issuance
costs of $21...................... 590
Issuance of warrant................. --
Collection of stockholder note
receivable........................ 6 6
Exercise of stock options........... --
Stock compensation.................. 1
---- ------- -------
Balances at December 31, 1996........ -- (163) 1,383
Net loss............................ (527) (527) $ (527)
Change in net unrealized gains from
short-term investments............ (3) (3)
-------
Comprehensive loss.................. $ (530)
=======
Issuance of warrants in connection
with issuance of Series C
redeemable convertible preferred
stock............................. 6
Exercise of Series A preferred stock
warrant........................... 60
Exercise of stock................... 23
Issuance of stock options for
license agreement................. 5
Preferred stock accretion........... (3) (3)
---- ------- -------
Balances at December 31, 1997........ -- (693) 944
Net loss............................ (1,673) (1,673) $(1,673)
Change in net unrealized gains from
short-term investments............ (1) (1)
-------
Comprehensive loss.................. $(1,674)
=======
Issuance of Series D convertible
preferred stock, net of issuance
costs of $374..................... 5,393
Exercise of Series A preferred stock
warrants.......................... 30
Exercise of common stock warrants... 4
Extension of Series B preferred
stock warrants.................... 41
Exercise of stock options........... (17) 97
Issuance of common stock and options
for patents....................... 720
Issuance of stock options for
consulting services............... 68
Repurchase of stock................. (1,840) (1,844)
Preferred stock accretion........... (6) (6)
---- ------- -------
Balances at December 31, 1998........ $(17) $(4,212) $ 3,773
Net loss*........................... (2,118) (2,118) $(2,118)
Change in net unrealized gains from
short-term investments*........... (1) (1)
-------
Comprehensive loss*................. $(2,119)
=======
Issuance of common stock and options
for services*..................... 140
Exercise of common stock
warrants*......................... 1
Warrants issued for services*....... --
Exercise of stock options*.......... 151
Issuance of common stock and options
for patents*...................... 5,092
Issuance of stock options for
license agreement*................ 129
Deferred stock compensation*........ --
Amortization of stock
compensation*..................... 206
Preferred stock accretion*.......... (3) (3)
---- ------- -------
Balances at June 30, 1999*........... $(17) $(6,333) $ 7,370
==== ======= =======
</TABLE>
(* Unaudited)
See notes to consolidated financial statements.
F-5
<PAGE> 65
IMMERSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- -----------------
1996 1997 1998 1998 1999
----- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (81) $ (527) $(1,673) $ (869) $(2,118)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 44 102 142 58 84
Amortization of intangibles............................. -- -- 211 21 257
Amortization of deferred stock compensation............. 1 -- -- -- 206
In-process research and development..................... 1,190
Stock and options issued for consulting services and
other.................................................. -- -- 68 23 140
Stock options issued for license agreement.............. -- 5 -- -- --
Extension of warrants for consulting services........... -- -- 41 -- --
Changes in assets and liabilities:
Accounts receivable................................... (131) (100) (592) (197) 17
Inventories........................................... (94) (25) (186) (81) (125)
Prepaid expenses and other assets..................... (38) 2 (50) (10) 7
Accounts payable...................................... 75 189 122 304 (16)
Accrued liabilities................................... 14 52 123 55 150
Customer advances..................................... -- 64 (18) -- 13
Income taxes payable.................................. 2 1 (2) (2) --
----- ------- ------- ------- -------
Net cash used in operating activities............... (208) (237) (1,814) (698) (195)
----- ------- ------- ------- -------
Cash flows from investing activities:
Purchases of short-term investments....................... (325) (1,487) (2,943) -- --
Sales and maturities of short-term investments............ 399 538 3,752 382 201
Purchases of property..................................... (181) (205) (138) (89) (153)
Purchase of patents and technology........................ -- -- (434) (385) (70)
Other assets.............................................. -- -- -- -- (323)
----- ------- ------- ------- -------
Net cash provided by (used in) investing
activities.......................................... (107) (1,154) 237 (92) (345)
----- ------- ------- ------- -------
Cash flows from financing activities:
Issuance of Series D convertible preferred stock and
warrants, net........................................... -- -- 5,393 5,393 --
Issuance of Series C redeemable convertible preferred
stock, net.............................................. -- 1,474 (1) (1) --
Issuance of Series B convertible preferred stock, net..... 590 -- -- -- --
Exercise of stock options................................. -- 23 97 86 151
Repurchase of stock....................................... -- -- (1,844) (1,844) --
Exercise of warrants...................................... -- 60 34 2 1
Collection of stockholder note............................ 6 -- -- -- --
----- ------- ------- ------- -------
Net cash provided by financing activities........... 596 1,557 3,679 3,636 152
----- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 281 166 2,102 2,846 (388)
Cash and cash equivalents:
Beginning of year......................................... 43 324 490 490 2,592
----- ------- ------- ------- -------
End of year............................................... $ 324 $ 490 $ 2,592 $ 3,336 $ 2,204
===== ======= ======= ======= =======
Supplemental disclosure of cash flow information -
Cash paid for taxes....................................... $ -- $ 12 $ 1 $ 1 $ 1
===== ======= ======= ======= =======
Noncash activities:
Change in net unrealized gains from short-term
investments............................................. $ (10) $ (3) $ (1) $ -- $ (1)
===== ======= ======= ======= =======
Issuance of equity instruments for patents, technology and
licenses................................................ $ -- $ -- $ 720 $ 514 $ 5,221
===== ======= ======= ======= =======
Issuance of warrants...................................... $ -- $ 6 $ -- $ -- $ 808
===== ======= ======= ======= =======
Accretion of redeemable preferred stock................... $ -- $ 3 $ 6 $ 3 $ 3
===== ======= ======= ======= =======
Exercise of stock option for note receivable.............. $ -- $ -- $ 17 $ 17 $ --
===== ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 66
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business--Immersion Corporation was originally incorporated
in May 1993 in California and provides technologies that enable users to
interact with computers using their sense of touch.
Principles of Consolidation--The consolidated financial statements include
the accounts of Immersion Corporation and its wholly-owned subsidiary (the
"Company"). All intercompany transactions and balances have been eliminated in
consolidation.
Cash Equivalents--The Company considers all highly liquid debt or equity
instruments purchased with an original maturity at the date of purchase of 90
days or less to be cash equivalents.
Short-Term Investments--Short-term investments consist primarily of highly
liquid debt instruments purchased with an original maturity at the date of
purchase of greater than 90 days and investments in mutual funds. Short-term
investments are classified as available for sale securities and are stated at
market value with unrealized gains and losses reported as a component of
accumulated other comprehensive loss within stockholders' equity.
Inventories--Inventories are stated at the lower of cost (first-in,
first-out basis) or market.
Property--Property is stated at cost and is depreciated using the
straight-line method over the estimated useful life of the related asset. The
estimated useful lives are as follows:
<TABLE>
<S> <C>
Computer equipment................................ 3 years
Furniture and fixtures............................ 5 years
Machinery and equipment........................... 5 years
</TABLE>
Leasehold improvements are amortized over the shorter of the lease term or
their useful life.
Purchased Patents and Technology--Purchased patents and technology are
stated at cost and are amortized over the shorter of the remaining life of the
patent or the estimated useful life of the technology, generally nine years.
Accumulated amortization was none, $221,000 and $426,000 at December 31, 1997
and 1998 and June 30, 1999, respectively.
Long-Lived Assets--The Company reviews for the impairment of long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment loss would be
recognized when the sum of the expected undiscounted future net cash flows
expected to result from the use of the asset and its eventual disposition is
less than its carrying amount.
Product Warranty--The Company sells the majority of its products with
warranties ranging from three to 12 months. Historically, warranty-related costs
have been immaterial.
Note Receivable from Stockholder--The note receivable from stockholder was
issued in exchange for common stock, bears interest at 5.39% per annum and is
due March 2001.
Revenue Recognition--Revenues from product sales are recorded upon
shipment. Revenues from development contracts with the U.S. Government and other
commercial customers are derived from either fixed fee or reimbursement of costs
contracts. Revenues under fixed fee contracts are
F-7
<PAGE> 67
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
recognized under the percentage-of-completion method based on the actual
physical completion of work performed and the ratio of costs incurred to total
estimated costs to complete the contract. Allowable fees under
cost-reimbursement contracts are recognized as costs are incurred. The Company
recognizes royalty revenue based on royalty reports or related information
received from the licensee.
Advertising--Advertising costs are expensed as incurred and included in
sales and marketing expense. Advertising expense was $129,000, $164,000,
$147,000 and $76,000 in 1996, 1997, 1998 and the six months ended June 30, 1999,
respectively.
Research and Development--Research and development costs are expensed as
incurred. The Company has generated revenues from development contracts with the
U.S. Government and other commercial customers that have enabled it to
accelerate its own product development efforts. Such development revenues have
only partially funded the Company's product development activities, and the
Company generally retains ownership of the products developed under these
arrangements. As a result, the Company classifies all development costs related
to these contracts as research and development expenses.
Income Taxes--The Company provides for income taxes using the asset and
liability approach defined by Statement of Financial Accounting Standards
("SFAS") No. 109.
Software Development Costs--Certain of the Company's products include
software. Costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs would be capitalized in accordance with SFAS No 86, Computer Software to
be Sold, Leased or Otherwise Marketed. The Company considers technological
feasibility to be established upon completion of a working model of the software
and the related hardware. Because the Company believes its current process for
developing software is essentially completed concurrently with the establishment
of technological feasibility, no costs have been capitalized to date.
Stock-Based Compensation--The Company accounts for its stock-based awards
to employees using the intrinsic value method in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees.
Comprehensive Income--In June 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 130, Reporting Comprehensive Income, which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from nonowner sources. The
Company adopted this statement in 1998 and has presented its comprehensive loss
in the statements of stockholders' equity. Accumulated other comprehensive loss
during 1997 and 1998 and the six months ended June 30, 1999 is comprised of
unrealized gains on short-term investments of $2,000, $1,000 and none,
respectively.
Unaudited Pro Forma Information--Upon the closing of the initial public
offering, each of the outstanding shares of Series D convertible preferred stock
and Series C redeemable convertible preferred stock will convert into 0.807
shares of common stock and each of the outstanding shares of Series A and Series
B convertible preferred stock will convert into 4.035 shares of common stock.
The pro forma balance sheet presents the Company's balance sheet as if this had
occurred at June 30, 1999.
F-8
<PAGE> 68
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
Unaudited Interim Financial Information--The interim financial information
as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is
unaudited and has been prepared on the same basis as the audited consolidated
financial statements. In the opinion of management, this unaudited financial
information includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the interim information.
Operating results for the six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
Net Loss per Share--Basic net loss per share excludes dilution and is
computed by dividing net loss applicable to common stockholders by the weighted
average number of common shares outstanding for the period (excluding shares
subject to repurchase). Diluted net loss per common share was the same as basic
net loss per common share for all periods presented since the effect of any
potentially dilutive securities is excluded as they are anti-dilutive because of
the Company's net losses.
Pro Forma Net Loss per Share--Pro forma basic and diluted net loss per
share is computed by dividing net loss by the sum of the weighted average number
of common shares outstanding for the period (excluding shares subject to
repurchase) and the weighted average number of common shares resulting from the
assumed conversion of outstanding shares of redeemable convertible preferred
stock and convertible preferred stock.
Use of Estimates--The preparation of consolidated financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. These management estimates include the
allowance for doubtful accounts and the net realizable value of inventory.
Actual results could differ from those estimates.
Concentration of Credit Risks--Financial instruments that potentially
subject the Company to a concentration of credit risk principally consist of
cash and cash equivalents, short-term investments and accounts receivable. The
Company invests primarily in mutual funds of large U.S. securities firms and
debt securities of U.S. Government agencies.
The Company sells products primarily to companies in North America, Europe
and the Far East, a majority of these sales are to customers in the personal
computer industry. To reduce credit risk, management performs periodic credit
evaluations of its customers' financial condition. The Company maintains
reserves for potential credit losses, but historically has not experienced any
significant losses related to individual customers or groups of customers in any
particular industry or geographic area.
Certain Significant Risks and Uncertainties--The Company operates in a
dynamic industry and, accordingly, can be affected by a variety of factors. For
example, management of the Company believes that changes in any of the following
areas could have a negative effect on the Company in terms of its future
financial position and results of operations: ability to obtain additional
financing; the mix of revenues; loss of significant customers; fundamental
changes in the technology underlying the Company's products; market acceptance
of the Company's and its licensees' products under development; availability of
foundry capacity; development of sales channels; litigation or other claims
against the Company; the hiring, training and retention of key employees;
F-9
<PAGE> 69
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
successful and timely completion of product and technology development efforts;
and new product or technology introductions by competitors.
Fair Value of Financial Instruments--Financial instruments consist
primarily of cash equivalents and short-term investments. Cash equivalents and
short-term investments are stated at fair value based on quoted market prices.
Recently Issued Accounting Standards--In June 1997, the FASB issued SFAS
No. 131, Disclosures About Segments of an Enterprise and Related Information,
which establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas and major customers. The Company currently operates in one
reportable segment under SFAS No. 131.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the Company's
year ending December 31, 2001. The management believes that this statement will
not have a material impact on the Company's financial position or results of
operations.
Reclassifications--Certain prior year amounts have been reclassified to
conform to the current year presentation. These reclassifications had no effect
on net loss or stockholders' equity.
2. PURCHASED PATENTS AND TECHNOLOGY
During 1998, the Company entered into a license agreement and acquired
various patents relating to feel technology. In connection with these
agreements, the Company paid $434,000, issued 137,190 shares of common stock and
issued an option to purchase 242,100 shares of common stock at $3.66 per share
(see Note 7). The Company has recorded the estimated fair value of the aggregate
consideration of $1,154,000 as purchased patents and technology.
In February 1999, the Company acquired certain patents and related
materials pertaining to feel technology from another company in exchange for
$25,000 in cash and 88,770 shares of the Company's common stock. In addition,
the Company is required to issue an additional 16,140 shares of common stock to
the seller if the Company is successful in obtaining either a reissue or a
foreign version of at least one of the patents. The Company's stock issued in
this transaction is being held in escrow until the successful reissue of at
least one of the patents and the earlier to occur of five years or certain
defined liquidity events of the Company (such as an initial public offering
meeting specified criteria). If such conditions are not met at the end of five
years and the stock is therefore still held in escrow, the seller has the right
to put the shares back to the Company for $3.72 per share. The existence of the
put option has the effect of increasing the value assigned to the shares issued
to $3.72 per share. As a result, the estimated value of $355,000 (representing
88,770 shares at $3.72 per share plus $25,000) has been recorded as purchased
patents and technology.
In March 1999, the Company acquired certain additional feel patents and
in-process research and development from another company in exchange for
1,291,200 shares of the Company's common stock with an estimated fair value of
$4,720,000. The seller has the option to put 807,000 of the shares back to the
Company after five years and require the Company to return the patents,
F-10
<PAGE> 70
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
subject to the Company's retaining a non-exclusive license to the patents. This
put option expires upon an initial public offering meeting certain criteria, a
sale of the Company or certain defined changes in control. The Company has
included in the aggregate purchase price of the purchased patents and in-process
research and development the estimated fair value of $42,000 for the put option
and $45,000 of direct acquisition costs. The aggregate purchase price of
$4,807,000 has been allocated $3,617,000 to purchased patents and technology and
$1,190,000 to acquired in-process research and development. The purchased
patents and technology are being amortized over the estimated useful life of
nine years. The allocation of the purchase price to the respective intangibles
was based on management's estimates of the after-tax cash flows and gave
explicit consideration to the Securities and Exchange Commission's views on
purchased in-process research and development as set forth in its September 9,
1998 letter to the American Institute of Certified Public Accountants.
Specifically, the valuation gave consideration to the following: (i) the
employment of a fair market value premise excluding any Company-specific
considerations that could result in estimates of investment value for the
subject assets; (ii) comprehensive due diligence concerning all potential
intangible assets; (iii) the determination that none of the technology
development had been completed at the time of acquisition; and (iv) the
allocation to in-process research and development based on a calculation that
considered only the efforts completed as of the transaction date, and only the
cash flow associated with these completed efforts for one generation of the
products currently in process. As indicated above, the Company recorded a
one-time charge of $1,190,000 upon the acquisition in March 1999 for purchased
in-process research and development related to five development projects. The
charge related to the portion of these products that had not reached
technological feasibility, had no alternative future use and for which
successful development was uncertain. Management's conclusion that the
in-process development effort had no alternative future use was reached in
consultation with the engineering personnel from both the Company and the
seller.
The technology was acquired in a transaction that was tax-free to the
seller and, as a result, the Company has minimal tax basis in the acquired
technology. Accordingly, a deferred tax liability of $1,410,000 has been
recorded for the difference in the book and tax bases of the acquired assets.
This resulted in the concurrent recognition of previously reserved deferred tax
assets of an equal amount. Also, in connection with this acquisition, the
Company entered into a consulting arrangement with the seller. In consideration
for certain consulting services and rights, the Company granted to the seller a
warrant to purchase 322,800 shares of the Company's common stock at $3.66 per
share (see Note 7), paid the seller $150,000, and is obligated to pay an
additional $75,000 in 2000 and 2001. The Company has recorded $1,108,000 as
deferred stock compensation, representing the estimated fair value of the
warrant of $808,000 plus the cash payments of $300,000. This amount will be
amortized over the two-year estimated period of benefit of the consulting
services.
Also during 1999, in consideration for a technology license agreement, the
Company issued an option to purchase 20,175 shares of common stock at an
exercise price of $3.66 per share. The Company has recorded the estimated fair
value of the option of $129,000 as purchased patents and technology at June 30,
1999 (see Note 7).
F-11
<PAGE> 71
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
3. SHORT-TERM INVESTMENTS
Short-term investments included the following equity securities and gross
unrealized holding gains and losses as of December 31, 1997 and 1998 and June
30, 1999 (in thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED MARKET HOLDINGS HOLDING
COST VALUE GAINS LOSSES
--------- ------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Mutual funds..................................... $1,210 $1,212 $ 2 $--
====== ====== === ===
DECEMBER 31, 1998
Mutual funds..................................... $ 401 $ 402 $ 1 $--
====== ====== === ===
JUNE 30, 1999
Mutual funds..................................... $ 200 $ 200 $-- $--
====== ====== === ===
</TABLE>
The Company realized gains on the sales of securities of $19,000, $14,000,
$56,000 and none in 1996, 1997 and 1998 and the six months ended June 30, 1999,
respectively, while realizing losses of $1,000, $1,000, $1,000 and none in 1996,
1997, 1998 and for the six months ended June 30, 1999, respectively.
4. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1997 1998 1999
---- ---- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials and subassemblies............................. $223 $378 $504
Work in process............................................. 16 37 38
Finished goods.............................................. 56 66 64
---- ---- ----
Total....................................................... $295 $481 $606
==== ==== ====
</TABLE>
F-12
<PAGE> 72
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
5. PROPERTY
Property consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1997 1998 1999
----- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer equipment.......................................... $ 208 $ 314 $ 385
Machinery and equipment..................................... 172 177 195
Furniture and fixtures...................................... 110 123 174
Leasehold improvements...................................... -- 13 27
----- ----- -----
Total....................................................... 490 627 781
Less accumulated depreciation and amortization.............. (156) (298) (383)
----- ----- -----
Property, net............................................... $ 334 $ 329 $ 398
===== ===== =====
</TABLE>
6. LEASE COMMITMENTS
The Company leases its manufacturing and office facilities under a
noncancelable operating lease that expires in October 2002.
Minimum future operating lease payments are as follows:
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31,
-------------------------- (IN THOUSANDS)
<S> <C>
1999........................................................ $230
2000........................................................ 243
2001........................................................ 255
2002........................................................ 263
----
Total minimum lease payments................................ $991
====
</TABLE>
Rent expense was approximately $94,000, $117,000, $169,000 and $117,000 in
1996, 1997 and 1998 and the six months ended June 30, 1999, respectively.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Preferred Stock--During June 1997, the Company issued a total of 1,071,428
shares of Series C redeemable convertible preferred stock ("Series C preferred
stock") to investors for gross proceeds of $1,500,005. At the option of the
stockholders, at any time on or after June 4, 2002, the Series C preferred
stockholders will receive the price originally paid plus an amount equal to the
declared but unpaid dividends. These payments will be made in four equal
installments on June 4, 2002 and every six months thereafter. Issuance costs are
being amortized over five years to accrete the carrying value of the stock to
$1,500,005 on June 4, 2002.
During June 1993 and May 1995, the Company issued a total of 581,000 shares
of Series A convertible preferred stock to investors for gross proceeds of
$922,000. During November 1996, the Company issued 98,334 shares of Series B
convertible preferred stock to investors for gross proceeds of $590,004. During
April 1998, the Company issued 1,706,232 shares of Series D convertible
preferred stock to investors for gross proceeds of $5,750,002.
F-13
<PAGE> 73
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
The significant terms of the redeemable convertible preferred stock and the
convertible preferred stock are as follows:
- Each share of Series A and B preferred stock is convertible into 4.035
shares of common stock (subject to adjustments for events of dilution).
Each share of Series C and D preferred stock is convertible into 0.807
share of common stock (subject to adjustments for events of dilution).
- Each share of Series A and B preferred stock will automatically convert
in the event of a public offering in which the Company receives proceeds
equal to or greater than $5,000,000. Each share of Series C and D
preferred stock will automatically convert in the event of a public
offering in which the Company receives proceeds equal to or greater than
$10,000,000.
- Each share of Series A, B, C and D preferred stock has voting rights
equivalent to the number of shares of common stock into which it is
convertible. In addition, the Series C and D preferred stock have certain
protective voting rights with respect to corporate matters.
- In the event of liquidation, dilution or winding up of the Company, the
holders of Series C and Series D preferred stock will receive first, and
in preference to any distribution to the holders of Series A and Series B
preferred stock and common stock, an amount equal to $1.40 per share of
Series C preferred stock and $3.37 per share of Series D preferred stock
plus all declared but unpaid dividends. Upon satisfaction of the Series C
and Series D liquidation preferences, the holders of Series A and Series
B preferred stock will receive $0.40 and $6.00 per share plus all
declared but unpaid dividends, respectively. Upon satisfaction of the
Series A and Series B liquidation preferences, the holders of Series C
and Series D preferred stock will receive an additional $1.40 and $2.02
per share, respectively, and will be entitled to receive with the common
stock stockholders on a pro rata basis the remaining assets of the
Company, based on the number of shares of common stock into which it is
convertible.
- In the event the Board of Directors declares dividends payable on the
then outstanding common stock, Series A, B and D preferred stockholders
will receive $0.02, $0.06 and $0.33 per share, respectively. The right to
these dividends is not cumulative.
Preferred Stock Warrants--In connection with the Series A preferred stock
offering, the Company issued warrants to purchase 30,000 and 7,500 shares of
Series A preferred stock at exercise prices of $2.00 and $4.00, respectively, to
a Series A preferred stock investor. During 1997, the warrant to purchase 30,000
shares was exercised. During 1998, the remaining warrant was exercised. The
estimated fair values of these warrants of $12,000 and $6,000, respectively,
were accounted for as reductions to the Series A preferred stock financing
proceeds.
In connection with the Series B offering, the Company issued warrants to
purchase 10,000 and 8,000 shares of Series B preferred stock at an exercise
price of $6.00 to a Series B preferred stock investor. The estimated fair values
of these warrants of $12,000 and $9,000, respectively, were accounted for as a
reduction to the Series B preferred stock financing proceeds. During 1998, the
Company extended the term of these warrants through 2001 in consideration for
prior consulting services. The estimated fair value of the extension of the
warrants of $41,000 was accounted for as a consulting expense.
F-14
<PAGE> 74
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
In connection with the Series D preferred stock offering, the Company
issued warrants to purchase 14,836 shares of Series D preferred stock at an
exercise price of $3.37 to an investment banker. The estimated fair value of
these warrants of $17,000 has been accounted for as a reduction to the Series D
preferred stock financing proceeds.
Common Stock Warrants--During 1995, the Company issued to two former
employees warrants to purchase 85,945 and 7,061 shares of the Company's common
stock at exercise prices of $0.04 and $0.04, respectively, for past services to
the Company. During 1998, the warrant to purchase 85,945 shares was exercised.
During 1999, the remaining warrant was exercised. The estimated fair value of
these warrants was not considered material.
During June 1997, the Company issued a warrant to purchase 91,191 shares of
the Company's common stock at an exercise price of $0.19 per share to a Series C
preferred investor. The warrant is exercisable through 2002. The estimated fair
value of this warrant of $6,000 has been accounted for as a reduction to the
Series C preferred stock financing proceeds.
As discussed in Note 2, during March 1999, the Company issued a warrant to
purchase 322,800 shares of the Company's common stock at an exercise price of
$3.66 per share for consulting services. The warrant is exercisable through
2009. The estimated fair value of the warrant of $808,000 has been recorded as
prepaid consulting services and is being amortized over the service period of
two years.
Stock Options--Under the Company's stock option plans, the Company may
grant options to purchase up to 5,991,975 shares of common stock to employees,
directors and consultants at prices not less than the fair market value on the
date of grant for incentive stock options and not less than 85% of fair market
value on the date of grant for nonstatutory stock options. These options
generally expire ten years from the date of grant. The Company has granted
immediately exercisable options as well as options which become exercisable over
periods ranging from three months to four years.
F-15
<PAGE> 75
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
Details of activity under the option plans are as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding, January 1, 1996................................ 1,471,846 $0.06
Granted (weighted average fair value of $0.01)............ 925,629 $0.16
Exercised................................................. (2,017) $0.17
Canceled.................................................. -- $ --
----------
Outstanding, December 31, 1996 (1,620,720 exercisable at a
weighted average price of $0.10).......................... 2,395,458 $0.10
Granted (weighted average fair value of $0.04)............ 1,022,860 $0.30
Exercised................................................. (105,144) $0.21
Canceled.................................................. (168) $0.19
----------
Outstanding, December 31, 1997 (2,871,999 exercisable at a
weighted average price of $0.16).......................... 3,313,006 $0.16
Granted (weighted average fair value of $0.38)............ 721,976 $1.31
Exercised................................................. (1,024,615) $0.11
Canceled.................................................. (88,484) $3.59
----------
Outstanding, December 31, 1998.............................. 2,921,883 $0.36
Granted (weighted average fair of value $0.47)............ 784,167 $3.74
Exercised................................................. (342,073) $0.45
Canceled.................................................. (19,648) $1.98
----------
Outstanding, June 30, 1999.................................. 3,344,329 $1.13
==========
</TABLE>
F-16
<PAGE> 76
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
Additional information regarding options outstanding as of December 31,
1998 and June 30, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- -------------------------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
December 31, 1998:
$0.04 - $0.14................... 1,009,568 3.80 $0.07 1,010,500 $0.07
0.17 - 0.37.................... 1,139,540 6.71 0.26 1,059,832 0.26
0.41 - 1.24.................... 545,356 7.72 0.67 545,356 0.67
1.36 - 4.02.................... 137,419 5.91 2.12 106,692 1.67
--------- ---- ----- --------- -----
$0.04 - $4.03................... 2,921,883 5.73 $0.35 2,722,380 $0.32
========= ==== ===== ========= =====
June 30, 1999:
$0.04 - $0.14................... 907,960 5.92 $0.07 877,193 $0.07
0.17 - 0.37.................... 1,018,602 5.90 0.26 969,090 0.27
0.41 - 1.36.................... 628,077 7.89 0.77 628,077 0.77
3.11 - 4.03.................... 789,690 9.80 3.75 83,889 3.71
--------- ---- ----- --------- -----
$0.04 - $4.03................... 3,344,329 7.20 $1.13 2,558,249 $0.43
========= ==== ===== ========= =====
</TABLE>
At December 31, 1998 and June 30, 1999, the Company had 754,379 and
1,141,493, respectively, shares available for future grants under the option
plans.
Additional Stock Plan Information--As discussed in Note 1, the Company
accounted for its stock-based awards using the intrinsic value method in
accordance with APB No. 25, Accounting for Stock Issued to Employees and its
related interpretations.
SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"),
requires the disclosure of pro forma net loss had the Company adopted the fair
value method as of the beginning of fiscal 1996. Under SFAS 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, that significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the minimum value method with
the following weighted average assumptions: expected life, 18 months following
vesting; risk free interest rate, 5.5%, 6.0%, 5.3% and 5.2% in 1996, 1997, 1998
and the first six months of 1999, respectively; and no dividends during the
expected term. The Company's calculations are based on a multiple option
valuation approach and forfeitures are recognized as they occur. If the computed
fair values of the awards issued in 1996, 1997, 1998 and the first six months of
1999 had been amortized to expense over the vesting periods of the awards, pro
forma net loss would have been $90,000 ($0.04 net loss per share), $545,000
($0.17 net loss per share), $1,885,000 ($0.48 net loss per share) and $2,202,000
($0.45 net loss per share) in 1996, 1997 and 1998 and the six months ended June
30, 1999, respectively.
The Company had outstanding nonstatutory stock options to purchase 104,182,
153,570 and 203,604 shares of common stock to consultants at December 31, 1997
and 1998 and June 30, 1999,
F-17
<PAGE> 77
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
respectively. Compensation expense of none, $5,000, $68,000 and $111,000 was
recognized as result of these options in 1996, 1997, 1998 and the six months
ended June 30, 1999, respectively. The fair value of the unvested portion of
these options is being amortized over the vesting period. The fair value
attributable to the unvested portion of such options is subject to adjustment
based upon the future value of the Company's common stock. In addition, the
Company had outstanding nonstatutory stock options to purchase 242,100 and
262,275 shares of common stock at December 31, 1998 and June 30, 1999,
respectively, issued in connection with the acquisition of patents and the
licensing of technology (see Note 2). The estimated fair value of these options
has been recorded as purchased patents and technology ($219,000 and $348,000 at
December 31, 1998 and June 30, 1999, respectively).
Common Stock--Common stock issued to the founders and certain other
employees is subject to repurchase agreements whereby the Company has the option
to repurchase the unvested shares upon termination of employment at the original
issue price. The Company's repurchase right generally lapses over four years. At
December 31, 1998, 23,537 shares of common stock were subject to repurchase by
the Company. At June 30, 1999, the Company's repurchase rights had lapsed.
During 1998, the Company issued 137,190 shares of common stock in
connection with purchases of patents. The fair value of the common stock of
$501,000 was recorded as purchased patents and technology. During 1999, the
Company issued 1,379,970 shares of common stock in connection with purchases of
patents and technology (see Note 2).
Deferred Stock Compensation
In connection with grants of certain stock options to employees and
directors in the six months ended June 30, 1999, the Company recorded $1,473,000
for the difference between the deemed fair value for accounting purposes and the
stock price as determined by the Board of Directors on the date of grant. This
amount has been presented as a reduction of stockholders' equity and is being
amortized to expense over the vesting period of the related stock options
(generally four years). Amortization of deferred stock compensation for the six
months ended June 30, 1999 was $66,000.
Common Stock Reserved for Issuance
At December 31, 1998, the Company had reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Conversion of preferred stock............................... 5,131,100
Exercise of options......................................... 3,676,262
Exercise of warrants........................................ 182,854
----------
Total............................................. 8,990,216
==========
</TABLE>
F-18
<PAGE> 78
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
8. NET LOSS PER SHARE
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -----------------
1996 1997 1998 1998 1999
------ ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss...................................... $ (81) $ (527) $(1,673) $ (869) $(2,118)
Redeemable preferred stock accretion.......... -- 3 6 3 3
------ ------ ------- ------- -------
Net loss applicable to common stockholders...... $ (81) $ (530) $(1,679) $ (872) $(2,121)
====== ====== ======= ======= =======
Denominator:
Weighted average common shares outstanding.... 3,311 3,338 3,970 3,926 5,003
Weighted average common shares outstanding
subject to repurchase...................... (486) (176) (61) (87) --
------ ------ ------- ------- -------
Shares used in calculating basic and diluted
net loss per share......................... 2,825 3,162 3,909 3,839 5,003
====== ====== ======= ======= =======
Basic and diluted net loss per share............ $(0.03) $(0.17) $ (0.43) $ (0.23) $ (0.42)
====== ====== ======= ======= =======
</TABLE>
For the above-mentioned periods, the Company had securities outstanding
that could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share in the periods
presented since their effect would have been antidilutive. These outstanding
securities consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Redeemable convertible preferred
stock.............................. -- 864,642 863,771 863,771 863,771
Convertible preferred stock.......... 2,741,112 2,862,162 4,267,329 4,237,074 4,267,329
Shares of common stock subject to
repurchase......................... 343,176 125,813 23,537 75,096 --
Outstanding options.................. 2,395,458 3,313,006 2,921,883 2,925,425 3,344,329
Warrants............................. 195,899 287,087 182,854 213,117 498,593
---------- ---------- ---------- ---------- ----------
Total................................ 5,675,645 7,452,710 8,259,374 8,314,483 8,974,022
========== ========== ========== ========== ==========
Weighted average exercise price of
options............................ $ 0.10 $ 0.16 $ 0.36 $ 0.30 $ 1.13
========== ========== ========== ========== ==========
Weighted average exercise price of
warrants........................... $ 0.72 $ 0.56 $ 0.95 $ 0.97 $ 2.71
========== ========== ========== ========== ==========
</TABLE>
F-19
<PAGE> 79
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
9. INCOME TAXES
No provision for federal income taxes was required for the years ended
December 31, 1996, 1997 and 1998 due to the Company's net losses in these
periods.
Significant components of the net deferred tax assets for federal and state
income taxes consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
----- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 173 $ 830
Research and development credits.......................... 13 130
Reserves and accruals recognized in different periods..... 39 75
Depreciation and amortization............................. -- 2
----- -------
Total deferred tax assets................................... 225 1,037
Valuation reserve........................................... (225) (1,037)
----- -------
Net deferred tax assets..................................... $ -- $ --
===== =======
</TABLE>
The Company's effective tax rate differed from the expected benefit at the
federal statutory tax rate at December 31 as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal statutory tax rate.................................. (35.0)% (35.0)% (35.0)%
State taxes, net of federal benefit......................... (6.0) (6.0) (6.0)
Other....................................................... 1.7 0.6 0.6
Valuation allowance......................................... 39.3 40.4 40.4
----- ----- -----
Effective tax rate.......................................... --% --% --%
===== ===== =====
</TABLE>
Substantially all of the Company's loss from operations for all periods
presented is generated from domestic operations.
At December 31, 1998, the Company has federal and state net operating loss
carryforwards of approximately $1,926,000 and $967,000, respectively, expiring
through 2018 and through 2003, respectively.
Current federal and state tax laws include provisions limiting the annual
use of net operating loss carryforwards in the event of certain defined changes
in stock ownership. The Company's issuances of common and preferred stock may
have resulted in such a change. Accordingly, the annual use of the Company's net
operating loss carryforwards would be limited according to these provisions.
Management has not yet determined the extent of this limitation and this
limitation may result in the loss of carryforward benefits due to their
expiration.
F-20
<PAGE> 80
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
10. SEGMENT INFORMATION, OPERATIONS BY GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS
The Company operates in one business segment, which is the design,
development, production, marketing and licensing of products based on feel
technology. These devices are used in computer entertainment, personal
computing, medical and other professional computing applications. The Company
operates entirely in North America and does not maintain operations in other
countries. The following is a summary of revenues within geographic areas.
Revenues are broken out geographically by the ship-to location of the customer.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
North America................................. $1,867 $3,325 $3,363 $1,428 $2,494
Europe........................................ 533 648 950 425 469
Far East...................................... 239 347 597 259 465
Rest of the world............................. 98 12 111 59 75
------ ------ ------ ------ ------
$2,737 $4,332 $5,021 $2,171 $3,503
====== ====== ====== ====== ======
</TABLE>
Significant Customers
In 1996, one unrelated customer accounted for 11% of total revenues. In
1997, one unrelated customer accounted for 13% of total revenues. In 1998, a
preferred stockholder accounted for 10% of total revenues. For the six months
ended June 30, 1999, a preferred stockholder accounted for 19% of total
revenues.
Receivables due from two unrelated customers were $158,000 and $57,000,
respectively, at December 31, 1997. Receivables due from a preferred stockholder
were $387,000 at December 31, 1998. Receivables due from two unrelated parties
were $215,000 and $184,000, respectively, at June 30, 1999.
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) tax-deferred savings plan under which eligible
employees may elect to have a portion of their salary deferred and contributed
to the 401(k) plan. Contributions may be made by the Company at the discretion
of the Board of Directors. No contributions by the Company have been made to the
401(k) plan since its inception.
12. RELATED PARTIES
In July 1997, the Company transferred certain patent rights related to its
MicroScribe product to a newly created limited liability corporation,
MicroScribe LLC, in exchange for 1,000 Class 1 Units and 98,999 Class 2 Units.
This investment represents a 99% ownership of MicroScribe LLC. Subsequently, the
Company distributed all Class 2 Units to their then outstanding common,
preferred and vested option holders on a pro rata basis. There was no recorded
value related to these internally-developed patent agreements and thus no amount
was recognized as a result of the transfer.
F-21
<PAGE> 81
IMMERSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
During July 1997, the Company also entered into an exclusive ten-year
license agreement with MicroScribe LLC (the "Agreement") for the right to
manufacture, market and sell the related MicroScribe technology. Under the terms
of the Agreement, the Company must pay a royalty to MicroScribe LLC based on a
variable percentage of net receipts as defined under the Agreement. Royalty
expense under the Agreement was $49,000, $116,000 and $68,000 in 1997 and 1998
and the six months ended June 30, 1999, respectively.
As discussed in Note 10, a preferred stockholder accounted for $249,000 and
$462,000 of royalty revenue in 1998 and the six months ended June 30, 1999,
respectively, and $316,000 and $222,000 of development contract revenue in 1998
and the six months ended June 30, 1999, respectively.
13. CONTINGENCIES
The Company has received claims from third parties asserting that the
Company's technologies, or those of its licensees, infringe on the other
parties' intellectual property rights. Management believes that these claims are
without merit and, with respect to each, has obtained or is in the process of
obtaining written non-infringement and/or patent invalidity opinions from
outside patent counsel. Accordingly, in the opinion of management, the outcome
of such claims will not have a material effect on the financial statements of
the Company.
14. SUBSEQUENT EVENTS
In June 1999, the Board of Directors approved, subject to stockholder
approval, an amendment to the 1997 Stock Option Plan to increase the number of
shares reserved for issuance by 1,149,975.
On August 31, 1999, the Board of Directors approved, subject to stockholder
approval, the following:
- Reincorporation of the Company in the state of Delaware and a concurrent
0.807-for-one reverse common stock split.
- Adoption of the Company's 1999 Employee Stock Purchase Plan (the "ESPP").
The ESPP becomes effective upon the closing of the Company's initial
public offering. Under the ESPP, eligible employees may purchase common
stock through payroll deductions. Participants may not purchase more than
1,000 shares in a six-month offering period or stock having a value
greater than $25,000 in any calendar year as measured at the beginning of
the offering period. A total of 403,500 shares of common stock are
reserved for issuance under the ESPP plus an automatic annual increase on
January 1, 2000 and on each January 1 thereafter through January 1, 2009
by an amount equal to the lesser of 500,000 shares per year, or 2% of the
Company's outstanding common stock on the last day of the immediately
preceding fiscal year, or such lesser number of shares as determined by
the Board of Directors.
F-22
<PAGE> 82
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
IMMERSION.LOGO
COMMON STOCK
---------------------
PROSPECTUS
---------------------
HAMBRECHT & QUIST
BEAR, STEARNS & CO. INC.
BANCBOSTON ROBERTSON STEPHENS
---------------------
, 1999
---------------------
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED
IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES
OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND
THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions payable by the Registrant in connection
with the sale and distribution of the Common Stock being registered. All amounts
shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market application
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $14,946
NASD filing fee............................................. 5,877
Nasdaq National Market application fee......................
Blue sky qualification fees and expenses....................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Director and officer liability insurance....................
Transfer agent and registrar fees...........................
Miscellaneous expenses......................................
-------
Total............................................. $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant has entered into separate indemnification agreements (Exhibit 10.1)
with its directors and officers which require the Registrant, among other
things, to indemnify them against certain liabilities which may arise by reason
of their status or service (other than liabilities arising from willful
misconduct of a culpable nature). The Registrant also intends to maintain
director and officer liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreements may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant and its officers and directors for certain
liabilities arising under the Securities Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since August 31, 1996, we have sold and issued the following
unregistered securities:
(1) From inception to August 31, 1999, we have issued options to
purchase an aggregate of 3,038,387 shares of common stock under the 1994
stock option plan, of which 1,173,114 have been exercised, and 2,123,486
shares of common stock under the 1997 stock option plan, of which 274,949
have been exercised.
II-1
<PAGE> 84
(2) On November 3, 1996, November 4, 1996, November 20, 1996, November
26, 1996 and November 27, 1996, the Company sold an aggregate of 98,334
shares of its Series B preferred stock to accredited investors for an
aggregate purchase price of $590,004.
(3) In November, 1996, we issued an option to purchase 80,700 shares
of common stock to Steve Blank at an exercise price of $0.17 per share.
(4) In November 1996, we issued a warrant to purchase 8,000 shares of
Series B preferred stock to Bruce Paul at an exercise price of $6.00 per
share.
(5) From November 1996 through June 1999, we issued options to
purchase an aggregate of 154,648 shares of common stock to Steven Blank at
exercise prices ranging between $0.173 per share and $3.66 per share. These
options may be exercised at any time within ten years after their date of
issuance.
(6) In December 1996, we issued a warrant to purchase 10,000 shares of
Series B preferred stock to Bruce Paul at an exercise price of $6.00 per
share.
(7) On March 31, 1997, we issued 30,000 shares of Series A preferred
stock to Bruce Paul individually or as a trustee upon the exercise of a
warrant for an aggregate of $60,000.00 as consideration for consulting
services.
(8) In March 1997, we issued 30,000 shares of Series A Preferred Stock
to Bruce Paul pursuant to an exercise of a warrant dated April 1995 at an
exercise price of $2.00 per share.
(9) On June 3, 1997, the Company sold an aggregate of 1,071,428 shares
of its Series C preferred stock to accredited investors for an aggregate
purchase price of $1,500,005.40.
(10) On June 3, 1997, we issued a warrant to purchase 91,191 shares of
common stock to an accredited investor at an exercise price of $0.18 per
share.
(11) In December 1997, we issued an option to purchase 80,700 shares
of common stock to Washington Research Foundation at an exercise price of
$0.37 per share in consideration of consulting services. This option may be
exercised at any time within ten years after its issuance.
(12) In March 1998, we issued an option to purchase 242,100 shares of
common stock to Lex Computer Management at an exercise price of $0.62 per
share in consideration of consulting services.
(13) In March 1998, we issued an option to purchase 20,175 shares of
common stock to Asia Pacific Ventures Co. with a fair market value of $0.37
in consideration of consulting services. This option may be exercised at
any time within ten years after its issuance.
(14) On April 13, 1998, the Company sold an aggregate of 1,706,232
shares of its Series D preferred stock to accredited investors for an
aggregate purchase price of $5,750,002.
(15) On April 13, 1998, we issued a warrant to purchase 14,836 shares
of Series D preferred stock to BancAmerica Robertson Stephens at an
exercise price of $3.37 per share.
(16) In June 1998, we issued 80,700 shares of common stock to Digital
Equipment Corporation with a fair market value of $3.66 per share in
consideration of consulting services.
(17) In June 1998, we issued 85,945 shares of common stock to Bernie
G. Jackson pursuant to an exercise of a warrant dated June 1995 at an
exercise price of $0.04 per share.
II-2
<PAGE> 85
(18) In July 1998, we issued 28,245 shares of common stock to
Ming-Chang Tsai and Gemintek Corporation at a price of $3.66 per share in
consideration of an assignment of the patent.
(19) On August 1, 1998, we issued 3,750 shares of Series A preferred
stock to Bruce Paul upon exercise of a warrant for consideration of
$14,000.
(20) In August 1998, we issued 7,500 shares of Series A Preferred
Stock to Bruce Paul pursuant to an exercise of a warrant dated August 1996
at an exercise price of $4.00 per share.
(21) In November 1998, we issued 28,245 shares of common stock to
Craig Culver with a fair market value of $3.66 per share in consideration
for an assignment of a patent.
(22) In February 1999, we issued 8,070 shares of common stock to
Washington Research Foundation as consideration for a patent license.
(23) On March 4, 1999, we issued an aggregate of 1,291,200 shares of
common stock to Cybernet Systems Corporation pursuant to an Agreement and
Plan of Reorganization.
(24) On March 4, 1999, we issued a warrant to purchase 322,800 shares
of common stock to Cybernet Systems Corporation as consideration for
certain consulting services.
(25) In May 1999, we issued 7,061 shares of common stock to Richard
Brent Gillespie pursuant to an exercise of a warrant dated August 1995 at
an exercise price of $0.04 per share.
(26) In June 1999, we issued an option to purchase 20,175 shares of
common stock at an exercise price of $3.66 per share to Coactive Drive
Corporation. This option may be exercised at any time within ten years
after its issuance.
(27) In July 1999, we issued 68,595 shares of common stock to Michael
Reich and Associates in consideration of services.
(28) There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
The issuances described in Items 15(a)(1) through 15(a)(28) were deemed
exempt from registration under the Securities Act in reliance on Section 492 of
the Securities Act as transactions by an issuer not involving a public offering.
Certain issuances described in Item 15(a) were deemed exempt from registration
under the Securities Act in reliance on Section 4(2) or Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions. All recipients either received adequate information
about us or had access, through employment or other relationships, to such
information.
II-3
<PAGE> 86
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Agreement and Plan of Reorganization with Cybernet Systems
Corporation ("Cybernet"), its wholly-owned subsidiary and
our wholly-owned subsidiary dated March 4, 1999.
3.1 Amended and Restated Articles of Incorporation of Immersion,
as amended to date.
3.2 Form of Certificate of Incorporation of Immersion, as
proposed to be filed.*
3.3 Bylaws of Immersion
3.4 Form of Bylaws, as proposed to be filed.*
4.1 Information and Registration Rights Agreement dated April
13, 1998.
4.2 Immersion Corporation Cybernet Registration Rights Agreement
dated March 5, 1999.
4.3 Common Stock Grant and Purchase Agreement and Plan with
Michael Reich & Associates dated July 6, 1999.
4.4 Common Stock Agreement with Digital Equipment Corporation
dated June 12, 1998.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.*
10.1 1994 Stock Option Plan and form of Incentive Stock Option
Agreement and form of Nonqualified Stock Option Agreement.
10.2 1997 Stock Option Plan and form of Incentive Stock Option
Agreement and form of Nonqualified Stock Option Agreement.
10.3 Form of Indemnity Agreement*
10.4 Immediately Exercisable Nonstatutory Stock Option Agreement
with Steven G. Blank dated November 1, 1996.
10.5 Common Stock Purchase Warrant issued to Cybernet Systems
Corporation dated March 5, 1999.
10.6 Consulting Services Agreement with Cybernet Systems
Corporation dated March 5, 1999.
10.7 Amendment to Warrant to Purchase Shares of Series B
Preferred Stock to Bruce Paul amending warrant to purchase
8,000 shares of Series B Preferred Stock dated September 22,
1998.
10.08 Amendment to Warrant to Purchase Shares of Series B
Preferred Stock to Bruce Paul amending warrant to purchase
10,000 shares of Series B Preferred Stock dated September
22, 1998.
10.09 Operating Agreement for MicroScribe, LLC dated July 1, 1997.
10.10 Exchange Agreement with MicroScribe, LLC dated July 1, 1997.
21.1 Subsidiaries of Immersion
23.1 Consent of Deloitte & Touche LLP
23.4 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1)*
24.1 Power of Attorney (included on page II-5)
27.1 Financial Data Schedule (EDGAR filed version only)
</TABLE>
- ------------------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
The following are filed herewith:
Independent Auditors' Report on Schedule.
Schedule II Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-4
<PAGE> 87
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on the first day of September, 1999
IMMERSION CORPORATION
By: /s/ LOUIS ROSENBERG
------------------------------------
Louis Rosenberg, Ph.D.
Chairman of the Board, Chief
Executive Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Louis Rosenberg, Ph.D. and Victor
Viegas, and each of them acting individually, as his true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him in
any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments or any abbreviated registration
statement and any amendments thereto filed pursuant to Rule 462(b) increasing
the number of securities for which registration is sought), and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, with full power of each to act alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LOUIS ROSENBERG Chairman of the Board, President September 1, 1999
- --------------------------------------------- and Chief Executive Officer
Louis Rosenberg, Ph.D. (Principal Executive Officer)
/s/ VICTOR VIEGAS Chief Financial Officer (Principal September 1, 1999
- --------------------------------------------- Financial and Accounting Officer)
Victor Viegas
/s/ BRUCE SCHENA Vice President, Chief Technology September 1, 1999
- --------------------------------------------- Officer, Secretary and Director
Bruce Schena
/s/ TIMOTHY LACEY Vice President, Finance and September 1, 1999
- --------------------------------------------- Director
Timothy Lacey
/s/ STEVEN BLANK Director September 1, 1999
- ---------------------------------------------
Steven Blank
</TABLE>
II-6
<PAGE> 89
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Stockholders
of Immersion Corporation:
We have audited the consolidated financial statements of Immersion
Corporation (the Company) as of December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, and have issued our report
thereon dated April 2, 1999 (included elsewhere in this Registration Statement).
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
April 2, 1999
S-1
<PAGE> 90
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND DEDUCTIONS/ END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts............ $ 5 $40 $37 $ 8
Year ended December 31, 1997
Allowance for doubtful accounts............ $ 8 $39 $ 9 $38
Year ended December 31, 1998
Allowance for doubtful accounts............ $38 $57 $ 3 $92
Six months ended June 30, 1999
Allowance for doubtful accounts*........... $92 $ 4 $20 $76
</TABLE>
- ---------------
* Unaudited
S-2
<PAGE> 91
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Agreement and Plan of Reorganization with Cybernet Systems
Corporation ("Cybernet"), its wholly-owned subsidiary and
our wholly-owned subsidiary dated March 4, 1999.
3.1 Amended and Restated Articles of Incorporation of Immersion,
as amended to date.
3.2 Form of Certificate of Incorporation of Immersion, as
proposed to be filed.*
3.3 Bylaws of Immersion
3.4 Form of Bylaws, as proposed to be filed.*
4.1 Information and Registration Rights Agreement dated April
13, 1998.
4.2 Immersion Corporation Cybernet Registration Rights Agreement
dated March 5, 1999.
4.3 Common Stock Grant and Purchase Agreement and Plan with
Michael Reich & Associates dated July 6, 1999.
4.4 Common Stock Agreement with Digital Equipment Corporation
dated June 12, 1998.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.*
10.1 1994 Stock Option Plan and form of Incentive Stock Option
Agreement and form of Nonqualified Stock Option Agreement.
10.2 1997 Stock Option Plan and form of Incentive Stock Option
Agreement and form of Nonqualified Stock Option Agreement.
10.3 Form of Indemnity Agreement*
10.4 Immediately Exercisable Nonstatutory Stock Option Agreement
with Steven G. Blank dated November 1, 1996.
10.5 Common Stock Purchase Warrant issued to Cybernet Systems
Corporation dated March 5, 1999.
10.6 Consulting Services Agreement with Cybernet Systems
Corporation dated March 5, 1999.
10.7 Amendment to Warrant to Purchase Shares of Series B
Preferred Stock to Bruce Paul amending warrant to purchase
8,000 shares of Series B Preferred Stock dated September 22,
1998.
10.8 Amendment to Warrant to Purchase Shares of Series B
Preferred Stock to Bruce Paul amending warrant to purchase
10,000 shares of Series B Preferred Stock dated September
22, 1998.
10.9 Operating Agreement for MicroScribe, LLC dated July 1, 1997.
10.10 Exchange Agreement with MicroScribe, LLC dated July 1, 1997.
21.1 Subsidiaries of Immersion
23.1 Consent of Deloitte & Touche LLP
23.4 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1)*
24.1 Power of Attorney (included on page II-5)
27.1 Financial Data Schedule (EDGAR filed version only)
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 2.1
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
among
IMMERSION CORPORATION,
a California corporation
("Immersion"),
IMMERSION ACQUISITION CORPORATION,
a Delaware corporation and wholly-owned
subsidiary of Immersion,
("Sub")
CYBERNET SYSTEMS CORPORATION,
a Delaware corporation
("Cybernet"),
and
CYBERNET HAPTIC SYSTEMS CORPORATION,
a Michigan corporation and
wholly-owned subsidiary of Cybernet
("Cybernet Sub")
Dated March 4, 1999
================================================================================
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
March 4, 1999, by and among Immersion Corporation, a California corporation
("Immersion"), Immersion Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Immersion ("Sub"), Cybernet Systems Corporation, a
Delaware corporation ("Cybernet"), and Cybernet Haptic Systems Corporation, a
Michigan corporation and a wholly-owned subsidiary of Cybernet ("Cybernet Sub")
(the "Agreement").
RECITALS
A. The Boards of Directors of Immersion, Sub, Cybernet and Cybernet Sub
deem it advisable and in the best interests of each corporation and their
respective shareholders that Immersion and Cybernet Sub combine in order to
advance the long-term business interests of Immersion, Cybernet Sub and
Cybernet;
B. The combination of Immersion and Cybernet Sub shall be effected by the
terms of this Agreement through a transaction (the "Merger") in which Sub will
merge with and into Cybernet Sub, with Cybernet Sub becoming a wholly-owned
subsidiary of Immersion and with Cybernet, the sole stockholder of Cybernet Sub,
becoming a shareholder of Immersion; and
C. The parties intend, by approving resolutions authorizing this
Agreement, to adopt this Agreement as a plan of reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereunder, and to cause the Merger to qualify as a
reorganization within the meaning of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger. Subject to the provisions of
this Agreement, certificate of merger (the "Merger Certificates") containing the
substantive provisions of this Article I and Article II and in such form as is
required by the relevant provisions of the Michigan Business Corporation Act
(the "Michigan Law") and of the Delaware General Corporation Law (the "DGCL")
shall be duly prepared, executed and acknowledged by Sub and by Cybernet Sub as
the Surviving Corporation (as defined in Section Section 1.3) and thereafter
delivered to the Department of Consumer & Industry Services of the State of
Michigan and the Secretary of State of the State of Delaware for filing as soon
as practicable on or after the Closing Date (as defined in Section Section 1.2).
The Merger shall become effective upon the filing of the Merger Certificate with
the Secretary of State of the State of Delaware and upon acceptance of the
<PAGE> 3
Merger Certificate by the Department of Consumer & Industry Services of Michigan
in accordance with the Michigan Law and DGCL or at such time thereafter as is
provided in such Merger Certificates (the "Effective Time").
Section 1.2 Closing. The closing of the transactions contemplated in this
Agreement (the "Closing") shall take place at the offices of Immersion
Corporation, 2158 Paragon Drive, San Jose, CA 95131, upon the satisfaction or
waiver of all conditions set forth in Article VI or at such other time and
location as Immersion, Cybernet and Cybernet Sub may agree (the "Closing Date").
Section 1.3 Effects of the Merger. At the Effective Time (i) the separate
existence of Sub shall cease and Sub shall be merged with and into Cybernet Sub
(the "Surviving Corporation"), (ii) the Certificate of Incorporation of Cybernet
Sub as in effect immediately prior to the Effective time and as set forth in
Exhibit A herein shall be the Certificate of Incorporation of the Surviving
Corporation, (iii) the Bylaws of Cybernet Sub as in effect immediately prior to
the Effective Time and as set forth in Exhibit B herein shall be the Bylaws of
the Surviving Corporation. (Sub and Cybernet Sub are sometimes referred to
herein as the "Constituent Corporations.")
Section 1.4 Directors and Officers. The directors and officers of Sub
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each of whom will hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of Immersion, Sub,
Cybernet or Cybernet Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
the capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $.001 par value, of the Surviving
Corporation.
(b) Exchange Ratio for Cybernet Sub Capital Stock. Subject to
the provisions of Section Section 2.2, (i) each issued and outstanding share of
Common Stock of Cybernet Sub shall be converted into the right to receive 160
fully paid and nonassessable shares of Common Stock of Immersion (the "Merger
Stock"), which amounts shall be subject to adjustment to reflect any stock split
or stock dividend effected between the date of this Agreement and the Effective
Time. All such shares of Common Stock of Cybernet Sub (the "Cybernet Sub
Stock"), when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right
<PAGE> 4
to receive the shares of Merger Stock to be issued in consideration therefor
upon the surrender of such certificate in accordance with this Article II.
(c) Certificate Legends. The shares of Merger Stock to be
issued pursuant to this Article II shall not have been registered and shall be
characterized as "restricted securities" under the federal securities laws, and
under such laws such shares may be resold without registration under the
Securities Act of 1933, as amended (the "Securities Act"), only in certain
limited circumstances. Each certificate evidencing shares of Merger Stock to be
issued pursuant to this Article II shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN
OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
Section 2.2 Exchange of Certificates. The procedures for exchanging
outstanding shares of Cybernet Sub for Merger Stock pursuant to the Merger are
as follows:
(a) Exchange Agent. As of the Effective Time, Immersion shall
deposit with Gary Cary Ware & Freidenrich LLP (the "Exchange Agent"), Merger
Stock for the benefit of the holders of Cybernet Sub Stock for exchange in
accordance with this Section Section 2.2.
(b) Exchange Procedures. At the Closing, the Exchange Agent
shall deliver to Cybernet, which immediately prior to the Effective Time held
all certificates of the outstanding shares of Cybernet Sub Stock (the
"Certificates") (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Immersion and Cybernet Sub may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Merger
Stock. Upon surrender of the Certificates for cancellation to the Exchange
Agent, together with a duly executed letter of transmittal, Cybernet shall be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of Merger Stock which Cybernet has the right to receive pursuant
to the provisions of Section Section 2.1, and the Certificates so surrendered
shall immediately be canceled. Until surrendered as contemplated by this Section
Section 2.2, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the certificate
representing shares of Merger Stock. The instructions for effecting the
surrender of the Certificates shall set forth procedures that must be taken by
the holder of any Certificate that has been lost, destroyed or stolen. It shall
be a condition to the right of such holder to receive a certificate representing
shares of Merger Stock that the Exchange Agent shall have received,
<PAGE> 5
along with the letter of transmittal, a duly executed lost certificate affidavit
or lost note affidavit, including an agreement to indemnify Immersion, signed
exactly as the name or names of the registered holder or holders appeared on the
books of Cybernet Sub immediately prior to the Effective Time, together with
such other documents as Immersion or the Exchange Agent may reasonably require
in connection therewith.
(c) Fractional Shares. No Certificates representing fractional
shares of Merger Stock shall be issued to Cybernet upon the surrender for
exchange of Certificates, and Cybernet shall not be entitled to any voting
rights, rights to receive any dividends or distributions or other rights as a
stockholder of Cybernet Sub with respect to any fractional shares that would
otherwise be issued to Cybernet.
(d) No Further Ownership Rights in Cybernet Sub Stock. All
shares of Merger Stock issued upon the surrender for exchange of shares of
Cybernet Sub Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Cybernet Sub Stock, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of Cybernet Sub Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Section Section
2.2.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CYBERNET AND CYBERNET SUB
Cybernet and Cybernet Sub represent and warrant to Immersion that the
statements contained in this Article III are true and correct, except as
disclosed in the disclosure schedule delivered by Cybernet and Cybernet Sub to
Immersion on or before the date of this Agreement and attached hereto as Exhibit
C (the "Cybernet Disclosure Schedule"). For purposes of this Agreement, any
reference to a "Material Adverse Effect" with respect to any entity or group of
entities means a material adverse effect on the business, assets (including
intangible assets), financial condition, or results of operations of such entity
and its subsidiaries, taken as a whole.
Section 3.1 Organization, Standing and Power. Each of Cybernet and
Cybernet Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its properties and to carry
on its business as currently being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on
Cybernet Sub. Cybernet Sub has delivered true and correct copies of the
Certificate of Incorporation and Bylaws of Cybernet Sub, each as amended to
date, to Immersion. Cybernet Sub is not in violation of any of the provisions of
its Certificate of Incorporation, Bylaws or other charter documents.
<PAGE> 6
Section 3.2 Cybernet Sub Capital Structure.
(a) The authorized capital stock of Cybernet Sub consists of
60,000 shares of Cybernet Sub Common Stock. As of the date hereof, 10,000 shares
of Cybernet Sub Common Stock are issued and outstanding, and held of record by
those persons set forth in Schedule Section 3.2((a)) of the Cybernet Disclosure
Schedule. All such outstanding shares of Cybernet Sub Common Stock have been
duly authorized, validly issued, fully paid and are nonassessable, have been
issued in compliance with all applicable federal and state securities laws, and
are subject to no preemptive rights or rights of first refusal created by
statute, the Certificate of Incorporation or Bylaws of Cybernet Sub or any
agreement to which Cybernet Sub is a party or by which it is bound.
(b) Except as set forth in this Section Section 3.2 or
Schedule 3.2(b) of the Cybernet Disclosure Schedule, there are (i) no equity
securities of any class of Cybernet Sub, or any securities exchangeable into or
exercisable for such equity securities, issued, reserved for issuance, or
outstanding and (ii) no outstanding subscriptions, options, warrants, puts,
calls, rights, or other commitments or agreements of any character to which
Cybernet Sub is a party or by which it is bound obligating Cybernet Sub to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any equity securities of Cybernet Sub or
obligating Cybernet Sub to grant, extend, accelerate the vesting of, change the
exercise price of, or otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. There are no contracts, commitments or
agreements relating to voting, purchase or sale of Cybernet Sub' capital stock
(i) between or among Cybernet Sub and any of its stockholders or (ii) to the
knowledge of Cybernet Sub, between or among any of Cybernet Sub' stockholders.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
(a) Cybernet and Cybernet Sub have all requisite corporate
power and authority to enter into this Agreement and all other documents
required to be executed and delivered by Cybernet Sub hereunder, including the
Merger Certificate (collectively, the "Transaction Documents"), and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the other Transaction Documents to which Cybernet
and Cybernet Sub is or will be a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Cybernet and Cybernet Sub, subject only to the
approval of the Merger by Cybernet under Michigan Law and the DGCL. This
Agreement and the other Transaction Documents to which Cybernet and Cybernet Sub
are or will be parties have been or will be duly executed and delivered by
Cybernet and Cybernet Sub, as applicable, and constitute or will constitute the
valid and binding obligations of Cybernet and Cybernet Sub, as applicable,
enforceable against Cybernet and Cybernet Sub in accordance with their
respective terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
<PAGE> 7
(b) The execution and delivery by Cybernet and Cybernet Sub of
this Agreement and the other Transaction Documents to which they are or will be
parties does not, and the consummation of the transactions contemplated hereby
and thereby will not, (i) conflict with, or result in any violation or breach of
any provision of, the Certificate of Incorporation or Bylaws of Cybernet Sub or
the Articles of Incorporation or Bylaws of Cybernet, (ii) to the knowledge of
Cybernet and Cybernet Sub, result in any violation or breach of, or constitute
(with or without notice or lapse of time, or both) a default under, or give rise
to a right of termination, cancellation or acceleration of any material
obligation or loss of any material benefit under, any note, mortgage, indenture,
lease, contract or other agreement or obligation to which Cybernet Sub or
Cybernet is a party or by which Cybernet Sub or Cybernet or any of its
properties or assets may be bound, (iii) conflict with or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Cybernet Sub or Cybernet or any of
its properties or assets or (iv) result in the creation or imposition of any
lien, claim, restriction, charge or encumbrance upon the Intellectual Property
or the Related Materials (as defined in Section 3.6).
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by, or with respect to, Cybernet Sub or Cybernet in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the Merger
Certificates with the Department of Consumer & Industry Services of the State of
Michigan in accordance with Michigan Law and the Secretary of State of the State
of Delaware in accordance with the DGCL, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws, and (iii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Cybernet Sub and would not
prevent or materially alter or delay any of the transactions contemplated by
this Agreement.
Section 3.4 No Liabilities. Cybernet Sub has no debt, liability or
obligation of any nature, whether accrued, absolute, contingent, or otherwise,
and whether due or to become due.
Section 3.5 Tangible Assets and Real Property.
(a) Cybernet Sub owns or leases all tangible assets and
properties set forth in Schedule 3.5(a) (the "Cybernet Sub Assets"). The
Cybernet Sub Assets are in good operating condition and repair, subject to
reasonable wear and tear.
(b) Cybernet Sub has good and marketable title to all Cybernet
Sub Assets that it owns, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except for liens for current
taxes not yet due and payable.
(c) Assuming the due execution and delivery thereof by the
other parties thereto, all leases of Cybernet Sub Assets to which Cybernet Sub
is a party are in full force and effect and valid, binding and enforceable in
accordance with their respective terms, except as such enforceability may be
limited by (i) bankruptcy laws and other similar laws
<PAGE> 8
affecting creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
Section 3.6 Intellectual Property.
(a) Exhibit D ("Intellectual Property and Related Materials")
correctly sets forth all intellectual property rights of Cybernet Sub consisting
of certain force feedback intellectual property (including but not limited to
patents (the "Patents"), copyrights, trade secrets, trademarks and certain
software, documentation, prototypes and materials related to the Patents) (the
"Intellectual Property and Related Materials"). Except as set forth on Schedule
3.6(a) of the Cybernet Disclosure Schedule (which Cybernet Disclosure Schedule
identifies acknowledgment of Government licenses and march-in rights), Cybernet
Sub is the sole and exclusive owner of all Intellectual Property and Related
Materials and Cybernet Sub has good and marketable title to, and possession of
the Intellectual Property and Related Materials in each case free and clear of
all licenses, security interests, mortgages, liens, pledges, charges, judgments,
claims, encumbrances, or rights, title and interest in others. Cybernet Sub's
rights in all Intellectual Property and Related Materials are freely
transferable. Cybernet Sub does not have any disputes with or, claims against
any third party for infringement by such third party of any of the Intellectual
Property and Related Materials. Cybernet and Cybernet Sub represent and warrant
that the inventors named in the Patents were employees of Cybernet at the time
of the conception of the invention described in each Patent.
(b) Cybernet and Cybernet Sub have taken all steps reasonably
necessary to establish and preserve Cybernet Sub 's right, title and interest in
and to the Intellectual Property and Related Materials including, but not
limited to making all required disclosures of subject inventions incorporated
into or embodied in the Intellectual Property and Related Materials and which
were conceived and reduced to practice in the performance of U.S. Government
contracts, and timely electing to retain title of such subject inventions. All
Patents and Patent applications which are owned by Cybernet Sub and included in
the Intellectual Property and Related Materials have been duly registered in,
filed in or issued by the United States Patent and Trademark Office or the
United States Copyright Office, as applicable. All Patents and trademarks
included in the Intellectual Property and Related Materials have been properly
maintained and renewed by Cybernet and Cybernet Sub in accordance with all
applicable provisions of the law and administrative regulations in the United
States.
(c) Cybernet and Cybernet Sub represent that all inventions
embodied in patent applications prior to issuance of the related Patent and all
source code included in the Related Materials has been treated as and maintained
by Cybernet and Cybernet Sub as Cybernet and Cybernet Sub's confidential
information. To its knowledge, neither Cybernet nor Cybernet Sub have made any
confidential information regarding the Intellectual Property and Related
Materials available to any person without written agreements requiring the
recipients to maintain the confidentiality of such information and appropriately
restricting the use thereof and copies of all such agreements have been provided
to Immersion.
<PAGE> 9
(d) Neither Cybernet nor Cybernet Sub has received any notice
of, and does not have any knowledge of any basis for, a claim by a third party
against Cybernet or Cybernet Sub that any of its operations or activities
related to the Intellectual Property and Related Materials or the use of the
Intellectual Property and Related Materials infringes on any patent, copyright,
trademark or other property right of a third party, or that Cybernet or Cybernet
Sub has obtained the trade secrets, formulae or any property rights of others
through improper means or that either Cybernet and Cybernet Sub's use of the
same is a misappropriation. Neither Cybernet nor Cybernet Sub has received any
notice of, or has any knowledge of any basis for, a challenge by a third party
to the validity or enforceability of any Patent rights included in the
Intellectual Property and Related Materials, including but not limited to the
Patents.
(e) Cybernet represents and warrants that it has transferred
to Cybernet Sub all Intellectual Property and Related Materials set forth in
Exhibit D hereto.
Section 3.7 Contracts.
(a) Except as set forth in Schedule 3.7 to the Cybernet
Disclosure Schedule, neither Cybernet nor Cybernet Sub has entered into any
contract, agreement, license or commitment with any other party to sell or
license the Intellectual Property or Related materials and neither Cybernet nor
Cybernet Sub has previously sold, disposed of, transferred or licensed or
otherwise encumbered the Intellectual Property or Related Materials.
(b) Cybernet Sub is not in default under or in breach or
violation of, nor is there any valid basis for any claim of default by Cybernet
Sub under, or breach or violation by Cybernet Sub of, any contract, commitment
or restriction to which Cybernet Sub is a party or by which Cybernet Sub or any
of its properties or assets is bound or affected, where such defaults, breaches,
or violations would, in the aggregate, have a Material Adverse Effect on
Cybernet Sub. To Cybernet Sub' knowledge, no other party is in default under or
in breach or violation of, nor, to Cybernet Sub' knowledge, is there any valid
basis for any claim of default by any other party under, or any breach or
violation by any other party of, any contract, commitment, or restriction to
which Cybernet Sub is a party or by which Cybernet Sub or any of its properties
or assets is bound or affected, where such defaults, breaches, or violations
would, individually or in the aggregate, have a Material Adverse Effect on
Cybernet Sub.
Section 3.8 Compliance with Laws. Cybernet Sub has complied with, is not
in violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation applicable to the
ownership or operation of its business or otherwise affecting the Intellectual
Property and Related Materials.
Section 3.9 Employees and Consultants. Each inventor of each Patent has
executed an employee inventions and confidentiality agreement in the form
previously provided to counsel for Immersion (a "Confidentiality Agreement")
and, to the knowledge of Cybernet and Cybernet Sub, each other person currently
or formerly employed by Cybernet or Cybernet Sub has executed a Confidentiality
Agreement. Such Confidentiality Agreements constitute valid and binding
obligations of Cybernet or Cybernet Sub and such person, enforceable in
accordance with their respective terms, except as enforceability may be limited
by general equitable
<PAGE> 10
principles or the exercise of judicial discretion in accordance with such
principles. To the knowledge of Cybernet and Cybernet Sub, as applicable, none
of its employees is in violation of any term of any Confidentiality Agreement,
employment contract, patent disclosure agreement or any other contract or
agreement relating to the relationship of any such person with Cybernet or
Cybernet Sub.
Section 3.10 Litigation. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal) or investigation pending
or, to the knowledge of Cybernet or Cybernet Sub, threatened, against Cybernet
or Cybernet Sub with respect to the Intellectual Property and Related Materials,
or the transaction contemplated hereby, or which may adversely affect the
Cybernet or Cybernet Sub's ability to perform its obligations hereunder, and
there is no valid basis for any such claim. There are no orders, judgments or
decrees affecting the Intellectual Property and Related Materials.
Section 3.11 Governmental Authorization. Cybernet and Cybernet Sub have
obtained each governmental consent, license, permit, grant or other
authorization of a Governmental Entity that is required for the operation of the
business of Cybernet Sub (collectively, the "Cybernet Sub Authorizations"), and
all of such Cybernet Sub Authorizations are in full force and effect.
Section 3.12 Interested Party Transactions. To the knowledge of Cybernet
and Cybernet Sub, no director, officer or stockholder of Cybernet or Cybernet
Sub has any interest in (i) any material equipment or other property or asset,
real or personal, tangible or intangible, including, without limitation, any of
the Intellectual Property or Related Materials, (ii) any entity that competes
with Cybernet or Cybernet Sub, or with which Cybernet or Cybernet Sub is
affiliated or has a business relationship, or (iii) any agreement, obligation or
commitment, written or oral, to which Cybernet or Cybernet Sub is a party;
provided, however, that no such person shall be deemed to have such an interest
solely by virtue of ownership of less than five percent (5%) of the outstanding
stock or debt securities of any publicly held company, the stock or debt
securities of which are traded on a recognized stock exchange or on the Nasdaq
National Market.
Section 3.13 Real Property Holding Corporation. Cybernet Sub is not a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
Section 3.14 Investment Intent.
(a) The Merger Stock is being acquired for investment for
Cybernet's own account, and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act or the California Corporate Securities Law of 1968, as amended
("California Law").
(b) Cybernet understands that the Merger Stock has not been
registered under the Securities Act by reason of the issuance of the Merger
Stock in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof, that the Merger Stock must be
held by such Cybernet indefinitely, and that such Cybernet must
<PAGE> 11
therefore bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration. Cybernet further understands that the Merger
Stock has not been qualified under the California Law by reason of their
issuance in a transaction exempt from the qualification requirements of the
California Law pursuant to Section 25102(f) thereof, which exemption depends
upon, among other things, the bona fide nature of such Cybernet's investment
intent expressed above.
(c) Cybernet covenants that in no event will Cybernet dispose
of any of the Merger Stock (other than in conjunction with an effective
registration statement for the Merger Stock under the Act or in compliance with
Rule 144 promulgated under the Act) unless and until (i) there is an effective
registration statement under the Securities Act of 1933, as amended, (the
"Securities Act") covering such proposed distributed is made in accordance with
said registration statement; or (ii) Cybernet shall have (A) notified Immersion
of the proposed disposition and furnished Immersion with a detailed statement of
circumstances surrounding the proposed disposition and (B) furnished Immersion
with an opinion of its own counsel to the effect that such disposition will not
require registration of such shares under the Securities Act, such opinion of
Cybernet counsel shall have been concurred in by counsel for Immersion, and
Immersion shall have advised Cybernet of such concurrence.
(d) During the negotiation of the transactions contemplated
herein, Cybernet and its agents or counsel have been afforded full access to the
corporate books, records, documents, and other information concerning Immersion
and have been afforded an opportunity to ask such questions of Immersion's
officers and representatives concerning Immersion's business, operations,
financial condition, assets, liabilities and other relevant matters as they have
deemed necessary or desirable, and have been given all such information as has
been requested, in order to evaluate the merits and risks of the prospective
investment contemplated herein.
(e) Cybernet has such knowledge and experience in financial
and business matters that Cybernet is capable of evaluating the merits and risks
of the acquisition of the Merger Stock pursuant to the terms of this Agreement.
Section 3.15 Corporate Documents. Cybernet Sub has furnished to Immersion,
or its representatives, for its examination (i) its minute book containing all
records required to be set forth of all proceedings, consents, actions, and
meetings of the stockholders, the Board of Directors and any committees thereof,
(ii) all permits, orders, and consents issued by any Governmental Entity with
respect to Cybernet Sub and (iii) all consents, assignments and other
documentation related to the Intellectual Property and Related Materials. The
corporate minute books and other corporate records of Cybernet Sub are complete
and accurate in all material respects, and the signatures appearing on all
documents contained therein are the true signatures of the persons purporting to
have signed the same. All actions reflected in such books and records were duly
and validly taken in compliance with the laws of the applicable jurisdiction.
Cybernet Sub has delivered or made available to Immersion or its representatives
true and complete copies of all documents which are referred to in this Article
III or in the Cybernet Sub Disclosure Schedule.
<PAGE> 12
Section 3.16 No Misrepresentation. No representation or warranty by
Cybernet or Cybernet Sub in this Agreement, or any statement, certificate or
schedule furnished or to be furnished by or on behalf of Cybernet Sub pursuant
to this Agreement, when taken together, contains or shall contain any untrue
statement of a material fact or omits or shall omit to state a material fact
required to be stated therein or necessary in order to make such statements, in
light of the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF IMMERSION AND SUB
Immersion and Sub represent and warrant to Cybernet and Cybernet Sub that
the statements contained in this Article IV are true and correct, except as set
forth in the disclosure schedule delivered by Immersion to Cybernet Sub on or
before the date of this Agreement and attached hereto Exhibit E (the "Immersion
Disclosure Schedule").
Section 4.1 Organization. Each of Immersion and Sub are corporations duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, have all requisite corporate power to own,
lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect on Immersion.
Section 4.2 Capitalization.
(a) The authorized common stock of Immersion ("Common Stock")
as of the Effective Time and immediately prior to the Closing will consist of
100,000,000 shares of Common Stock, of which 5,284,186 shares will be issued and
outstanding.
(b) The authorized preferred stock of Immersion as of the
Effective Time and immediately prior to the Closing will consist of (i) 618,500
shares of Series A Preferred Stock ("Series A Preferred"), of which 611,000
shares will be issued and outstanding; (ii) 116,334 shares of Series B Preferred
("Series B Preferred"), of which 98,334 shares will be issued and outstanding;
(iii) 1,071,428 shares of Series C Preferred Stock ("Series C Preferred"), of
which 1,071,428 will be issued and outstanding and (iv) 1,721,068 shares of
Series D Preferred Stock ("Series D Preferred"), 1,706,232 of which are issued
and outstanding.
(c) All such issued and outstanding shares have been duly
authorized and validly issued, are fully paid and nonassessable and were issued
in compliance with all applicable state and federal laws concerning the issuance
of securities.
(d) Except as provided in the Immersion Disclosure Schedule,
there are no outstanding rights, plans, options, warrants, conversion rights or
agreements for the purchase or acquisition from Immersion of any shares of its
capital stock, except that (i) 3,055,000 shares of Common Stock have been
reserved for issuance upon conversion of the
<PAGE> 13
outstanding shares of Series A Preferred; (ii) 491,670 shares of Common Stock
have been reserved for issuance upon conversion of the outstanding shares of
Series B Preferred; (iii) 1,071,428 shares of Common Stock have been reserved
for issuance upon conversion of the outstanding shares of Series C Preferred;
(iv) 1,721,068 shares of Common Stock (the "Conversion Shares") have been
reserved upon conversion of the shares to be issued hereunder; (v) 2,963,141
shares of Common Stock have been reserved for issuance under Immersion's 1994
Stock Option Plan (the "1994 Plan") (inclusive of the 1,822,187 shares subject
to outstanding options under the 1994 Plan and the 1,128,739 shares issued upon
exercise of options granted under the 1994 Plan); (vi) 2,511,859 shares of
Common Stock have been reserved for issuance under Immersion's 1997 Stock Option
Plan (the "1997 Plan") (inclusive of the 1,335,815 shares subject to outstanding
options under the 1997 Plan and the 239,562 shares issued upon exercise of
options granted under the 1997 Plan); (vii) 525,000 shares of Common Stock have
been reserved for issuance pursuant to Individual Stock Option Grants (inclusive
of the 450,000 shares subject to outstanding options and the 75,000 shares
issued upon exercise of individual stock options); (viii) common stock warrants
to purchase 121,750 shares of Common Stock; (ix) 121,750 shares of Common Stock
have been reserved for issuance upon exercise of the common stock warrants; (x)
Series A Preferred Stock warrants to purchase 7,500 shares of Series A
Preferred; (xi) 7,500 shares of Series A Preferred Stock have been reserved for
issuance upon exercise of the Series A warrants and 37,500 shares of Common
Stock have been reserved for issuance upon conversion of such shares of Series A
Preferred Stock; (xii) Series B Preferred Stock warrants to purchase 18,000
shares of Series B Preferred; (xiii) 18,000 shares of Series B Preferred Stock
have been reserved for issuance upon exercise of the Series B warrants and
90,000 shares of Common Stock have been reserved for issuance upon conversion of
such shares of Series B Preferred Stock; (xiv) Series D Preferred Stock warrants
to purchase 14,836 shares of Series D Preferred; and (xv) 14,836 shares of
Series D Preferred Stock have been reserved for issuance upon exercise of the
Series D warrant and 14,836 shares of Common Stock have been reserved for
issuance upon conversion of such shares of Series D Preferred Stock.
Section 4.3 Authority; No Conflict; Required Filings and Consents.
(a) Immersion and Sub have all requisite corporate power and
authority to enter into this Agreement and the other Transaction Documents to
which they are or will be parties and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the other Transaction Documents to which Immersion or Sub is or will be a
party and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of
Immersion and Sub, respectively. This Agreement and the other Transaction
Documents to which Immersion and/or Sub are parties have been or will be duly
executed and delivered by Immersion and/or Sub and constitute or will constitute
the valid and binding obligations of Immersion and/or Sub, enforceable in
accordance with their terms, except as such enforceability may be limited by (i)
bankruptcy laws and other similar laws affecting creditors' rights generally and
(ii) general principles of equity, regardless of whether asserted in a
proceeding in equity or at law.
<PAGE> 14
(b) The execution and delivery by Immersion and Sub of this
Agreement and the other Transaction Documents to which they are or will be
parties does not, and the consummation of the transactions contemplated hereby
and thereby will not, (i) conflict with, or result in any violation or breach of
any provision of the Certificate of Incorporation or Bylaws of Immersion or Sub,
(ii) result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any material obligation or loss of
any material benefit under, any note, mortgage, indenture, lease, contract or
other agreement, instrument or obligation to which Immersion or Sub is a party
or by which either of them or any of their properties or assets may be bound, or
(iii) conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Immersion or Sub or any of its or their properties or assets, except in the
case of clauses (ii) and (iii) above for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which would not be
reasonably likely, either individually or in the aggregate, to have a Material
Adverse Effect on Immersion.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Immersion or any of its subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Merger Certificates with
the Department of Consumer & Industry Services of the State of Michigan in
accordance with Michigan Law and the Secretary of State of the State of Delaware
in accordance with the DGCL, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and the laws of any foreign country
and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not be reasonably likely to
have a Material Adverse Effect on Immersion and would not prevent or materially
alter or delay any of the transactions contemplated by this Agreement.
Section 4.4 Financial Statements. Immersion has delivered to Cybernet its
audited balance sheet as of December 31, 1997 and its audited income statement
and cash flow statement for the twelve (12) month period ended December 31, 1997
(the above financial statements are hereinafter collectively referred to as the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the relevant period, except that the unaudited Financial Statements do not
contain the footnotes required by GAAP. Immersion has delivered to Cybernet its
unaudited statement of operations as of September 30, 1998 (the "September
Statement"). The September Statement was prepared for internal use by Immersion
and has not been prepared in accordance with GAAP. As a result, there may be
material differences between the treatment of items on the September Statement
and the audited financial statements as of December 31, 1998.
Section 4.5 Litigation, etc. There are no actions, suits or proceedings
pending which, either in any case or in the aggregate, could reasonably be
expected to result in any material adverse change in the business, prospects,
affairs or operations of Immersion or in any of its properties or assets, or in
any material impairment of the right or ability of Immersion to carry on
<PAGE> 15
its business as now conducted, or in any material liability on the part of
Immersion, and none which questions the validity of this Agreement or any action
taken or to be taken in connection herewith or therewith. Immersion is not a
party or subject to any writ, order, decree or judgment and there is no action,
suit or proceeding by Immersion currently pending.
Section 4.6 Taxes. Immersion has filed all tax returns that are required
to have been filed with appropriate federal, state, county and local
governmental agencies or instrumentalities, except where the failure to do so
would not have a material adverse effect on Immersion, taken as a whole.
Immersion has made adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to its business, properties
and operations for such period. There is no pending dispute with any taxing
authority relating to any of such returns, and Immersion has no knowledge of any
proposed liability for any tax to be imposed upon the properties or assets of
Immersion.
Section 4.7 Title to Properties and Assets; Liens, etc. Immersion owns its
tangible property and assets, including the properties and assets reflected in
the Financial Statements (as defined in Section Section 4.4), free and clear of
all liens, mortgages, loans or encumbrances except liens for current taxes, and
such liens resulting from taxes which have not yet become delinquent and liens
and encumbrances which do not in any case materially detract from the value of
the property subject thereto or materially impair the operations of Immersion,
and which have not arisen otherwise than in the ordinary course of business.
Section 4.8 Patents and Trademarks.
(a) Ownership. To Immersion's knowledge, Immersion has full
title and ownership of, or has license to, all patents, patent applications,
trademarks, service marks, trade names, copyrights, maskworks and trade secrets
incorporated into Immersion's products (all of the foregoing collectively
hereinafter referred to as the "Proprietary Assets") necessary to enable it to
carry on its business as now conducted.
(b) No Breach by Employee. Immersion is not aware that any
employee or consultant of Immersion is obligated under any agreement (including
licenses, covenants or commitments of any nature) or subject to any judgment,
decree or order or any administrative agency, or any other restriction that
would interfere with the use of his or her best efforts to carry out his or her
duties for Immersion. The carrying on of Immersion's business by the employees
and contractors of Immersion and the conduct of Immersion's business as
presently conducted, will not, to Immersion's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees or
contractors or Immersion is now obligated. Immersion does not believe it is
necessary or will be necessary to utilize any inventions of any employees of
Immersion (or persons Immersion currently intends to hire) made prior to their
employment by Immersion. To Immersion's knowledge, at no time during the
conception of or reduction of any of Immersion's Proprietary Assets to practice
was any developer, inventor or other contributor to such patents operating under
any grants from any governmental entity or agency or private source or subject
to any employment agreement or invention assignment or
<PAGE> 16
nondisclosure agreement or other obligation with any third party that Immersion
believes could adversely affect Immersion's rights in such Proprietary Assets.
Section 4.9 Contracts.
(a) Except as set forth in the Immersion Disclosure Schedule,
Immersion has not entered into any contract, agreement, license or commitment
with any other party to sell or license the Intellectual Property or Related
materials and Immersion has not previously sold, disposed of, transferred or
licensed or otherwise encumbered the Intellectual Property or Related Materials.
(b) Sub is not in default under or in breach or violation of,
nor is there any valid basis for any claim of default by Sub under, or breach or
violation by Sub of, any contract, commitment or restriction to which Immersion
Sub is a party or by which Sub or any of its properties or assets is bound or
affected, where such defaults, breaches, or violations would, in the aggregate,
have a material adverse effect on Sub. To Sub's knowledge, no other party is in
default under or in breach or violation of, nor, to Immersion Sub's knowledge,
is there any valid basis for any claim default by any other party under, or any
breach or violation by any other party of, any contract, commitment, or
restriction to which Immersion Sub is a party or by which Immersion Sub or any
of its properties or assets is bound or affected, where such defaults, breaches,
or violation would, Individually or in the aggregate, have a material adverse
effect on Sub.
Section 4.10 Compliance with Law. To its knowledge, Immersion has complied
with, is not in violation of, and has not received any notices of violation with
respect to, any federal, state or local statute, law or regulations which would
have a material adverse effect on its business or otherwise affecting the
Intellectual Property and Related Materials.
Section 4.11 Governmental Authorization. Immersion has obtained each
governmental consent, license, permit, grant or other authorization of a
Governmental Entity that is required for the operation of the business of
Immersion (collectively, the "Immersion Authorizations"), and all of such
Immersion Authorizations are in full force and effect, except where the failure
to obtain the same would not be reasonably likely to have a Material Adverse
Effect on Immersion.
Section 4.12 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
Section 4.13 Cybernet Sub. Immersion has no plan or intention to liquidate
Cybernet Sub.
Section 4.14 Insurance. Immersion has obtained fire and casualty insurance
policies, sufficient in amount (subject to reasonable deductibles) to allow
Immersion to replace any of its properties that might be damaged or destroyed.
<PAGE> 17
Section 4.15 No Misrepresentation. No representation or warranty by
Immersion or Sub in this Agreement, or any statement, certificate or schedule
furnished or to be furnished by or on behalf of Immersion or Sub pursuant to
this Agreement, when taken together, contains or shall contain any untrue
statement of a material fact or omits or shall omit to state a material fact
required to be stated therein or necessary in order to make such statements, in
light of the circumstances under which they were made, not misleading.
ARTICLE V
ADDITIONAL OBLIGATIONS OF PARTIES
Section 5.1 Proprietary Information: Following the date hereof, Cybernet
and Cybernet Sub shall hold in confidence and shall use its best efforts to have
all of the officers, directors and personnel hold in confidence all knowledge
and information of a confidential nature with respect to the Intellectual
Property and Related Materials. Neither Cybernet nor Cybernet Sub shall
disclose, publish or otherwise disseminate or make use of the same without the
consent of Immersion, except to the extent that such information (a) shall
become public knowledge other than by breach of this Section Section 5.1 by
Cybernet or Cybernet Sub, (b) was developed by employees or agents of Cybernet
after the date of this Agreement independently of and without reference to any
such confidential information, or (c) is required to be disclosed by Cybernet or
Cybernet Sub by law, regulation or court order.
Section 5.2 Notice of Breach of Representation and Warranties and of
Material Developments. Promptly upon Cybernet or Cybernet Sub becoming aware of
the occurrence of, or the impending or threatened occurrence of, any event which
would cause or constitute a breach, or would have caused or constituted a breach
had such event occurred or been known to Cybernet or Cybernet Sub prior to the
date hereof, of any of the representations and warranties of Cybernet or
Cybernet Sub contained in this Agreement, Cybernet and Cybernet Sub shall give
Immersion written notice thereof in reasonable detail and shall use reasonable
efforts to prevent or promptly remedy the same. No disclosure pursuant to this
Section Section 5.2 ("Notice of Breach of Representation and Warranties and of
Material Developments") shall be deemed to amend or supplement any of the
representations and warranties of Cybernet or Cybernet Sub set forth herein.
Section 5.3 Immersion Appointed Special Attorney-in-Fact for Cybernet.
Effective as of the Effective Time and except as otherwise limited below,
Cybernet hereby constitutes and appoints the Immersion, its successors and
assigns, the true and lawful attorney of Cybernet , in the name of either
Immersion or Cybernet (as Immersion shall determine in its sole discretion) but
for the benefit and at the expense of Immersion (except as otherwise herein
provided), exclusively for the purposes of (i) instituting and prosecuting all
proceedings which Immersion may deem proper in order to collect, assert or
enforce any claim, right or title of any kind in or to any of the Intellectual
Property and Related Materials as provided for in this Agreement; (ii) defending
or compromising any and all actions, suits or proceedings in respect of any of
the Intellectual Property and Related Materials, and to do all such acts and
things in relation thereto as Immersion shall deem advisable; and (iii) taking
all action which Immersion may reasonably
<PAGE> 18
deem proper in order to provide for Immersion the benefits under any of the
Intellectual Property and Related Materials where any required consent of
another party to the sale or assignment thereof to Immersion pursuant to this
Agreement shall not have been obtained. Cybernet acknowledges that the foregoing
powers are coupled with an interest and shall be irrevocable. Immersion shall be
entitled to retain for its own account any amounts collected pursuant to the
foregoing powers, including any amounts payable as interest in respect thereof.
The foregoing provisions of this Section Section 5.3 ("Immersion Appointed
Special Attorney-in-Fact for Cybernet") shall be applicable only if Cybernet,
upon first being notified in writing by Immersion of a circumstance set forth in
(i), (ii) or (iii) of this Section Section 5.3 ("Immersion Appointed Special
Attorney-in-Fact for Cybernet") giving rise to a requirement by Cybernet to
institute or prosecute a proceeding pursuant to (i), to defend or compromise an
action, suit or proceeding pursuant to (ii) or to take action as provided in
(iii), fails to take appropriate action within thirty (30) days of such
notification or within such shorter period as may be required to take action.
Section 5.4 Consents. Cybernet, Cybernet Sub, Immersion and Sub shall
obtain any and all consents necessary for the execution and delivery of this
Agreement and the consummation of the transactions contemplated thereby.
Section 5.5 No Solicitation by Cybernet Sub.
(a) During the period from the date of this Agreement until
the earlier of the termination of this Agreement or the Effective Time, neither
Cybernet nor Cybernet Sub shall, directly or indirectly, through any officer,
director, employee, representative or agent, (i) solicit, initiate, or encourage
any inquiries or proposals that constitute, or could reasonably be expected to
lead to, a proposal or offer for a merger, consolidation, business combination,
sale of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving Cybernet
or Cybernet Sub, other than the transactions contemplated by this Agreement (any
of the foregoing inquiries or proposals being referred to in this Agreement as a
"Cybernet Proposal"), (ii) engage in negotiations or discussions concerning, or
provide any non-public information to any person or entity relating to, any
Cybernet Proposal, or (iii) agree to, approve or recommend any Cybernet
Proposal.
(b) Cybernet Sub shall notify Immersion no later than
twenty-four (24) hours after receipt by Cybernet or Cybernet Sub (or its
advisors) of any Cybernet Proposal or any request for nonpublic information in
connection with a Cybernet Proposal or for access to the properties, books or
records of Cybernet or Cybernet Sub by any person or entity that informs
Cybernet or Cybernet Sub that it is considering making, or has made, a Cybernet
Proposal. Such notice shall be made orally and in writing and shall indicate in
reasonable detail the identity of the offeror and the terms and conditions of
such proposal, inquiry or contact.
Section 5.6 Approval of Stockholders. Cybernet Sub shall promptly after
the date hereof take all action necessary in accordance with the law of the
State of Michigan and its Certificate of Incorporation to seek the approval of
the Merger by the stockholders of Cybernet Sub as soon as possible.
<PAGE> 19
Section 5.7 Legal Conditions to Merger. Each of Immersion, Cybernet and
Cybernet Sub will take all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on itself with respect to the Merger
(which actions shall include, without limitation, furnishing all information in
connection with approvals of or filings with any Governmental Entity) and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon either of them or any of their Subsidiaries
in connection with the Merger. Each of Immersion, Cybernet and Cybernet Sub will
take all reasonable actions necessary to obtain (and will cooperate with each
other in obtaining) any consent, authorization, order or approval of, or any
exemption by, any Governmental Entity or other third party, required to be
obtained or made by Cybernet, Cybernet Sub, Immersion or any of their
subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
Section 5.8 Public Disclosure.
(a) Immersion, Cybernet and Cybernet Sub shall consult with
and cooperate with the other with respect to the content and timing of all press
releases and other public announcements concerning this agreement and the
transactions contemplated hereby; provided however, that if Immersion, Cybernet
and Cybernet Sub cannot come to agreement on the terms of a press release
announcing the execution of this Agreement within three (3) months of this
Agreement, then Immersion shall have the right to issue a press release
indicating that Immersion has acquired the Intellectual Property and Related
Materials from Cybernet.
(b) Except as otherwise provided in this Agreement or as may
be required by law, neither Cybernet nor Cybernet Sub shall disclose any of the
provisions of this Agreement without the prior written consent of Immersion;
provided however, that (i) the parties shall be entitled to disclose provisions
of press releases and other public announcements regarding the description of
the transaction that have been previously approved by both parties, and (ii)
Cybernet will be entitled to disclose the amount of its capital ownership in
Immersion to potential investors, subject to nondisclosure agreements.
Notwithstanding the foregoing, disclosures of the contents hereof made to
accountants, legal advisors, consultants or other parties of Cybernet and
Cybernet Sub who have a need to know for the purpose of providing the services
to Cybernet and Cybernet Sub for which they are retained, and subject to
restriction against further disclosure, are expressly permitted. Neither
Cybernet nor Cybernet Sub shall disclose the existence of this Agreement nor
identify Immersion with regard to the subject matter of this Agreement,
including but not limited to any advertising, solicitation or promotional
activity, without the prior written consent and approval of Immersion, which
consent and approval shall be required for each such specific use.
Section 5.9 Tax-Free Reorganization. Immersion, Cybernet and Cybernet Sub
shall each use its best efforts to cause the Merger to be treated as a
reorganization within the meaning of Section 368(a) of the Code. Immersion,
Cybernet and Cybernet Sub have not taken any action or know of any fact,
arrangement, or other circumstance that is reasonably likely to prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
<PAGE> 20
Section 5.10 Brokers or Finders. Other than the fee payable to Slusser
Associates, Inc. ("Slusser") pursuant to that certain agreement dated October 7,
1998 by and between Cybernet and Slusser, each of Immersion and Cybernet
represents, as to itself, its subsidiaries and its affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement,
and each of Immersion, Cybernet and Cybernet Sub agrees to indemnify and hold
the other harmless from and against any and all claims, liabilities or
obligations with respect to any other fees, commissions or expenses asserted by
any person on the basis of any act or statement alleged to have been made by
such party or its affiliate.
Section 5.11 Expenses. The parties shall each pay their own legal,
accounting and financial advisory fees and other out-of-pocket expenses related
to the negotiation, preparation and carrying out of this Agreement and the
transactions herein contemplated.
Section 5.12 Additional Agreements; Reasonable Efforts. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including cooperating fully with the other party, including by
provision of information. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either of
the Constituent Corporations, the proper officers and directors of each party to
this Agreement shall take all such necessary action.
Section 5.13 Business of Cybernet Sub. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Cybernet Sub agrees (except to the extent that
Immersion shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due, subject to good faith
disputes over such debts or taxes, to pay or perform its other obligations when
due, and, to the extent consistent with such business, to use all reasonable
efforts consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its present
officers and key employees and (iii) preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others having business
dealings with it. Cybernet Sub shall promptly notify Immersion of any event or
occurrence not in the ordinary course of business of Cybernet Sub where such
event or occurrence would result in a breach of any covenant of Cybernet Sub set
forth in this Agreement or cause any representation or warranty of Cybernet Sub
set forth in this Agreement to be untrue as of the date of, or giving effect to,
such event or occurrence.
Section 5.14 Put Option. Except as provided in Section Section 5.14((e))
below and subject to the terms and conditions of this Section Section 5.14 and
to the restrictions of applicable law, at any time during the ninety (90) day
period commencing on the date five (5)
<PAGE> 21
years after the Effective Time (the "Put Period"), Cybernet shall have the right
to sell to Immersion one million shares (1,000,000) of Merger Stock acquired
pursuant to this Merger (the "Put Option"), as adjusted to reflect any stock
split, stock dividend, stock distribution, consolidation or similar event.
(a) Exercise of Put Option. Cybernet may exercise the Put
Option by written notice to Immersion during the Put Period, accompanied by the
certificate or certificates evidencing the shares of Merger Stock being sold by
Cybernet and a duly executed stock power or powers prepared for transfer of the
shares to Immersion. The written notice must be signed by Cybernet and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as Immersion may
permit, to the Chief Financial Officer of Immersion, or other authorized
representative of Immersion. The Put Option shall be considered to be exercised
upon receipt by Immersion of such written notice, stock certificate(s) and stock
power(s).
(b) Payment for Shares. In full consideration for the payment
of the Merger Stock being purchased upon exercise of the Put Option, Immersion
shall assign to Cybernet all right, title and interest, worldwide, in and to the
Patents, on an "as is" basis, subject to the reservation of a non-exclusive
license paid up, perpetual worldwide license in and to any continuations with
respect to the Patents. The foregoing assignment and non-exclusive license shall
be implemented through a single agreement.
(c) Payment of the consideration shall be made by Immersion
within thirty (30) days of exercise of the Put Option by delivery of the
Assignment and License Agreement so as to vest in Cybernet title to the Patents
on an "as is" basis.
(d) Assignment. Cybernet may not assign the Put Option without
the prior written consent of Immersion.
(e) Early Termination of Put Option. The Put Option shall
terminate early and be of no further force and effect upon the first to occur of
(a) the existence of a public market, as defined below, for the class of shares
acquired hereunder, (b) except with respect to 500,000 shares of Merger Stock,
the sale, exchange, transfer, pledge or other disposition by Cybernet of any of
the shares acquired by Cybernet hereunder or (c) a Corporate Sale (as defined
below). A "public market" shall be deemed to exist if (i) such stock is listed
on a national securities exchange (as that term is used in the Exchange Act) or
(ii) such stock is traded on the over-the-counter market and prices therefor are
published daily on business days in a recognized financial journal. A "Corporate
Sale" means the occurrence of one of the following events: (i) a consolidation
or merger of Immersion with or into any other corporation or corporations (other
than a wholly-owned subsidiary) in which the shareholders of Immersion
immediately prior to such transaction hold fifty percent (50%) or less of the
total voting power for the election of directors of the acquiring or surviving
entity immediately following the transaction, or (ii) the sale, transfer or
other disposition of all or substantially all of the assets of Immersion or
(iii) the consummation of any transaction or series of related transactions
which results in Immersion's
<PAGE> 22
shareholders immediately prior to such transaction holding fifty percent (50%)
or less of the voting power of the acquiring or surviving entity immediately
following the transaction.
Section 5.15 Maintenance of Patents. Immersion covenants that for a period
of five (5) years, it shall pay all maintenance fees required by the U.S. Patent
and Trademark Office.
ARTICLE VI
CONDITIONS TO MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Approval of Merger and Merger Certificates. This Agreement
and the Merger Certificate shall have been approved and adopted by the requisite
vote of the holders of the outstanding shares of Cybernet Sub Common Stock. The
Merger Certificates (including all required officers' certificates) shall have
been filed with, and accepted by, the Department of Consumer & Industry Services
of the State of Michigan in accordance with Michigan Law and the Secretary of
State of the State of Delaware in accordance with the DGCL.
(b) Authorizations and Consents. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any Governmental Entity the failure of which to
obtain or comply with would be reasonably likely to have a Material Adverse
Effect on Immersion or Cybernet Sub shall have been filed, occurred or been
obtained.
(c) No Restraining Order or Injunction. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or restricting
Immersion's conduct or operation of the business of Immersion or Cybernet Sub
after the Merger shall have been issued, nor shall any proceeding brought by a
domestic administrative agency or commission or other domestic Governmental
Entity, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger which makes the consummation of the Merger
illegal.
Section 6.2 Additional Conditions to Obligations of Immersion and Sub. The
obligations of Immersion and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Immersion and Sub:
(a) Representations and Warranties. All representations and
warranties made herein by Cybernet and Cybernet Sub shall be true and correct in
all material respects when made and on and as of the Closing with the same force
and effect as if such representations and warranties had been made at the
Closing.
(b) Compliance with Agreement. Cybernet and Cybernet Sub shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions contained herein and required to be
performed, satisfied and complied with by Cybernet Sub on or before the
Effective Time.
<PAGE> 23
(c) Consents and Approvals from Cybernet and Cybernet Sub.
Cybernet and Cybernet Sub shall have received any and all approvals of
governmental authorities, permits and consents of any person necessary in the
consummation of the transactions contemplated herein.
(d) Transaction Documents. Cybernet and Cybernet Sub shall
have executed all applicable Transaction Documents.
(e) Officer's Certificate. Immersion shall have received at
Closing a certificate executed by the Chief Executive Officer or President of
Cybernet and Cybernet Sub certifying that the conditions specified in Sections
6.2(a), 6.2(b) and 6.2(c) have been satisfied.
(f) Good Standing. Immersion shall have received from each of
Cybernet and Cybernet Sub a certificate of legal existence and good standing and
a certificate of incorporation certified by the Secretary of State of its
jurisdiction or incorporation.
(g) State Blue Sky. Immersion shall have received all permits
and other authorizations required under applicable state blue sky laws for the
issuance of shares of Merger Stock pursuant to the Merger.
(h) Stockholder Approval. The Merger shall have been approved
by the affirmative vote of the holders of not less than 100% of the outstanding
shares of Cybernet Sub Common Stock.
Section 6.3 Additional Conditions to Obligations of Cybernet Sub. The
obligation of Cybernet Sub to effect the Merger is subject to the satisfaction
of each of the following conditions, any of which may be waived, in writing,
exclusively by Cybernet Sub:
(a) Representations and Warranties. All representations and
warranties made herein by Immersion shall be true and correct in all material
respects when made and on and as of the Closing with the same force and effect
as if such representations and warranties had been made at the Closing.
(b) Compliance with Agreement. Immersion shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions contained herein and required to be performed, satisfied and
complied with by Immersion on or before the Effective Time.
(c) Consents and Approvals. Immersion shall have received any
and all approvals of governmental authorities, permits and consents of any
person necessary in the consummation of the transactions contemplated herein
shall have been obtained.
<PAGE> 24
(d) Transaction Documents. Immersion shall have executed all
the applicable Transaction Documents.
(e) Registration and Board Attendance Rights Agreement.
Immersion shall have executed the Registration and Board Attendance Rights
Agreement in the form attached hereto as Exhibit F.
(f) Officer's Certificate. Cybernet shall have received at
Closing a certificate executed by the Chief Executive Officer or President of
Immersion certifying that the conditions specified in Sections 6.3(a), 6.3(b),
6.3(c) and 6.3(e) have been satisfied.
(g) Good Standing. Cybernet shall have received a certificate
of legal existence and good standing of Immersion and the Articles of
Incorporation certified by the California Secretary of State.
(h) Approval. Cybernet Sub shall have received from Immersion
and Sub written evidence that the execution, delivery and performance of
Immersion's and Sub's obligations under this Agreement have been duly and
validly approved and authorized by the Boards of Directors of Immersion and Sub.
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections Section 7.1(a) through
Section 7.1((d)), by written notice by the terminating party to the other
party):
(a) by the mutual written consent of Immersion and Cybernet
Sub;
(b) by either Immersion or Cybernet Sub if a court of
competent jurisdiction or other Governmental Entity shall have issued a
nonappealable final order, decree or ruling or taken any other action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, except if the party relying on such order, decree or
ruling or other action has not complied with its obligations under Section
Section 5.12 of this Agreement;
(c) by Immersion, if the Board of Directors of Cybernet Sub
shall have withdrawn or modified its recommendation of this Agreement or the
Merger in a manner adverse to Immersion or shall have publicly announced or
disclosed to any third party its intention to do any of the foregoing; or
(d) by Immersion or Cybernet Sub, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of the
other party set forth in this Agreement, which breach (i) causes the conditions
set forth in Section 6.2((a)) or 6.2(b) (in the case of termination by
Immersion) or 6.3(a) or 6.3(b) (in the case of termination by Cybernet
<PAGE> 25
Sub) not to be satisfied and (ii) shall not have been cured within ten (10)
business days following receipt by the breaching party of written notice of such
breach from the other party.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section Section 7.1, there shall be no liability or
obligation on the part of Immersion, Cybernet, Cybernet Sub, Sub or their
respective officers, directors, stockholders or affiliates, except to the extent
that such termination results from the willful breach by a party of any of its
representations, warranties or covenants set forth in this Agreement; provided
that, the provisions of 5.2, 5.13 and 5.14 of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Cybernet Sub, but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders or stockholders without such further approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
Section 7.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival of Representations and Warranties. If the Merger
occurs, all of the representations and warranties contained in this Agreement
shall survive the Effective Time and shall continue in full force and effect
until one (1) year following the Effective Time, except for the representations
and warranties of Cybernet and Cybernet Sub set forth in Section 3.6, which
shall continue in full force and effect until five (5) years following the
Effective Time.
Section 8.2 Indemnification by Cybernet. Subject to the terms and
conditions contained herein, Cybernet shall indemnify, defend and hold harmless
Immersion, its officers, directors, employees and attorneys, all subsidiaries
and affiliates of Immersion, and the respective officers, directors, employees
and attorneys of such entities (all such persons and entities being collectively
referred to as the "Immersion Group") from, against, for and in respect of any
and all losses, damages, costs and expenses (including reasonable legal fees and
expenses) (collectively, the "Losses") which any member of the Immersion Group
may sustain or incur
<PAGE> 26
which are caused by or arise out of (i) any misrepresentation or breach of
warranty on the part of Cybernet or Cybernet Sub under this Agreement or of any
misrepresentation in, or omission from, any certificate or other instrument
furnished or to be furnished to Immersion hereunder; (ii) nonfulfillment of any
agreement, covenant or undertaking on the part of Cybernet or Cybernet Sub under
this Agreement; or (iii) a claim based on an assertion of ownership in any of
the assets or equity of Cybernet Sub which, if true, would demonstrate a
misrepresentation or breach of warranty on the part of Cybernet or Cybernet Sub
under this Agreement or from any misrepresentation in, or omission from, any
certificate or other instrument furnished or to be furnished to Immersion
hereunder; provided, however, that Cybernet will not be obligated to indemnify
Immersion pursuant to this clause (iii) of Section 8.2 if (aa) the obligation
for indemnification under this clause (iii) arises solely by virtue of the facts
that a third party has asserted a counterclaim in response to a lawsuit
initiated by Immersion alleging infringement by such third party of any of the
Intellectual Property and Related Materials and (bb) the Third Party Claim (as
defined below) asserted in such counterclaim is not true; and provided further
that, to the extent that any member of the Immersion Group is entitled to
indemnification exclusively pursuant to this Section 8.2(iii), then, without
derogation of any of the rights of any member of the Immersion Group under
Section 8.2(i) or Section 8.2(ii), the members of the Immersion Group shall not
be entitled to indemnification for attorney fees incurred by the Immersion Group
pursuant to this Section 8.2(iii) in the defense of a Third Party Claim.
Section 8.3 Procedures for Indemnification.
(a) As used in this Article VIII, the term "Indemnitee" means
the member or members of the Immersion Group seeking indemnification hereunder.
(b) A claim for indemnification hereunder (an "Indemnification
Claim") shall be made by Indemnitee by delivery of a written notice to Cybernet
specifying the basis on which indemnification is sought in reasonable detail
(and shall include relevant documentation related to the Indemnification Claim),
the amount or an estimate of the amount of the asserted Losses and, in the case
of a Third Party Claim (as defined in Section Section 8.4), containing (by
attachment or otherwise) such other information as Indemnitee shall have
concerning such Third Party Claim.
(c) If the Indemnification Claim involves a Third Party Claim,
the procedures set forth in Section Section 8.4 shall be observed by Indemnitee
and Cybernet.
Section 8.4 Defense of Third Party Claims. Should any claim be made, or
suit or proceeding be instituted against an Indemnitee which, if prosecuted
successfully, would be a matter for which such Indemnitee is entitled to
indemnification under this Article VIII (a "Third Party Claim"), the obligations
and liabilities of the parties hereunder with respect to such Third Party Claim
shall be subject to the following terms and conditions:
(a) Indemnitee shall give Cybernet written notice of any such
claim promptly after receipt by Indemnitee of notice thereof, and Cybernet may
undertake control of the defense thereof by counsel of its own choosing
reasonably acceptable to Indemnitee; provided however, that any delay in giving
such a notice shall not affect the rights of the
<PAGE> 27
Indemnitee under this Article VIII, unless and only to the extent that Cybernet
demonstrates that such delay materially prejudices the rights of Cybernet with
respect to the Third Party Claim. Indemnitee may participate in the defense
through its own counsel at its own expense. The assumption of the defense of any
Third Party Claim by Cybernet shall be an acknowledgment by Cybernet that such
Third Party Claim is subject to indemnification under the provisions of this
Article VIII. If, however, Cybernet fails or refuses to undertake the defense of
such Third Party Claim within fifteen (15) days after written notice of such
claim has been delivered to Cybernet by Indemnitee, Indemnitee shall have the
right to undertake the defense, compromise and, subject to Section Section 8.5,
settlement of such Third Party Claim with counsel of its own choosing reasonably
acceptable to Cybernet. In the circumstances described in the preceding
sentence, Indemnitee shall, promptly upon its assumption of the defense of such
Third Party Claim, make an Indemnification Claim as specified in Section Section
8.3((b)), which shall be deemed an Indemnification Claim that is not a Third
Party Claim for the purposes of the procedures set forth herein. Failure of
Indemnitee to furnish written notice to Cybernet of a Third Party Claim shall
not release Cybernet from its obligations hereunder, except to the extent they
are prejudiced by such failure.
(b) Indemnitee and Cybernet shall cooperate with each other in
all reasonable respects in connection with the defense of any Third Party Claim,
including making available records relating to such claim and furnishing
employees of Indemnitee as may be reasonably necessary for the preparation of
the defense of any such Third Party Claim or for testimony as witness in any
proceeding relating to such claim. In the event that Indemnitee defends a Third
Party Claim, the fact that Indemnitee prevails in any litigation with respect to
such Third Party Claim shall not be viewed as evidence that Indemnitee is not
entitled indemnification under this Article VIII.
Section 8.5 Settlement of Third Party Claims. Unless Cybernet has failed
to fulfill its obligations under this Article VIII, no settlement by Indemnitee
of a Third Party Claim shall be made without the prior written consent by or on
behalf of Cybernet, which consent shall not be unreasonably withheld or delayed.
If Cybernet has assumed the defense of a Third Party Claim as contemplated by
Section 8.4, no settlement of such Third Party Claim may be made by Cybernet
without the prior written consent by or on behalf of Indemnitee, which consent
shall not be unreasonably withheld or delayed, unless such settlement includes a
complete release of all claims against Indemnitee.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
<PAGE> 28
if to Immersion to: Immersion Corporation
2158 Paragon Drive
San Jose, CA 95131
Attn: Louis B. Rosenberg
with a copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Ave.
Palo Alto, CA 94301
Attn: Bruce Schaeffer
Stacy Snowman
if to Cybernet or
Cybernet Sub: Cybernet Systems Corporation
727 Airport Boulevard
Ann Arbor, Michigan 48108-1639
Attn: Chuck Jacobus
with a copy to: Russell & Stoychoff
2855 Coolidge, Suite 218
Troy, Michigan 48084-3216
Attn: Lyle Russell
Section 9.2 Interpretation. When a reference is made in this Agreement to
an Article or Section, such reference shall be to an Article or Section of this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement," "the date hereof," and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to the date set forth
in the first sentence of this Agreement. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.4 Severability. In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
<PAGE> 29
Section 9.5 Entire Agreement. This Agreement (including the documents and
the instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, other than the
Confidentiality Agreement.
Section 9.6 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of California without regard to any
applicable conflicts of law.
Section 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
<PAGE> 30
IN WITNESS WHEREOF, Immersion, Sub, Cybernet and Cybernet Sub have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, and the Stockholder Representative has signed this Agreement, as of
the date first written above.
"IMMERSION" "CYBERNET"
IMMERSION CORPORATION CYBERNET SYSTEMS CORPORATION
By: /s/ Louis Rosenberg By: /s/ Charles Jacobus
---------------------------- -----------------------------
Printed: Louis Rosenberg Printed: Charles Jacobus
---------------------------- -----------------------------
Title: President Title: President
---------------------------- -----------------------------
"SUB" "CYBERNET SUB"
IMMERSION ACQUISITION CYBERNET HAPTIC SYSTEMS CORPORATION
CORPORATION
By: /s/ Louis Rosenberg By: /s/ Charles Jacobus
---------------------------- -----------------------------
Printed: Louis Rosenberg Printed: Charles Jacobus
---------------------------- -----------------------------
Title: President Title: President
---------------------------- -----------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 1
EXHIBIT 3.1
FOURTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
IMMERSION HUMAN INTERFACE CORPORATION
Louis B. Rosenberg and Timothy A. Lacey certify that:
1. They are the duly elected and acting President and Chief Financial
Officer, respectively, of Immersion Human Interface Corporation, a California
corporation (the "Corporation").
2. The Articles of Incorporation of the Corporation shall be amended
and restated to read in full as follows:
ARTICLE I
NAME
The name of this corporation is Immersion Corporation.
ARTICLE II
PURPOSES
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
STOCK
The Corporation is authorized to issue two classes of shares of stock
to be designated respectively Preferred Stock and Common Stock. The total number
of shares of Preferred Stock the Corporation shall have authority to issue is
5,000,000 and the total number of shares of Common Stock the Corporation shall
have authority to issue is 100,000,000.
<PAGE> 2
The shares of Preferred Stock authorized by these Fourth Amended and
Restated Articles of Incorporation (the "Restated Articles") may be issued from
time to time in one or more series. The board of directors of the Corporation is
authorized to determine, alter or eliminate any or all of the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock, and to fix, alter, or reduce the number of
shares comprising any such series (but not below the number of such shares then
outstanding) and the designation thereof, or any of them, and to provide for
rights and terms of redemption or conversion of the shares of any such series.
The first series of Preferred Stock shall be designated "Series A
Preferred Stock" consisting of 618,500 shares. The second series of Preferred
Stock shall be designated "Series B Preferred Stock" consisting of 116,334
shares. The third Series of Preferred Stock shall be designated "Series C
Preferred Stock" consisting of 1,071,428 shares. The fourth Series of Preferred
Stock shall be designated "Series D Preferred Stock" consisting of 1,721,068
shares. The relative rights, preferences, privileges and restrictions granted to
or imposed upon the Common Stock, the Series A, Series B, Series C, and Series D
Preferred Stock or the holders thereof are as follows:
Section 1. Voting Rights.
Section 1.1 Except as otherwise required by law or as set forth herein,
the shares of Series A, Series B, Series C and Series D Preferred Stock shall be
voted equally and together with the shares of the Corporation's Common Stock at
any annual or special meeting of shareholders of the Corporation, or may act by
written consent in the same manner as the Corporation's Common Stock, upon the
following basis: each holder of shares of Series A, Series B, Series C and
Series D Preferred Stock shall be entitled to such number of votes for the
Series A, Series B, Series C and Series D Preferred Stock held by him on the
record date fixed for such meeting, or on the effective date of such written
consent, as shall be equal to the whole number of shares of the Corporation's
Common Stock into which all of his shares of Series A, Series B, Series C and
Series D Preferred Stock are convertible immediately after the close of business
on the record date fixed for such meeting or the effective date of such written
consent.
Section 2. Protective Provisions.
Section 2.1 If any shares of Series C Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval by vote or
written consent, in the manner provided by law, of the holders of more than
fifty percent (50%) of the total number of shares of Series C Preferred Stock
then outstanding, voting together as a single class, undertake any of the
following actions: (a) amend or change the rights, preferences, privileges or
powers of, or the restrictions provided for the benefit of the Series C
Preferred Stock; or (b) authorize, create or issue shares of any class of stock
having rights, preferences, privileges or powers superior to that of the Series
C Preferred Stock; or (c) reclassify any outstanding shares of any class of
stock into shares having rights, preferences, privileges or powers as to
dividends or assets senior to the preferences, rights, privileges or powers
<PAGE> 3
of the Series C Preferred Stock; or (d) amend the Corporation's Restated
Articles to adversely affect the rights, preferences, privileges or powers of
the Series C Preferred Stock; provided, however, that any amendment to the
Corporation's Restated Articles authorizing any class of stock having rights,
preferences, privileges or powers on parity with the Series C Preferred Stock
shall not be deemed to adversely affect the rights of the Series C Preferred
Stock, respectively.
Section 2.2 If any shares of Series D Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval by vote or
written consent, in the manner provided by law, of the holders of more than
fifty percent (50%) of the total number of shares of Series D Preferred Stock
then outstanding, voting together as a single class, undertake any of the
following actions: (a) amend or change the rights, preferences, privileges or
powers of, or the restrictions provided for the benefit of the Series D
Preferred Stock; or (b) authorize, create or issue shares of any class of stock
having rights, preferences, privileges or powers superior to that of the Series
D Preferred Stock; or (c) reclassify any outstanding shares of any class of
stock into shares having rights, preferences, privileges or powers as to
dividends or assets senior to the preferences, rights, privileges or powers of
the Series D Preferred Stock; or (d) amend the Corporation's Restated Articles
to adversely affect the rights, preferences, privileges or powers of the Series
D Preferred Stock; provided, however, that any amendment to the Corporation's
Restated Articles authorizing any class of stock having rights, preferences,
privileges or powers on parity with the Series D Preferred Stock shall not be
deemed to adversely affect the rights of the Series D Preferred Stock,
respectively.
Section 3. Dividends.
Section 3.1 The holders of the then outstanding Series A, Series B,
Series C and Series D Preferred Stock shall be entitled to receive in any fiscal
year, prior and in preference to any distribution of dividends to the holders of
the Common Stock, when, as and if, declared by the Board of Directors, out of
any assets at the time legally available therefor, dividends in cash at the rate
of $0.02, $0.06, $0.14, and $0.33 per annum per share, respectively on a pari
passu basis, as adjusted for any consolidations, combinations, stock
distributions, stock dividends, stock splits or similar events (each a
"Recapitalization Event"). The right to such dividends on the Series A, Series
B, Series C and Series D Preferred Stock shall not be cumulative and no right
shall accrue to holders of Series A, Series B, Series C or Series D Preferred
Stock by reason of the fact that dividends on said shares are not declared in
any prior year, nor shall any undeclared or unpaid dividends bear or accrue
interest. Dividends may be declared or paid upon shares of Common Stock in any
fiscal year of the Corporation only if dividends shall have been paid to or
declared and set apart upon, as the case may be, all shares of Series A, Series
B, Series C and Series D Preferred Stock at such annual rate for each quarter of
such fiscal year of the Corporation including the quarter in which such
dividends upon common shares are declared. No dividends shall be paid on any
Common Stock unless an equal dividend is paid with respect to all outstanding
shares of Series A, Series B, Series C and Series D Preferred Stock in an amount
for each such share of Series A, Series B, Series C and Series D Preferred Stock
equal to the aggregate amount of such dividends for all Common Stock into which
each such share of Series A, Series B, Series C and Series D Preferred Stock
could then be converted.
Section 3.2 Each holder of Series A, Series B, Series C or Series D
Preferred Stock shall be deemed to have consented, for purposes of Sections 502,
503 and 506 of the General
<PAGE> 4
Corporation Law of the State of California, to (i) distributions made by the
Corporation in connection with the repurchase of Common Stock issued to or held
by employees or consultants upon termination of their employment or services
pursuant to agreements providing for such repurchase and (ii) the use of up to
two million dollars ($2,000,000) from the sale of Series D Preferred Stock to
purchase outstanding shares of IMMERSION's Common Stock or Preferred Stock at
the fair market value of the Common Stock as determined by the Board of
Directors of IMMERSION.
Section 4. Redemption Rights
Section 4.1 At any time on or after June 4, 2002, this Corporation
shall, upon receipt of the written request (the "Redemption Request") of the
holders of at least a majority of the Series C Preferred Stock then outstanding,
redeem for cash out of any funds legally available therefor ratably from holders
thereof, on or before each of the relevant Redemption Dates (as defined below),
that number of shares of Series C Preferred Stock equal to one-fourth of the
number of such shares outstanding on the first Redemption Date. Redemptions of
each share of Series C Preferred Stock pursuant to this Section 4.1 shall be
made at the price originally paid by the holders of Series C Preferred Stock
(and without interest as adjusted for any Recapitalization Event) for such
Series C Preferred Stock, plus an amount equal to the amount of all declared but
unpaid dividends as of the relevant Redemption Date payable in accordance with
Section 3.1 above on each such share to be redeemed. The total amount to be paid
with respect to each share of Series C Preferred Stock is hereinafter referred
to as the "Redemption Price."
Section 4.2 The Redemption Request shall set forth the requested date
of the redemption, which date in no event shall be fewer than twenty (20) days
nor more than sixty (60) days after the date of the Redemption Request, or such
later date as the holders of at least a majority of the then outstanding Series
C Preferred Stock agree to in writing. Such date and the six (6) month, twelve
(12) month, and eighteen (18) month anniversaries thereof are referred to herein
collectively as the "Redemption Dates" and individually as a "Redemption Date."
Within ten (10) days of the Redemption Request, this Corporation shall give
written notice by mail, postage prepaid, to each holder of record (at the close
of business on the business day next preceding the day on which notice is
deposited in the mail) of the Series C Preferred Stock to be redeemed, at the
address last shown on the records of this corporation for such holder or given
by the holder to this Corporation for the purpose of notice, or if no such
address appears or is given, at the place where the principal executive office
of this Corporation is located, notifying such holder of the redemption to be
effected, specifying the number of shares to be redeemed from such holder, the
applicable Redemption Date, the applicable Redemption Price, the place at which
payment may be obtained and the date on which such holder's Conversion Rights as
to such shares terminate and calling upon such holder to surrender to this
Corporation, in the manner and at the place designated, his certificate or
certificates representing the shares to be redeemed (the "Redemption Notice").
On or after such Redemption Date, each holder of Series C Preferred Stock to be
redeemed shall surrender to this corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the applicable Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each
<PAGE> 5
surrendered certificate shall be canceled. In the event fewer than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
Section 4.3 From and after the applicable Redemption Date, unless there
shall have been a default in payment of the applicable Redemption Price, all
dividends on the Series C Preferred Stock designated for redemption in the
Redemption Notice shall cease to accrue, all rights of the holders of such
shares as holders of the Series C Preferred Stock (except the right to receive
the Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of this corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the corporation legally
available for redemption of Series C Preferred Stock on any Redemption Date are
insufficient to redeem the total number of Series C Preferred Stock to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably among the holders of
such shares to be redeemed. The shares of Series C Preferred Stock not redeemed
shall remain outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the corporation are
legally available for the redemption of the Series C Preferred Stock, such funds
will immediately be used to redeem the balance of the shares which the
corporation has become obligated to redeem on any Redemption Date but which it
has not redeemed.
Section 5. Liquidation Preference.
Section 5.1 In the event of the liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, distributions to the
shareholders of the Corporation shall be made in the following manner:
(a) The holders of Series C and Series D Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Corporation, on a pari passu basis, for each share of Series C or Series D
Preferred Stock then held by them, first, prior and in preference to any
distribution to the holders of the Series A and Series B Preferred Stock, and
the Common Stock, an amount equal to $1.40 per share of Series C Preferred Stock
and $3.37 per share of Series D Preferred Stock (as adjusted for
Recapitalization Events) plus an amount equal to all declared and unpaid
dividends with respect thereto. If upon the occurrence of such event, the assets
and funds available for distribution are insufficient to permit the payment to
the holders of Series C and Series D Preferred Stock the full preferential
amount, then the entire assets and funds of the Corporation legally available
for distribution to shareholders will be distributed among the holders of the
Series C and Series D Preferred Stock ratably in proportion to the full
preferential amount which they would be entitled to receive pursuant to the
preceding sentence of this Section 5.1(a).
(b) After payment has been made to the holders of Series C
and Series D Preferred Stock of the full preferential amounts to which they
shall be entitled, if any, as aforesaid, the holders of the Series A and Series
B Preferred Stock then outstanding shall be entitled to be paid, pari passu, out
of the assets of the Corporation, for each share of Series A or
<PAGE> 6
Series B Preferred Stock then held by them, first, prior and in preference to
any distribution to the holders of the Common Stock, and amount equal to (A)
$0.40 per share for the Series A Preferred Stock and $6.00 per share for the
Series B Preferred Stock (as adjusted for Recapitalization Events) plus (B) an
amount equal to all declared and unpaid dividends with respect thereto.
(c) After payment has been made to the holders of the
Series A, Series B, Series C and Series D Preferred Stock of the full
preferential amounts to which they shall be entitled, if any, as aforesaid and
until the holders of the Series C and Series D Preferred Stock then outstanding
have received an additional $1.40 and $2.02 per share of Series C and Series D
Preferred Stock, respectively (as adjusted for Recapitalization Events), the
holders of the Common Stock and the Series C and Series D Preferred Stock shall
be entitled to receive, pro rata, the remaining assets of the Corporation
available for distribution to shareholders, based on the number of shares of
Common Stock then held, with each share of Series C and Series D Preferred Stock
treated as the number of shares of Common Stock into which such share of
Preferred Stock is then convertible.
(d) After payment has been made to the holders of the
Series C and Series D Preferred Stock and holders of Common Stock pursuant to
Section 5.1(c), the holders of Common Stock shall be entitled to receive, pro
rata, the remaining assets of the Corporation available for distribution to
shareholders, based on the number of shares of Common Stock then held.
Section 5.2 Events Deemed to be Liquidation.
(a) For the purposes of this Section 5 and with respect to
the Series A and Series B Preferred Stock, (i) a consolidation or merger of the
Corporation with or into any other corporation or corporations (other than a
wholly-owned subsidiary) in which the shareholders of the Corporation
immediately prior to such transaction hold fifty percent (50%) or less of the
total voting power for the election of directors of the acquiring or surviving
entity immediately following the transaction, or (ii) the sale, transfer or
other disposition of all or substantially all of the assets of the Corporation
or (iii) the consummation of any transaction or series of related transactions
which results in the Corporation's shareholders immediately prior to such
transaction holding fifty percent (50%) or less of the voting power of the
acquiring or surviving entity immediately following the transaction (each such
event is hereinafter defined as a "Corporate Sale") shall not be deemed to be a
liquidation, dissolution or winding up.
(b) For purposes of this Section 5 and with respect to the
Series C and Series D Preferred Stock, a Corporate Sale shall be deemed a
liquidation, dissolution or winding up.
Section 6. Conversion Rights.
Section 6.1 Conversion of Series A and Series B Preferred Stock.
<PAGE> 7
(a) Optional Conversion. Each share of Series A and Series
B Preferred Stock will be convertible, at the option of the holder thereof, at
the office of the Corporation or any transfer agent for the Series A and Series
B Preferred Stock, into Common Stock. The number of shares of Common Stock into
which each share of Series A Preferred Stock will be converted will be equal to
$0.40 divided by the Series A Conversion Price (as hereafter defined) such
conversion ratio being referred to as the "Series A Conversion Rate." The
initial Series A Conversion Price will be $0.40 and the initial Series A
Conversion Rate shall be one-to-one. The number of shares of Common Stock into
which each share of Series B Preferred Stock will be converted will be equal to
$6.00 divided by the Series B Conversion Price (as hereafter defined) such
conversion ratio being referred to as the "Series B Conversion Rate." The
initial Series B Conversion Price will be $6.00 and the initial Series B
Conversion Rate shall be one-to-one. Any decrease or increase of the Series A
Conversion Price or Conversion Rate, or the Series B Conversion Price or
Conversion Rate as described in this Section F will cause an increase or
decrease in the conversion rate or conversion price accordingly.
(b) Automatic Conversion of the Series A and Series B
Preferred Stock. Each share of Series A and Series B Preferred Stock will be
converted into shares of Common Stock at the then effective Series A Conversion
Rate or Series B Conversion Rate:
(i) immediately upon the closing of the sale of stock
pursuant to a registration statement under the Securities Act of 1933, as
amended, (the "Securities Act") for an underwritten public offering (other than
a registration on Form S-8, Form S-4 or comparable or successor forms) covering
the Corporation's Common Stock which results in aggregate cash proceeds (prior
to underwriters' commissions and expenses) to the Corporation of more than
$5,000,000, and which has a public offering price of not less than $3.60 per
share (as appropriately adjusted for stock splits, combinations,
reclassifications and the like);
(ii) immediately upon the affirmative vote or written
consent of the holders of a majority of the then outstanding shares of Series A
Preferred Stock and Series B Preferred Stock, voting together as a class; or
(iii) on the date that less than twenty percent (20%)
of the highest number of the total number of shares of Series A Preferred Stock
and Series B Preferred Stock that have been outstanding at any time remain
outstanding.
(c) Adjustment for Dividends, Distributions, Subdivisions
or Combinations of Common Stock. In the event the Corporation at any time or
from time to time after the effective date of the initial sale of Series B
Preferred Stock (a) effects a subdivision or combination of its outstanding
Common Stock into a greater or lesser number of shares without a proportionate
and corresponding subdivision or combination of its outstanding Series A
Preferred Stock and its outstanding Series B Preferred Stock or (b) issues a
dividend or other distribution of additional shares of Common Stock or other
securities or rights (collectively hereinafter referred to as "Common Stock
Equivalents") convertible into or entitling the holder thereof to receive
additional shares of Common Stock without payment of any consideration by
<PAGE> 8
such holder for such Common Stock Equivalents or the additional shares of Common
Stock, then the existing Series A Conversion Price and Series B Conversion Price
will be decreased or increased proportionately.
(d) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for in Section 5),
provision shall be made so that the holders of the Series A and Series B
Preferred Stock will thereafter be entitled to receive upon conversion of the
Series A and Series B Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 6.1 with respect to the rights of
the holders of the Series A and Series B Preferred Stock after the
recapitalization to the end that the provisions of this Section 6.1 (including
adjustment of the Series A and Series B Conversion Price then in effect and the
number of shares issuable upon conversion of the Series A or Series B Preferred
Stock) shall be applicable after that event in as nearly an equivalent manner as
may be practicable.
(e) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Series A Conversion Rate or Series B
Conversion Rate pursuant to this Section 6, the Corporation at its expense
promptly will compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series A or Series B
Preferred Stock, a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation, upon the written request at any time of any holder of Series A
or Series B Preferred Stock, will furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Series A or Series B Conversion Rate at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of the Series A or
Series B Preferred Stock held by such holder.
Section 6.2 Conversion of Series C and Series D Preferred Stock.
(a) Conversion. The holders of the Series C and Series D
Preferred Stock have conversion rights as follows (the "Conversion Rights"):
(i) Right to Convert Series C Preferred. Each share of
Series C Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share into the number of
fully paid and nonassessable shares of Common Stock which results from dividing
the Series C Conversion Value (as defined below) by the Series C Conversion
Price (as defined below) per share in effect for such series at the time of
conversion. The initial Series C Conversion Price per share of the Series C
Preferred shall be $1.40, and the Series C Conversion Value per share of the
Series C Preferred shall be $1.40. The initial Series C Conversion Price per
share of the Series C Preferred Stock shall be subject to adjustment from time
to time as provided in Section 6.2(a)(iv) hereof. Upon conversion, all
<PAGE> 9
declared and unpaid dividends on the Series C Preferred Stock shall be paid in
cash, to the extent legally permitted.
(ii) Right to Convert Series D Preferred. Each share of
Series D Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share into the number of
fully paid and nonassessable shares of Common Stock which results from dividing
the Series D Conversion Value (as defined below) by the Series D Conversion
Price (as defined below) per share in effect for such series at the time of
conversion. The initial Series D Conversion Price per share of the Series D
Preferred shall be $3.37 and the Series D Conversion Value per share of the
Series D Preferred shall be $3.37. The initial Series D Conversion Price per
share of the Series D Preferred Stock shall be subject to adjustment from time
to time as provided in Section 6.2(a)(iv) hereof. Upon conversion, all declared
and unpaid dividends on the Series D Preferred Stock shall be paid in cash, to
the extent legally permitted.
(iii) Automatic Conversion of Series C and Series D
Preferred Stock. Each share of Series C and Series D Preferred Stock will be
converted into shares of Common Stock at the then effective Series C Conversion
Price, immediately upon the closing of the sale of stock pursuant to a
registration statement under the Securities Act for an underwritten public
offering (other than a registration on Forms S-8, Form S-4 or comparable or
successor forms) covering the Corporation's Common Stock (an "Offering") which
results in aggregate cash proceeds to the Corporation of more than $10,000,000
and which has a public offering price of not less than $7.00 per share (as
adjusted for Recapitalization Events).
(iv) Adjustments to Conversion Price of Series C and
Series D Preferred Stock.
(1) Special Definitions. For purposes of this
Section 6.2(a)(iii), the following definitions shall apply:
(A) "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(B) "Convertible Securities" shall mean any
evidences of indebtedness, shares or other securities convertible into or
exchangeable for Common Stock.
(C) "Additional Shares of Common" shall mean
all shares of Common Stock issued (or, pursuant to Section 6.2(a)(iv)(3) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(I) upon conversion of shares of Series A,
Series B, Series C and Series D Preferred Stock;
<PAGE> 10
(II) upon exercise of warrants to purchase
an aggregate of (i) 228,250 shares of Common Stock, (ii) 7,500 shares of Series
A Preferred Stock, and (iii) 18,000 shares of Series C Preferred Stock
outstanding as of the Original Issue Date (as adjusted for Recapitalization
Events);
(III) to officers, directors or employees
of, or consultants to, the Corporation pursuant to a stock grant, option plan or
purchase plan or other employee stock incentive program or agreement approved by
the Board, not to exceed 7,400,000 shares, inclusive of the 3,549,596 shares
subject to outstanding options and the 1,365,172 shares issued upon exercise of
outstanding options but net of repurchases, cancellations, terminations and
expirations, since the Original Issue Date (as adjusted for Recapitalization
Events);
(IV) in connection with the acquisition by
IMMERSION of another business entity or majority ownership thereof, provided
that (A) such entity is not an affiliate (any person or entity controlling,
controlled by or under common control with IMMERSION, an "Affiliate") of any
director, officer or other natural person who is an Affiliate of IMMERSION (a
"Control Person") other than in such Control Person's capacity as an officer,
director or shareholder of IMMERSION and such Control Person does not have a
material interest in such entity other than as an officer, director or
shareholder of IMMERSION, or (B) such issuances of Common Stock issued or
issuable are made in a bona fide arm's length transaction as determined by the
Board of Directors of IMMERSION;
(V) in an amount up to 750,000 shares of
Common Stock (as adjusted for Recapitalization Events), in connection with any
lease financing transaction approved by IMMERSION's Board of Directors;
(VI) as a dividend or distribution on
Series A, Series B, Series C or Series D Preferred Stock;
(VII) upon exercise of nonqualified stock
options outstanding as of the Original Issue Date to purchase 100,000 shares of
Common Stock (as adjusted for Recapitalization Events);
(VIII) by way of dividend or other
distribution on shares of Common Stock excluded from the definition of
Additional Shares of Common by the foregoing clauses (I) through (VII) or this
clause (VIII); or
(IX) solely for purposes of calculating
adjustments to the Series D Conversion Price, Additional Shares of Common shall
also exclude all shares of Common Stock issued or issuable in an amount up to
800,000 shares of Common Stock (as adjusted for Recapitalization Events), issued
in connection with strategic investment and/or the acquisition of technology
approved by IMMERSION's Board of Directors.
(D) "Original Issue Date" shall mean April 6,
1998.
<PAGE> 11
(2) No Adjustment of Conversion Price. No adjustment in
the Series C or Series D Conversion Price shall be made in respect of the
issuance of Additional Shares of Common unless the consideration per share for
an Additional Share of Common issued or deemed to be issued by the Corporation
is less than the Series C or Series D Conversion Price, as applicable, in effect
on the date of, and immediately prior to, such issue.
(3) Deemed Issue of Additional Shares of Common.
(A) Options and Convertible Securities. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the exercise of such Options and
conversion or exchange of such Convertible Securities shall be deemed to be
Additional Shares of Common issued as of the time of such issue or, in case such
a record date shall have been fixed, as of the close of business on such record
date, provided that Additional Shares of Common shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
6.2(a)(iv)(5) hereof) of such Additional Shares of Common would be less than the
Series C or Series D Conversion Price in effect on the date of and immediately
prior to such issue, or such record date, as the case may be, and provided
further that in any such case in which Additional Shares of Common are deemed to
be issued:
(I) except as provided in Section
6.2(a)(iv)(3)(II) below, no further adjustment in the Series C or Series D
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(II) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any change in the consideration payable to the Corporation, or change in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof (other than under or by reason of provisions designed to
protect against dilution), a Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto) and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities; and
(III) no readjustment pursuant to clause
(II) above shall have the effect of increasing the Series C or Series D
Conversion Price to an amount which exceeds the lower of (1) the Series C or
Series D Conversion Price on the original adjustment date or (2) the Series C or
Series D Conversion Price that would have resulted from
<PAGE> 12
any issuance of Additional Shares of Common between the original adjustment date
and such readjustment date.
(B) Stock Dividends and Subdivisions. In the event the
Corporation at any time or from time to time after the Original Issue Date shall
declare or pay any dividend on the Common Stock payable in Common Stock, or
effect a split or subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in Common Stock), then and in any such event,
Additional Shares of Common shall be deemed to have been issued:
(I) in the case of any such dividend,
immediately after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such dividend, or
(II) in the case of any such subdivision,
at the close of business on the date immediately prior to the date upon which
such corporate action becomes effective.
(4) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common. In the event this Corporation shall issue Additional Shares of
Common (including Additional Shares of Common deemed to be issued pursuant to
Section 6.2(a)(iv)(3)) without consideration or for a consideration per share
less than the Series C or Series D Conversion Price in effect on the date of and
immediately prior to such issue (such issuance price being referred to herein as
the "Dilution Price"), then and in each such event the Series C or Series D
Conversion Price, as applicable, shall be reduced to a price (calculated to the
nearest cent) determined by multiplying such Series C or Series D Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common so issued would
purchase at such Series C or Series D Conversion Price; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common so
issued; provided that, for the purposes of this Section 6.2(a)(iv)(4), all
shares of Common Stock issuable upon conversion of all outstanding Preferred
Stock, and other Convertible Securities and all outstanding Options (provided
such Options have an exercise price below the Series C or Series D Conversion
Price immediately prior to such issue) shall be deemed to be outstanding, and,
immediately after any Additional Shares of Common are deemed issued pursuant to
Section 6.2(a)(iv)(3), such Additional Shares of Common shall be deemed to be
outstanding.
(5) Determination of Consideration. For purposes of this Section
6.2(a)(iv), the consideration received by the Corporation for the issue of any
Additional Shares of Common shall be computed as follows:
(A) Cash and Property: Such consideration shall:
<PAGE> 13
(I) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Corporation;
(II) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined by Board in the good faith exercise of its reasonable business
judgment; and
(III) in the event Additional Shares of Common
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common deemed to have been issued pursuant to Section 6.2(a)(iv), relating to
Options and Convertible Securities, shall be determined by dividing.
(I) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(II) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(C) Stock Dividends and Stock Subdivisions. Any
Additional Shares of Common deemed to have been issued, relating to stock
dividends and stock splits or subdivisions, shall be deemed to have been issued
for no consideration.
(6) Other Adjustments to Series C and Series D Conversion
Price.
(A) Subdivisions, Combinations, or Consolidations of
Common Stock. In the event the outstanding shares of Common Stock shall be
subdivided, combined or consolidated, by stock split, stock dividend,
combination or like event, into a greater or lesser number of shares of Common
Stock after the Original Issue Date, the Series C and the Series D Conversion
Price in effect immediately prior to such subdivision, combination,
consolidation or stock dividend shall, concurrently with the effectiveness of
such subdivision, combination or consolidation, be proportionately adjusted.
<PAGE> 14
(B) Distributions Other Than Cash Dividends Out of
Retained Earnings. In case the Corporation shall declare a cash dividend upon
its Common Stock payable otherwise than out of retained earnings or shall
distribute to holders of its Common Stock shares of its capital stock (other
than Common Stock), stock or other securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights (excluding options to purchase and rights to
subscribe for Common Stock or other securities of the Corporation convertible
into or exchangeable for Common Stock), then, in each such case, the holders of
shares of Series C and Series D Preferred Stock shall, concurrently with the
distribution to holders of Common Stock, receive a like distribution based upon
the numbers of shares of Common Stock into which the Series C and Series D
Preferred Stock is then convertible.
(C) Reclassifications. In the case, at any time after
the date hereof, of any capital reorganization or any reclassification of the
stock of the Corporation (other than as a result of a stock dividend or
subdivision, split-up or combination of shares), or Corporate Sale (other than a
consolidation or merger in which the Corporation is the continuing entity and
which does not result in any change in the Common Stock), the shares of the
Series C and Series D Preferred Stock shall, after such reorganization,
reclassification or Corporate Sale, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation or otherwise
to which such holder would have been entitled if immediately prior to such
reorganization, reclassification or Corporate Sale, the holder had converted the
holder's shares of the Series C and Series D Preferred Stock into Common Stock.
The provisions of this Section 6.2(a)(iv)(6)(C) shall similarly apply to
successive reorganizations, reclassifications, consolidations or Corporate
Sales.
(b) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Series C or Series D Conversion Price
pursuant to this Section 6.2, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Series C and/or Series D Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series C or Series D Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
of the Series C or Series D Preferred Stock at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of the Series C or Series D
Preferred Stock.
Section 6.3 No Fractional Shares. No fractional shares of Common Stock
will be issued upon conversion of Series A, Series B, Series C or Series D
Preferred Stock and any fractional share which otherwise would result from
conversion by a holder of all of his shares of Series A, Series B, Series C or
Series D Preferred Stock will be redeemed by payment in an amount equal to such
fraction of the then effective Series A, Series B, Series C or Series D
Conversion Price as promptly as funds legally are available therefor.
<PAGE> 15
Section 6.4 Mechanics of Conversion. Before any holder of Series A,
Series B, Series C or Series D Preferred Stock will be entitled to convert the
same into shares of Common Stock, he will surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series A, Series B, Series C or Series D Preferred Stock,
and he will give written notice to the Corporation stating the name or names in
which he wishes the certificate or certificates for shares of Common Stock to be
issued. The Corporation, as soon as practicable thereafter, will issue and
deliver at such office to such holder of Series A, Series B, Series C or Series
D Preferred Stock or to his nominee or nominees, a certificate or certificates
for the number of shares of Common Stock to which he will be entitled as
aforesaid. Such conversion will be deemed to have been made, in the event of
automatic conversion, immediately prior to the close of business on the date of
the event of conversion or, in the event of voluntary conversion, immediately
prior to the close of business on the date when the Corporation receives a
holder's certificate or certificates for Series A, Series B, Series C or Series
D Preferred Stock and any other documents or instruments required hereunder or
by applicable law, and the person or persons entitled to receive the shares of
Common Stock issuable upon conversion will be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
Section 6.5 No Impairment. The Corporation, whether by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
merger, dissolution, issue or sale of securities or any other voluntary action,
will not avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation, but at all times
in good faith will assist in the carrying out of all of such action as may be
necessary or appropriate in order to protect the conversion rights pursuant to
this Section 6 of the holders of Series A, Series B, Series C and Series D
Preferred Stock against impairment.
Section 6.6 Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any Common Stock
Equivalents or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Corporation will mail to each holder of Series A, Series B,
Series C or Series D Preferred Stock at least ten (10) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or rights, and the
amount and character of such dividend, distribution or right.
Section 6.7 Reservation of Stock Issuable Upon Conversion. The
Corporation at all times will reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Series A, Series B, Series C or Series D Preferred
Stock such number of its shares of Common Stock as from time to time will be
sufficient to effect the conversion of all then outstanding shares of Series A,
Series B, Series C and Series D Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock is not sufficient to effect
the conversion of all then outstanding shares of Series A, Series B, Series C
and Series D Preferred Stock, in addition to such other remedies as may be
available to the holders of Series A, Series B, Series C and Series D Preferred
Stock for
<PAGE> 16
such failure, the Corporation will take such corporate action as, in the opinion
of its counsel, may be necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as will be sufficient for such purpose.
Section 6.8 Notices. Any notices required by the provisions of this
Section 6 to be given to the holders of shares of Series A, Series B, Series C
or Series D Preferred Stock must be in writing and will be deemed given upon
personal delivery, one day after deposit with a reputable overnight courier
service for overnight delivery or after transmission by facsimile telecopier
with confirmation of successful transmission, or five days after deposit in the
United States mail, by registered or certified mail postage prepaid, or upon
actual receipt if given by any other method, addressed to each holder of such
record at his address appearing on the books of the Corporation.
ARTICLE IV
LIABILITY OF DIRECTORS
AND
INDEMNIFICATION OF AGENTS
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors, or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the Corporation or its shareholders.
The Corporation is authorized to indemnify the directors and officers of
the Corporation to the fullest extent permissible under California law.
Any amendment, repeal or modification of any provision of this Article
IV shall not adversely affect any right or protection of a director or officer
of the Corporation existing at the time of such amendment, repeal or
modification."
3. The foregoing Restated Articles have been duly approved by the Board
of Directors of the Corporation.
4. The foregoing Amended and Restated Articles of Incorporation have
been duly approved by the required vote of the shareholders of the Corporation
in accordance with sections 603 and 903 of the California General Corporations
Law. The total number of outstanding shares of the Corporation entitled to vote
with respect to the foregoing Amended and Restated Articles was 5,428,437 shares
of Common Stock, 611,000 shares of Series A Preferred Stock, 98,334 shares of
Series B Preferred Stock and 1,071,428 shares of Series C Preferred Stock. The
number of shares voting in favor of the amendment equaled or exceeded the vote
required, such
<PAGE> 17
required vote being (i) a majority of the outstanding shares of Common Stock,
(ii) a majority of the outstanding shares of Series A, Series B and Series C
Preferred Stock, voting together as a class, (iii) a majority of the outstanding
shares of Series A and Series B Preferred Stock, voting together as a class and
(iv) a majority of the outstanding shares of Series C Preferred Stock, voting as
a single class.
<PAGE> 18
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Executed this 6th day of April, 1998.
/s/ Louis B. Rosenberg
-----------------------------------------
Louis B. Rosenberg, President
/s/ Timothy A. Lacey
-----------------------------------------
Timothy A. Lacey, Chief Financial Officer
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
IMMERSION HUMAN INTERFACE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article I Offices.......................................................................1
Section 1.1 Principal Executive office.............................................1
Section 1.2 Other offices..........................................................1
Article II Meetings of Shareholders......................................................1
Section 2.1 Place of Meetings......................................................1
Section 2.2 Annual Meetings........................................................1
Section 2.3 Special Meetings.......................................................1
Section 2.4 Notice of Meetings or Reports..........................................2
Section 2.5 Adjourned Meetings and Notice Thereof..................................2
Section 2.6 Voting ................................................................3
Section 2.7 Quorum ................................................................3
Section 2.8 Consent of Absentees...................................................3
Section 2.9 Action Without Meeting.................................................4
Section 2.10 Proxies ...............................................................5
Article III Directors.....................................................................5
Section 3.1 Powers ................................................................5
Section 3.2 Number of Directors ...................................................5
Section 3.3 Election and Term of office ...........................................5
Section 3.4 Resignation ...........................................................5
Section 3.5 Removal ...............................................................6
Section 3.6 Vacancies .............................................................6
Section 3.7 Organization Meeting ..................................................6
Section 3.8 Other Regular Meetings ................................................6
Section 3.9 Calling Meetings ......................................................6
Section 3.10 Place of Meetings .....................................................7
Section 3.11 Telephonic Meetings ...................................................7
Section 3.12 Notice of Special Meetings ............................................7
Section 3.13 Waiver of Notice ......................................................7
Section 3.14 Action Without Meeting ................................................7
Section 3.15 Quorum ................................................................8
Section 3.16 Adjournment ...........................................................8
Section 3.17 Inspection Rights .....................................................8
Section 3.18 Fees and Compensation .................................................8
Article IV Executive Committee and Other Committees .....................................8
Section 4.1 Executive Committee ...................................................8
Section 4.2 Other Committees ......................................................9
Section 4.3 Minutes and Reports ...................................................9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 4.4 Meetings ..............................................................9
Section 4.5 Term of office of Committee Members ...................................9
Article V Officers......................................................................9
Section 5.1 Officers...............................................................9
Section 5.2 Election..............................................................10
Section 5.3 Subordinate officers, Etc. ...........................................10
Section 5.4 Removal and Resignation ..............................................10
Section 5.5 Vacancies ............................................................10
Section 5.6 Chairman of The Board ................................................10
Section 5.7 President ............................................................10
Section 5.8 Vice President .......................................................11
Section 5.9 Secretary ............................................................11
Section 5.10 Treasurer and Chief Financial officer ................................11
Section 5.11 Assistant Secretary ..................................................11
Section 5.12 Compensation .........................................................12
Article VI Miscellaneous................................................................12
Section 6.1 Record Date...........................................................12
Section 6.2 Inspection of Corporate Records.......................................12
Section 6.3 Execution of Corporate Instruments....................................13
Section 6.4 Ratification By Shareholders..........................................13
Section 6.5 Annual Report ........................................................13
Section 6.6 Representation of Shares of Other Corporations .......................13
Section 6.7 Inspection of Bylaws .................................................14
Article VII Shares of Stock..............................................................14
Section 7.1 Form of Certificates .................................................14
Section 7.2 Transfer of Shares ...................................................14
Section 7.3 Lost Certificates ....................................................14
Article VIII Indemnification..............................................................15
Section 8.1 Indemnification By Corporation .......................................15
Section 8.2 Right of Claimant To Bring Suit ......................................15
Section 8.3 Indemnification of Employees and Agents of the Corporation............16
Section 8.4 Rights Not Exclusive .................................................16
Section 8.5 Indemnity Agreements .................................................16
Section 8.6 Insurance ............................................................16
Section 8.7 Amendment, Repeal or Modification ....................................16
Article IX Amendments...................................................................17
Section 9.1 Power of Shareholders ................................................17
Section 9.2 Power of Directors ...................................................17
</TABLE>
<PAGE> 4
BYLAWS
OF
IMMERSION HUMAN INTERFACE CORPORATION
ARTICLE I
OFFICES
Section 1.1 Principal Executive Office
The principal executive office for the transaction of the
business of the corporation is hereby fixed and located at 870 El Camino Real,
Apt. 87, Mountain View, State of California. The Board of Directors is hereby
granted full power and authority to change said principal office from one
location to another.
Section 1.2 Other Offices
Branch or subordinate offices may at any time be established by
the Board of Directors at any place or places where the corporation is qualified
to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1 Place of Meetings
All meetings of shareholders shall be held either at the
principal executive office or at any other place within or without the State of
California which may be designated either by the Board of Directors or by the
written consent of a majority of the shareholders entitled to vote thereat as
determined pursuant to Section 6.1 of these Bylaws given either before or after
the meeting.
Section 2.2 Annual Meetings
The annual meetings of shareholders shall be held on such day and
at such hour as may be fixed by the Board of Directors. At such meeting,
Directors shall be elected, and any other proper business may be transacted.
Section 2.3 Special Meetings
Special meetings of the shareholders may be called at any time by
the Board of Directors, the Chairman of the Board, the President or by the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting. Notice of such special meeting shall be given in the same manner
as for the annual meeting of shareholders. Notices of any special
1
<PAGE> 5
meetings shall specify in addition to the place, date and hour of such meeting,
the general nature of the business to be transacted thereat.
Section 2.4 Notice of Meetings or Reports
Written notice of each meeting of shareholders shall be given not
less than ten (10) days nor more than sixty (60) days before the date of the
meeting to each shareholder entitled to vote thereat. Such notice shall be given
either personally or by mail or other means of written communication, addressed
or delivered to each shareholder entitled to vote at such meeting at the address
of such shareholder appearing on the books of the corporation or given by him to
the corporation for the purpose of such notice. If no such address appears or is
given, notice shall be given either personally or by mail or other means of
written communication addressed to the shareholder at the place where the
principal executive office of the corporation is located, or by publication at
least once in a newspaper of general circulation in the county in which said
office is located. The notice shall be deemed to have been given at the time
when delivered personally or deposited in the mail or sent by other means of
written communication.
The same procedure for the giving of notice shall apply to the
giving of any report to shareholders.
All such notices shall state the place, the date and the hour of
such meeting, and shall state such matters, if any, as may be expressly required
by the California Corporations Code.
Upon request by any person or persons entitled to call a special
meeting, the Chairman of the Board, President, Vice President or Secretary shall
within twenty (20) days after receipt of the request cause notice to be given to
the shareholders entitled to vote that a special meeting will be held at a time
requested by the person or persons calling the meeting, but not less than
thirty-five (35) nor more than sixty (60) days after receipt of the request.
All other notices shall be sent by the Secretary or an Assistant
Secretary, or if there be no such officer, or in the case of his neglect or
refusal to act, by any other officer, or by persons calling the meeting.
Section 2.5 Adjourned Meetings and Notice Thereof
Any shareholders' meeting, annual or special, whether or not a
quorum is present, may be adjourned from time to time by the vote of a majority
of the shares, represented either in person or by proxy, but in the absence of a
quorum, no other business may be transacted at such meeting, except as provided
in Section 2.7 of these Bylaws.
When a shareholders' meeting is adjourned to another time or
place, notice of the adjourned meeting need not be given if the time and place
thereof are announced at the meeting at which the adjournment is taken; except
that if the adjournment is for more than forty-five (45) days or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given to each shareholder of record entitled to vote
thereat.
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At the adjourned meeting, the corporation may transact any
business which might have been transacted at the original meeting.
Section 2.6 Voting
Except as otherwise provided in the Articles of Incorporation and
subject to Section 6.1 of these Bylaws, each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote of
shareholders. Vote may be viva voce or by ballot; provided, however, that
elections for directors must be by ballot upon demand made by a shareholder at
the meeting and before the voting begins.
Every shareholder entitled to vote at any election for Directors
may cumulate his votes and give one candidate a number of votes equal to the
number of directors to be elected, multiplied by the number of votes to which
his shares are entitled, or to distribute his votes on the same principle among
as many candidates as he thinks fit, provided that no shareholder shall be
entitled to cumulate votes unless such candidate or candidates names have been
placed in nomination prior to the voting and the shareholder has given notice at
the meeting, prior to the voting, of the shareholder's intention to cumulate the
shareholder's votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination. The
candidates receiving the highest number of votes of the shares entitled to be
voted for them, up to the number of directors to be elected by such shares,
shall be elected.
Any holder of shares entitled to vote on any matter may vote part
of the shares in favor of the proposal and refrain from voting the remaining
shares or vote them against the proposal, other than elections to office, but,
if the shareholder fails to specify the number of shares such shareholder is
voting affirmatively, it shall be conclusively presumed that the shareholder's
approving vote is with respect to all shares said shareholder is entitled to
vote.
Section 2.7 Quorum
A majority of the shares entitled to vote, represented in person
or by proxy, shall constitute a quorum at any meeting of shareholders. If a
quorum is present, the affirmative vote of a majority of the shares represented
at the meeting and entitled to vote on any matter shall be the act of the
shareholders, unless otherwise required by the Articles of Incorporation.
The shareholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
Section 2.8 Consent of Absentees
The transactions of any meeting of shareholders, if not duly
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, each of the
shareholders entitled to vote, not present in person or by proxy, signs a
written waiver of notice, or a consent to the holding of such meeting, or an
approval of the
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minutes thereof. All such waivers, consents, or approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when a person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened; provided, that attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law or these
Bylaws to be included in the notice but not so included if such objection is
expressly made at the meeting.
Section 2.9 Action Without Meeting
Any action which may be taken at any meeting of shareholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the actions so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes which would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted; provided, that except to fill a
vacancy as provided in Section 3.6 of these Bylaws, Directors may not be elected
by written consent except by unanimous written consent of all shares entitled to
vote for the election of Directors.
Unless the consents of all shareholders entitled to vote have
been solicited in writing, notice of the following actions approved by
shareholders without a meeting by less than unanimous written consent shall be
given to those shareholders entitled to vote who have not consented in writing
at least ten (10) days before the consummation of the action authorized by such
approval:
1. Approval of a contract or other transaction between the
corporation and one or more of its Directors, or between the corporation and any
corporation, firm or association in which one or more of its Directors has a
material financial interest.
2. Approval of any indemnification to be made by the corporation
of a person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that such person was or is an agent of the
corporation.
3. Approval of the principal terms of a reorganization.
4. Approval of a plan of distribution of the shares, obligations
or securities of any other corporation, or assets other than money, which is not
in accordance with the liquidation rights of the preferred shares as specified
in the Articles of Incorporation or a Certificate of Determination.
Unless the consents of all shareholders entitled to vote have
been solicited in writing, prompt notice of the taking of any corporate action
not listed above which is approved by shareholders without a meeting by less
than unanimous written consent shall be given to those shareholders entitled to
vote who have not consented in writing.
Such notice shall be given as provided in Section 2.4 of these
Bylaws.
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Section 2.10 Proxies
Every person entitled to vote shares may authorize another person
or persons to act by proxy with respect to such shares. No proxy shall be valid
after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy.
ARTICLE III
DIRECTORS
Section 3.1 Powers
Subject to the limitations stated in the Articles of
Incorporation, these Bylaws, and the California Corporations Code as to actions
which shall be approved by the shareholders or by the affirmative vote of a
majority of the outstanding shares entitled to vote, and subject to the duties
of Directors as prescribed by the California Corporations Code, all corporate
powers shall be exercised by, or under the direction of, and the business and
affairs of the corporation shall be managed by, the Board of Directors.
Section 3.2 Number of Directors
The authorized number of Directors of the corporation shall not
be less than three (3) nor more than five (5) and the exact number of directors
initially authorized shall be three (3). The exact number of Directors may be
fixed within the limits specified in this Section 3.2 by a Bylaw duly adopted by
the shareholders or by resolution of the Board of Directors. The minimum or
maximum number of Directors provided in this Section 3.2 may be changed or a
definite number fixed without provision for an indefinite number, by a Bylaw
duly adopted by the affirmative vote of a majority of the outstanding shares
entitled to vote.
Section 3.3 Election and Term of Office
The Directors shall be elected at each annual meeting of
shareholders, but if any such annual meeting is not held, or the Directors are
not elected thereat the Directors may be elected at any special meeting of the
shareholders held for that purpose. All Directors shall hold office until the
expiration of the term for which elected and until their respective successors
are elected, except in the case of the death, resignation or removal of any
Director. A Director need not be a shareholder.
Section 3.4 Resignation
Any Director may resign effective upon giving written notice to
the Chairman of the Board, the President, the Secretary or the Board of
Directors of the corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
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Section 3.5 Removal
The entire Board of Directors or any individual Director may be
removed from office, prior to the expiration of their or his term of office only
in the manner and within the limitations provided by the California Corporations
Code.
No reduction of the authorized number of Directors shall have the
effect of removing any Director prior to the expiration of such Director's term
of office.
Section 3.6 Vacancies
A vacancy in the Board of Directors shall be deemed to exist in
case of the death, resignation or removal of any Director, or if the authorized
number of Directors be increased, or if the shareholders fail at any annual or
special meeting of shareholders at which any Director or Directors are elected
to elect the full authorized number of Directors to be voted for at that
meeting.
Vacancies in the Board of Directors may be filled by a majority
of the Directors then in office, whether or not less than a quorum, or by a sole
remaining Director. Each Director so elected shall hold office until the
expiration of the term for which he was elected and until his successor is
elected at an annual or a special meeting of the shareholders, or until his
death, resignation or removal.
The shareholders may elect a Director or Directors at any time to
fill any vacancy or vacancies not filled by the Directors. Any such election by
written consent other than to fill a vacancy created by removal requires the
consent of a majority of the outstanding shares entitled to vote. A Director may
not be elected by written consent to fill a vacancy created by removal except by
unanimous written consent of all shares entitled to vote for the election of
directors.
Section 3.7 Organization Meeting
Immediately after each annual meeting of shareholders, the Board
of Directors shall hold a regular meeting for the purpose of organization, the
election of officers and the transaction of other business. No notice of such
meeting need be given.
Section 3.8 Other Regular Meetings
The Board of Directors may provide by resolution the time and
place for the holding of regular meetings of the Board; provided, however, that
if the date so designated falls upon a legal holiday, then the meeting shall be
held at the same time and place on the next succeeding day which is not a legal
holiday. No notice of such regular meetings of the Board need be given.
Section 3.9 Calling Meetings
Meetings of the Board of Directors for any purpose or purposes
shall be held whenever called by the Chairman of the Board, the President or the
Secretary or any two Directors of the corporation.
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Section 3.10 Place of Meetings
Meetings of the Board of Directors shall be held at any place
within or without the State of California which may be designated in the notice
of the meeting, or, if not stated in the notice or there is no notice,
designated by resolution of the Board. In the absence of such designation,
meetings of the Board of Directors shall be held at the principal executive
office of the corporation.
Section 3.11 Telephonic Meetings
Members of the Board may participate in a regular or special
meeting through use of conference telephone or similar communications equipment,
so long as all members participating in such meeting can hear one another.
Participation in a meeting pursuant to this Section 3.11 constitutes presence in
person at such meeting.
Section 3.12 Notice of Special Meetings
Written notice of the time and place of special meetings of the
Board of Directors shall be delivered personally to each Director, or sent to
each Director by mail, telephone or telegraph. In case such notice is sent by
mail, it shall be deposited in the United States mail at least four (4) days
prior to the time of the holding of the meeting. In case such notice is
delivered personally, or by telephone or telegraph, it shall be so delivered at
least forty-eight (48) hours prior to the time of the holding of the meeting.
Such notice may be given by the Secretary of the corporation or by the persons
who called said meeting. Such notice need not specify the purpose of the
meeting, and notice shall not be necessary if appropriate waivers, consents
and/or approvals are filed in accordance with Section 3.13 of these Bylaws.
Section 3.13 Waiver of Notice
Notice of a meeting need not be given to any Director who signs a
waiver of notice, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such Director.
The transactions of any meeting of the Board of Directors,
however called and noticed or wherever held, shall be as valid as though had at
a meeting duly held after regular call and notice if a quorum is present and is
either before or after the meeting, each of the Directors not present signs a
written waiver of notice, a consent to holding the meeting or an approval of the
minutes thereof. All such waivers, consents and approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
Section 3.14 Action Without Meeting
Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting, if all members of the Board shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of such Directors.
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Section 3.15 Quorum
A majority of the authorized number of Directors shall constitute
a quorum for the transaction of business. Every act or decision done or made by
a majority of the Directors present at a meeting duly held at which a quorum is
present shall be the act of the Board of Directors, unless the Articles of
Incorporation, or the California Corporations Code, specifically requires a
greater number. In the absence of a quorum at any meeting of the Board of
Directors, a majority of the Directors present may adjourn the meeting as
provided in Section 3.16 of these Bylaws. A meeting at which a quorum is
initially present may continue to transact business, notwithstanding the
withdrawal of enough Directors to leave less than a quorum, if any action taken
is approved by at least a majority of the required quorum for such meeting.
Section 3.16 Adjournment
Any meeting of the Board of Directors, whether or not a quorum is
present, may be adjourned to another time and place by the vote of a majority of
the Directors present. Notice of the time and place of the adjourned meeting
need not be given to absent Directors if said time and place are fixed at the
meeting adjourned.
Section 3.17 Inspection Rights
Every Director shall have the absolute right at any time to
inspect, copy and make extra copies of, in person or by agent or attorney, all
books, records and documents of every kind and to inspect the physical
properties of the corporation.
Section 3.18 Fees and Compensation
Directors shall not receive any stated salary for their services
as directors, but, by resolution of the Board, a fixed fee, with or without
expenses of attendance, may be allowed for attendance at each meeting. Nothing
herein contained shall be construed to preclude any Director from serving the
corporation in any other capacity as an officer, agent, employee, or otherwise,
and receiving compensation therefor.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.1 Executive Committee
The Board of Directors may, by resolution adopted by a majority
of the authorized number of Directors, appoint an executive committee,
consisting of two or more Directors. The Board may designate one or more
Directors as an alternate member of such committee, who may replace any absent
member of any meeting of the committee. The executive committee, subject to any
limitations imposed by the California Corporations Code, or by resolution
adopted by the affirmative vote of a majority of the authorized number of
Directors, or imposed by the Articles of Incorporation or by these Bylaws, shall
have and may exercise all of the powers of the Board of Directors.
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Section 4.2 Other Committees
The Board of Directors may, by resolution adopted by a majority
of the authorized number of Directors, designate such other committees, each
consisting of two or more Directors, as it may from time to time deem advisable
to perform such general or special duties as may from time to time be delegated
to any such committee by the Board of Directors, subject to the limitations
contained in the California Corporations Code, or imposed by the Articles of
Incorporation or by these Bylaws. The Board may designate one or more Directors
as alternate members of any committee, who may replace any absent member at any
meeting of the committee.
Section 4.3 Minutes and Reports
Each committee shall keep regular minutes of its proceedings,
which shall be filed with the Secretary. All action by any committee shall be
reported to the Board of Directors at the next meeting thereof, and, insofar as
rights of third parties shall not be affected thereby, shall be subject to
revision and alteration by the Board of Directors.
Section 4.4 Meetings
Except as otherwise provided in these Bylaws or by resolution of
the Board of Directors, each committee shall adopt its own rules governing the
time and place of holding and the method of calling its meetings and the conduct
of its proceedings and shall meet as provided by such rules, and it shall also
meet at the call of any member of the committee. Unless otherwise provided by
such rules or by resolution of the Board of Directors, committee meetings shall
be governed by Sections 3.11, 3.12 and 3.13 of these Bylaws.
Section 4.5 Term of Office of Committee Members
The term of office of any committee member shall be as provided
in the resolution of the Board of Directors designating him but shall not exceed
his term as a Director. Any member of a committee may be removed at any time by
resolution adopted by Directors holding a majority of the directorships, either
present at a meeting of the Board or by written approval thereof.
ARTICLE V
OFFICERS
Section 5.1 Officers
The officers of the corporation shall be a President, a Vice
President, a Secretary, and a Treasurer, who shall be the Chief Financial
Officer of the corporation. The corporation may also have, at the discretion of
the Board of Directors, a Chairman of the Board, one or more additional Vice
Presidents, one or more Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 5.3. One person may hold
two or more offices.
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Section 5.2 Election
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 and 5.5, shall be
chosen annually by the Board of Directors and each shall hold his office until
he shall resign or shall be removed or otherwise disqualified to serve, or his
successor shall be elected and qualified.
Section 5.3 Subordinate Officers, etc.
The Board of Directors may appoint such other officers as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
Section 5.4 Removal and Resignation
Any officer may be removed, either with or without cause, by a
majority of the Directors at the time in office, at any regular or special
meeting of the Board, or, except in case of an officer chosen by the Board of
Directors, by an officer upon whom such power of removal may be conferred by the
Board of Directors.
Any officer may resign at any time by giving written notice to
the corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 5.5 Vacancies
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to such office.
Section 5.6 Chairman of the Board
The Chairman of the Board, if there shall be such an officer,
shall, if present, preside at all meetings of the Board of Directors, and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board of Directors or prescribed by these Bylaws.
Section 5.7 President
Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the Chairman of the Board, if there be such an
officer, the President shall be the general manager and chief executive officer
of the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction, and control of the business and officers of
the corporation. He shall preside at all meetings of the shareholders. He shall
be ex officio a member of all the standing committees, including the executive
committee, if any, and shall have the general powers and duties of management
usually vested in the office of president
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of a corporation, and shall have such other powers and duties as may be
prescribed by the Board of Directors or by these Bylaws.
Section 5.8 Vice President
In the absence or disability of the President, the Vice
Presidents in order of their rank as fixed by the Board of Directors, or if not
ranked, the Vice President designated by the Board of Directors, shall perform
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors or these
Bylaws.
Section 5.9 Secretary
The Secretary shall keep, or cause to be kept, a book of minutes
in written form of the proceedings of the Board of Directors, committees of the
Board, and shareholders. Such minutes shall include all waivers of notice,
consents to the holding of meetings, or approvals of the minutes of meetings
executed pursuant to these Bylaws or the California Corporations Code. The
Secretary shall keep, or cause to be kept at the principal executive office or
at the office of the corporation's transfer agent or registrar, a record of its
shareholders, giving the names and addresses of all shareholders and the number
and class of shares held by each.
The Secretary shall give or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors required by these
Bylaws or by law to be given, and shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or these Bylaws.
Section 5.10 Treasurer and Chief Financial Officer
The Treasurer and Chief Financial Officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of account in written form or any other form capable of being converted
into written form.
The Treasurer and Chief Financial Officer shall deposit all
monies and other valuables in the name and to the credit of the corporation with
such depositories as may be designated by the Board of Directors. He shall
disburse all funds of the corporation as may be ordered by the Board of
Directors, shall render to the President and Directors, whenever they request
it, an account of all of his transactions as Treasurer and Chief Financial
Officer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or by these Bylaws.
Section 5.11 Assistant Secretary
The Assistant Secretary shall have all the powers, and perform
all the duties of, the Secretary in the absence or inability of the Secretary to
act.
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Section 5.12 Compensation
The compensation of the officers shall be fixed from time to time
by the Board of Directors, and no officer shall be prevented from receiving such
compensation by reason of the fact that he is also a Director of the
corporation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Record Date
The Board of Directors may fix, in advance, a time in the future
as the record date for the determination of shareholders entitled to notice of
any meeting or to vote or entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise any rights in
respect of any other lawful action. Shareholders on the record date are entitled
to notice and to vote or receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares in the books of the corporation after the record date,
except as otherwise provided by law. Said record date shall not be more than
sixty (60) or less than ten (10) days prior to the date of such meeting, nor
more than sixty (60) days prior to any other action.
A determination of shareholders of record entitled to notice of
or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board fixes a new record date for the adjourned meeting, but
the Board shall fix a new record date if the meeting is adjourned for more than
forty-five (45) days from the date set for the original meeting.
If no record date is fixed by the Board of Directors, the record
date shall be fixed pursuant to the California Corporations Code.
Section 6.2 Inspection of Corporate Records
The accounting books and records, and minutes of proceedings of
the shareholders and the Board of Directors and committees of the Board shall be
open to inspection upon written demand made upon the corporation by any
shareholder or the holder of a voting trust certificate, at any reasonable time
during usual business hours, for a purpose reasonably related to his interest as
a shareholder, or as the holder of such voting trust certificate. The record of
shareholders shall also be open to inspection by any shareholder or holder of a
voting trust certificate at any time during usual business hours upon written
demand on the corporation, for a purpose reasonably related to such holder's
interest as a shareholder or holder of a voting trust certificate. Such
inspection may be made in person or by an agent or attorney, and shall include
the right to copy and to make extracts.
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Section 6.3 Execution of Corporate Instruments
The Board of Directors may, in its discretion, determine the
method and designate the statutory officer or officers, or other person or
persons, to execute any corporate instrument or document, or to sign the
corporate name without limitation, except where otherwise provided by law, and
such execution or signature shall be binding upon the corporation. Unless
otherwise specifically determined by the Board of Directors, formal contracts of
the corporation, promissory notes, mortgages, evidences of indebtedness,
conveyances or other instruments in writing, and any assignment or endorsement
thereof, executed or entered into between the corporation and any person, may be
signed by the Chairman of the Board, the President, any Vice President the
Secretary or the Treasurer of the corporation.
Section 6.4 Ratification by Shareholders
The Board of Directors may, subject to applicable notice
requirements, in its discretion, submit any contract or act for approval or
ratification of the shareholders at any annual meeting of shareholders, or at
any special meeting of shareholders called for that purpose; and any contract or
act which shall be approved or ratified by the affirmative vote of a majority of
the shares entitled to vote represented at a duly held meeting at which a quorum
is present, or by the written consent of shareholders, shall be as valid and
binding upon the corporation and upon the shareholders thereof as though
approved or ratified by each and every shareholder of the corporation, unless a
greater vote is required by law for such purpose.
Section 6.5 Annual Report
For so long as the corporation has less than 100 holders of
record of its shares, the mandatory requirement of an annual report is hereby
expressly waived. The Board of Directors may, in its discretion, cause an annual
report to be sent to the shareholders. Such reports shall contain at least a
balance sheet as of the close of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, and shall be
accompanied by any report thereon of independent accountants, or if there is no
such report the certificate of an authorized officer of the corporation that
such statements were prepared without audit in the books and records of the
corporation.
A shareholder or shareholders holding at least five percent (5%)
of the outstanding shares of any class of the corporation may make a written
request to the corporation for an income statement and/or a balance sheet of the
corporation for the three-month, six-month or nine-month period of the current
fiscal year ended more than thirty (30) days prior to the date of the request,
and such statement shall be delivered or mailed to the person making the request
within thirty (30) days thereafter. Such statements shall be accompanied by the
report thereon, if any, of any independent accountants engaged by the
corporation or the certificates of an authorized officer of the corporation that
such financial statements were prepared without audit from the books and records
of the corporation.
Section 6.6 Representation of Shares of Other Corporations
The President and Vice President of this corporation are
authorized to vote, represent and exercise on behalf of the corporation all
rights incident to any and all shares of any
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other corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation and any other
corporation or corporations may be exercised either by such officers in person
or by any person authorized so to do by proxy or power of attorney and duly
executed by said officers.
Section 6.7 Inspection of Bylaws
The corporation shall keep in its principal executive office in
this State the original or a copy of the Bylaws as amended or otherwise altered
to date, which shall be open to inspection by the shareholders at all reasonable
times during office hours.
ARTICLE VII
SHARES OF STOCK
Section 7.1 Form of Certificates
Certificates for shares of stock of the corporation shall be in
such form and design as the Board of Directors shall determine and shall be
signed in the name of the corporation by the Chairman of the Board, or the
President or Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or any Assistant Secretary. Each certificate shall state the
certificate number, the date of issuance, the number, class or series and the
name of the record holder of the shares represented thereby, the name of the
corporation, and, if the shares of the corporation are classified or if any
class of shares has two or more series, there shall appear the statement
required by the California Corporations Code.
Section 7.2 Transfer of Shares
Shares of stock may be transferred in any manner permitted or
provided by law. Before any transfer of stock is entered upon the books of the
corporation, or any new certificate issued therefor, the older certificate,
properly endorsed, shall be surrendered and cancelled, except when a certificate
has been lost, stolen or destroyed.
Section 7.3 Lost Certificates
The Board of Directors may order a new certificate for shares of
stock to be issued in the place of any certificate alleged to have been lost,
stolen or destroyed, but in every such case, the owner or the legal
representative of the owner of the lost, stolen or destroyed certificates may be
required to give the corporation a bond (or other adequate security) in such
form and amount as the Board may deem sufficient to indemnify it against any
claim that may be made against the corporation (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or issuance of such new certificate.
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ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification by Corporation
Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative ("Proceeding"), by reason of the fact
that he or she, or a person of whom he or she is the legal representative, is or
was a director or officer of the corporation or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, or was a director,
officer, employee or agent of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation, whether the basis of such Proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the California General Corporation Law, against all expenses,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
Section 8.2 of this Article VIII, the corporation shall indemnify any such
person seeking indemnity in connection with a Proceeding (or part thereof)
initiated by such person only if such Proceeding (or part thereof) was
authorized by the board of directors of the corporation. The right to
indemnification conferred by this Section shall include the right to be paid by
the corporation expenses incurred in defending any such Proceeding in advance of
its final disposition to the fullest extent authorized by the California General
Corporation Law; provided, however, that, if required by the California General
Corporation Law, the payment of such expenses incurred by such person in advance
of the final disposition of such Proceeding shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such person, to repay all
amounts so advanced if it should be determined ultimately that such person is
not entitled to be indemnified under this Section or otherwise.
Section 8.2 Right of Claimant to Bring Suit
If a claim under Section 8.1 of this Article VII is not paid in
full by the corporation within ninety (90) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking, if any, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the California
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed. Neither the failure of the corporation (including its board of
directors,
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independent legal counsel, or it shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the California General Corporation Law, nor an actual
determination by the corporation (including its board of directors, independent
legal counsel or its shareholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
Section 8.3 Indemnification of Employees and Agents of the Corporation
The corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and to the
advancement of expenses to any employee or agent of the corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification of and advancement of expenses to directors and officers of the
corporation.
Section 8.4 Rights Not Exclusive
The rights conferred on any person by this Article VIII above
shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Articles of Incorporation,
Bylaw, agreement, vote of shareholders or disinterested directors or otherwise.
Section 8.5 Indemnity Agreements
The Board of Directors is authorized to enter into a contract
with any Director, officer, employee or agent of the corporation, or any person
who is or was serving at the request of the corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including employee benefit plans, or any person who was a
director, officer, employee or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation, providing for indemnification rights equivalent to or,
if the Board of Directors so determines, greater than, those provided for in
this Article VIII.
Section 8.6 Insurance
The corporation may purchase and maintain insurance, at its
expense, to protect itself and any Director, officer, employee or agent of the
corporation or another corporation (including a predecessor corporation),
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the
California Corporations Code.
Section 8.7 Amendment, Repeal or Modification
Any amendment, repeal or modification of any provision of this
Article VIII by the shareholders or the Directors of the corporation shall not
adversely affect any right or protection of a Director or officer of the
corporation existing at the time of such amendment, repeal or modification.
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ARTICLE IX
AMENDMENTS
Section 9.1 Power of Shareholders
New Bylaws may be adopted or these Bylaws may be amended or
repealed by the affirmative vote of a majority of the outstanding shares
entitled to vote or by the written consent thereof, except as otherwise provided
by law or by the Articles of Incorporation.
Section 9.2 Power of Directors
Subject to the right of shareholders as provided in Section 9.1
of these Bylaws, Bylaws other than a Bylaw or amendment thereof specifying or
changing the authorized number of Directors, or the minimum or maximum number of
a variable Board of Directors, or changing from a fixed to a variable Board of
Directors or vice versa, may be adopted, amended or repealed by the approval of
the Board of Directors.
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EXHIBIT 4.1
================================================================================
IMMERSION CORPORATION
INFORMATION AND REGISTRATION RIGHTS AGREEMENT
Dated
April 13, 1998
================================================================================
<PAGE> 2
IMMERSION CORPORATION
INFORMATION AND REGISTRATION RIGHTS AGREEMENT
This INFORMATION AND REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
made as of April 13, 1998, by and among Immersion Corporation (the "IMMERSION")
and the holders of Series C and Series D Preferred Stock set forth on the
attached Schedule A hereto (collectively, the "Preferred Shareholders").
WHEREAS, IMMERSION, Intel Corporation, a Delaware corporation
("Intel") and the holders of Series C Preferred Stock (collectively with Intel,
the "Series C Preferred") entered into a Series C Preferred Stock and Common
Stock Warrant Purchase Agreement dated June 6, 1997 (the "Series C Agreement").
WHEREAS, IMMERSION entered into the Series D Stock Purchase Agreement
dated as of April 13, 1998 with Logitech International S.A. (the "Primary
Purchaser") and the purchasers of Series D Preferred Stock (collectively with
the Primary Purchaser, the "Purchasers") as set forth in Exhibit A to the Series
D Agreement in which Purchasers purchased from IMMERSION and IMMERSION sold
to Purchasers shares of Series D Preferred Stock (the shares of Series C
Preferred Stock and Series D Preferred Stock shall hereinafter be referred to as
the "Shares").
WHEREAS, in order to induce IMMERSION to enter into this Agreement and
to induce Purchasers to invest funds in IMMERSION pursuant to the Series D
Agreement, the holders of Series C Preferred desire to amend, restate and
replace their rights under Sections 5.1, 5.4, 5.5 and Section 6 of the Series C
Agreement with the rights set forth in this Agreement and to extend the rights
in this Agreement to Purchasers.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereby agree as follows:
1. Registration Rights.
1.1. Definitions. The following terms shall have the following
respective meanings:
(a) The terms "Holder" or "Holders" means any person or
persons to whom Registrable Securities were originally issued or qualifying
transferees under Section 1.12 ("Transfer of Registration Rights") hereof who
hold Registrable Securities.
(b) The terms "register," "registered" and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration statement.
(c) The term "Series C Registrable Securities" means (i)
any and all of the shares of the Common Stock issued or issuable upon conversion
of the Series C Preferred Stock held by the Preferred Holders (the "Series C
Conversion Shares"), which have not been
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sold to the public, (ii) any and all shares of Common Stock issued or issuable
upon exercise of the Warrants (as defined in the Series C Agreement), which have
not been sold to the public, or (iii) shares of Common Stock issued in respect
of the stock referred to in (i) or (ii) above as a result of a dividend or other
distribution with respect to, in exchange for or in replacement of, all such
shares of Common Stock, which have not been sold to the public.
(d) The term "Series D Registrable Securities" means (i)
any and all of the shares of the Common Stock issued or issuable upon conversion
of the Series D Preferred Stock held by the Preferred Holders (the "Series D
Conversion Shares" and together with the Series C Conversion Shares, the
"Conversion Shares"), which have not been sold to the public or (ii) shares of
Common Stock issued in respect of the Series D Conversion Shares referred to in
(i) above as a result of a dividend or other distribution with respect to, in
exchange for or in replacement of, all such shares of Common Stock.
(e) The term "Registrable Securities" means all Series C
Registrable Securities and Series D Registrable Securities.
1.2. IMMERSION Registration.
(a) Participation in IMMERSION Registration. If (but,
without any obligation to do so pursuant to Sections 1.4 ("Form S-3") or 1.5
("Demand Registration")) IMMERSION shall determine to register any of its
securities, for its own account or the account of a shareholder (other than a
Holder) exercising demand registration rights (other than a registration
relating to employee stock option or purchase plans, or a registration on SEC
Form S-4 relating to an SEC Rule 145 transaction, or a registration on any form
other than SEC Forms S-1, S-2 or S-3, or their successor forms or any successor
to such forms, which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities) IMMERSION will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after receipt of such written notice
from IMMERSION, by any Holder or Holders, except as set forth in Section
1.2((b)) ("Underwriting") below.
(b) Underwriting. If the registration of which IMMERSION
gives notice is for a registered public offering involving an underwriting,
IMMERSION shall so advise the Holders as a part of the written notice given
pursuant to Section 1.2((a))((i)). In such event the right of any Holder to
registration pursuant to Section 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with IMMERSION and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
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<PAGE> 4
IMMERSION. Notwithstanding any other provision of this Section 1.2 ("IMMERSION
Registration"), in an initial public offering, the underwriter may limit the
number of Registrable Securities and other securities of IMMERSION held by
shareholders (other than Holders) having contractual rights to registration to
be included in the registration and underwriting, or may exclude Registrable
Securities and Additional Registrable Securities (as defined in Section 1.3
("Registration Rights of Employees, Etc.")) entirely from such registration and
underwriting, and in any public offering following an initial public offering,
the underwriter may limit the number of Registrable Securities and Additional
Registrable Securities to an amount equal to 25% of the Common Stock to be
included in such registration and underwriting. The IMMERSION shall so advise
all holders of Registrable Securities and Additional Registrable Securities
which would otherwise be registered and underwritten pursuant hereto, and the
number of shares of Registrable Securities and Additional Registrable Securities
that may be included in the registration and underwriting shall be allocated
among holders requesting registration in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities and Additional Registrable
Securities held by each of such holders as of the date of the notice pursuant to
Section 1.2((a))((i)) above, subject to the provisions of this Section 1.2((b))
("Underwriting"). If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
IMMERSION and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
1.3. Registration Rights of Employees, Etc. The IMMERSION may
provide its employees, directors and advisors participation in IMMERSION
initiated registrations with respect to their shares ("Additional Registrable
Securities"); provided that inclusion of such shares does not diminish the
number of shares included by IMMERSION in such registration. Moreover, in any
such registration, stock held by Louis Rosenberg, Timothy Lacey or Bruce Schena
(collectively the "Founders") and by employees shall be cut-back prior to any
cut-back of the Registrable Securities or Additional Registrable Securities,
notwithstanding any provision of Section 1.2 ("IMMERSION Registration").
1.4. Form S-3. The IMMERSION shall use commercially reasonable
efforts to qualify for registration on SEC Form S-3 or its successor form. After
IMMERSION has qualified for the use of Form S-3, Holders of Registrable
Securities shall have the right to request registrations on Form S-3 (such
requests shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of the
Registrable Securities by such Holders), subject only to the following:
(a) The IMMERSION shall not be required to effect a
registration pursuant to this Section 1.4 ("Form S-3") within one hundred and
eighty (180) days after the effective date of any other registration of
IMMERSION's securities.
(b) The IMMERSION shall not be required to effect a
registration pursuant to this Section 1.4 ("Form S-3") if the registration will
be for less than one hundred fifty thousand (150,000) shares of Common Stock of
IMMERSION.
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<PAGE> 5
(c) If IMMERSION shall furnish to the Holders a
certificate signed by the President of IMMERSION stating that in the good
faith judgment of the Board of Directors of IMMERSION it would be seriously
detrimental to IMMERSION and its shareholders for such Form S-3 registration
to be effected at such time, IMMERSION shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than 180
days after receipt of the request of the Holders under this Section 1.4 ("Form
S-3").
The IMMERSION shall give written notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this Section
1.4 ("Form S-3") and shall provide a reasonable opportunity for other Holders to
participate in the registration, provided that if the registration is for an
underwritten offering, the terms of Section 1.2((b)) ("Underwriting") shall
apply to all participants in such offering. Subject to the foregoing, IMMERSION
will use commercially reasonable efforts to effect promptly the registration of
all shares of Registrable Securities on Form S-3 to the extent requested by the
Holder or Holders thereof for purposes of disposition.
1.5. Demand Registration.
(a) Request for Registration. If, after a Qualified IPO (as
defined in Section 2.1(e)), IMMERSION shall receive a written request ("Demand
Request") from Holders of not less than fifty percent (50%) ("Initiating
Holders") of the Series C Registrable Securities or the Series D Registrable
Securities that IMMERSION file a registration statement under the Securities
Act for an underwritten public offering covering the registration with respect
to all or a part of the Series C Registrable Securities and Series D Registrable
Securities then outstanding, IMMERSION will:
(i) promptly give written notice of the proposed
registration to all other Holders; and as soon as practicable, use commercially
reasonable efforts to effect all such registrations (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualifications under the applicable blue sky or other state
securities laws and appropriate compliance with exemptive regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Initiating Holders' such Series C or
Series D Registrable Securities as are specified in the Demand Request, together
with all or such portion of Series C or Series D Registrable Securities of any
other Holder or Holders joining in such request as are specified in a written
request given within 30 days after receipt of such written notice from
IMMERSION; provided that IMMERSION shall not be obligated to take any action to
effect such registration pursuant to this Section 1.5 ("Demand Registration")
after IMMERSION has effected two (2) such registrations pursuant to this Section
1.5((a)) ("Request for Registration") and such registrations have been declared
or ordered effective.
(ii) Subject to Section 1.5((a))((i)), IMMERSION
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practical, but in any event within 90
days, after receipt of the request or requests of the Initiating
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<PAGE> 6
Holders; provided, however, that if IMMERSION shall furnish to such Holders a
certificate signed by the President of IMMERSION stating that in the good
faith judgment of the Board of Directors it would be detrimental to IMMERSION
and its shareholders for such registration statement to be filed at the date
filing would be required and it is therefore essential to defer the filing of
such registration statement, IMMERSION shall have an additional period of not
more than 180 days after the expiration of the initial 180-day period within
which to file such registration statement.
(b) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their Demand Request by means
of an underwriting, they shall so advise IMMERSION as part of their Demand
Request made pursuant to Section 1.5 ("Demand Registration") and IMMERSION
shall include such information in the written notice referred to in Section
1.5((a))((i)). In such event, the underwriter shall be selected by IMMERSION
and shall be reasonably acceptable to a majority in interest of the Initiating
Holders. The right of any Holder to registration pursuant to Section 1.5
("Demand Registration") shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and Holders requesting inclusion in such underwriting) to
the extent provided herein. The IMMERSION shall (together with all Holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or
underwriters. Notwithstanding any other provision of this Section 1.5((b))
("Underwriting"), if the underwriter advises the Initiating Holders in writing
that marketing factors require a limitation of the number of shares to be
underwritten, the Initiating Holders shall so advise all Holders, and the number
of shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders thereof in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by such Holders. If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such Holder may elect to withdraw therefrom by
written notice to IMMERSION, the underwriter and the Holders. Any Registrable
Securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation or withdrawn from such underwriting shall be
withdrawn from such registration.
1.6. Lock-Up Provision. Upon receipt of a written request by
IMMERSION or by its underwriters, the Holders agree not to sell, sell short,
grant an option to buy, or otherwise dispose of their shares of Common Stock
issued or issuable upon conversion of the preferred stock of IMMERSION for one
hundred eighty (180) days after the date of the effectiveness of the
registration statement covering IMMERSION's securities, or any shorter period as
may be agreed to by IMMERSION and any holder of five percent (5%) or more of the
then outstanding Common Stock of IMMERSION including shares of Common Stock,
issued or issuable upon exercise or conversion of outstanding shares of capital
stock of IMMERSION or any security exercisable or convertible into such capital
stock (the "Fully Diluted Common Stock").
1.7. Expenses of Registration. All expenses incurred in
connection with any registration pursuant to this Section 1.7 ("Expenses of
Registration"), including without limitation, all registration, filing and
qualification fees, printing expenses, fees and disbursements
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<PAGE> 7
of counsel for IMMERSION and expenses of any special audits incidental to or
required by such registration, shall be borne by IMMERSION except as follows:
(a) The IMMERSION shall not be required to pay fees or
disbursements of legal counsel of the Holders.
(b) The IMMERSION shall not be required to pay underwriters'
fees, discounts or commissions relating to Registrable Securities.
All expenses of any registered offering not otherwise borne by IMMERSION
shall be borne pro rata among the Holders participating in the offering (and
IMMERSION, if it is selling securities in the offering) on the basis of the
number of Registrable Shares.
1.8. Registration Procedures. In the case of each registration
effected by IMMERSION pursuant to this Agreement, IMMERSION will keep each
Holder participating therein advised in writing as to the initiation of each
registration and as to the completion thereof. Except as otherwise provided in
Section 1.7 ("Expenses of Registration"), at its expense IMMERSION will:
(a) Keep registration pursuant to Section 1.4 ("Form S-3")
and Section 1.5 ("Demand Registration") effective until the Holder or Holders
have completed the distribution described in the registration statement relating
thereto; provided, however, under no circumstances shall IMMERSION be required
to keep such registration effective for more than 180 days for registrations
pursuant to Section 1.4 ("Form S-3") and 120 days for registrations pursuant to
Section 1.5 ("Demand Registration"); and
(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
1.9. Indemnification.
(a) To the extent permitted by law, IMMERSION will
indemnify each Holder of Registrable Securities, each of its officers, directors
and partners, and each person controlling such Holder, with respect to which
such registration has been effected pursuant to this Section 1.9
("Indemnification"), and each underwriter, if any, and each person who controls
any underwriter of the Registrable Securities held by or issuable to such Holder
from and against all claims, losses, expenses, damages and liabilities (or
actions in respect thereto) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by IMMERSION of any rule or regulation promulgated under the
Securities Act or any state securities law applicable to IMMERSION and
relating to action or inaction required of IMMERSION in connection with any
such registration and will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
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<PAGE> 8
underwriter and each person who controls any such underwriter, for any
reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 1.9 ("Indemnification") shall not apply to amounts paid in settlement of
any such claim, loss, damage, liability, or action if such settlement is
effected without the consent of IMMERSION (which consent shall not be
unreasonably withheld); and provided further, that IMMERSION will not be
liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to IMMERSION by an instrument duly executed
by such Holder or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration is being effected, indemnify IMMERSION, each of its directors and
officers, each underwriter, if any, of IMMERSION's securities covered by such a
registration statement, each person who controls IMMERSION within the meaning of
the Securities Act, and each other such Holder, each of its officers, directors
and partners and each person controlling such Holder, against all claims,
losses, expenses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse IMMERSION, such
Holders, such directors, officers, partners, persons or underwriters for any
reasonable legal or any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to IMMERSION by an instrument duly executed by such Holder specifically for use
therein; provided, however, the total amount for which any Holder shall be
liable under this Section 1.9 ("Indemnification") shall not in any event exceed
the aggregate proceeds received by such Holder from the sale of Registrable
Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under this
Section 1.9 ("Indemnification") (the "Indemnified Party") shall give notice to
the party required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
actual detriment to the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof
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the giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
1.10. Information by Holder. Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to IMMERSION
such information regarding such Holder or Holders as IMMERSION may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
1.11. Rule 144 Reporting. With a view to making available to
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, IMMERSION agrees at all times after ninety (90) days after the
effective date of the first registration filed by IMMERSION for an offering of
its securities to the general public to:
(a) Make and keep public information available, as those
terms are understood and defined in SEC Rule 144;
(b) Use commercially reasonable efforts to file with the SEC
in a timely manner all reports and other documents required of IMMERSION under
the Securities Act and the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by IMMERSION
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by IMMERSION for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of IMMERSION, and such other reports and documents
so filed by IMMERSION as the Holder may reasonably request in complying with
any rule or regulation of the SEC allowing the Holder to sell any such
securities without registration.
1.12. Transfer of Registration Rights. The rights to cause
IMMERSION to register Registrable Securities pursuant to this Agreement may be
assigned to a transferee or assignee of not less than one hundred sixty thousand
seven hundred fifteen (160,715) shares of Registrable Securities (including, for
these purposes, the Shares) not sold to the public, provided that IMMERSION is
given written notice by such Holder at the time of or within a reasonable time
after said transfer, stating the name and address of said transferee or assignee
and identifying the securities with respect to which such registration rights
are being assigned, and such transferee has agreed to comply with the
obligations of this Section 1.12 ("Transfer of Registration Rights").
1.13. Termination of Registration Rights. The registration rights
contained in this Agreement shall terminate as to any Holder of Registrable
Securities at the earlier of (i) three (3) years from the closing date of a
Qualified IPO or (ii) as to each Holder, at such time as such Holder is eligible
to sell all of such Holder's Registrable Securities then held in any three (3)
month period under SEC Rule 144.
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<PAGE> 10
1.14. Additional Registration Rights. Except for "piggyback"
registration rights that allow a third party other than a Holder to exercise
such rights together with rights granted the Holders under Section 1.2
("IMMERSION Registration") and that provide for participation and cutback in the
registration on a pro rata basis consistent with Section 1.2 ("IMMERSION
Registration") (which grant of registration rights shall require no approval of
the Holders), IMMERSION will not grant registration rights to any other holder
of IMMERSION's securities who does not currently hold registration rights,
without the prior approval of a majority of the Registrable Securities; provided
that, such approval shall not be unreasonably withheld. Notwithstanding the
foregoing, IMMERSION may grant registration rights without prior approval of the
holders of Registrable Securities if such registration rights (i) do not
adversely affect the registration rights granted to the Holders in this
Agreement, and (ii) do not have rights superior in any way to the Holders in
this Agreement.
2. Additional Agreements.
2.1. Right of First Offer.
(a) The Right. If, at any time after the Closing Date,
IMMERSION shall offer any shares of capital stock of IMMERSION or any security
exercisable for or convertible into such capital stock ("Capital Stock") (other
than a sale or issuance within the meaning of Section 2.1((d)) ("Limitation"))
in a transaction not registered under the Securities Act in reliance upon a
claimed exemption thereunder, IMMERSION shall give both Intel and the Primary
Purchaser (the "Primary Preferred Holders") written notice (the "Notice of
Issuance") of IMMERSION's intention to sell and issue such Capital Stock,
setting forth the proposed price, quantity and other material terms and
conditions under which IMMERSION proposes to make such sale (the date such
notice is delivered to Primary Preferred Holders is hereinafter referred to as
the "Notice Date"). Prior to any sale or issuance by IMMERSION of any Capital
Stock, each Primary Preferred Holder shall have the right to purchase a portion
of such Capital Stock on terms which, subject to this Section 2.1 ("Right of
First Offer"), are the same to each Primary Preferred Holder as the terms on
which IMMERSION is willing and proposes to sell such Capital Stock to other
prospective investors. Each Primary Preferred Holder shall have fifteen (15)
days after the Notice Date to notify IMMERSION in writing that it elects to
purchase some or all of such Primary Preferred Holder's Pro Rata Share (as
hereinafter defined) of the Capital Stock so offered. A Primary Preferred
Holder's Pro Rata Share of the Capital Stock so offered shall be determined by
(i) multiplying by the amount of Capital Stock proposed to be sold or issued by
IMMERSION by (ii) a fraction calculated by dividing (A) the number of shares of
Common Stock owned by such Primary Preferred Holder or issued and issuable upon
exercise or conversion of Capital Stock (other than Common Stock) of IMMERSION
held by such Primary Preferred Holder as of the Notice Date by (B) the total
number of shares of Common Stock issued and outstanding or issuable upon
exercise or conversion of all outstanding Capital Stock as of the Notice Date.
(b) IMMERSION Sale. If, within fifteen (15) days after the
Notice Date, a Primary Preferred Holder does not notify IMMERSION that it
desires to purchase all or a portion of a Primary Preferred Holder's Pro Rata
share of Capital Stock being offered by IMMERSION,
9
<PAGE> 11
then IMMERSION may, during a period of ninety (90) days following the end of
such fifteen (15) day period, sell and issue such Capital Stock not otherwise
purchased by such Primary Preferred Holder to other third parties at a price and
upon terms and conditions no more favorable to such parties than those set forth
in the Notice of Issuance. In the event that IMMERSION has not sold such
Capital Stock to such parties within such ninety (90) day period, IMMERSION
shall not thereafter issue or sell any Capital Stock without first offering such
securities to the Primary Preferred Holders in the manner provided in this
Section 2.1 ("Right of First Offer").
(c) Purchase; Payment. If a Primary Preferred Holder elects
to purchase Capital Stock pursuant to this Section 2.1 ("Right of First Offer"),
such Primary Preferred Holder and IMMERSION shall use their best efforts to
consummate the purchase and sale of such Capital Stock within sixty (60) days
after the Notice Date, and, subject to this Section 2.1((c)) ("Purchase;
Payment"), the terms of such purchase and sale shall be the same to such Primary
Preferred Holder as those set forth in the Notice of Issuance. The closing of
such purchase shall take place as promptly as practicable after all regulatory
filings required for the consummation of such purchase have been obtained, at
such time, on such date, and at such location as the parties shall mutually
agree. Payment for such Capital Stock shall be by check (or wire transfer of
immediately available funds to an account designated by IMMERSION by written
notice delivered to such Primary Preferred Holder not less than two (2) business
days prior to the scheduled closing of such purchase) against delivery of the
Capital Stock being sold to such Primary Preferred Holder at the executive
offices of IMMERSION at the time of the scheduled closing therefor. The
IMMERSION shall take all such action as may reasonably be required by any
regulatory authority in connection with the exercise by such Primary Preferred
Holder of the right to purchase Capital Stock as set forth in this Section
2.1((c)) ("Purchase; Payment").
(d) Limitation. The provisions of this Section 2.1 ("Right
of First Offer") shall not apply to (i) issuances of Common Stock upon
conversion of shares of Series A, Series B, Series C and Series D Preferred
Stock; (ii) issuances by IMMERSION after the date of this Agreement of up to
7,400,000 shares of Common Stock (and options to purchase Common Stock) to
employees, officers, directors or consultants of IMMERSION, pursuant to stock
purchase or stock option plans approved by IMMERSION's Board of Directors
inclusive of the 3,549,596 shares subject to outstanding options under the 1994
and 1997 Plans and the 1,365,172 shares issued upon exercise of options granted
under the 1994 and 1997 Plans but net of any repurchases, cancellations,
terminations and expirations; (iii) issuances of up to (A) 228,250 shares of
Common Stock, (B) 7,500 shares of Series A Preferred Stock and (C) 18,000 shares
of Series B Preferred Stock of IMMERSION to holders of warrants outstanding as
of the date of this Agreement or to be issued pursuant to the terms hereof; (iv)
issuances of Capital Stock in connection with the acquisition of another
business entity or majority ownership thereof, provided that (A) such business
entity is not directly or indirectly an Affiliate (as defined below) of any
director, officer or other natural person who is an Affiliate of IMMERSION (a
"Control Person") other than in such Control Person's capacity as an officer,
director or shareholder of IMMERSION and such Control Person does not have a
material interest in such entity other than as an officer, director or
shareholder of IMMERSION, or (B) such issuances are made in a bona fide
transaction, as determined by the Board of Directors of IMMERSION;
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<PAGE> 12
(v) issuances of up to 750,000 shares of Common Stock in connection with any
lease financing transaction approved by IMMERSION's Board of Directors and (vi)
issuances up to 800,000 shares of Common Stock, issued in connection with
strategic investment and/or the acquisition of technology approved by
IMMERSION's Board of Directors.
(e) Termination. The rights of the Preferred Holders under
this Section 2.1 ("Right of First Offer") shall terminate immediately prior to
the first to occur of (i) the closing of the sale of stock pursuant to a
registration statement under the Securities Act for an underwritten public
offering (other than a registration on Forms S-8, Form S-4 or comparable or
successor forms) covering IMMERSION's Common Stock (an "Offering") which
results in aggregate cash proceeds to the Corporation of more than $10,000,000
and which has a public offering price of not less than $7.00 per Share (a
"Qualified IPO") and (ii) at such time as such Purchaser holds less than an
aggregate of 377,930 Shares and/or Conversion Shares and/or Warrants or Warrant
Shares (as defined in the Series C Agreement).
(f) Assignment. The rights under this Section 2.1 ("Right of
First Offer") shall be assignable by a Primary Preferred Holder only to an
assignee who following such assignment holds at least an aggregate of 377,930
Shares and/or Conversion Shares and/or Warrants or Warrant Shares (as defined in
the Series C Agreement).
(g) Affiliate. For purposes of this Section 2.1 ("Right of
First Offer"), the term "Affiliate" means any person or entity controlling,
controlled by or under common control with IMMERSION.
3. Board Attendance and Inspection Rights.
3.1. The Right. As long as a Primary Preferred Holder holds two
and one-half percent (2.5%) of the Fully Diluted Common Stock (as defined in
Section 1.6), (i) the Primary Preferred Holder shall have the right to appoint a
representative reasonably acceptable to IMMERSION to attend all Board meetings
and meetings of committees thereof as an observer only and without any voting
privileges (the "Representative"), and (ii) IMMERSION shall permit the Primary
Preferred Holder, at the Primary Preferred Holder's expense, to visit and
inspect IMMERSION's properties, to examine its books of account and records and
to discuss IMMERSION's affairs, finances and accounts with its officers, all at
such reasonable times as may be requested by the Primary Preferred Holder;
provided, however, that IMMERSION shall not be obligated pursuant to this clause
(ii) to provide access to any information which it reasonably considers to be a
trade secret or similar confidential information. The IMMERSION shall provide to
the Representative copies of all notices and materials provided to the Board at
the same time and in the same manner as provided to the Board.
3.2. Confidential Information with respect to Intel
Representative. Exchanges of confidential and proprietary information between
IMMERSION and Intel shall be governed by nondisclosure agreements entered into
between IMMERSION and Intel. Specifically, exchanges of confidential and
proprietary information between IMMERSION and the Intel Representative shall
be governed by the terms of the Corporate Non-Disclosure Agreement No. 74214
dated
11
<PAGE> 13
December 13, 1996, executed by IMMERSION and Intel, and any Confidential
Information Transmittal Records provided in connection therewith.
3.3. Confidential Information with respect to the Logitech
Representative. The Logitech Representative shall maintain the confidentiality
of all financial, confidential and proprietary information of IMMERSION
obtained by the Representative as a result of these rights, and represent and
agree that the information provided by IMMERSION pursuant to these rights
shall not be used by Logitech or its affiliates in any manner inconsistent with
the fiduciary obligations of a director of IMMERSION and shall be kept
confidential. In addition, all oral communication at, or regarding, the Board
meetings and meetings of committees thereof between the Representatives and
members of the Board of Directors shall be deemed Confidential Information.
3.4. Right to Withhold Information. The IMMERSION reserves the
right to withhold any information or to exclude the Representative from any
meeting or portion thereof if delivery of such information or attendance by such
Representative could, in the sole opinion of IMMERSION and its counsel,
conflict with the Board of Directors' fiduciary obligations to IMMERSION's
stockholders, adversely affect the attorney-client privilege between IMMERSION
and its counsel or a third party, or pose a material conflict of interest for
such Primary Preferred Holder or its Representative. If information is withheld
or the Representative is excluded from a meeting of the Board of Directors (or a
committee thereof) pursuant to the preceding sentence, IMMERSION shall notify
the Representative of the fact that information was withheld or attendance was
excluded, but IMMERSION shall not be obligated to notify the Representative of
the content of the information nor of the purpose or proceedings of the meeting,
as appropriate.
3.5. Assignment and Termination. The rights granted hereunder may
not be assigned or otherwise conveyed by the Representative, the Primary
Preferred Holder or by any subsequent transferee of any such rights without the
prior written consent of IMMERSION. The rights granted under this Section 3
("Board Attendance and Inspection Rights") shall terminate immediately prior to
the first to occur of (i) sale of stock of IMMERSION pursuant to a Qualified
IPO or (ii) the closing of a Corporate Sale (as defined in Section 5).
3.6. Confidential Purchaser Information. The IMMERSION
acknowledges that the Representative appointed by each Purchaser will likely
have, from time to time, information that may be of interest to IMMERSION
("Information") regarding a wide variety of matters including, by way of example
only, (a) such Purchaser's technologies, plans and services, and plans and
strategies relating thereto, (b) current and future investments such Purchaser
has made, may make, may consider or may become aware of with respect to other
companies and other technologies, products and services, including, without
limitation, technologies, products and services that may be competitive with
IMMERSION's, and (c) developments with respect to the technologies, products and
services, and plans and strategies relating thereto, of other companies,
including, without limitation, companies that may be competitive with IMMERSION.
The IMMERSION recognizes that a portion of such Information may be of interest
to IMMERSION. Such Information may or may not be known by the Representative.
The IMMERSION, as a material part of the consideration for this Agreement,
agrees that neither the Purchaser nor its Representative
12
<PAGE> 14
shall have a duty to disclose any information to IMMERSION or permit IMMERSION
to participate in any projects or investments based on any Information, or to
otherwise take advantage of any opportunity that may be of interest to IMMERSION
if it were aware of such Information, and hereby waives, to the extent permitted
by law, any claim based on the corporate opportunity doctrine or otherwise that
could limit such Purchaser's ability to pursue opportunities based on such
Information or that would require such Purchaser or such Purchaser's
Representative to disclose any such Information to IMMERSION or offer any
opportunity relating thereto to IMMERSION.
4. Information Rights. So long as the Preferred Shareholder is the
holder of shares of Series C Preferred Stock or Series D Preferred Stock or
Conversion Shares, IMMERSION will furnish to such Preferred Shareholder , (i) as
soon as practicable after the end of each fiscal year, and in any event within
ninety (90) days thereafter, a consolidated balance sheet of IMMERSION as of the
end of such fiscal year and consolidated statements of income, cash flow and
shareholders' equity of IMMERSION, for such fiscal year, prepared in accordance
with GAAP consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
certified by independent public accountants of recognized national standing
selected by IMMERSION; (ii) as soon as practicable after the end of each fiscal
quarter, and in any event within forty-five (45) days thereafter, an unaudited
consolidated balance sheet of IMMERSION as of the end of such quarter and
consolidated statements of income and cash flow for such quarter and the fiscal
year to date, prepared in accordance with GAAP consistently applied (except that
such statements need not contain footnotes required by GAAP); (iii) as soon as
practicable after the end of each month, and in any event within thirty (30)
days thereafter, an unaudited balance sheet of IMMERSION as of the end of such
month and an unaudited statement of operations for such month prepared in
accordance with GAAP; and (iv) at least thirty (30) days prior to the end of
IMMERSION's fiscal year, the annual budget of IMMERSION for the next fiscal
year. The rights under this Section 4 ("Information Rights") (other than the
rights provided in the following sentence) shall terminate immediately upon the
closing of a sale of stock of IMMERSION pursuant to a registration statement
under the Securities Act. Notwithstanding the foregoing sentence, IMMERSION
shall promptly furnish to any Preferred Shareholder holding Series C or Series D
Preferred Stock or Conversion Shares following the closing of the sale of stock
of IMMERSION pursuant to a registration statement under the Securities Act,
copies of IMMERSION's Form 10-Ks, Form 10-Qs, Form 8-Ks and Annual Reports to
Shareholders after such documents are filed with the SEC. The rights granted
hereunder shall be assignable by a holder of Series C Preferred Stock, Series C
Conversion Shares, Warrants or Warrant Shares only to an assignee who, following
such assignment, holds at least 377,930 shares of Series C Preferred Stock,
Series C Conversion Shares, Warrants or Warrant Shares. The rights granted
hereunder shall be assignable by a holder of Series D Preferred Stock or Series
D Conversion Shares only to an assignee who following such assignment, holds at
least 741,840 shares of Series D Preferred Stock or Series D Conversion Shares;
provided, that such rights may be assigned and/or otherwise conveyed among such
Preferred Shareholder and its subsidiaries without such limitation. The rights
granted under this Section 4 shall terminate immediately prior to a sale of
stock of IMMERSION pursuant to a Qualified IPO.
13
<PAGE> 15
5. Notice Rights Regarding a Corporate Sale. In the event that IMMERSION
receives a bona fide offer to acquire the Corporation's assets or voting
securities in a transaction constituting a Corporate Sale, then IMMERSION shall
provide the Primary Purchaser with written notice within 4 business days (the
"Notice") of such proposal with a reasonably detailed description of the
proposed terms thereof, including without limitation the aggregate price or
value of the Corporate Sale and the proposed form of such Corporate Sale. For
purposes of this section, a "Corporate Sale" shall be defined as (i) a
consolidation or merger of IMMERSION with or into any other corporation or
corporations (other than a wholly-owned subsidiary) to which the shareholders of
IMMERSION immediately prior to such transaction hold 50% or less of the total
voting power for election of directors of the acquiring or surviving entity
immediately following the transaction, (ii) the sale, transfer or other
disposition of all or substantially all of the assets of IMMERSION, or (iii) the
consummation of any transaction or series of related transactions which results
in the Corporation's shareholders immediately prior to such transaction holding
50% or less of the voting power of the acquiring or surviving entity immediately
following the transaction. After the Notice has been delivered to the Primary
Purchaser, IMMERSION shall have the right, without any obligation to Primary
Purchaser, to pursue and enter into a definitive agreement, for a Corporate Sale
of IMMERSION with the third party whose proposal is the subject of the Notice.
The rights granted hereunder may not be assigned or otherwise conveyed by the
Preferred Shareholder or by any subsequent transferee of any such rights without
the prior written consent of IMMERSION; provided, that such rights may be
assigned and/or otherwise conveyed among such Preferred Shareholder and its
subsidiaries without such prior written consent. The rights granted under this
Section 5 shall terminate immediately prior to the first to occur of (i) a sale
of stock of IMMERSION pursuant to a Qualified IPO or (ii) the closing of a
Corporate Sale.
6. Voting Restrictions. Until April 6, 2000, with respect to a proposal
to approve or disapprove a Corporate Sale (as defined in Section 5) (i) on which
holders of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock of IMMERSION vote together with the Common Stock as a class, the
Series D Preferred Stock shall be automatically voted for, against or in
abstention, in proportion to the votes cast for, against or in abstention
(whether at a meeting or by written consent) of the outstanding Series A
Preferred Stock, Series B Preferred Stock and Common Stock; or (ii) on which the
aforesaid Preferred Stock is voted or takes action by written consent as a
single class apart from the Common Stock, the Series D Preferred Stock shall
automatically be voted for, against or in abstention, in proportion to the votes
case for, against or in abstention (whether at a meeting or by written consent)
of the outstanding Series A Preferred Stock and Series B Preferred Stock.
Notwithstanding the foregoing, this Section 6 shall not apply to a proposal to
approve or disapprove a Corporate Sale in which (i) the rights, preferences and
privileges of the Series D Preferred Stock as they relate to the amount or form
of consideration to be received in a Corporate Sale are adversely affected in a
manner different from all other holders of IMMERSION's stock or (ii) the holders
of Series D Preferred Stock are not treated at least as favorably with respect
to the amount or form of consideration to be received in a Corporate Sale as all
other holders of IMMERSION's stock (regardless of class or series); provided
however, that a payment to all holders of IMMERSION's stock in accordance with
the terms of Section 5 of IMMERSION's Fourth Amended and Restated
14
<PAGE> 16
Articles of Incorporation shall not be deemed to be less favorable treatment
with respect to the amount of consideration received in the Corporate Sale.
7. Miscellaneous.
7.1. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts entered into by and between California residents and to be wholly
performed within the State of California.
7.2. Adjustments for Stock Splits and Certain Other Changes.
Wherever in this Agreement there is a reference to a specific number of shares
of Common Stock or Preferred Stock of IMMERSION of any class or series, then,
upon the occurrence of any subdivision, combination or stock dividend of such
class or Series of stock, the specific number of shares so referenced in this
Agreement shall automatically be proportionally adjusted to reflect the effect
on the outstanding shares of such class or Series of stock by such subdivision,
combination or stock dividend.
7.3. Waiver of Right of First Refusal and Co-Sale and Termination
of Certain Provisions of the Series C Agreement. Effective as of the date of
this Agreement and upon approval of a majority of the Series C Preferred, the
Series C Preferred hereby agree to amend, restate and replace their rights under
Sections 5.1, 5.4, 5.5 and 6 of the Series C Agreement with the rights set forth
in this Agreement.
7.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5. Headings. The headings of the Sections of this Agreement are
for convenience and shall not by themselves determine the interpretation of this
Agreement.
7.6. Notices. Any notice required or permitted hereunder shall be
given in writing and shall be conclusively deemed effectively given upon
personal delivery, or five (5) days after deposit in the United States mail, by
registered or certified mail (or by airmail, if notice shall be sent outside the
United States), postage prepaid, addressed (i) if to IMMERSION, as set forth
below IMMERSION's name on the signature page of this Agreement, and (ii) if to
the Preferred Shareholder, as set forth below the Preferred Shareholder's name
on the signature page of this Agreement, or at such other address as IMMERSION
or such Preferred Shareholder may designate by ten (10) days' advance written
notice to the Preferred Shareholder or IMMERSION, respectively. Any notice
sent outside the United States shall also be telexed or telecopied.
7.7. Amendment of Agreement. Except as otherwise provided in
Section 1, any provision of this Agreement may be amended and the observance
thereof may be waived, only by a written instrument signed by IMMERSION and by
persons holding at a majority of the Registrable Securities as defined in
Section 1 of this Agreement. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable
15
<PAGE> 17
Securities then outstanding, each subsequent holder of all such Registrable
Securities and IMMERSION.
7.8. Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof, and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants relating to such
subject matter, except as specifically set forth herein.
7.9. Severability. In case any provision of this Agreement shall
be declared invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
16
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
IMMERSION CORPORATION
a California corporation
By: /s/ Louis Rosenberg
--------------------------
Louis Rosenberg, President
[Signature Page to the Information and Registration Rights Agreement]
17
<PAGE> 19
IMMERSION CORPORATION
INFORMATION AND REGISTRATION RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
April 13, 1998
"PREFERRED SHAREHOLDER"
LOGITECH INTERNATIONAL S.A.
By: /s/ Guerrino De Luca
----------------------------------------
Name: Guerrino De Luca
Title: President and Chief Executive Officer
By: /s/ Barry Zwarenstein
----------------------------------------
Name: Barry Zwarenstein
Title: Chief Financial Officer
18
<PAGE> 20
IMMERSION CORPORATION
INFORMATION AND REGISTRATION RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
April 13, 1998
"PREFERRED SHAREHOLDER"
INTEL CORPORATION
----------------------------------------
By: /s/ Arvind Sodanhi
---------------------------------
Name: Arvind Sodanhi
--------------------------------
Title: Vice President and Treasurer
--------------------------------
19
<PAGE> 21
SCHEDULE A
SCHEDULE OF PREFERRED SHAREHOLDERS
Intel Corporation
Logitech International S.A.
20
<PAGE> 22
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights.................................................................1
1.1. Definitions..................................................................1
1.2. IMMERSION Registration.........................................................2
1.3. Registration Rights of Employees, Etc........................................3
1.4. Form S-3.....................................................................3
1.5. Demand Registration..........................................................4
1.6. Lock Up Provision............................................................5
1.7. Expenses of Registration.....................................................5
1.8. Registration Procedures......................................................6
1.9. Indemnification..............................................................6
1.10. Information by Holder........................................................7
1.11. Rule 144 Reporting...........................................................8
1.12. Transfer of Registration Rights..............................................8
1.13. Termination of Registration Rights...........................................8
1.14. Additional Registration Rights...............................................8
2. Additional Agreements...............................................................9
2.1. Right of First Offer.........................................................9
3. Board Attendance and Inspection Rights.............................................11
3.1. The Right...................................................................11
3.2. Confidential Information with respect to Intel Representative...............11
3.3. Confidential Information with respect to the Logitech Representative........11
3.4. Right to Withhold Information...............................................12
3.5. Assignment and Termination..................................................12
3.6. Confidential Purchaser Information..........................................12
4. Information Rights.................................................................12
5. Notice Rights Regarding a Corporate Sale...........................................13
6. Voting Restrictions................................................................14
7. Miscellaneous......................................................................14
7.1. Governing Law...............................................................14
7.2. Adjustments for Stock Splits and Certain Other Changes......................14
7.3. Waiver of Right of First Refusal and Co-Sale................................15
7.4. Counterparts................................................................15
7.5. Headings....................................................................15
7.6. Notices.....................................................................15
7.7. Amendment of Agreement......................................................15
7.8. Entire Agreement............................................................15
7.9. Severability................................................................15
</TABLE>
i
<PAGE> 1
EXHIBIT 4.2
IMMERSION CORPORATION
CYBERNET REGISTRATION RIGHTS AGREEMENT
This CYBERNET REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
as of March 5, 1999, by and between Immersion Corporation (the "IMMERSION") and
Cybernet Systems Corporation ("Cybernet").
WHEREAS, IMMERSION and Cybernet have entered into that certain Plan
of Reorganization among IMMERSION, Immersion Acquisition Corporation ("Sub"),
Cybernet and Cybernet Haptic Systems ("Cybernet Sub") dated March 4, 1999 (the
"Merger Agreement") pursuant to which Sub will merge with and into Cybernet Sub
with Cybernet Sub surviving as a wholly-owned subsidiary of IMMERSION (the
"Merger").
WHEREAS, as a result of the Merger, Cybernet shall receive 1,600,000
shares of Common Stock of IMMERSION.
WHEREAS, IMMERSION and Cybernet have entered into that certain
Consulting Services Agreement of even date herewith pursuant to which IMMERSION
has granted Cybernet warrants to purchase 400,000 shares of Common Stock of
IMMERSION (the "Warrant") in exchange for certain consulting services.
WHEREAS, IMMERSION entered into the Information and Registration Rights
Agreement with the holders of Series C and Series D Preferred Stock dated April
13, 1998 (the "Preferred Stock Rights Agreement") pursuant to which IMMERSION
may grant certain "piggyback" registration rights to any other holder of
IMMERSION's securities without the prior approval of a majority of the holders
of Series C and Series D Preferred Stock.
WHEREAS, in order to induce Cybernet to enter into the Merger Agreement
and the Consulting Services Agreement, IMMERSION desires to provide Cybernet
with the rights set forth in this Agreement with respect to shares of Common
Stock of IMMERSION acquired by Cybernet pursuant to the Warrant and the Merger
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereby agree as follows:
1. Registration Rights.
1.1. Definitions. The following terms shall have the following
respective meanings:
(a) The terms "Holder" or "Holders" means any person or persons
to whom Registrable Securities were originally issued or qualifying transferees
under Section 1.10 hereof who hold Registrable Securities.
<PAGE> 2
(b) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(c) The term "Registrable Securities" means (i) any and all of
the shares of the Common Stock issued pursuant to the Merger Agreement or
issuable upon exercise or conversion of the Warrant (collectively, the
"Shares"), which have not been sold to the public, (ii) shares of Common Stock
issued in respect of the stock referred to in (i) above as a result of a
dividend or other distribution with respect to, in exchange for or in
replacement of, all such shares of Common Stock, which have not been sold to the
public.
(d) "Qualified IPO" shall mean the sale of stock pursuant to a
registration statement under the Securities Act for an underwritten public
offering (other than a registration on Form S-8, Form S-4 or comparable or
successor forms) covering IMMERSION's Common Stock which results in aggregate
gross proceeds (prior to underwriter's commissions and expenses) to the
Corporation of more than $5,000,000.
(e) "SEC" shall mean the Securities and Exchange Commission.
(f) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.2. IMMERSION Registration.
(a) Participation in IMMERSION Registration. If IMMERSION shall
determine to register any of its securities, for its own account or the account
of a shareholder (other than a Holder) exercising demand registration rights
(other than a registration relating to employee stock option or purchase plans,
or a registration on SEC Form S-4 relating to an SEC Rule 145 transaction, or a
registration on any form other than SEC Forms S-1, S-2 or S-3, or their
successor forms or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities) IMMERSION
will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after receipt of such written notice
from IMMERSION, by any Holder or Holders, except as set forth in Section
1.2((b)) below.
(b) Underwriting. If the registration of which IMMERSION gives
notice is for a registered public offering involving an underwriting, IMMERSION
shall so advise the Holders as a part of the written notice given pursuant to
Section 1.2((a))((i)). In such event the right of any Holder to registration
pursuant to Section 1.2 shall be conditioned upon such
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Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with IMMERSION and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by
IMMERSION. Notwithstanding any other provision of this Section 1.2, in an
initial public offering, the underwriter may limit the number of Registrable
Securities and other securities of IMMERSION held by shareholders (other than
Holders) having contractual rights to registration to be included in the
registration and underwriting, or may exclude Registrable Securities and
Additional Registrable Securities (as defined in Section 1.3) entirely from such
registration and underwriting, and in any public offering following an initial
public offering, the underwriter may limit the number of outstanding securities
of IMMERSION held by shareholders having contractual rights to registration,
including the Registrable Securities and Additional Registrable Securities (the
"Aggregate Registrable Securities"), to an amount equal to 25% of the Common
Stock to be included in such registration and underwriting. The IMMERSION shall
so advise all holders of Registrable Securities and Additional Registrable
Securities which would otherwise be registered and underwritten pursuant hereto,
and the number of shares of the Aggregate Registrable Securities that may be
included in the registration and underwriting shall be allocated among holders
requesting registration in proportion, as nearly as practicable, to the
respective amounts of the Aggregate Registrable Securities held by each of such
holders as of the date of the notice pursuant to Section 1.2((a))((i)) above,
subject to the provisions of this Section 1.2((b)). If any Holder disapproves of
the terms of any such underwriting, such Holder may elect to withdraw therefrom
by written notice to IMMERSION and the underwriter. Any Registrable Securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.
1.3. Registration Rights of Employees, Etc. The IMMERSION may provide
its employees, directors and advisors participation in IMMERSION initiated
registrations with respect to their shares ("Additional Registrable
Securities"); provided that inclusion of such shares does not diminish the
number of shares included by IMMERSION in such registration. Moreover, in any
such registration, stock held by Louis Rosenberg, Timothy Lacey or Bruce Schena
(collectively the "Founders") and by employees shall be cut-back prior to any
cut-back of the Registrable Securities or Additional Registrable Securities,
notwithstanding any provision of Section 1.2.
1.4. Lock-Up Provision. Upon receipt of a written request by IMMERSION
or by its underwriters, the Holders agree not to sell, sell short, grant an
option to buy, or otherwise dispose of their shares of Common Stock issued or
issuable upon conversion of the Option or Warrant for one hundred eighty (180)
days after the date of the effectiveness of the registration statement covering
IMMERSION's securities, or any shorter period as may be agreed to by IMMERSION
and any holder of five percent (5%) or more of the then outstanding Common Stock
of IMMERSION including shares of Common Stock, issued or issuable upon exercise
or conversion of outstanding shares of capital stock of IMMERSION or any
security exercisable or convertible into such capital stock (the "Fully Diluted
Common Stock").
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<PAGE> 4
1.5. Expenses of Registration. All expenses incurred in connection
with any registration pursuant to this Section 1.5, including without
limitation, all registration, filing and qualification fees, printing expenses,
fees and disbursements of counsel for IMMERSION and expenses of any special
audits incidental to or required by such registration, shall be borne by
IMMERSION except as follows:
(a) The IMMERSION shall not be required to pay fees or
disbursements of legal counsel of the Holders.
(b) The IMMERSION shall not be required to pay underwriters'
fees, discounts or commissions relating to Registrable Securities.
All expenses of any registered offering not otherwise borne by
IMMERSION shall be borne pro rata among the Holders participating in the
offering (and IMMERSION, if it is selling securities in the offering) on the
basis of the number of Registrable Shares.
1.6. Registration Procedures. In the case of each registration
effected by IMMERSION pursuant to this Agreement, IMMERSION will keep each
Holder participating therein advised in writing as to the initiation of each
registration and as to the completion thereof. Except as otherwise provided in
Section 1.5, at its expense IMMERSION will furnish such number of prospectuses
and other documents incident thereto as a Holder from time to time may
reasonably request.
1.7. Indemnification.
(a) To the extent permitted by law, IMMERSION will indemnify
each Holder of Registrable Securities, each of its officers, directors and
partners, and each person controlling such Holder, with respect to which such
registration has been effected pursuant to this Section 1.7, and each
underwriter, if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder from and against all
claims, losses, expenses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
IMMERSION of any rule or regulation promulgated under the Securities Act or any
state securities law applicable to IMMERSION and relating to action or inaction
required of IMMERSION in connection with any such registration and will
reimburse each such Holder, each of its officers, directors and partners, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any reasonable legal and any other expenses
incurred in connection with investigating, defending or settling any such claim,
loss, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 1.7 shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability, or action if such
settlement is effected without the consent of IMMERSION (which consent shall not
be unreasonably withheld); and provided further, that IMMERSION will not be
liable in any such case to the extent that any such claim, loss, damage or
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<PAGE> 5
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to IMMERSION by an instrument duly executed
by such Holder or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration is being effected, indemnify IMMERSION, each of its directors and
officers, each underwriter, if any, of IMMERSION's securities covered by such a
registration statement, each person who controls IMMERSION within the meaning of
the Securities Act, and each other such Holder, each of its officers, directors
and partners and each person controlling such Holder, against all claims,
losses, expenses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse IMMERSION, such
Holders, such directors, officers, partners, persons or underwriters for any
reasonable legal or any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to IMMERSION by an instrument duly executed by such Holder specifically for use
therein; provided, however, the total amount for which any Holder shall be
liable under this Section 1.7 shall not in any event exceed the aggregate
proceeds received by such Holder from the sale of Registrable Securities held by
such Holder in such registration.
(c) Each party entitled to indemnification under this Section
1.7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in actual detriment to
the Indemnifying Party. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.8. Information by Holder. Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to IMMERSION
such information regarding
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<PAGE> 6
such Holder or Holders as IMMERSION may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.9. Rule 144 Reporting. With a view to making available to Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, IMMERSION
agrees at all times after ninety (90) days after the effective date of the first
registration filed by IMMERSION for an offering of its securities to the general
public to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144;
(b) Use commercially reasonable efforts to file with the SEC in
a timely manner all reports and other documents required of IMMERSION under
the Securities Act and the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by IMMERSION
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by IMMERSION for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of IMMERSION, and such other reports and documents
so filed by IMMERSION as the Holder may reasonably request in complying with
any rule or regulation of the SEC allowing the Holder to sell any such
securities without registration.
1.10. Transfer of Registration Rights. The rights to cause IMMERSION
to register Registrable Securities pursuant to this Agreement may be assigned to
a transferee or assignee reasonably acceptable to IMMERSION in connection with
any transfer or assignment of Registrable Securities provided that: such
transfer may otherwise be effected in accordance with applicable securities
laws, and such assignee or transferee acquires at least 500,000 shares of
Registrable Securities (appropriately adjusted for stock splits, stock
dividends, recapitalization or the like).
1.11. Termination of Registration Rights. The registration rights
contained in this Agreement shall terminate as to any Holder of Registrable
Securities at the earlier of (i) three (3) years from the closing date of a
Qualified IPO or (ii) as to each Holder, at such time as such Holder is eligible
to sell all of such Holder's Registrable Securities then held in any three (3)
month period under SEC Rule 144.
2. Board Attendance.
2.1. The Right. As long as Cybernet holds five percent (5%) of the
Fully Diluted Common Stock (as defined in Section 1.4), Cybernet shall have the
right to appoint a representative reasonably acceptable to IMMERSION to attend
all Board meetings and meetings of committees thereof as an observer only and
without any voting privileges (the
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"Representative"). The IMMERSION and Cybernet agree that Heidi Jacobus shall
serve as the initial Representative of Cybernet. The IMMERSION shall provide the
Representative copies of all notices and materials provided to the Board at the
same time and in the same manner as provided to the Board.
2.2. Confidential Information with respect to the Representative.
The Representative shall maintain the confidentiality of all financial,
confidential and proprietary information of IMMERSION obtained by the
Representative as a result of these rights, and represent and agree that the
information provided by IMMERSION pursuant to these rights shall not be used by
Cybernet or its affiliates in any manner inconsistent with the fiduciary
obligations of a director of IMMERSION and shall be kept confidential. In
addition, all oral communications at, or regarding, the Board meetings and
meetings of committees thereof between the Representatives and members of the
Board of Directors shall be deemed Confidential Information.
2.3. Right to Withhold Information. The IMMERSION reserves the right
to withhold any information or to exclude the Representative from any meeting or
portion thereof if delivery of such information or attendance by such
Representative could, in the sole opinion of IMMERSION and its counsel, conflict
with the Board of Directors' fiduciary obligations to IMMERSION's stockholders,
adversely affect the attorney-client privilege between IMMERSION and its counsel
or a third party, or pose a material conflict of interest for such Cybernet or
its Representative. If information is withheld or the Representative is excluded
from a meeting of the Board of Directors (or a committee thereof) pursuant to
the preceding sentence, IMMERSION shall notify the Representative of the fact
that information was withheld or attendance was excluded and shall provide the
Representative with a general description of the reason for the exclusion.
2.4. Assignment and Termination. The rights granted under this
Section 2 may not be assigned or otherwise conveyed by the Representative,
Cybernet or by any subsequent transferee of any such rights without the prior
written consent of IMMERSION. The rights granted under this Section 2 shall
terminate immediately prior to the first to occur of (i) sale of stock of
IMMERSION pursuant to a Qualified IPO or (ii) the closing of a Corporate Sale.
Each of the following events shall be deemed to be a "Corporate Sale": (i) a
consolidation or merger of IMMERSION with or into any other corporation or
corporations (other than a wholly-owned subsidiary) in which the shareholders of
IMMERSION immediately prior to such transaction hold fifty percent (50%) or less
of the total voting power for the election of directors of the acquiring or
surviving entity immediately following the transaction, or (ii) the sale,
transfer or other disposition of all or substantially all of the assets of
IMMERSION or (iii) the consummation of any transaction or series of related
transactions which results in IMMERSION's shareholders immediately prior to such
transaction holding fifty percent (50%) or less of the voting power of the
acquiring or surviving entity immediately following the transaction.
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3. Miscellaneous.
3.1. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts entered into by and between California residents and to be wholly
performed within the State of California.
3.2. Adjustments for Stock Splits and Certain Other Changes.
Wherever in this Agreement there is a reference to a specific number of shares
of Common Stock of IMMERSION of any class or series, then, upon the occurrence
of any subdivision, combination or stock dividend of such stock, the specific
number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the effect on the outstanding shares of such
stock by such subdivision, combination or stock dividend.
3.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4. Headings. The headings of the Sections of this Agreement are
for convenience and shall not by themselves determine the interpretation of this
Agreement.
3.5. Notices. Any notice required or permitted hereunder shall be
given in writing and shall be conclusively deemed effectively given upon
personal delivery, or five (5) days after deposit in the United States mail, by
registered or certified mail (or by airmail, if notice shall be sent outside the
United States), postage prepaid, addressed (i) if to IMMERSION, as set forth
below IMMERSION's name on the signature page of this Agreement, and (ii) if to
Cybernet, as set forth below Cybernet's name on the signature page of this
Agreement, or at such other address as IMMERSION or Cybernet may designate by
ten (10) days' advance written notice to Cybernet or IMMERSION, respectively.
Any notice sent outside the United States shall also be telexed or telecopied.
3.6. Amendment of Agreement. Except as otherwise provided in Section
1, any provision of this Agreement may be amended and the observance thereof may
be waived, only by a written instrument signed by IMMERSION and by persons
holding at a majority of the Registrable Securities as defined in Section 1 of
this Agreement. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each subsequent holder of all such Registrable Securities and
IMMERSION.
3.7. Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof, and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants relating to such
subject matter, except as specifically set forth herein.
3.8. Severability. In case any provision of this Agreement shall be
declared invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
IMMERSION CORPORATION
a California corporation
By: /s/ Louis Rosenberg
-----------------------------------
Louis Rosenberg, President
Corporate Address: 2158 Paragon Drive
San Jose, CA 95131
[Signature Page to the Cybernet Information and Registration Rights Agreement]
<PAGE> 10
IMMERSION CORPORATION
CYBERNET INFORMATION AND REGISTRATION RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
March 5, 1999
"CYBERNET"
CYBERNET SYSTEMS CORPORATION
/s/ Charles Jacobus
---------------------------------------
By: Charles Jacobus
------------------------------------
Name: Charles Jacobus
----------------------------------
Title: President
---------------------------------
<PAGE> 1
EXHIBIT 4.3
IMMERSION CORPORATION
COMMON STOCK GRANT AND PURCHASE AGREEMENT AND PLAN
THIS COMMON STOCK GRANT AND PURCHASE AGREEMENT AND PLAN (the
"AGREEMENT") is made and entered into effective as of July 6, 1999 (the
"EFFECTIVE DATE") by and between Immersion Corporation, a California corporation
(the "COMPANY"), and Michael Reich & Associates ("Reich").
1. GRANT OF STOCK BONUS; CONSIDERATION; ISSUANCE OF SHARES. The
IMMERSION hereby grants, sells and agrees to issue, subject to the provisions of
this Agreement, 85,000 shares of common stock of IMMERSION (the "SHARES"), with
a current fair market value of $2.95 per share, or $250,750 total, to Reich, in
consideration for the past services of Reich, actually rendered to IMMERSION or
for its benefit. Reich hereby accepts the grant of and purchases the Shares,
subject to the provisions of this Agreement. No further consideration shall be
required of Reich in connection with the receipt of the Shares, and the Board of
Directors of IMMERSION (the "BOARD") has determined by resolutions adopted on
the Effective Date that the value of the past services for which the Shares are
granted hereunder is at least equal to the fair market value of the Shares. The
Shares granted hereunder are fully vested.
2. ENTIRE AGREEMENT. This Agreement and the letter dated June 29, 1999
from the Reich to IMMERSION (the "Letter") constitute the entire Agreement of
IMMERSION and Reich with respect to executive recruiting services specified in
the Letter and supersedes all prior agreements and understandings, both written
and oral, between IMMERSION and Reich with respect to the subject matter
thereof. This Agreement constitutes the entire agreement with respect to the
stock grant referred to in Paragraph VII, Sections A and E and fulfills
IMMERSION's obligations with respect thereto.
3. SECURITIES LAW COMPLIANCE. In connection with the issuance of the
Shares, Reich hereby agrees, represents and warrants as follows:
3.1 Reich is acquiring the Shares solely for its own account for
investment and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933 as amended
(the "SECURITIES ACT"). Reich further represents that it does not have any
present intention of selling, offering to sell or otherwise disposing of or
distributing the Shares or any portion thereof; and that the entire legal and
beneficial interest of the Shares acquired is being acquired for, and will be
held for the account of, Reich only and neither in whole nor in part for any
other person. Reich has the full right, power and authority to enter into and
perform this Agreement.
3.2 Reich acknowledges and understands that the Shares have not been
registered under the Securities Act or qualified under the California
Corporations Code, and that consequently the Shares must be held indefinitely
unless they are subsequently registered under the Securities Act and qualified
under the California Corporations Code, an exemption from such
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registration is available, or they are sold in accordance with Rule 701 and Rule
144 promulgated under the Securities Act. Reich further acknowledges and
understands that IMMERSION is under no obligation to register the Shares and
that, in the absence of registration, the Shares may not be transferred. Reich
understands that the certificate or certificates evidencing the Shares will be
imprinted with legends which prohibit the transfer of the Shares unless (i) they
are registered or (ii) Reich has notified IMMERSION of the proposed distribution
and such registration is not required in the opinion of legal counsel
satisfactory to IMMERSION. Reich does not have any contract, undertaking,
agreement, or arrangement with any person to sell, transfer, or grant
participants to such person or to any third person with respect to any of the
Shares.
3.3 Reich is aware that Rules 701 and 144, promulgated under the
Securities Act, which permit limited public resale of securities acquired in a
nonpublic offering, are not currently available with respect to the Shares and,
in any event, are available only if certain conditions are satisfied. Reich
understands that any sale of the Shares that might be made in reliance upon Rule
144 may only be made in limited amounts in accordance with the terms and
conditions of such rule and that a copy of Rule 144 will be delivered to Reich
upon request.
3.4 Reich was not presented with or solicited by any form of general
solicitation or general advertising, including, but not limited to, any
advertisement, article, notice, or other communication published in any
newspaper, magazine, or similar media, or broadcast over television, radio or
similar communications media, or presented at any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
3.5 Reich has either (a) a preexisting personal or business
relationship with IMMERSION or any of its officers, directors, or controlling
persons, consisting of personal or business contacts of a nature and duration to
enable Reich to be aware of the character, business acumen and general business
and financial circumstances of the person with whom such relationship exists, or
(b) such knowledge and experience in financial and business matters (or has
relied on the financial and business knowledge and experience of Reich's
professional advisor who is unaffiliated with and who is not, directly or
indirectly, compensated by IMMERSION or any affiliate or selling agent of
IMMERSION) as to make Reich capable of evaluating the merits and risks of an
investment in the Shares and to protect Reich's own interests in the
transaction, or (c) both such relationship and such knowledge and experience.
3.6 Reich understands that the Shares have not been qualified under
either the Corporate Securities Law of 1968, as amended, of the State of
California by reason of a specific exemption therefrom, which exemption depends
upon, among other things, the bona fide nature of Reich's representations as
expressed herein. Reich understands that IMMERSION is relying on Reich's
representations and warrants that IMMERSION is entitled to rely on such
representations and that such reliance is reasonable.
4. INDEPENDENT CONTRACTOR RELATIONSHIP. Reich and IMMERSION understand,
acknowledge and agree that Reich's relationship with IMMERSION is that of an
independent
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contractor and nothing in this Agreement is intended to or should be construed
to create a partnership, joint venture or employment relationship.
5. RESTRICTIONS ON TRANSFER OF SHARES. No Shares acquired pursuant to
this Agreement may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of Reich), assigned, pledged,
hypothecated or otherwise disposed of, including by operation of law, in any
manner which violates any of the provisions of this Agreement and any such
attempted disposition shall be void. The IMMERSION shall not be required (a) to
transfer on its books any shares which will have been transferred in violation
of any of the provisions set forth in this Agreement or (b) to treat as owner of
such shares or to accord the right to vote as such owner or to pay dividends to
any transferee to whom such shares will have been so transferred.
6. REGISTRATION RIGHTS. If, during any period that Reich is not
eligible to sell Shares in reliance upon Rule 144, IMMERSION (other than in
consequence of or related to the exercise of demand registration rights by
holders of IMMERSION's securities having demand registration rights and other
than with respect to IMMERSION's registration of shares in connection with its
initial public offering) shall determine to register any of its securities under
the Securities Act for its own account (other than a registration relating to
employee stock option or purchase plans, or a registration on Securities and
Exchange Commission ("SEC") Form S-4 relating to an SEC Rule 145 transaction, or
a registration on any form other than SEC Forms S-1, S-2 or S-3, or their
successor forms or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration covering the sale of the Shares) IMMERSION will promptly give to
Reich written notice thereof; and include in such registration statement, and in
any underwriting involved therein, all the Shares specified in a written
request, made within thirty (30) days after receipt of such written notice from
IMMERSION, by Reich, except as set forth in this Section 6. If the
registration of which IMMERSION gives notice is for a registered public
offering involving an underwriting, IMMERSION shall so advise Reich as a part
of the written notice given pursuant to this Section 6. In such event the right
of Reich to registration pursuant to this Section 6 shall be conditioned upon
Reich's participation in such underwriting and the inclusion of Reich's Shares
in the underwriting to the extent provided herein. Reich shall (together with
IMMERSION and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by IMMERSION.
Notwithstanding any other provision of this Section 6, the underwriter may limit
the number of Shares and other securities of IMMERSION held by shareholders
(other than Reich) having contractual rights to registration to be included in
the registration and underwriting ("REGISTRABLE SECURITIES"), or may exclude
Registrable Securities, Shares and the shares of officers, directors and
advisors ("ADDITIONAL SHARES") entirely from such registration and underwriting.
The IMMERSION shall so advise all holders of Registrable Securities, Shares and
Additional Shares which would otherwise be registered and underwritten pursuant
hereto, and the number of Registrable Securities, Shares and Additional Shares
of such holders that may be included in the registration and underwriting shall
be allocated among holders requesting registration in proportion, as nearly as
practicable, to the respective amounts of shares held by each of such holders as
of the date of the notice pursuant to this Section 6, subject to the
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<PAGE> 4
provisions of this Section 6. If IMMERSION disapproves of the terms of any
such underwriting, IMMERSION may elect to withdraw therefrom by written notice
to IMMERSION and the underwriter. Any Shares excluded or withdrawn from such
underwriting shall be withdrawn from such registration. The rights contained in
this Section 6 shall not be assignable without the consent of IMMERSION.
7. FURTHER INSTRUMENTS. The parties hereto agree to execute such
further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
8. NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given (except to the extent that this
Agreement provides for effectiveness only upon actual receipt of such notice)
upon personal delivery or upon deposit in the United States Post Office, by
registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
9. BINDING EFFECT. This Agreement shall inure to the benefit of the
successors and assigns of IMMERSION and, subject to the restrictions on
transfer herein set forth, be binding upon Reich and Reich's heirs, executors,
administrators, successors and assigns.
10. CERTIFICATE REGISTRATION. The certificate or certificates for the
Shares acquired pursuant to this Agreement shall be registered in the name of
Reich.
11. AMENDMENTS. No amendment or addition to this Agreement shall be
effective unless in writing signed by IMMERSION.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of California as such laws are applied to agreements between California
residents entered into and to be performed entirely within the State of
California.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have as of the Effective Date
first written above caused this Common Stock Grant and Purchase Agreement and
Plan to be executed.
Immersion Corporation,
a California corporation
By: /s/ Timothy Lacey
------------------------------------
Timothy Lacey,
Chief Financial Officer
Address: 2158 Paragon Drive
San Jose, CA 95131
Reich represents that Reich is familiar with the terms and provisions
of this Agreement and hereby accepts the Shares subject to all of the terms and
provisions thereof.
MICHAEL REICH & ASSOCIATES
/s/ Michael A. Reich
------------------------------------
Print Name: Michael A. Reich
------------------------
Address: 2995 Woodside Road
--------------------------
Suite 260
--------------------------
Woodside, CA 94062
--------------------------
5
<PAGE> 1
EXHIBIT 4.4
DIGITAL EQUIPMENT CORPORATION
and
IMMERSION CORPORATION
COMMON STOCK AGREEMENT
This Common Stock Agreement, dated June __, 1998, (the "Effective
Date") is entered into by and between Digital Equipment Corporation, a
Massachusetts corporation with principal offices at 111 Powdermill Road,
Maynard, Massachusetts 01754. ("DIGITAL") and Immersion Corporation, a
California corporation with principal offices at 2158 Paragon Drive, San Jose,
California 95131, ("IMMERSION"), and is hereinafter referred to as "this
Agreement".
WHEREAS, DIGITAL has agreed to assign all rights, title and interest to
the U.S. Patent No. 5,185,561, issued on February 9, 1993, (the "Patent") to
IMMERSION under a separate Assignment of Patent Agreement to be executed by
DIGITAL contemporaneously with this Agreement; and
WHEREAS, IMMERSION has agreed to issue Common Stock to DIGITAL as
specified herein as compensation for such assignment of the Patent;
NOW THEREFORE, in consideration of the mutual provisions and covenants
contained herein, DIGITAL and IMMERSION agree as follows:
ARTICLE 1 - COMMON SHARES
In consideration for the assignment of Patent No. 5,185,561 pursuant to
the Assignment of Patent Agreement dated June ___, 1998 and for the provision
of consulting services by DIGITAL pursuant to Article 7 of this Agreement,
IMMERSION agrees to issue to DIGITAL 100,000 shares of IMMERSION's Common Stock
(the "Shares") with a fair market value of $2.95 per share on the Effective Date
of this Agreement. IMMERSION represents that such Shares will be duly and
validly issued, fully paid and non-assessable, and free from all taxes, liens
and charges with respect to the issuance thereof. In addition, IMMERSION agrees
to pay DIGITAL an up-front fee of ten thousand U.S. dollars (US $ 10,000.00) on
the Effective Date of this Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES
2.1 This Agreement is made with DIGITAL in reliance upon DIGITAL's
representation to IMMERSION, evidenced by DIGITAL's execution of this
Agreement, that DIGITAL is acquiring the Shares for investment for its own
account, and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933, as amended (the "Securities Act") and the California Corporations Code.
DIGITAL has not been organized for the sole purpose of acquiring the Shares.
DIGITAL has the full right, power and authority to enter into and perform this
Agreement.
2.2 DIGITAL understands and acknowledges that the offering of the Shares
pursuant to this Agreement will not be registered under the Securities Act or
qualified under the California Corporations Code on the grounds that the
offering and sale of securities contemplated by this Agreement are exempt from
registration under the Securities Act and exempt from qualification pursuant to
Section 25102(f) of the California Corporations Code, and that IMMERSION's
reliance upon such exemptions is predicated upon DIGITAL's representations set
forth in this Agreement. DIGITAL acknowledges and understands that the Shares
must be held indefinitely unless the Shares are subsequently registered under
the Securities Act and qualified under the California Corporations Code or an
exemption from such registration and such qualification is available.
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<PAGE> 2
2.3 DIGITAL covenants that in no event will DIGITAL dispose of any of
the Shares (other than in conjunction with an effective registration statement
for the Shares under the Securities Act or in compliance with Rule 144
promulgated under the Securities Act) unless and until (i) DIGITAL has notified
IMMERSION of the proposed disposition and shall have furnished IMMERSION with a
statement of the circumstances surrounding the proposed disposition, and (ii)
if reasonably requested by IMMERSION, DIGITAL shall have furnished IMMERSION
with an opinion of counsel reasonably satisfactory in form and substance to
IMMERSION to the effect that (a) such disposition will not require registration
under the Securities Act and (b) appropriate action necessary for compliance
with the Securities Act, the California Corporations Code and any other
applicable state, local or foreign law has been taken. It is agreed that
IMMERSION will not require a notice setting forth the circumstances surrounding
a proposed disposition or opinions of counsel for transactions made pursuant to
Rule 144.
2.4 Notwithstanding the provisions of Section 2.3 above, but subject to
compliance with the Securities Act, the California Corporations Code and any
other applicable state, local or foreign law, no registration statement or
opinion of counsel shall be necessary for a transfer by DIGITAL if the transfer
is to any person or entity controlling, controlled by or under common control
with DIGITAL, and if the transferee agrees in writing to be bound by the terms
of this Agreement to the same extent as if he were an original DIGITAL
hereunder.
2.5 DIGITAL (i) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of such
DIGITAL's prospective investment in the Shares; (ii) has the ability to bear the
economic risks of its prospective investment; (iii) has been furnished with and
has had access to such information as DIGITAL has considered necessary to make a
determination as to the purchase of the Shares together with such additional
information as is necessary to verify the accuracy of the information supplied;
(iv) has had all questions which have been asked by DIGITAL satisfactorily
answered by IMMERSION; and (v) has not been offered the Shares by any form of
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any such media.
ARTICLE 3 - LEGENDS
3.1 All certificates representing the Shares purchased under this
Agreement shall, where applicable, have endorsed thereon the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY'S STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Any legend required to be placed thereon by the California Commissioner
of Corporations or any other state securities agency.
IMMERSION need not register a transfer of any such Shares and may also
instruct its transfer agent not to register the transfer of any such Shares,
unless the conditions specified in the foregoing legends are satisfied.
3.2 In the event that IMMERSION offers its securities in an initial
public offering, DIGITAL hereby agrees that, upon the request of IMMERSION or
the underwriters managing any underwritten offering of IMMERSION's securities,
not to sell, make any short sale, grant any option for the purchase of, or
otherwise dispose of any securities of IMMERSION held by it at any time (other
than those included in the registration) without the prior written consent of
IMMERSION or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eight (180) days) from the effective date of such
registration as may be requested by the underwriters; provided, that the
officers and directors of IMMERSION and all other holders of more than 5% of
IMMERSION's outstanding voting securities also agree to such restrictions.
3.3 If, during any period that DIGITAL is not eligible to sell Shares
in reliance upon Rule 144, IMMERSION (other than in consequence of or related
to the exercise of demand registration rights by holders of IMMERSION's
securities having demand registration rights) shall determine to register any
of its securities under the Securities Act for its own account (other than a
registration relating to employee stock option or purchase plans, or a
registration on Securities and Exchange Commission ("SEC") Form S-4 relating to
an SEC Rule 145 transaction, or a registration on any form other than SEC Forms
S-1, S-2 or S-3, or their successor forms or any successor to such forms, which
does not include substantially the same information as would be required to be
included in a registration covering the sale of the Shares) IMMERSION will
promptly give to DIGITAL written notice thereof; and include in such
registration statement, and in any underwriting involved therein, all the
Shares specified in a written request, made within thirty (30) days after
receipt of such written notice from IMMERSION, by DIGITAL, except as set forth
in this Section 3.3. If the registration of which IMMERSION gives notice is for
a registered public offering involving an underwriting, IMMERSION shall so
advise DIGITAL as a part of the written notice given pursuant to this Section
3.3. In such event the right of DIGITAL to registration pursuant to this
Section 3.3 shall be conditioned upon DIGITAL's participation in such
underwriting and the inclusion of DIGITAL's Shares in the underwriting to the
extent provided herein. Digital shall (together with IMMERSION and the other
holders distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by IMMERSION. Notwithstanding any other
provision of this Section 3.3, the underwriter may limit the number of Shares
and other securities of IMMERSION held by shareholders (other than DIGITAL)
having contractual rights to registration to be included in the registration
and underwriting, or may exclude Shares and the shares of officers, directors
and advisors ("Additional Shares") entirely from such registration and
underwriting. IMMERSION shall so advise all holders of Shares and Additional
Shares which would otherwise be registered and underwritten pursuant hereto,
and the number of Shares and Additional Shares of such holders that may be
included in the registration and underwriting shall be allocated among holders
requesting registration in proportion, as nearly as practicable, to the
respective amounts of shares held by each of such holders as of the date of the
notice pursuant to this Section 3.3, subject to the provisions of this Section
3.3. If DIGITAL disapproves of the terms of any such underwriting, DIGITAL may
elect to withdraw therefrom by written notice to IMMERSION and the underwriter.
Any Shares excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
2
<PAGE> 3
ARTICLE 4 - DILUTION PROTECTION
The number of Shares issued to DIGITAL herein shall be appropriately
adjusted by IMMERSION for any change in the number of shares of IMMERSION Common
Stock by reason of stock dividends, stock splits, stock combinations,
reclassifications, recapitalizations, or similar events prior to the issuance of
the Shares (each a "Recapitalization Event").
ARTICLE 5 - INITIAL PUBLIC OFFERING
If within three (3) years of the Effective Date of this Agreement
IMMERSION has not (i) closed a sale of stock pursuant to a registration
statement under the Securities Act of 1933, as amended, for an underwritten
initial public offering covering IMMERSION's Common Stock (an "IPO"), (ii) been
acquired by a company that is traded on a national stock market exchange other
an acquisition to effect a reincorporation of IMMERSION, or (iii) been acquired
for cash by a company that is not traded on a national stock market exchange
(each a "Liquidity Event"), IMMERSION or its successor or acquiror will pay
DIGITAL Two Hundred Thousand U.S. dollars (US$200,00.00) on May __, 2001, and
DIGITAL shall retain its Shares of IMMERSION or the shares or securities
acquired by DIGITAL in the acquisition of IMMERSION.
ARTICLE 6 - PATENT RESALE
Should IMMERSION assign all right, title and interest in the Patent to a
third party (not pursuant to a Liquidity Event) within twelve (12) months of the
Effective Date of this Agreement, IMMERSION shall pay DIGITAL fifty percent
(50%) of the transfer price (or a dollar amount equal to fifty percent (50%) of
the value received by IMMERSION) but not less than two hundred and fifty
thousand US dollars (US$250,000.00), and DIGITAL shall retain its Shares of
IMMERSION. Should IMMERSION sell the patent to a third party (not pursuant to a
Liquidity Event) after twelve (12) months and within four (4) years of the
Effective Date of this Agreement, it shall pay DIGITAL twenty percent (20%) of
the transfer price (or a dollar amount equal to twenty percent (20%) of the
value received by IMMERSION), but not less than one hundred thousand US dollars
(US$100,000.00), and DIGITAL shall retain its Shares of IMMERSION or the shares
or securities acquired by DIGITAL in the acquisition of IMMERSION.
.
ARTICLE 7 - CONSULTING SERVICES
DIGITAL will provide consulting services related to the maintenance,
prosecution, and enforcement of the Patent. Such consulting services shall last
for a period of three (3) years, and shall not exceed twenty (20) hours of
consulting services in the first year, ten (10) hours in the second year, and
five (5) hours in the third year. In addition, DIGITAL shall provide, upon
request, copies of relevant documentation, for example, any existing design
notebooks, indicating the date of invention of the Patent.
ARTICLE 8 - ASSIGNMENT
Subject to compliance with the Securities Act, the California
Corporations Code and any other applicable state, local or foreign law, this
Agreement is assignable by DIGITAL to any person or entity controlling,
controlled by or under common control with DIGITAL.
ARTICLE 9 - REPORTS
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<PAGE> 4
IMMERSION shall provide DIGITAL with the same general reports that are
provided to all holders of Preferred Stock of IMMERSION.
ARTICLE 10 - TRANSFER TAXES
IMMERSION shall pay the fees required by the United States Patent and
Trademark Office in connection with the assignment of the Patent by DIGITAL to
IMMERSION. DIGITAL shall pay all transfer, documentary, sales, use,
registration and other such taxes and fees incurred in connection with the
transactions described in this Agreement, including but not limited to any
sales tax that may result from the assignment of the Patent by DIGITAL to
IMMERSION in exchange for the consideration described herein. Any other
transfer, documentary, sales, use, registration and other such taxes and fees
incurred in connection with the assignment of the Patent shall be shared
equally by the parties.
ARTICLE 11 - GENERAL
11.1 Nothing in this Agreement shall be construed as making either party
the agent of the other.
11.2 The failure of either party to give notice to the other party of
the breach or non-fulfillment of any term, clause, provision or condition of
this Agreement shall not constitute a waiver thereof, nor shall the waiver of
any breach or non-fulfillment of any term, clause, provision or condition of
this Agreement constitute a waiver of any other breach or non-fulfillment of
that or any other term, clause, provision or condition of this Agreement.
11.3 Any notice under this Agreement shall be in writing and deemed to
have been sufficiently given when, if given to DIGITAL, is addressed to:
Director
Corporate Licensing Office
Digital Equipment Corporation
111 Powdermill Road, MSO2-3/C11
Maynard, MA 01754 USA
And when, if given to IMMERSION, it is addressed to:
President
Immersion Corporation
2158 Paragon Drive
San Jose, CA 95131
and sent by registered or certified mail, return receipt requested,
postage prepaid. The date of execution of the return receipt or five (5)
days after the date of mailing, whichever comes first, shall be deemed
to be the date on which such notice has been given. Each party shall
give prompt written notice to the other party of any change in its
address or corporate name, and after notice of such change has been
given, any notice by the other party to it shall be addressed in
accordance with that change.
11.4 If any provision of this Agreement is held invalid by any law,
rule, order, or by the final determination of any State or Federal court, it
shall not affect any other provisions of this Agreement which can be given
effect without such invalid provision, and to this extent the parties agree that
the provisions of the Agreement are and shall be severable.
11.5 This Agreement is governed by the laws of California.
11.6 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original for all purposes.
11.7 This Agreement and the Assignment of Patent Agreement set forth the
entire agreement and understanding between the parties as to the subject matter
hereof and merges all prior discussions and agreements between them, and neither
of the parties shall be bound by any conditions, definitions, warranties,
understandings or representations with respect to such subject matter other than
as expressly provided herein. This Agreement may not be modified, amended, or
supplemented except by a document executed by a proper and duly authorized
officer or representative of the party to be bound thereby.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have as of the Effective Date first
written above caused this Common Stock Agreement, to be signed in duplicate by
their duly authorized representatives.
DIGITAL EQUIPMENT CORPORATION IMMERSION CORPORATION
Date Date
/s/ William B. Strecker /s/ Louis B. Rosenberg
- -------------------------------- --------------------------------
Signed Signed
William B. Strecker Louis B. Rosenberg
- -------------------------------- --------------------------------
Printed Printed
VP Corp. Strategy and Technology President
- -------------------------------- --------------------------------
Title Title
6-10-98 6-12-98
- -------------------------------- --------------------------------
Date Date
5
<PAGE> 1
EXHIBIT 10.1
IMMERSION HUMAN INTERFACE CORPORATION
1994 STOCK OPTION PLAN
(As amended October 1, 1996)
1. Purpose. The Immersion Human Interface Corporation 1994 Stock Option
Plan (the "Plan") is established to attract, retain and reward persons providing
services to Immersion Human Interface Corporation and any successor corporation
thereto (collectively referred to as the "Company"), and any present or future
parent and/or subsidiary corporations of such corporation (all of whom along
with IMMERSION being individually referred to as a "Participating Company" and
collectively referred to as the "Participating Company Group"), and to
motivate such persons to contribute to the growth and profits of the
Participating Company Group in the future. For purposes of the Plan, a parent
corporation and a subsidiary corporation shall be as defined in sections 424(e)
and 424(f) of the Internal Revenue Code of 1986, as amended (the "Code").
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board") and/or by a duly appointed committee of
the Board having such powers as shall be specified by the Board. Any subsequent
references herein to the Board shall also mean the committee if such committee
has been appointed and, unless the powers of the committee have been
specifically limited, the committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to terminate or amend
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law. All questions of interpretation of the Plan or of
any options granted under the Plan (an "Option") shall be determined by the
Board, and such determinations shall be final and binding upon all persons
having an interest in the Plan and/or any Option. Options may be either
incentive stock options as defined in section 422 of the Code ("Incentive Stock
Options") or nonqualified stock options ("Nonqualified Stock Options"). Any
officer of a Participating Company shall have the authority to act on behalf of
the Company with respect to any matter, right, obligation, or election which is
the responsibility of or which is allocated to the Company therein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
3. Eligibility. Options may be granted only to employees (including
officers) and directors of the Participating Company Group or to individuals who
are rendering services as consultants, advisors, or other independent
contractors to the Participating Company Group. The Board shall, in its sole
discretion, determine which persons shall be granted Options (an "Optionee"). A
director of the Company may only be granted a Nonqualified Stock Option unless
the director is also an employee of the Company. An individual who is rendering
services as a consultant, advisor, or other independent contractor may only be
granted a Nonqualified Stock Option. Eligible persons may be granted more than
one (1) Option.
4. Shares Subject to Option. Options shall be for the purchase of shares
of the authorized but unissued common stock of the Company (the "Stock"),
subject to adjustment as provided in paragraph 9 below. The maximum number of
shares of Stock which may be issued under the Plan shall be seven hundred
thousand seven hundred fifty (700,750) shares. In the event that any outstanding
Option for any reason expires or is terminated or canceled and/or shares of
Stock subject to repurchase are repurchased by the Company, the shares allocable
to
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<PAGE> 2
the unexercised portion of such Option, or such repurchased shares, may again be
subject to an Option grant.
5. Time for Granting Options. All Options shall be granted, if at all,
within ten (10) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan is duly approved by the shareholders of the Company.
6. Terms, Conditions and Form of Options. Subject to the provisions of
the Plan, the Board shall determine for each Option (which need not be
identical) the number of shares of Stock for which the Option shall be granted,
the option exercise price of the Option, the timing and terms of exercisability
and vesting of the Option, whether the Option is to be treated as an Incentive
Stock Option or as a Nonqualified Stock Option and all other terms and
conditions of the Option not inconsistent with the Plan. Options granted
pursuant to the Plan shall be evidenced by written agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish, which agreements may incorporate all or any of the terms
of the Plan by reference and shall comply with and be subject to the following
terms and conditions:
(a) Option Exercise Price. The option exercise price for each Option
shall be established in the sole discretion of the Board; provided, however,
that (i) the option exercise price per share for an Incentive Stock Option shall
be not less than the fair market value, as determined by the Board, of a share
of Stock on the date of the granting of the Option, (ii) the option exercise
price per share for a Nonqualified Stock Option shall not be less than
eighty-five percent (85%) of the fair market value, as determined by the Board,
of a share of Stock on the date of the granting of the Option and (iii) no
Option granted to an Optionee who at the time the Option is granted owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of a Participating Company within the meaning of section
422(b)(6) of the Code (a "Ten Percent Owner Optionee") shall have an option
exercise price per share less than one hundred ten percent (110%) of the fair
market value, as determined by the Board, of a share of Stock on the date of the
granting of the Option. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonqualified Stock Option) may be granted with an
option exercise price lower than the minimum exercise price set forth above if
such Option is granted pursuant to an assumption or substitution for another
option in a manner qualifying with the provisions of section 424(a) of the Code.
(b) Exercise Period of Options. The Board shall have the power to
set the time or times within which each Option shall be exercisable or the event
or events upon the occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided, however, that (i) no Option
shall be exercisable after the expiration of ten (10) years after the date such
Option is granted and (ii) no Option granted to a Ten Percent Owner Optionee
shall be exercisable after the expiration of five (5) years after the date such
Option is granted.
(c) Payment of Option Exercise Price. Payment of the option exercise
price for the number of shares of Stock being purchased pursuant to any Option
shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to
IMMERSION of shares of the Company's stock owned by the Optionee having a value,
as determined by the Board (but without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities
2
<PAGE> 3
laws or agreements with an underwriter for the Company), not less than the
option exercise price, (iii) by the Optionee's recourse promissory note, (iv) by
the assignment of the proceeds of a sale of some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System), or (v) by
any combination thereof. The Board may at any time or from time to time, by
adoption of or by amendment to the form of Standard Option Agreement described
in paragraph 7 below, or by other means, grant Options which do not permit all
of the foregoing forms of consideration to be used in payment of the option
exercise price and/or which otherwise restrict one (1) or more forms of
consideration. Notwithstanding the foregoing, an Option may not be exercised by
tender to IMMERSION of shares of the Company's stock to the extent such tender
of stock would constitute a violation of the provisions of any law, regulation
and/or agreement restricting the redemption of the Company's stock. Furthermore,
no promissory note shall be permitted if an exercise using a promissory note
would be a violation of any law. Any permitted promissory note shall be due and
payable not more than five (5) years after the Option is exercised, and interest
shall be payable at least annually and be at least equal to the minimum interest
rate necessary to avoid imputed interest pursuant to all applicable sections of
the Code. The Board shall have the authority to permit or require the Optionee
to secure any promissory note used to exercise an Option with the shares of
Stock acquired on exercise of the Option and/or with other collateral acceptable
to IMMERSION.
(x) Unless otherwise provided by the Board, an Option may not be
exercised by tender to the Company of shares of the Company's stock unless such
shares of the Company's stock either have been owned by the Optionee for more
than six (6) months or were not acquired, directly or indirectly, from the
Company.
(y) Unless otherwise provided by the Board, in the event IMMERSION
at any time becomes subject to the regulations promulgated by the Board of
Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations.
(z) The Company reserves, at any and all times, the right, in the
Company's sole and absolute discretion, to establish, decline to approve and/or
terminate any program and/or procedures for the exercise of Options by means of
an assignment of the proceeds of a sale of some or all of the shares of Stock to
be acquired upon such exercise.
7. Standard Forms of Stock Option Agreements. Unless otherwise provided
for by the Board at the time an Option is granted or as otherwise provided for
by this paragraph 7, all Incentive Stock Options shall comply with and be
subject to the terms and conditions set forth in the stock option agreement
attached hereto as Exhibit A and incorporated herein by reference (the "Standard
Incentive Option Agreement") and all Nonqualified Stock Options shall comply
with and be subject to the terms and conditions set forth in the stock option
agreement attached hereto as Exhibit B and incorporated herein by reference (the
"Standard Nonqualified Option Agreement"). Except as otherwise provided in
paragraph 6(b) or otherwise provided for by the Board in the grant of an Option,
any Option granted hereunder shall be exercisable for a term of ten (10) years.
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<PAGE> 4
8. Authority to Vary Terms. The Board shall have the authority from time
to time to vary the terms of either Standard Option Agreement described in
paragraph 7 above either in connection with the grant or amendment of an
individual Option or in connection with the authorization of a new standard form
or forms; provided, however, that the terms and conditions of such revised or
amended standard form or forms of stock option agreement shall be in accordance
with the terms of the Plan.
9. Effect of Change in Stock Subject to Plan. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan and
to any outstanding Options and in the option exercise price of any outstanding
Options in the event of a stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or like change in the capital
structure of the Company.
10. Transfer of Control.
(a) Definition. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Control
Company. For purposes of applying this paragraph 10, the "Control Company"
shall mean the corporation whose stock is subject to the Option.
(i) the direct or indirect sale or exchange by the shareholders
of the Control IMMERSION of all or substantially all of the stock of the Control
Company where the shareholders of the Control Company before such sale or
exchange do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Control Company;
(ii) a merger in which the shareholders of the Control Company
before such merger do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Control Company; or
(iii) the sale, exchange, or transfer of all or substantially
all of the Control Company's assets (other than a sale, exchange, or transfer to
one or more corporations where the shareholders of the Control Company before
such sale, exchange or transfer retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the corporation(s) to
which the assets were transferred).
(b) Effect of a Transfer of Control. The Board may, in its sole
discretion, provide in connection with the grant or amendment of any Option for
either one of the following provisions:
(i) in the event of a Transfer of Control, the Board, in its
sole discretion, may arrange with the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), for the Acquiring Corporation to either assume the
Control Company's rights and obligations under the outstanding Option or
substitute an option for the Acquiring Corporation's stock for such outstanding
Option; or
4
<PAGE> 5
(ii) in the event of a Transfer of Control, any unexercisable or
unvested portion of the outstanding Option shall be immediately exercisable and
vested in full as of the date ten (10) days prior to the date of the Transfer of
Control, and, in addition, the Board, in its sole discretion, may arrange with
the Acquiring Corporation for the Acquiring Corporation to either assume the
Control Company's rights and obligations under the outstanding Option or
substitute an option for the Acquiring Corporation's stock for such outstanding
Option.
In any event, the Company shall provide each Optionee holding an outstanding
Option with at least ten (10) days advance written notice of the pending
Transfer of Control prior to the consummation thereof. The exercise or vesting
of any Option that was permissible solely by reason of this paragraph 8 and the
provisions of the Option Agreement evidencing such Option shall be conditioned
upon the consummation of the Transfer of Control. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Transfer of Control nor exercised as of the date of the Transfer of Control
shall terminate and cease to be outstanding effective as of the date of the
Transfer of Control.
11. Provision of Information. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common shareholders.
12. Options Non-Transferable. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
13. Transfer of the Company's Rights. In the event any Participating
Company assigns, other than by operation of law, to a third person, other than
another Participating Company, any of the Participating Company's rights to
repurchase any shares of Stock acquired on the exercise of an Option, the
assignee shall pay to the assigning Participating Company the value of such
right as determined by the Company in the Company's sole discretion. Such
consideration shall be paid in cash. In the event such repurchase right is
exercisable at the time of such assignment, the value of such right shall be not
less than the fair market value of the shares of Stock which may be repurchased
under such right (as determined by the Company) minus the repurchase price of
such shares. The requirements of this paragraph 13 regarding the minimum
consideration to be received by the assigning Participating Company shall not
inure to the benefit of the Optionee whose shares of Stock are being
repurchased. Failure of a Participating Company to comply with the provisions of
this paragraph 13 shall not constitute a defense or otherwise prevent the
exercise of the repurchase right by the assignee of such right.
14. Termination or Amendment of Plan and Options. The Board, including
any duly appointed committee of the Board, may terminate or amend the Plan
and/or any Option at any time; provided, however, that without the approval of
Company's shareholders, there shall be (a) no increase in the total number
of shares of Stock covered by the Plan (except by operation of the provisions of
paragraph 9 above), (b) no change in the class of persons eligible to receive
Incentive Stock Options and (c) no expansion in the class of persons eligible to
receive Nonqualified Stock Options. In any event, no amendment may adversely
affect any then outstanding Option or any unexercised portion thereof, without
the consent of the Optionee, unless such amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Immersion Human Interface Corporation 1994 Stock Option Plan
was duly adopted by the Board of Directors of IMMERSION on the August 8, 1994
and amended by the Board of Directors of the Company on the February 20, 1995,
March 1, 1995, May 3, 1995, October 20, 1995, and October 1, 1996.
PLAN HISTORY
August 8, 1994 Board of Directors adopts the Plan with a share
reserve of 180,000 shares.
August 8, 1994 Shareholders approve the Plan with a share reserve
of 180,000 shares.
February 20, 1995 Board of Directors amends the Plan to increase the
share reserve by 135,000 shares to 315,000 shares.
February 20, 1995 Shareholders approve the share reserve increase to
315,000 shares.
March 1, 1995 Board of Directors amends the Plan to increase the
share reserve by 66,795 shares to 381,795 shares.
April 10, 1995 Shareholders approve the share reserve increase to
381,795 shares.
May 3, 1995 Board of Directors amends the Plan to permit the
grant or amendment of options which provide for the
acceleration of vesting in the event of a Transfer
of Control.
October 20, 1995 Board of Directors amends the Plan to increase the
share reserve by 138,955 shares to 520,750 shares.
October 20, 1995 Shareholders approve the share reserve increase to
520,750 shares.
October 1, 1996 Board of Directors amends the Plan to increase the
share reserve by 180,000 shares to 700,750 shares.
October 1, 1996 Shareholders approve the share reserve increase to
700,750 shares.
<PAGE> 7
EXHIBIT A
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
THE SECURITIES WHICH ARE SUBJECT TO THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHT OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATIONS BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
IMMERSION HUMAN INTERFACE CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
Immersion Human Interface Corporation (the "Company"), granted to the
individual named below an option to purchase certain shares of common stock of
the Company, in the manner and subject to the provisions of this Option
Agreement.
1. Definitions:
(a) "Optionee" shall mean ______________________________ .
(b) "Date of Option Grant" shall mean _____________.
(c) "Number of Option Shares" shall mean _______ shares of common
stock of the Company as adjusted from time to time pursuant to paragraph 9
below.
(d) "Exercise Price" shall mean $________ per share as adjusted from
time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the Initial Vesting Date.
<PAGE> 8
(f) "Initial Vesting Date" shall be the date occurring one (1) year
after (check one):.
-- the Date of Option Grant.
-- __________________ , 199___, the date the
Optionee's Employment commenced
(g) Determination of "Vested Ratio":
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee is
continuously employed by a Participating
Company from the Date of Option Grant until
the Initial Vesting Date
Plus
For each full month of the 1/48
Optionee's continuous employment
by a Participating Company from
the Initial Vesting Date
In no event shall the Vested Ratio exceed 1/1.
</TABLE>
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean Immersion Human Interface Corporation, a
California corporation, and any successor corporation thereto.
(k) "Participating Company" shall mean (i) the Company and (ii) any
present or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in sections 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time
all corporations collectively which are then a Participating Company.
<PAGE> 9
(m) "Plan" shall mean the Immersion Human Interface Corporation 1994
Stock Option Plan.
2. Status of the Option. This Option is intended to be an incentive stock
option as described in section 422 of the Code, but the Company does not
represent or warrant that this Option qualifies as such. The Optionee should
consult with the Optionee's own tax advisors regarding the tax effects of this
Option and the requirements necessary to obtain favorable income tax treatment
under section 422 of the Code, including, but not limited to, holding period
requirements.
3. Administration. All questions of interpretation concerning this Option
Agreement shall be determined by the Board of Directors of the Company (the
"Board") and/or by a duly appointed committee of the Board having such powers as
shall be specified by the Board. Any subsequent references herein to the Board
shall also mean the committee if such committee has been appointed and, unless
the powers of the committee have been specifically limited, the committee shall
have all of the powers of the Board granted in the Plan, including, without
limitation, the power to terminate or amend the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law. All
determinations by the Board shall be final and binding upon all persons having
an interest in the Option. Any officer of a Participating Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to
the Company herein, provided the officer has apparent authority with respect to
such matter, right, obligation, or election.
4. Exercise of the Option.
(a) Right to Exercise. The Option shall first become exercisable on
the Initial Exercise Date. The Option shall be exercisable on and after the
Initial Exercise Date and prior to the termination of the Option in the amount
equal to the Number of Option Shares multiplied by the Vested Ratio as set forth
in paragraph 1 above less the number of shares previously acquired upon exercise
of the Option. In no event shall the Option be exercisable for more shares than
the Number of Option Shares. Notwithstanding the foregoing, except as provided
in paragraph 16 below, the aggregate fair market value of the stock with respect
to which the Optionee may exercise the Option for the first time during any
calendar year, together with any other incentive stock options which are
exercisable for the first time during any such year, as determined in accordance
with section 422(d) of the Code, shall not exceed One Hundred Thousand Dollars
($100,000). Such limitation on exercise described in section 422(d) of the Code
shall be referred to in this Option Agreement as the "$100,000 Exercise
Limitation."
(b) Method of Exercise. The Option may be exercised by written
notice to the Company which must state the election to exercise the Option, the
number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in paragraph 6 below, accompanied by (i) full payment of
the exercise price for the number of shares being purchased
<PAGE> 10
and (ii) an executed copy, if required herein, of the then current forms of
escrow and security agreements referenced below.
(c) Form of Payment of Option Exercise Price. Such payment shall be
made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of
shares of the Company's common stock owned by the Optionee having a value not
less than the option price, which either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company, or (iii) by any combination of the foregoing. Notwithstanding the
foregoing, the Option may not be exercised by tender to the Company of shares of
the Company's common stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Company's common stock.
(d) Withholding. At the time the Option is exercised, in whole or in
part, or at any time thereafter as requested by the Company, the Optionee hereby
authorizes payroll withholding and otherwise agrees to make adequate provision
for foreign, federal and state tax withholding obligations of the Company, if
any, which arise in connection with the Option, including, without limitation,
obligations arising upon (i) the exercise, in whole or in part, of the Option,
(ii) the transfer, in whole or in part, of any shares acquired on exercise of
the Option, or (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired on exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the Company's withholding obligations are
satisfied. Accordingly, the Optionee may not be able to exercise the Option when
desired even though the Option is vested and the Company shall have no
obligation to issue a certificate for such shares.
(e) Certificate Registration. The certificate or certificates for
the shares as to which the Option shall be exercised shall be registered in the
name of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal or
state law with respect to such securities. The Option may not be exercised if
the issuance of shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other law or regulations. In
addition, no Option may be exercised unless (i) a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (ii) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE
UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT
BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. As
a condition to the exercise of the Option, the Company may require the Optionee
to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
<PAGE> 11
(g) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative as provided under section 422(b)(5) of the Code and may not
be assigned or transferred in any manner except by will or by the laws of
descent and distribution.
6. Termination of the Option. The Option shall terminate and may no longer
be exercised on the first to occur of (a) the Option Term Date as defined above,
(b) the last date for exercising the Option following termination of employment
as described in paragraph 7 below, or (c) upon a Transfer of Control as
described in paragraph 8 below.
7. Termination of Employment.
(a) Termination of the Option. If the Optionee ceases to be an
employee of the Participating Company Group for any reason, except death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee within three
(3) months after the date on which the Optionee's employment terminated, but in
any event no later than the Option Term Date. If the Optionee's employment with
the Company is terminated because of the death or disability of the Optionee
within the meaning of section 422(c) of the Code, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee
ceased to be an employee, may be exercised by the Optionee (or the Optionee's
legal representative) at any time prior to the expiration of twelve (12) months
from the date on which the Optionee's employment terminated, but in any event no
later than the Option Term Date. Except as provided in this paragraph 7(a), the
Option shall terminate and may not be exercised after the Optionee ceases to be
an employee of the Participating Company Group.
(b) Termination of Employment Defined. For purposes of this
paragraph 7, the Optionee's employment shall be deemed to have terminated either
upon an actual termination of employment or upon the Optionee's employer ceasing
to be a Participating Company.
(c) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented by the provisions of paragraph 4(f) above, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date. The Company makes no representation as to the
tax consequences of any such delayed exercise. The Optionee should consult with
the Optionee's own tax advisors as to the tax consequences to the Optionee of
any such delayed exercise.
(d) Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth above would subject the Optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") Exchange Act,
the Option shall remain exercisable until the earliest to occur of (i) the tenth
(10th) day following the date on which the Optionee would no longer be subject
to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of employment, or (iii) the Option
<PAGE> 12
Term Date. The Company makes no representation as to the tax consequences of any
such delayed exercise. The Optionee should consult with the Optionee's own tax
advisors as to the tax consequences to the Optionee of any such delayed
exercise.
(e) Leave of Absence. For purposes hereof, the Optionee's employment
with the Participating Company Group shall not be deemed to terminate if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Transfer of Control. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Control
Company. For purposes of applying this Paragraph 8, the "Control Company" shall
mean the corporation whose stock is subject to the Option.
(a) the direct or indirect sale or exchange by the shareholders of
the Control Company of all or substantially all of the stock of the Control
Company where the shareholders of the Control Company before such sale or
exchange do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Control Company;
(b) a merger in which the shareholders of the Control Company before
such merger do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Control Company; or
(c) the sale, exchange, or transfer of all or substantially all of
the Control Company's assets (other than a sale, exchange, or transfer to one or
more corporations where the shareholders of the Control Company before such
sale, exchange or transfer retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the corporation(s) to which
the assets were transferred).
In the event of a Transfer of Control, the Board, in its sole discretion,
may arrange with the surviving, continuing, successor, or purchasing corporation
or parent corporation thereof, as the case may be (the "Acquiring Corporation"),
for the Acquiring Corporation to either assume the Company's rights and
obligations under this Option Agreement or substitute options for the Acquiring
Corporation's stock for the Option. The Option shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of
<PAGE> 13
the shares which are of the same class as the shares that are subject to the
Option are exchanged for, converted into, or otherwise become shares of another
corporation (the "New Shares"), the Company may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the number of shares and the exercise price shall be adjusted in a
fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no rights
as a shareholder with respect to any shares covered by the Option until the date
of the issuance of a certificate or certificates for the shares for which the
Option has been exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. Right of First Refusal.
(a) Right of First Refusal. In the event the Optionee proposes to
sell, pledge, or otherwise transfer any shares acquired upon the exercise of the
Option (the "Transfer Shares") to any person or entity, including, without
limitation, any shareholder of the Participating Company Group, the Company
shall have the right to repurchase the Transfer Shares under the terms and
subject to the conditions set forth in this paragraph 11 (the "Right of First
Refusal"). For purposes of this paragraph 11, a change in record ownership of
shares, including, without limitation, any such change pursuant to a decree of
divorce or marital separation, shall be deemed a transfer subject to the Right
of First Refusal whether or not such change in record ownership results in a
change in the beneficial ownership of such shares.
(b) Notice of Proposed Transfer. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the fair market value of the
Transfer Shares as determined by the Company in good faith. In the event the
Optionee proposes to transfer any shares acquired upon the exercise of the
Option to more than one (1) Proposed Transferee, the Optionee shall provide a
separate Transfer Notice for the proposed transfer to each Proposed Transferee.
The Transfer Notice shall be signed by both the Optionee and the Proposed
Transferee and must constitute a binding commitment of the Optionee and the
Proposed Transferee for the transfer of the Transfer Shares to the Proposed
Transferee subject only to the Right of First Refusal.
(c) Bona Fide Transfer. In the event that the Company shall
determine that the information provided by the Optionee in the Transfer Notice
is insufficient to establish the bona fide nature of a proposed voluntary
transfer, the Company shall give the Optionee written notice of the Optionee's
failure to comply with the procedure described in this paragraph 11 and the
Optionee shall have no right to transfer the Transfer Shares without first
complying with the procedure described in this paragraph 11. The Optionee shall
not be permitted to transfer the Transfer Shares if the proposed transfer is not
bona fide.
<PAGE> 14
(d) Exercise of the Right of First Refusal. In the event the
proposed transfer is deemed to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and Optionee otherwise agree) at the purchase price and on the terms set
forth in the Transfer Notice by delivery to the Optionee of a notice of exercise
of the Right of First Refusal within thirty (30) days after the date the
Transfer Notice is delivered to the Company. The Company's exercise or failure
to exercise the Right of First Refusal with respect to any proposed transfer
described in a Transfer Notice shall not affect the Company's ability to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the
discounted cash equivalent of the consideration described in the Transfer Notice
as reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
(e) Failure to Exercise the Right of First Refusal. If the Company
fails to exercise the Right of First Refusal in full within the period specified
in paragraph 11(d) above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall have
the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this paragraph 11.
(f) Transferees of the Transfer Shares. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interests subject to the provisions of this paragraph 11
providing for the Right of First Refusal with respect to any subsequent
transfer. Any sale or transfer of any shares acquired upon exercise of the
Option shall be void unless the provisions of this paragraph 11 are met.
(g) Assignment of the Right of First Refusal. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a transfer, to one (1) or more persons as may be selected
by the Company.
<PAGE> 15
(h) Early Termination of the Right of First Refusal. The other
provisions of this paragraph 11 notwithstanding, the Right of First Refusal
shall terminate, and be of no further force and effect upon (i) the occurrence
of a Transfer of Control, unless the surviving, continuing, successor, or
purchasing corporation, as the case may be, assumes the Company's rights and
obligations under the Plan, or (ii) the existence of a public market for the
class of shares subject to the Right of First Refusal. A "public market" shall
be deemed to exist if (x) such stock is listed on a national securities exchange
(as that term is used in the Exchange Act) or (y) such stock is traded on the
over-the-counter market and prices therefor are published daily on business days
in a recognized financial journal.
12. Escrow.
(a) Establishment of Escrow. To insure shares subject to the Right
of First Refusal and/or security for any promissory note will be available for
repurchase, the Company may require the Optionee to deposit the certificate or
certificates evidencing the shares which the Optionee purchases upon exercise of
the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate or certificates in escrow. The Company shall bear the expenses
of the escrow.
(b) Delivery of Shares to Optionee. As soon as practicable after the
expiration of the Right of First Refusal and after full repayment on any
promissory note secured by the shares in escrow, but not more frequently than
once each year, the agent shall deliver to the Optionee the shares no longer
subject to such restriction and no longer security for any promissory note.
(c) Notices and Payments. In the event the shares held in escrow are
subject to the Company's exercise of the Right of First Refusal, the notices
required to be given to the Optionee shall be given to the escrow agent and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
13. Stock Dividends Subject to Option Agreement. If, from time to time,
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to the Right of First Refusal with the
same force and effect as the shares subject to the Right of First Refusal
immediately before such event.
14. Notice of Sales Upon Disqualifying Disposition. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year from the date the Optionee exercises all or part of the Option or within
two (2) years of the date of grant of the Option. Until such time as the
Optionee disposes of such shares in a manner consistent with the provisions of
this Option Agreement, the Optionee shall hold all
<PAGE> 16
shares acquired pursuant to the Option in the Optionee's name (and not in the
name of any nominee) for the one-year period immediately after exercise of the
Option and the two-year period immediately after grant of the Option. At any
time during the one-year or two-year periods set forth above, the Company may
place a legend or legends on any certificate or certificates representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers. The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate or certificates
pursuant to the preceding sentence.
15. Representations and Warranties. In connection with the proposed
purchase of the Option, the Optionee hereby agrees, represents and warrants as
follows:
(a) The Optionee is purchasing the shares solely for the Optionee's
own account for investment and not with a view to, or for resale in connection
with any distribution thereof within the meaning of the Securities Act. The
Optionee further represents that the Optionee does not have any present
intention of selling, offering to sell or otherwise disposing of or distributing
the shares or any portion thereof; and that the entire legal and beneficial
interest of the Optionee is acquiring is being purchased for, and will be held
for the account of, the Optionee only and neither in whole nor in part for any
other person.
(b) The Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the shares. The Optionee
further represents and warrants that the Optionee has discussed the Company and
its plans, operations and financial condition with its officers, has received
all such information as the Optionee deems necessary and appropriate to enable
the Optionee to evaluate the financial risk inherent in making an investment in
the shares and has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all inquiries in
respect thereof.
(c) The Optionee realizes that this purchase of the shares will be a
highly speculative investment and that the Optionee is able, without impairing
his or her financial condition, to hold the shares for an indefinite period of
time and to suffer a complete loss on the Optionee's investment.
(d) The Company has disclosed to the Optionee that:
(i) The sale of the shares has not been registered under the
Securities Act, and the shares must be held indefinitely unless a transfer of it
is subsequently registered under the Securities Act or an exemption from such
registration is available, and that the Company is under no obligation to
register the shares;
(ii) The Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
(e) The Optionee is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or an affiliate of such issuer), in a nonpublic offering subject to the
satisfaction of certain conditions, including among other things: The resale
occurring not less than two years from the date the Optionee has purchased and
paid
<PAGE> 17
for the shares; the availability of certain public information concerning the
Company; the sale being through a broker in an unsolicited "broker's
transaction" or in a transaction directly with a market maker (as said term is
defined under the Exchange Act); and that any sale of the shares may be made by
him or her only in limited amounts during any three-month period not exceeding
specified limitations. The Optionee further represents that the Optionee
understands that at the time the Optionee wishes to sell the shares there may be
no public market upon which to make such a sale, and that, even if such a public
market then exists, the Company may not be satisfying the current public
information requirements of Rule 144, and that, in such event, the Optionee
would be precluded from selling the shares under Rule 144 even if the two-year
minimum holding period had been satisfied. The Optionee represents that the
Optionee understands that in the event all of the requirements of Rule 144 are
not satisfied, registration under the Securities Act or compliance with an
exemption from registration will be required; and that, notwithstanding the fact
that Rule 144 is not exclusive, the Staff of the SEC has expressed its opinion
that persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
(f) Without in any way limiting the Optionee's representations and
warranties set forth above, the Optionee further agrees that the Optionee will
in no event make any disposition of all or any portion of the shares which the
Optionee is purchasing unless:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with said registration statement; or
(ii) the Optionee will have notified the Company of the
proposed disposition and furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and either:
(1) The Optionee will have furnished the Company with an
opinion of the Optionee's own counsel to the effect that such disposition will
not require registration of such shares under the Securities Act, and such
opinion of the Optionee's counsel will have been concurred in by counsel for the
Company and the Company will have advised the Optionee of such concurrence; or
(2) The disposition is made in compliance with Rule
144 or Rule 701 after the Optionee has furnished the Company such detailed
statement and after the Company has had a reasonable opportunity to discuss the
matter with the Optionee.
(g) The Optionee has (i) a preexisting personal or business
relationship with the Company or any of its officers, directors, or controlling
persons, consisting of personal or business contacts of a nature and duration to
enable the Optionee to be aware of the character, business acumen and general
business and financial circumstances of the person with whom such relationship
exists, or (ii) such knowledge and experience in financial and business matters
as to make the Optionee capable of evaluating the merits and risks of an
investment in the shares and to protect the Optionee's own interests in the
transaction, or (iii) both such relationship and such knowledge and experience.
<PAGE> 18
(h) The Optionee understands that the shares have not been qualified
under the Corporate Securities Law of 1968, as amended, of the State of
California by reason of a specific exemption therefrom, which exemption depends
upon, among other things, the bona fide nature of the Optionee's representations
as expressed herein. the Optionee understands that the Company is relying on the
Optionee's representations and warrants that the Company is entitled to rely on
such representations and that such reliance is reasonable.
16. Legends. The Company may at any time place legends referencing any
applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to effectuate the provisions
of this paragraph 15. Unless otherwise specified by the Company, legends placed
on such certificates may include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
(c) "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE
SHARES SHOULD NOT BE TRANSFERRED PRIOR TO . SHOULD THE REGISTERED HOLDER ELECT
TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT,
THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE
REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK
OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE)
PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."
(d) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
<PAGE> 19
17. Exception To $100,000 Exercise Limitation. Notwithstanding any other
provision of this Option Agreement, if compliance with the $100,000 Exercise
Limitation as set forth in paragraph 4(a) above will result in the
exercisability of any Vested Shares being delayed more than thirty (30) days
beyond the vesting date for such shares, the Option shall be deemed to be (2)
options. The first option shall be for the maximum number of shares subject to
the Option that can comply with the $100,000 Exercise Limitation without causing
the Option to be unexercisable as to Vested Shares. The second option, which
shall not be treated as an incentive stock option as described in section 422(b)
of the Code, shall be for the balance of the shares subject to the Option and
shall be exercisable on the same terms and at the same time as set forth in this
Option Agreement; provided, however, that (a) the second sentence of paragraph
4(a) above shall not apply to the second option and (b) such shares shall become
Vested Shares on the same date or dates as set forth in this Option Agreement
without regard to this paragraph. Unless the Optionee specifically elects to the
contrary in the Optionee's written notice of exercise, the first option shall be
deemed to be exercised first to the maximum possible extent and then the second
option shall be deemed to be exercised.
18. Initial Public Offering. The Optionee hereby agrees that in the event
of any underwritten public offering of stock, including an initial public
offering of stock, made by the Company pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (the "Securities
Act") Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the initial public offering
under the Securities Act. The foregoing limitations shall remain in effect for
the two (2) year period following the effective date of the Company's initial
public offering and shall thereafter terminate and cease to have any effect.
19. Binding Effect. This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
20. Termination or Amendment. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan and/or the Option at any
time; provided, however, that no such termination or amendment may adversely
affect the Option or any unexercised portion hereof without the consent of the
Optionee unless such amendment is required to enable the Option to qualify as an
Incentive Stock Option.
21. Integrated Agreement. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
<PAGE> 20
22. Applicable Law. This Option Agreement shall be governed by the laws of
the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
Immersion Human Interface Corporation
By:
-------------------------------
Title:
-------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including and hereby accepts the Option
subject to all of the terms and provisions thereof. The Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Board upon any questions arising under this Option Agreement.
Date:
----------------------- --------------------------------------
<PAGE> 21
EXHIBIT B
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
THE SECURITIES WHICH ARE SUBJECT TO THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATIONS BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
IMMERSION HUMAN INTERFACE CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
Immersion Human Interface Corporation (the "Company"), granted to the
individual named below an option to purchase certain shares of common stock of
the Company, in the manner and subject to the provisions of this Option
Agreement.
1. Definitions:
(a) "Optionee" shall mean _________________________________________.
(b) "Date of Option Grant" shall mean _________________.
(c) "Number of Option Shares" shall mean _________ shares of common
stock of the Company as adjusted from time to time pursuant to paragraph 9
below.
(d) "Exercise Price" shall mean $ per share as adjusted from time to
time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the Initial Vesting Date.
(f) "Initial Vesting Date" shall be the date occurring one (1) year
after the Date of Option Grant.
(g) Determination of "Vested Ratio":
<PAGE> 22
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee is
continuously employed by
a Participating Company from
the Date of Option Grant until
the Initial Vesting Date
Plus
For each full month of the 1/48
Optionee's continuous employment
by a Participating Company from
the Initial Vesting Date
In no event shall the Vested
Ratio exceed 1/1.
</TABLE>
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean Immersion Human Interface Corporation, a
California corporation, and any successor corporation thereto.
(k) "Participating Company" shall mean (i) the Company and (ii) any
present or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in sections 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time
all corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the Immersion Human Interface Corporation 1994
Stock Option Plan.
2. Status of the Option. This Option is intended to be a nonqualified
stock option and shall not be treated as an incentive stock option as described
in section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this Option
Agreement shall be determined by the Board of Directors of the Company (the
"Board") and/or by a duly appointed committee of the Board having such powers as
shall be specified by the Board. Any subsequent references herein to the Board
shall also mean the committee if such committee has
2
<PAGE> 23
been appointed and, unless the powers of the committee have been specifically
limited, the committee shall have all of the powers of the Board granted in the
Plan, including, without limitation, the power to terminate or amend the Plan at
any time, subject to the terms of the Plan and any applicable limitations
imposed by law. All determinations by the Board shall be final and binding upon
all persons having an interest in the Option. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, or election which is the responsibility of or
which is allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation, or election.
4. Exercise of the Option.
(a) Right to Exercise. The Option shall first become exercisable on
the Initial Exercise Date. The Option shall be exercisable on and after the
Initial Exercise Date and prior to the termination of the Option in the amount
equal to the Number of Option Shares multiplied by the Vested Ratio as set forth
in paragraph 1 above less the number of shares previously acquired upon exercise
of the Option. In no event shall the Option be exercisable for more shares than
the Number of Option Shares.
(b) Method of Exercise. The Option may be exercised by written
notice to the Company which must state the election to exercise the Option, the
number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in paragraph 6 below, accompanied by (i) full payment of
the exercise price for the number of shares being purchased and (ii) an executed
copy, if required herein, of the then current forms of escrow and security
agreements referenced below.
(c) Form of Payment of Option Exercise Price. Such payment shall be
made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of
shares of the Company's common stock owned by the Optionee having a value not
less than the option price, which either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company, or (iii) by any combination of the foregoing. Notwithstanding the
foregoing, the Option may not be exercised by tender to the Company of shares of
the Company's common stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Company's common stock.
(d) Withholding. At the time the Option is exercised, in whole or in
part, or at any time thereafter as requested by the Company, the Optionee hereby
authorizes payroll withholding and otherwise agrees to make adequate provision
for foreign, federal and state tax withholding obligations of the Company, if
any, which arise in connection with the Option, including, without limitation,
obligations arising upon (i) the exercise, in whole or in part, of the Option,
(ii) the transfer, in whole or in part, of any shares acquired on exercise of
the Option, or
3
<PAGE> 24
(iii) the operation of any law or regulation providing for the imputation of
interest, or (iv) the lapsing of any restriction with respect to any shares
acquired on exercise of the Option. The Optionee is cautioned that the Option is
not exercisable unless the Company's withholding obligations are satisfied.
Accordingly, the Optionee may not be able to exercise the Option when desired
even though the Option is vested and the Company shall have no obligation to
issue a certificate for such shares.
(e) Certificate Registration. The certificate or certificates for
the shares as to which the Option shall be exercised shall be registered in the
name of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal or
state law with respect to such securities. The Option may not be exercised if
the issuance of shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other law or regulations. In
addition, no Option may be exercised unless (i) a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (ii) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE
UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT
BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. As
a condition to the exercise of the Option, the Company may require the Optionee
to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative as provided under section 422(b)(5) of the Code and may not
be assigned or transferred in any manner except by will or by the laws of
descent and distribution.
6. Termination of the Option. The Option shall terminate and may no longer
be exercised on the first to occur of (a) the Option Term Date as defined above,
(b) the last date for exercising the Option following termination of employment
as described in paragraph 7 below, or (c) upon a Transfer of Control as
described in paragraph 8 below.
4
<PAGE> 25
7. Termination of Employment.
(a) Termination of the Option. If the Optionee ceases to be an
employee of the Participating Company Group for any reason, except death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee within three
(3) months after the date on which the Optionee's employment terminated, but in
any event no later than the Option Term Date. If the Optionee's employment with
the Company is terminated because of the death or disability of the Optionee
within the meaning of section 422(c) of the Code, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee
ceased to be an employee, may be exercised by the Optionee (or the Optionee's
legal representative) at any time prior to the expiration of twelve (12) months
from the date on which the Optionee's employment terminated, but in any event no
later than the Option Term Date. Except as provided in this paragraph 7(a), the
Option shall terminate and may not be exercised after the Optionee ceases to be
an employee of the Participating Company Group.
(b) Application to Directors, Consultants and Advisors. For purposes
of this Option Agreement, in the event the Optionee is a director or consultant
or advisor but not an employee of a Participating Company at the time the Option
is granted, termination of the Optionee's status as a director or consultant or
advisor of the Participating Company shall be deemed to be termination of the
Optionee's employment.
(c) Termination of Employment Defined. For purposes of this
paragraph 7, the Optionee's employment shall be deemed to have terminated either
upon an actual termination of employment or upon the Optionee's employer ceasing
to be a Participating Company.
(d) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented by the provisions of paragraph 4(f) above, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date. The Company makes no representation as to the
tax consequences of any such delayed exercise. The Optionee should consult with
the Optionee's own tax advisors as to the tax consequences to the Optionee of
any such delayed exercise.
(e) Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth above would subject the Optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") Exchange Act,
the Option shall remain exercisable until the earliest to occur of (i) the tenth
(10th) day following the date on which the Optionee would no longer be subject
to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of employment, or (iii) the Option Term Date. The Company
makes no representation as to the tax consequences of any such delayed exercise.
The Optionee should consult with the Optionee's own tax advisors as to the tax
consequences to the Optionee of any such delayed exercise.
(f) Leave of Absence. For purposes hereof, the Optionee's employment
with
5
<PAGE> 26
the Participating Company Group shall not be deemed to terminate if the Optionee
takes any military leave, sick leave, or other bona fide leave of absence
approved by the Company of ninety (90) days or less. In the event of a leave in
excess of ninety (90) days, the Optionee's employment shall be deemed to
terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Transfer of Control. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Control
Company. For purposes of applying this Paragraph 8, the "Control Company" shall
mean the corporation whose stock is subject to the Option.
(a) the direct or indirect sale or exchange by the shareholders of
the Control Company of all or substantially all of the stock of the Control
Company where the shareholders of the Control Company before such sale or
exchange do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Control Company;
(b) a merger in which the shareholders of the Control Company before
such merger do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Control Company; or
(c) the sale, exchange, or transfer of all or substantially all of
the Control Company's assets (other than a sale, exchange, or transfer to one or
more corporations where the shareholders of the Control Company before such
sale, exchange or transfer retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the corporation(s) to which
the assets were transferred).
In the event of a Transfer of Control, the Board, in its sole discretion,
may arrange with the surviving, continuing, successor, or purchasing corporation
or parent corporation thereof, as the case may be (the "Acquiring Corporation"),
for the Acquiring Corporation to either assume the Company's rights and
obligations under this Option Agreement or substitute options for the Acquiring
Corporation's stock for the Option. The Option shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become shares of another
corporation (the "New Shares"), the Company may unilaterally amend the Option to
provide that the Option is exercisable for New
6
<PAGE> 27
Shares. In the event of any such amendment, the number of shares and the
exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no rights
as a shareholder with respect to any shares covered by the Option until the date
of the issuance of a certificate or certificates for the shares for which the
Option has been exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. Right of First Refusal.
(a) Right of First Refusal. In the event the Optionee proposes to
sell, pledge, or otherwise transfer any shares acquired upon the exercise of the
Option (the "Transfer Shares") to any person or entity, including, without
limitation, any shareholder of the Participating Company Group, the Company
shall have the right to repurchase the Transfer Shares under the terms and
subject to the conditions set forth in this paragraph 11 (the "Right of First
Refusal"). For purposes of this paragraph 11, a change in record ownership of
shares, including, without limitation, any such change pursuant to a decree of
divorce or marital separation, shall be deemed a transfer subject to the Right
of First Refusal whether or not such change in record ownership results in a
change in the beneficial ownership of such shares.
(b) Notice of Proposed Transfer. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the fair market value of the
Transfer Shares as determined by the Company in good faith. In the event the
Optionee proposes to transfer any shares acquired upon the exercise of the
Option to more than one (1) Proposed Transferee, the Optionee shall provide a
separate Transfer Notice for the proposed transfer to each Proposed Transferee.
The Transfer Notice shall be signed by both the Optionee and the Proposed
Transferee and must constitute a binding commitment of the Optionee and the
Proposed Transferee for the transfer of the Transfer Shares to the Proposed
Transferee subject only to the Right of First Refusal.
(c) Bona Fide Transfer. In the event that the Company shall
determine that the information provided by the Optionee in the Transfer Notice
is insufficient to establish the bona fide nature of a proposed voluntary
transfer, the Company shall give the Optionee written notice of the Optionee's
failure to comply with the procedure described in this paragraph 11 and the
Optionee shall have no right to transfer the Transfer Shares without first
complying with the procedure described in this paragraph 11. The Optionee shall
not be permitted to transfer the Transfer Shares if the proposed transfer is not
bona fide.
7
<PAGE> 28
(d) Exercise of the Right of First Refusal. In the event the
proposed transfer is deemed to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and Optionee otherwise agree) at the purchase price and on the terms set
forth in the Transfer Notice by delivery to the Optionee of a notice of exercise
of the Right of First Refusal within thirty (30) days after the date the
Transfer Notice is delivered to the Company. The Company's exercise or failure
to exercise the Right of First Refusal with respect to any proposed transfer
described in a Transfer Notice shall not affect the Company's ability to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the
discounted cash equivalent of the consideration described in the Transfer Notice
as reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
(e) Failure to Exercise the Right of First Refusal. If the Company
fails to exercise the Right of First Refusal in full within the period specified
in paragraph 11(d) above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall have
the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this paragraph 11.
(f) Transferees of the Transfer Shares. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interests subject to the provisions of this paragraph 11
providing for the Right of First Refusal with respect to any subsequent
transfer. Any sale or transfer of any shares acquired upon exercise of the
Option shall be void unless the provisions of this paragraph 11 are met.
(g) Assignment of the Right of First Refusal. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a
8
<PAGE> 29
transfer, to one (1) or more persons as may be selected by the Company.
(h) Early Termination of the Right of First Refusal. The other
provisions of this paragraph 11 notwithstanding, the Right of First Refusal
shall terminate, and be of no further force and effect upon (i) the occurrence
of a Transfer of Control, unless the surviving, continuing, successor, or
purchasing corporation, as the case may be, assumes the Company's rights and
obligations under the Plan, or (ii) the existence of a public market for the
class of shares subject to the Right of First Refusal. A "public market" shall
be deemed to exist if (x) such stock is listed on a national securities exchange
(as that term is used in the Exchange Act) or (y) such stock is traded on the
over-the-counter market and prices therefor are published daily on business days
in a recognized financial journal.
12. Escrow.
(a) Establishment of Escrow. To insure shares subject to the Right
of First Refusal and/or security for any promissory note will be available for
repurchase, the Company may require the Optionee to deposit the certificate or
certificates evidencing the shares which the Optionee purchases upon exercise of
the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate or certificates in escrow. The Company shall bear the expenses
of the escrow.
(b) Delivery of Shares to Optionee. As soon as practicable after the
expiration of the Right of First Refusal and after full repayment on any
promissory note secured by the shares in escrow, but not more frequently than
once each year, the agent shall deliver to the Optionee the shares no longer
subject to such restriction and no longer security for any promissory note.
(c) Notices and Payments. In the event the shares held in escrow are
subject to the Company's exercise of the Right of First Refusal, the notices
required to be given to the Optionee shall be given to the escrow agent and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
13. Stock Dividends Subject to Option Agreement. If, from time to time,
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to the Right of First Refusal with the
same force and effect as the shares subject to the Right of First Refusal
immediately before such event.
14. Representations and Warranties. In connection with the proposed
purchase of the Option, the Optionee hereby agrees, represents and warrants as
follows:
9
<PAGE> 30
(a) The Optionee is purchasing the shares solely for the Optionee's
own account for investment and not with a view to, or for resale in connection
with any distribution thereof within the meaning of the Securities Act. The
Optionee further represents that the Optionee does not have any present
intention of selling, offering to sell or otherwise disposing of or distributing
the shares or any portion thereof; and that the entire legal and beneficial
interest of the Optionee is acquiring is being purchased for, and will be held
for the account of, the Optionee only and neither in whole nor in part for any
other person.
(b) The Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the shares. The Optionee
further represents and warrants that the Optionee has discussed the Company and
its plans, operations and financial condition with its officers, has received
all such information as the Optionee deems necessary and appropriate to enable
the Optionee to evaluate the financial risk inherent in making an investment in
the shares and has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all inquiries in
respect thereof.
(c) The Optionee realizes that this purchase of the shares will be a
highly speculative investment and that the Optionee is able, without impairing
his or her financial condition, to hold the shares for an indefinite period of
time and to suffer a complete loss on the Optionee's investment.
(d) The Company has disclosed to the Optionee that:
(i) The sale of the shares has not been registered under the
Securities Act, and the shares must be held indefinitely unless a transfer of it
is subsequently registered under the Securities Act or an exemption from such
registration is available, and that the Company is under no obligation to
register the shares;
(ii) The Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
(e) The Optionee is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or an affiliate of such issuer), in a nonpublic offering subject to the
satisfaction of certain conditions, including among other things: The resale
occurring not less than two years from the date the Optionee has purchased and
paid for the shares; the availability of certain public information concerning
the Company; the sale being through a broker in an unsolicited "broker's
transaction" or in a transaction directly with a market maker (as said term is
defined under the Exchange Act); and that any sale of the shares may be made by
him or her only in limited amounts during any three-month period not exceeding
specified limitations. The Optionee further represents that the Optionee
understands that at the time the Optionee wishes to sell the shares there may be
no public market upon which to make such a sale, and that, even if such a public
market then exists, the Company may not be satisfying the current public
information requirements of Rule 144, and that, in such event, the Optionee
would be precluded from selling the shares under Rule 144 even if the two-year
minimum holding period had been satisfied. The Optionee represents that the
Optionee
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<PAGE> 31
understands that in the event all of the requirements of Rule 144 are not
satisfied, registration under the Securities Act or compliance with an exemption
from registration will be required; and that, notwithstanding the fact that Rule
144 is not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
(f) Without in any way limiting the Optionee's representations and
warranties set forth above, the Optionee further agrees that the Optionee will
in no event make any disposition of all or any portion of the shares which the
Optionee is purchasing unless:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with said registration statement; or
(ii) the Optionee will have notified the Company of the
proposed disposition and furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and either:
(1) The Optionee will have furnished the Company with an
opinion of the Optionee's own counsel to the effect that such disposition will
not require registration of such shares under the Securities Act, and such
opinion of the Optionee's counsel will have been concurred in by counsel for the
Company and the Company will have advised the Optionee of such concurrence; or
(2) The disposition is made in compliance with Rule 144
or Rule 701 after the Optionee has furnished the Company such detailed statement
and after the Company has had a reasonable opportunity to discuss the matter
with the Optionee.
(g) The Optionee has (i) a preexisting personal or business
relationship with the Company or any of its officers, directors, or controlling
persons, consisting of personal or business contacts of a nature and duration to
enable the Optionee to be aware of the character, business acumen and general
business and financial circumstances of the person with whom such relationship
exists, or (ii) such knowledge and experience in financial and business matters
as to make the Optionee capable of evaluating the merits and risks of an
investment in the shares and to protect the Optionee's own interests in the
transaction, or (iii) both such relationship and such knowledge and experience.
(h) The Optionee understands that the shares have not been qualified
under the Corporate Securities Law of 1968, as amended, of the State of
California by reason of a specific exemption therefrom, which exemption depends
upon, among other things, the bona fide nature of the Optionee's representations
as expressed herein. The Optionee understands that the Company is relying on the
Optionee's representations and warrants that the Company is entitled to rely on
such representations and that such reliance is reasonable.
11
<PAGE> 32
15. Legends. The Company may at any time place legends referencing any
applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to effectuate the provisions
of this paragraph. Unless otherwise specified by the Company, legends placed on
such certificates may include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
16. Initial Public Offering. The Optionee hereby agrees that in the event
of any underwritten public offering of stock, including an initial public
offering of stock, made by the Company pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (the "Securities
Act") Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the initial public offering
under the Securities Act. The foregoing limitations shall remain in effect for
the two (2) year period following the effective date of the Company's initial
public offering and shall thereafter terminate and cease to have any effect.
17. Binding Effect. This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
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<PAGE> 33
18. Termination or Amendment. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan and/or the Option at any
time; provided, however, that no such termination or amendment may adversely
affect the Option or any unexercised portion hereof without the consent of the
Optionee unless such amendment is required to enable the Option to qualify as an
Incentive Stock Option.
19. Integrated Agreement. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
20. Applicable Law. This Option Agreement shall be governed by the laws of
the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
Immersion Human Interface Corporation
By:
-------------------------------
Title:
-------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including and hereby accepts the Option
subject to all of the terms and provisions thereof. The Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Board upon any questions arising under this Option Agreement.
Date:
------------------------------ --------------------------------------
13
<PAGE> 1
EXHIBIT 10.2
IMMERSION CORPORATION
1997 STOCK OPTION PLAN
(AS AMENDED ON JULY 6, 1999)
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1. ESTABLISHMENT. The Immersion Corporation 1997 Stock Option Plan
(the "PLAN") is hereby established effective as of June 2, 1997 (the "EFFECTIVE
DATE")
1.2. PURPOSE. The purpose of the Plan is to advance the interests of
the Participating IMMERSION Group and its shareholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
IMMERSION Group and by motivating such persons to contribute to the growth and
profitability of the Participating IMMERSION Group.
1.3. TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the earlier of the date
the Plan is adopted by the Board or the date the Plan is duly approved by the
shareholders of IMMERSION.
2. DEFINITIONS AND CONSTRUCTION.
2.1. DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of IMMERSION. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means Immersion Corporation, a California
corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor, engaged
by a Participating IMMERSION to render services other than as an Employee or a
Director.
<PAGE> 2
(f) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating IMMERSION.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating IMMERSION; provided, however, that neither service as
a Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by IMMERSION, in its sole discretion, if such determination is
expressly allocated to IMMERSION herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as IMMERSION
deems reliable. If the relevant date does not fall on a day on which the Stock
has traded on such securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date, or such other appropriate day as shall
be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the Stock,
the Fair Market Value of a share of Stock shall be as determined by the Board
without regard to any restriction other than a restriction which, by its terms,
will never lapse.
(j) "INCENTIVE STOCK OPTION" means an Option intended to be (as
set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.
(k) "INSIDER" means an officer or a Director of IMMERSION or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(l) "NONSTATUTORY STOCK OPTION" means an Option not intended to
be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
(m) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(n) "OPTION AGREEMENT" means a written agreement between
IMMERSION and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
<PAGE> 3
(o) "OPTIONEE" means a person who has been granted one or more
Options.
(p) "PARENT CORPORATION" means any present or future "parent
corporation" of IMMERSION, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means IMMERSION or any Parent
Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(s) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(t) "STOCK" means the common stock, without par value, of
IMMERSION, as adjusted from time to time in accordance with Section 4.2.
(u) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of IMMERSION, as defined in Section 424(f) of the
Code.
(v) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating IMMERSION within the meaning of Section 422(b)(6) of the Code.
2.2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1. ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option. Any officer of a
Participating IMMERSION shall have the authority to act on behalf of IMMERSION
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to IMMERSION herein, provided
the officer has apparent authority with respect to such matter, right
obligation, determination or election.
<PAGE> 4
3.2. ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of IMMERSION is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3. POWERS OF THE BOARD. In addition to any other powers set forth
in the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or
other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of employment or service
with the Participating IMMERSION Group on any of the foregoing, and (vii) all
other terms, conditions and restrictions applicable to the Option or such shares
not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, or renew, or grant a new Option in
substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;
(g) to amend the exercisability of any Option or the vesting of
any shares acquired upon the exercise thereof, including with respect to the
period following an Optionee's termination of employment or service with the
Participating IMMERSION Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take
<PAGE> 5
such other actions with respect to the Plan or any Option as the Board may deem
advisable to the extent consistent with the Plan and applicable law.
4. SHARES SUBJECT TO PLAN.
4.1. MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided by Section 4.2, the maximum aggregate number of shares of stock that
may be issued under the Plan shall be four million four hundred forty-nine
thousand one hundred and fifty-seven (4,449,157) and shall consist of authorized
but unissued or reacquired shares of Stock or any combination thereof. If an
outstanding Option for any reason expires or is terminated or canceled or shares
of Stock acquired, subject to repurchase, upon the exercise of an Option are
repurchased by IMMERSION, the shares of Stock allocable to the unexercised
portion of such Option, or such repurchased shares of Stock, shall again be
available for issuance under the Plan.
4.2. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of
IMMERSION, appropriate adjustments shall be made in the number and class of
shares subject to the Plan and to any outstanding Options and in the exercise
price per share of any outstanding Options. If a majority of the shares which
are of the same class as the shares that are subject to outstanding Options are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event, as defined in Section 8.1) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding
Options to provide that such Options are exercisable for New Shares. In the
event of any such amendment, the number of shares subject to, and the exercise
price per share of, the outstanding Options shall be adjusted in a fair and
equitable manner as determined by the Board, in its sole discretion.
Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 4.2 shall be rounded up or down to the nearest whole
number, as determined by the Board, and in no event may the exercise price of
any Option be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1. PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees," "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of employment or other service relationship with
the Participating IMMERSION Group. Eligible persons may be granted more than one
(1) Option.
5.2. OPTION GRANT RESTRICTIONS. Any person who is not an Employee on
the effective date of the grant of an Option to such person may be granted only
a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences service with a Participating
IMMERSION, with an exercise price determined as of such date in accordance with
Section 6.1.
<PAGE> 6
5.3. FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating IMMERSION Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having an
aggregate Fair Market Value greater than One Hundred Thousand Dollars
($100,000), the portion of such options which exceeds such amount shall be
treated as Nonstatutory Stock Options. For purposes of this Section 5.3, options
designated as Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of stock shall be
determined as of the time the option with respect to such stock is granted. If
the Code is amended to provide for a different limitation from that set forth in
this Section 5.3, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 5.3, the Optionee may designate which
portion of such Option the Optionee is exercising. In the absence of such
designation, the Optionee shall be deemed to have exercised the Incentive Stock
Option portion of the Option first. Separate certificates representing each such
portion shall be issued upon the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1. EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.
6.2. EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten (10) years
after the effective date of grant of such Option, (b) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
and (c) no Option granted to a prospective Employee, prospective Consultant or
prospective Director may become exercisable prior to the date on which such
person commences service with a Participating IMMERSION.
6.3. PAYMENT OF EXERCISE PRICE.
<PAGE> 7
(A) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to IMMERSION of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by IMMERSION without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for
IMMERSION) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's recourse promissory note in a form
approved by IMMERSION, (v) by such other consideration as may be approved by the
Board from time to time to the extent permitted by applicable law, or (vi) by
any combination thereof. The Board may at any time or from time to time, by
adoption of or by amendment to the standard forms of Option Agreement described
in Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(B) TENDER OF STOCK. Notwithstanding the foregoing, an Option
may not be exercised by tender to IMMERSION of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of IMMERSION's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to IMMERSION of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from IMMERSION.
(C) CASHLESS EXERCISE. The IMMERSION reserves, at any and all
times, the right, in IMMERSION's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
(D) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to IMMERSION.
Unless otherwise provided by the Board, if IMMERSION at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with IMMERSION's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4. TAX WITHHOLDING. The IMMERSION shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market
<PAGE> 8
Value, as determined by IMMERSION, equal to all or any part of the federal,
state, local and foreign taxes, if any, required by law to be withheld by the
Participating IMMERSION Group with respect to such Option or the shares acquired
upon the exercise thereof. Alternatively or in addition, in its sole discretion,
IMMERSION shall have the right to require the Optionee, through payroll
withholding, cash payment or otherwise, including by means of a Cashless
Exercise, to make adequate provision for any such tax withholding obligations of
the Participating IMMERSION Group arising in connection with the Option or the
shares acquired upon the exercise thereof. The IMMERSION shall have no
obligation to deliver shares of Stock or to release shares of Stock from an
escrow established pursuant to the Option Agreement until the Participating
IMMERSION Group's tax withholding obligations have been satisfied by the
Optionee.
6.5. REPURCHASE RIGHTS. Shares issued under the Plan may be subject
to a right of first refusal, one or more repurchase options, or other conditions
and restrictions as determined by the Board, in its sole discretion, at the time
the Option is granted. The IMMERSION shall have the right to assign at any time
any repurchase right it may have, whether or not such right is then exercisable,
to one or more persons as may be selected by IMMERSION. Upon request by
IMMERSION, each Optionee shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to IMMERSION any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate
legends evidencing any such transfer restrictions.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1. INCENTIVE STOCK OPTIONS. Unless otherwise provided by the Board
at the time the Option is granted, an Option designated as an "Incentive Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Immediately Exercisable Incentive Stock Option Agreement adopted
by the Board concurrently with its adoption of the Plan and as amended from time
to time.
7.2. NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as a "Nonstatutory
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Immediately Exercisable Nonstatutory Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
7.3. STANDARD TERM OF OPTIONS. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
7.4. AUTHORITY TO VARY TERMS. The Board shall have the authority
from time to time to vary the terms of any of the standard forms of Option
Agreement described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
any such new, revised or amended standard form or forms of Option Agreement are
not inconsistent with the terms of the Plan. Such authority shall include, but
not by way of limitation, the authority to grant Options which are not
immediately exercisable.
8. TRANSFER OF CONTROL.
<PAGE> 9
8.1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to IMMERSION:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the shareholders of IMMERSION of more than
fifty percent (50%) of the voting stock of IMMERSION;
(ii) a merger or consolidation in which IMMERSION is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of IMMERSION; or
(iv) a liquidation or dissolution of IMMERSION.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the shareholders of IMMERSION immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of IMMERSION's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of IMMERSION or the corporation or corporations to
which the assets of IMMERSION were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own IMMERSION or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of IMMERSION or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2. EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume IMMERSION's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Transfer of
Control, the Option confers the right to purchase in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Transfer of Control, the consideration (whether stock, cash or other
securities or property) to which a holder of a share of Stock on the effective
date of the Transfer of Control was entitled. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Transfer of Control nor exercised as of the date of the Transfer of Control
shall terminate and cease to be outstanding effective as of the date of the
Transfer of Control. Notwithstanding the foregoing, shares acquired upon
exercise of an Option prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to such shares shall
continue to be subject to all applicable provisions of the Option Agreement
evidencing such Option except as otherwise provided in such Option Agreement.
Furthermore, notwithstanding the foregoing, if
<PAGE> 10
the corporation the stock of which is subject to the outstanding Options
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the outstanding Options shall not
terminate unless the Board otherwise provides in its sole discretion.
9. PROVISION OF INFORMATION. At least annually, copies of IMMERSION's
balance sheet and income statement for the just completed fiscal year shall be
made available to each Optionee and purchaser of shares of Stock upon the
exercise of an Option. The IMMERSION shall not be required to provide such
information to persons whose duties in connection with IMMERSION assure them
access to equivalent information.
10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
11. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or officers or employees of the
Participating IMMERSION Group, members of the Board and any officers or
employees of the Participating IMMERSION Group to whom authority to act for the
Board or IMMERSION is delegated shall be indemnified by IMMERSION against all
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan, or any right granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by IMMERSION) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such person is
liable for gross negligence, bad faith or intentional misconduct in duties;
provided, however, that within sixty (60) days after the institution of such
action, suit or proceeding, such person shall offer to IMMERSION, in writing,
the opportunity at its own expense to handle and defend the same.
12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, subject to changes in applicable law, regulations
or rules that would permit otherwise, without the approval of IMMERSION's
shareholders there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no other amendment of the Plan that
would require approval of IMMERSION's shareholders under any applicable law,
regulation or rule. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such termination or amendment is
required to enable an Option designated as an Incentive Stock Option to qualify
as an Incentive Stock Option or is necessary to comply with any applicable law,
regulation or rule.
<PAGE> 11
13. SHAREHOLDER APPROVAL. The Plan or any increase in the maximum number
of shares of Stock issuable thereunder as provided in Section 4.1 (the "MAXIMUM
SHARES") shall be approved by the shareholders of IMMERSION within twelve (12)
months of the date of adoption thereof by the Board. Options granted prior to
shareholder approval of the Plan or in excess of the Maximum Shares previously
approved by the shareholders shall become exercisable no earlier than the date
of shareholder approval of the Plan or such increase in the Maximum Shares, as
the case may be.
IN WITNESS WHEREOF, the undersigned Secretary of IMMERSION certifies
that the foregoing Immersion Corporation 1997 Stock Option Plan was duly adopted
by the Board on June 2, 1997 and amended by the Board on July 6, 1999
/s/
----------------------------------
Secretary
<PAGE> 12
EXHIBIT A
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
IMMERSION CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and
entered into as of ___________, 199_, by and Immersion Corporation and
___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the Immersion
Corporation 1997 Stock Option Plan (the "PLAN") an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION"). The Option shall in all respects be subject to the
terms and conditions of the Plan, the provisions of which are incorporated
herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1. DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means _________________, 199_.
(b) "NUMBER OF OPTION SHARES" means __________ shares of
Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $________ per share of Stock, as
adjusted from time to time pursuant to Section 9.
1
<PAGE> 13
(d) "INITIAL VESTING DATE" means the date occurring one (1)
year after (check one):
-- the Date of Option Grant.
-- __________________ , 199_, the date the
Optionee's Service commenced.
(e) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the 1/4
Optionee's Service has not
terminated prior to such date
Plus
For each full month of the Optionee's 1/48
continuous Service from the Initial
Vesting Date until the Vested Ratio
equals 1/1, an additional
</TABLE>
(f) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(g) "COMPANY" means Immersion Corporation, a California
corporation, or any successor corporation thereto.
(h) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.
(i) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(j) "SERVICE" means the Optionee's employment or service with
the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
the Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety
2
<PAGE> 14
(90) days, on the ninety-first (91st) day of such leave the Optionee's Service
shall be deemed to have terminated unless the Optionee's right to return to
Service with the Participating Company Group is guaranteed by statute or
contract. Notwithstanding the foregoing, unless otherwise designated by the
Company or required by law, a leave of absence shall not be treated as Service
for purposes of determining the Optionee's Vested Ratio. The Optionee's Service
shall be deemed to have terminated either upon an actual termination of Service
or upon the corporation for which the Optionee performs Service ceasing to be a
Participating Company. Subject to the foregoing, the Company, in its sole
discretion, shall determine whether the Optionee's Service has terminated and
the effective date of such termination.
1.2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. TAX STATUS OF OPTION. This Option is intended to be an Incentive Stock
Option within the meaning of Section 422(b) of the Code, but the Company does
not represent or warrant that this Option qualifies as such. The Optionee should
consult with the Optionee's own tax advisor regarding the tax effects of this
Option and the requirements necessary to obtain favorable income tax treatment
under Section 422 of the Code, including, but not limited to, holding period
requirements. (NOTE: If the aggregate Exercise Price of the Option (that is, the
Exercise Price multiplied by the Number of Option Shares) plus the aggregate
exercise price of any other Incentive Stock Options held by the Optionee
(whether granted pursuant to the Plan or any other stock option plan of the
Participating Company Group) is greater than One Hundred Thousand Dollars
($100,000), the Optionee should contact the Chief Financial Officer of the
Company to ascertain whether the entire Option qualifies as an Incentive Stock
Option.)
3. ADMINISTRATION. All questions of interpretation concerning this Option
Agreement shall be determined by the Board. All determinations by the Board
shall be final and binding upon all persons having an interest in the Option.
Any officer of a Participating Company shall have the authority to act on behalf
of the Company with respect to any matter, right, obligation, or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, or election.
4. EXERCISE OF THE OPTION.
4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Vesting Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option, subject to the
Optionee's agreement that any shares purchased upon exercise are subject to the
Company's repurchase rights set forth in Section 11. In no event shall the
Option be exercisable for more shares than the number of Option Shares.
3
<PAGE> 15
4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by (i) full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased and
(ii) an executed copy, if required herein, of the then current forms of escrow
and security agreement referenced below. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreements.
4.3. PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by the Optionee's
recourse promissory note for the aggregate Exercise Price, or (v) by any
combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law.
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The promissory note permitted in clause (iv) of Section 4.3(a) shall be a full
recourse note in a form satisfactory to the Company, with principal payable no
more than four (4) years after the date the Option is exercised. Interest on the
principal balance of the promissory note shall be payable in annual installments
at the minimum interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. Such recourse promissory note shall be secured
by the shares of Stock acquired pursuant to the then current form of security
agreement as approved by the Company. At any time the Company is subject to the
regulations promulgated by the Board of Governors of the Federal Reserve System
or any other governmental entity affecting the extension of credit in connection
with the Company's securities, any promissory note shall comply with such
applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations. Except as the Company in its sole discretion shall determine, the
Optionee shall pay the unpaid principal balance of the promissory note and any
accrued interest thereon upon termination of the Optionee's Service with the
Participating Company Group for any reason, with or without cause.
4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Participating Company
Group are satisfied. Accordingly, the Optionee may not be able to exercise the
Option when desired even though the Option is vested, and the Company shall have
no obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF Shares. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the
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<PAGE> 17
Company, the shares issuable upon exercise of the Option may be issued in
accordance with the terms of an applicable exemption from the registration
requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION
MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY,
THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE
OPTION IS VESTED. Questions concerning this restriction should be directed to
the Chief Financial Officer of the Company. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares subject to the Option shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
4.7. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer
be exercised on the first to occur of (a) the Option Expiration Date, (b) the
last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1. OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. (NOTE: If
the Option is exercised more than three (3) months after the date on which the
Optionee's Service as an Employee terminated as a result of a Disability other
than a permanent and total disability as defined in Section 22(e)(3) of the
Code, the Option will be treated as a Nonstatutory Stock Option and not as an
Incentive Stock Option to the extent required by Section 422 of the Code.)
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<PAGE> 18
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
7.2. ADDITIONAL LIMITATION ON OPTION EXERCISE. Except as the Company
and the Optionee otherwise agree, exercise of the Option pursuant to Section 7.1
following termination of the Optionee's Service may not be made by delivery of a
promissory note as provided in Section 4.3(a).
7.3. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as to
the tax consequences of any such delayed exercise. The Optionee should consult
with the Optionee's own tax advisor as to the tax consequences to the Optionee
of any such delayed exercise.
7.4. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor as to the tax consequences to the Optionee of any such delayed exercise.
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<PAGE> 19
8. TRANSFER OF CONTROL.
8.1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the shareholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2. EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, the Option
shall be deemed assumed if, following the Transfer of Control, the Option
confers the right to purchase in accordance with its terms and conditions, for
each share of Stock subject to the Option immediately prior to the Transfer of
Control, the consideration (whether stock, cash or other securities or property)
to which a holder of a share of Stock on the effective date of the Transfer of
Control was entitled. The Option shall terminate and cease to be outstanding
effective as of the date of the Transfer of Control to the extent that the
Option is neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control. Notwithstanding the foregoing, shares
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<PAGE> 20
acquired upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a shareholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. If the Optionee is an Employee, the Optionee understands
and acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Optionee, the
Optionee's employment is "at will" and is for no specified term. Nothing in this
Option Agreement shall confer upon the Optionee, whether an Employee or
Consultant, any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. RIGHT OF FIRST REFUSAL.
11.1. GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in Section
11.7 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares
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<PAGE> 21
acquired upon exercise of the Option proposes to sell, exchange, transfer,
pledge, or otherwise dispose of any shares acquired upon exercise of the option
(the "TRANSFER SHARES") to any person or entity, including, without limitation,
any shareholder of the Participating Company Group, the Company shall have the
right to repurchase the Transfer Shares under the terms and subject to the
conditions set forth in this Section 11 (the "RIGHT OF FIRST REFUSAL").
11.2. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER
NOTICE") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. If the Optionee
proposes to transfer any Transfer Shares to more than one Proposed Transferee,
the Optionee shall provide a separate Transfer Notice for the proposed transfer
to each Proposed Transferee. The Transfer Notice shall be signed by both the
Optionee and the Proposed Transferee and must constitute a binding commitment of
the Optionee and the Proposed Transferee for the transfer of the Transfer Shares
to the Proposed Transferee subject only to the Right of First Refusal.
11.3. BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 11, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 11. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
11.4. EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the present
value cash equivalent of the consideration described in the Transfer Notice as
reasonably determined by the Company. For purposes of the foregoing,
cancellation of any
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<PAGE> 22
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled.
11.5. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
fails to exercise the Right of First Refusal in full (or to such lesser extent
as the Company and the Optionee otherwise agree) within the period specified in
Section 11.4 above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall have
the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 11.
11.6. TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 11 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 11 are met.
11.7. TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such
transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of Section 11.9 below result in a termination of the Right of First
Refusal.
11.8. ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by the
Company.
11.9. EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the
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<PAGE> 23
over-the-counter market and prices therefor are published daily on business days
in a recognized financial journal.
12. ESCROW.
12.1. ESTABLISHMENT OF ESCROW. To ensure that shares subject to the
Right of First Refusal or securing any promissory note will be available for
repurchase, the Company may require the Optionee to deposit the certificate
evidencing the shares which the Optionee purchases upon exercise of the Option
with an escrow agent designated by the Company under the terms and conditions of
escrow and security agreements approved by the Company. If the Company does not
require such deposit as a condition of exercise of the Option, the Company
reserves the right at any time to require the Optionee to so deposit the
certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to the Right of First Refusal or any security interest held
by the Company shall be immediately subject to the escrow to the same extent as
such shares of Stock immediately before such event. The Company shall bear the
expenses of the escrow.
12.2. DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
the expiration of the Right of First Refusal and after full repayment of any
promissory note secured by the shares or other property in escrow, but not more
frequently than twice each calendar year, the escrow agent shall deliver to the
Optionee the shares and any other property no longer subject to such restriction
and no longer securing any promissory note.
12.3. NOTICES AND PAYMENTS. In the event the shares and any other
property held in escrow are subject to the Company's exercise of the Right of
First Refusal, the notices required to be given to the Optionee shall be given
to the escrow agent, and any payment required to be given to the Optionee shall
be given to the escrow agent. Within thirty (30) days after payment by the
Company, the escrow agent shall deliver the shares and any other property which
the Company has purchased to the Company and shall deliver the payment received
from the Company to the Optionee.
13. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Right of First Refusal and any security interest held
by the Company with the same force and effect as the shares subject to the Right
of First Refusal and such security interest immediately before such event.
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<PAGE> 24
14. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant and shall provide the Company with
a description of the terms and circumstances of such disposition. Until such
time as the Optionee disposes of such shares in a manner consistent with the
provisions of this Option Agreement, unless otherwise expressly authorized by
the Company, the Optionee shall hold all shares acquired pursuant to the Option
in the Optionee's name (and not in the name of any nominee) for the one-year
period immediately after the exercise of the Option and the two-year period
immediately after Date of Option Grant. At any time during the one-year or
two-year periods set forth above, the Company may place a legend on any
certificate representing shares acquired pursuant to the Option requesting the
transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence.
15. LEGENDS. The Company may at any time place legends referencing the
Right of First Refusal and any applicable federal, state or foreign securities
law restrictions on all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company any and all certificates representing
shares acquired pursuant to the Option in the possession of the Optionee in
order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be
limited to, the following:
15.1. "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
15.2. Any legend required to be placed thereon by the Commissioner
of Corporations of the State of California.
15.3. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
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15.4. "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE
SHARES SHOULD NOT BE TRANSFERRED PRIOR TO ___________. SHOULD THE REGISTERED
HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX
TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION
IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE
INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF
ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."
16. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The Optionee shall be subject to this Section provided and only
if the officers and directors of the Company are also subject to similar
arrangements.
17. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise
of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement, and
any such attempted disposition shall be void. The Company shall not be required
(a) to transfer on its books any shares which will have been transferred in
violation of any of the provisions set forth in this Option Agreement or (b) to
treat as owner of such shares or to accord the right to vote as such owner or to
pay dividends to any transferee to whom such shares will have been so
transferred.
18. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
19. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or
the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation or is
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<PAGE> 26
required to enable the Option to qualify as an Incentive Stock Option. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
20. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
21. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute
the entire understanding and agreement of the Optionee and the Participating
Company Group with respect to the subject matter contained herein or therein,
and there are no agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein or
therein. To the extent contemplated herein or therein, the provisions of this
Option Agreement shall survive any exercise of the Option and shall remain in
full force and effect.
22. APPLICABLE LAW. This Option Agreement shall be governed by the laws of
the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
IMMERSION CORPORATION
By:
-------------------------------
Title:
-------------------------------
Address: 2158 Paragon Drive
San Jose, CA 95131
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<PAGE> 27
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in Section 11 and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement. The undersigned acknowledges
receipt of a copy of the Plan.
OPTIONEE
Date:
------------- -----------------------------------------
Optionee's Address and Phone Number:
-----------------------------------------
-----------------------------------------
( )
-----------------------------------------
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<PAGE> 28
EXHIBIT B
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
IMMERSION CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made
and entered into as of ___________, 199_, by and between Immersion Corporation
and ___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the Immersion
Corporation 1997 Stock Option Plan (the "PLAN") an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION"). The Option shall in all respects be subject to the
terms and conditions of the Plan, the provisions of which are incorporated
herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1. DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means __________, 199_.
(b) "NUMBER OF OPTION SHARES" means ______ shares of Stock, as
adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $_____ per share of Stock, as
adjusted from time to time pursuant to Section 9.
(d) "INITIAL VESTING DATE" means the date occurring one (1)
year after (check one):
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<PAGE> 29
_____ the Date of Option Grant.
________________ , 199_, the date the Optionee's Service
commenced.
(e) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the 1/4
Optionee's Service has not terminated
prior to such date
Plus
For each full month of the Optionee's 1/48
continuous Service from the Initial
Vesting Date until the Vested Ratio
equals 1/1, an additional
</TABLE>
(f) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(g) "COMPANY" means Immersion Corporation, a California
corporation, or any successor corporation thereto.
(h) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.
(i) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(j) "SERVICE" means the Optionee's employment or service with
the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
the Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company
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<PAGE> 30
Group is guaranteed by statute or contract. Notwithstanding the foregoing,
unless otherwise designated by the Company or required by law, a leave of
absence shall not be treated as Service for purposes of determining the
Optionee's Vested Ratio. The Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which the Optionee performs Service ceasing to be a Participating Company.
Subject to the foregoing, the Company, in its sole discretion, shall determine
whether the Optionee's Service has terminated and the effective date of such
termination.
1.2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. TAX STATUS OF OPTION. This Option is intended to be a Nonstatutory
Stock Option and shall not be treated as an Incentive Stock Option within the
meaning of Section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this Option
Agreement shall be determined by the Board. All determinations by the Board
shall be final and binding upon all persons having an interest in the Option.
Any officer of a Participating Company shall have the authority to act on behalf
of the Company with respect to any matter, right, obligation, or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, or election.
4. EXERCISE OF THE OPTION.
4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Vesting Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option, subject to the
Optionee's agreement that any shares purchased upon exercise are subject to the
Company's repurchase rights set forth in Section 11. In no event shall the
Option be exercised for more shares than the number of Option Shares.
4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by (i) full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased and
(ii) an executed copy, if required herein, of the then current forms of escrow
and
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<PAGE> 31
security agreement referenced below. The Option shall be deemed to be exercised
upon receipt by the Company of such written notice, the aggregate Exercise
Price, and, if required by the Company, such executed agreements.
4.3. PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by the Optionee's
recourse promissory note for the aggregate Exercise Price, or (v) by any
combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. The promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable no more than four (4) years after the date the Option is
exercised. Interest on the principal balance of the promissory note shall be
payable in annual installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable
4
<PAGE> 32
regulations. Except as the Company in its sole discretion shall determine, the
Optionee shall pay the unpaid principal balance of the promissory note and any
accrued interest thereon upon termination of the Optionee's Service with the
Participating Company Group for any reason, with or without cause.
4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Participating Company
Group are satisfied. Accordingly, the Optionee may not be able to exercise the
Option when desired even though the Option is vested, and the Company shall have
no obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF Shares. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should
be directed to the Chief Financial Officer of the Company. The inability of the
Company to obtain from any regulatory body having jurisdiction the authority, if
any, deemed by the Company's legal counsel to be necessary to the lawful
issuance and sale of any shares subject to the Option shall relieve the Company
of any liability in respect of the failure to issue or sell such shares as to
which such requisite authority shall not have been obtained. As a condition to
the exercise of the Option, the
5
<PAGE> 33
Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7. FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer
be exercised on the first to occur of (a) the Option Expiration Date, (b) the
last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1. OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
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<PAGE> 34
7.2. ADDITIONAL LIMITATION ON OPTION EXERCISE. Except as the Company
and the Optionee otherwise agree, exercise of the Option pursuant to Section 7.1
following termination of the Optionee's Service may not be made by delivery of a
promissory note as provided in Section 4.3(a).
7.3. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.4. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. TRANSFER OF CONTROL.
8.1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the shareholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations
7
<PAGE> 35
which, as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2. EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, the Option
shall be deemed assumed if, following the Transfer of Control, the Option
confers the right to purchase in accordance with its terms and conditions, for
each share of Stock subject to the Option immediately prior to the Transfer of
Control, the consideration (whether stock, cash or other securities or property)
to which a holder of a share of Stock on the effective date of the Transfer of
Control was entitled. The Option shall terminate and cease to be outstanding
effective as of the date of the Transfer of Control to the extent that the
Option is neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control. Notwithstanding the foregoing, shares acquired upon
exercise of the Option prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to such shares shall
continue to be subject to all applicable provisions of this Option Agreement
except as otherwise provided herein. Furthermore, notwithstanding the foregoing,
if the corporation the stock of which is subject to the Option immediately prior
to an Ownership Change Event described in Section 8.1(a)(i) constituting a
Transfer of Control is the surviving or continuing corporation and immediately
after such Ownership Change Event less than fifty percent (50%) of the total
combined voting power of its voting stock is held by another corporation or by
other corporations that are members of an affiliated group within the meaning of
Section 1504(a) of the Code without regard to the provisions of Section 1504(b)
of the Code, the Option shall not terminate unless the Board otherwise provides
in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
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<PAGE> 36
10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a shareholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. If the Optionee is an Employee, the Optionee understands
and acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Optionee, the
Optionee's employment is "at will" and is for no specified term. Nothing in this
Option Agreement shall confer upon the Optionee, whether an Employee or
Consultant, any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. RIGHT OF FIRST REFUSAL.
11.1. GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in Section
11.7 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares acquired upon exercise of the Option proposes to sell,
exchange, transfer, pledge, or otherwise dispose of any shares acquired upon
exercise of the option (the "TRANSFER SHARES") to any person or entity,
including, without limitation, any shareholder of the Participating Company
Group, the Company shall have the right to repurchase the Transfer Shares under
the terms and subject to the conditions set forth in this Section 11 (the "RIGHT
OF FIRST REFUSAL").
11.2. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER
NOTICE") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. If the Optionee
proposes to transfer any Transfer Shares to more than one Proposed Transferee,
the Optionee shall provide a separate Transfer Notice for the proposed transfer
to each Proposed Transferee. The Transfer Notice shall be signed by both the
Optionee and the Proposed Transferee and must constitute a binding commitment of
the Optionee and the Proposed Transferee for the transfer of the Transfer Shares
to the Proposed Transferee subject only to the Right of First Refusal.
11.3. BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 11, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 11. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
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<PAGE> 37
11.4. EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the present
value cash equivalent of the consideration described in the Transfer Notice as
reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
11.5. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
fails to exercise the Right of First Refusal in full (or to such lesser extent
as the Company and the Optionee otherwise agree) within the period specified in
Section 11.4 above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall have
the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 11.
11.6.TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 11 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 11 are met.
11.7. TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the
10
<PAGE> 38
Option if such transfer or exchange is in connection with an Ownership Change
Event. If the consideration received pursuant to such transfer or exchange
consists of stock of a Participating Company, such consideration shall remain
subject to the Right of First Refusal unless the provisions of Section 11.9
below result in a termination of the Right of First Refusal.
11.8. ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by the
Company.
11.9. EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
12. ESCROW.
12.1. ESTABLISHMENT OF ESCROW. To ensure that shares subject to the
Right of First Refusal or securing any promissory note will be available for
repurchase, the Company may require the Optionee to deposit the certificate
evidencing the shares which the Optionee purchases upon exercise of the Option
with an escrow agent designated by the Company under the terms and conditions of
escrow and security agreements approved by the Company. If the Company does not
require such deposit as a condition of exercise of the Option, the Company
reserves the right at any time to require the Optionee to so deposit the
certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to the Right of First Refusal or any security interest held
by the Company shall be immediately subject to the escrow to the same extent as
such shares of Stock immediately before such event. The Company shall bear the
expenses of the escrow.
12.2. DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
the expiration of the Right of First Refusal and after full repayment of any
promissory note secured by the shares or other property in escrow, but not more
frequently than twice each calendar year, the escrow agent shall deliver to the
Optionee the shares and any other property no longer subject to such restriction
and no longer securing any promissory note.
12.3. NOTICES AND PAYMENTS. In the event the shares and any other
property held in escrow are subject to the Company's exercise of the Right of
First Refusal, the notices
11
<PAGE> 39
required to be given to the Optionee shall be given to the escrow agent, and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares and any other property which the Company has purchased to the
Company and shall deliver the payment received from the Company to the Optionee.
13. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Right of First Refusal, and any security interest
held by the Company with the same force and effect as the shares subject to the
Right of First Refusal and such security interest immediately before such event.
14. LEGENDS. The Company may at any time place legends referencing the
Right of First Refusal and any applicable federal, state or foreign securities
law restrictions on all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company any and all certificates representing
shares acquired pursuant to the Option in the possession of the Optionee in
order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be
limited to, the following:
14.1. "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
14.2. Any legend required to be placed thereon by the Commissioner
of Corporations of the State of California.
14.3. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
15. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock, made by the
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<PAGE> 40
Company pursuant to an effective registration statement filed under the
Securities Act, the Optionee shall not offer, sell, contract to sell, pledge,
hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The Optionee shall be subject to this Section provided and only
if the officers and directors of the Company are also subject to similar
arrangements.
16. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise
of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement, and
any such attempted disposition shall be void. The Company shall not be required
(a) to transfer on its books any shares which will have been transferred in
violation of any of the provisions set forth in this Option Agreement or (b) to
treat as owner of such shares or to accord the right to vote as such owner or to
pay dividends to any transferee to whom such shares will have been so
transferred.
17. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
18. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or
the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation. No amendment or
addition to this Option Agreement shall be effective unless in writing.
19. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
20. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute
the entire understanding and agreement of the Optionee and the Participating
Company Group with respect to the subject matter contained herein or therein,
and there are no agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein or
therein. To the extent contemplated herein or therein, the provisions of this
Option Agreement shall survive any exercise of the Option and shall remain in
full force and effect.
13
<PAGE> 41
21. APPLICABLE LAW. This Option Agreement shall be governed by the laws of
the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
IMMERSION CORPORATION
By:
----------------------------------
Title:
----------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in Section 11 and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement. The undersigned acknowledges
receipt of a copy of the Plan.
OPTIONEE
Date:
--------- -----------------------------------------
Optionee Address and Phone Number:
-----------------------------------------
-----------------------------------------
( )
-----------------------------------------
14
<PAGE> 1
EXHIBIT 10.4
IMMERSION HUMAN INTERFACE CORPORATION
IMMEDIATELY EXERCISABLE
NONSTATUTORY STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the
"Option Agreement") is made and entered into as of November 1, 1996, by and
between Immersion Human Interface Corporation and Steven G. Blank (the
"Optionee").
The IMMERSION has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "Option").
1. Definitions and Construction. Whenever used herein, the following
terms shall have their respective meanings set forth below:
1.1 "Board" means the Board of Directors of IMMERSION.
1.2 "IMMERSION" means Immersion Human Interface Corporation, a
California corporation, or any successor corporation thereto.
1.3 "Date of Option Grant" means November 1, 1996.
1.4 "Exercise Price" means $0.70 per share of Stock, as adjusted
from time to time pursuant to Section 9.
1.5 "Initial Exercise Date" means the Date of Option Grant.
1.6 "Initial Vesting Date" means November 1, 1996.
1.7 "Number of Option Shares" means twenty thousand (20,000) shares
of Stock, as adjusted from time to time pursuant to Section 9.
1.8 "Option Expiration Date" means the date ten (10) years after the
Date of Option Grant.
1.9 "Ownership Change" means the occurrence of any of the following
events:
(a) the direct or indirect sale or exchange by the shareholders
of
IMMERSION of all or substantially all of the stock of
IMMERSION;
(b) a merger in which IMMERSION is a party; or
(c) the sale, exchange, or transfer of all or substantially all
of IMMERSION's assets (other than a sale, exchange, or transfer to one (1) or
more corporations where the shareholders of IMMERSION before such sale,
exchange, or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
1
<PAGE> 2
1.10 "Securities Act" means the Securities Act of 1933, as amended.
1.11 "Service" means the Optionee's service with IMMERSION in the
capacity of a director.
1.12 "Stock" or "Shares" means the common stock of IMMERSION.
1.13 "Transfer of Control" means an Ownership Change in which the
shareholders of IMMERSION before such Ownership Change do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of IMMERSION.
1.14 "Vested Ratio" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date 1/4
Plus
For each six (6) months of the Optionee's 1/4
continuous Service from the Initial Vesting
Date until the Vested Ratio equals 1/1,
an additional
</TABLE>
2. Tax Status of Option. This Option is intended to be a nonstatutory
stock option and shall not be treated as an incentive stock option within the
meaning of Section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this
Option Agreement shall be determined in good faith by the Board, including any
duly appointed committee of the Board. All determinations by the Board shall be
final and binding upon all persons having an interest in the Option. Any officer
of IMMERSION shall have the authority to act on behalf of IMMERSION with
respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to IMMERSION herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
2
<PAGE> 3
4. Exercise of the Option.
4.1 Right to Exercise. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously acquired
upon exercise of the Option, subject to the Optionee's agreement that any shares
purchased upon exercise are subject to IMMERSION's repurchase rights set forth
in Section 11 and Section 12.
4.2 Method of Exercise. Exercise of the Option shall be by written
notice to IMMERSION which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as IMMERSION may
permit, to the Chief Financial Officer of IMMERSION, or other authorized
representative of IMMERSION, prior to the termination of the Option as set
forth in Section 6, accompanied by (i) full payment of the aggregate Exercise
Price for the number of shares of Stock being purchased and (ii) an executed
copy, if required herein, of the then current form of escrow agreement
referenced below. The Option shall be deemed to be exercised upon receipt by
IMMERSION of such written notice, the aggregate Exercise Price, and, if required
by IMMERSION, such executed agreement.
4.3 Payment of Exercise Price. Payment of the aggregate Exercise
Price for the number of shares of Stock for which the Option is being exercised
shall be made in cash, by check, or cash equivalent.
4.4 Tax Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by IMMERSION, the Optionee
agrees to make adequate provision for any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of IMMERSION, if any,
which arise in connection with the Option, including, without limitation,
obligations arising upon (i) the exercise, in whole or in part, of the Option,
(ii) the transfer, in whole or in part, of any shares acquired upon exercise of
the Option, or (iii) the lapsing of any restriction with respect to any shares
acquired upon exercise of the Option. The Optionee is cautioned that the Option
is not exercisable unless the tax withholding obligations of IMMERSION are
satisfied. Accordingly, the Optionee may not be able to exercise the Option when
desired even though the Option is vested, and IMMERSION shall have no
obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5 Certificate Registration. The certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, in the names of the heirs of the Optionee.
4.6 Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to
3
<PAGE> 4
compliance with all applicable requirements of federal, state or foreign law
with respect to such securities. The Option may not be exercised if the issuance
of shares of Stock upon exercise would constitute a violation of any applicable
federal, state or foreign securities laws or other law or regulations or the
requirements of any stock exchange or market system upon which the Stock may
then be listed. In addition, the Option may not be exercised unless (i) a
registration statement under the Securities Act shall at the time of exercise of
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to IMMERSION, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability
of IMMERSION to obtain from any regulatory body having jurisdiction the
authority, if any, deemed by IMMERSION's legal counsel to be necessary to the
lawful issuance and sale of any shares subject to the Option shall relieve
IMMERSION of any liability in respect of the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained. As a
condition to the exercise of the Option, IMMERSION may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by IMMERSION.
4.7 Fractional Shares. The IMMERSION shall not be required to issue
fractional shares upon the exercise of the Option.
5. Nontransferability of the Option. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. Termination of the Option. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. Effect of Termination of Service.
7.1 Option Exercisability. If the Optionee's Service is terminated
for any reason, including death or disability, the Option, to the extent
unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee (or the Optionee's guardian or
legal representative) at any time prior to the expiration of twelve (12) months
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date.
4
<PAGE> 5
7.2 Additional Limitation on Option Exercise. Notwithstanding the
provisions of Section 7.1, the Option may not be exercised after the Optionee's
termination of Service to the extent that the shares to be acquired upon
exercise of the Option would be subject to the Unvested Share Repurchase Option
as provided in Section 11.
7.3 Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time period set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by IMMERSION that the Option is exercisable, but in any event no
later than the Option Expiration Date.
8. Transfer of Control. In the event of a Transfer of Control, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), may
either assume IMMERSION's rights and obligations under the Option or
substitute for the Option a substantially equivalent option for the Acquiring
Corporation's stock. In addition, IMMERSION shall provide the Optionee with at
least ten (10) days advance written notice of the pending Transfer of Control
prior to the consummation thereof. The Option shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein.
9. Adjustments for Changes in Capital Structure. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of IMMERSION,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
10. Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of IMMERSION or
of a duly authorized transfer agent of IMMERSION). No adjustment shall be made
for dividends, distributions or other rights for which the record date is prior
to the
5
<PAGE> 6
date such certificate is issued, except as provided in Section 9.
11. Unvested Share Repurchase Option.
11.1 Grant of Unvested Share Repurchase Option. In the event the
Optionee's Service is terminated for any reason or no reason, with or without
cause, or, if the Optionee, the Optionee's legal representative, or other holder
of shares acquired upon exercise of the Option attempts to sell, exchange,
transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership
Change) any shares acquired upon exercise of the Option which exceed the Vested
Shares as defined in Section 11.2 below (the "Unvested Shares"), IMMERSION
shall have the right to repurchase the Unvested Shares under the terms and
subject to the conditions set forth in this Section 11 (the "Unvested Share
Repurchase Option"). Notwithstanding the foregoing, the Unvested Share
Repurchase Option shall terminate upon the occurrence of a Transfer of Control.
11.2 Vested Shares and Unvested Shares Defined. The "Vested Shares"
shall mean, on any given date, a number of shares of Stock equal to the Number
of Option Shares multiplied by the Vested Ratio determined as of such date and
rounded down to the nearest whole share. On such given date, the "Unvested
Shares" shall mean the number of shares of Stock acquired upon exercise of the
Option which exceed the Vested Shares determined as of such date.
11.3 Exercise of Unvested Share Repurchase Option. The IMMERSION
may exercise the Unvested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to the Optionee within sixty (60)
days after (a) termination of the Optionee's Service (or exercise of the Option,
if later) or (b) IMMERSION has received notice of the attempted disposition of
Unvested Shares. If IMMERSION fails to give notice within such sixty (60) day
period, the Unvested Share Repurchase Option shall terminate unless IMMERSION
and the Optionee have extended the time for the exercise of the Unvested Share
Repurchase Option. The Unvested Share Repurchase Option must be exercised, if at
all, for all of the Unvested Shares, except as IMMERSION and the Optionee
otherwise agree.
11.4 Payment for Shares and Return of Shares to IMMERSION. The
purchase price per share being repurchased by IMMERSION shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "Repurchase Price"). The IMMERSION shall pay the aggregate Repurchase
Price to the Optionee in cash within thirty (30) days after the date of personal
delivery or mailing of the written notice of IMMERSION's exercise of the
Unvested Share Repurchase Option. For purposes of the foregoing, cancellation of
any indebtedness of the Optionee to IMMERSION shall be treated as payment to the
Optionee in cash to the extent of the unpaid principal and any accrued interest
canceled. The shares being repurchased shall be delivered to IMMERSION by the
Optionee at the same time as the delivery of the Repurchase Price to the
Optionee.
11.5 Assignment of Unvested Share Repurchase Option. The IMMERSION
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by IMMERSION.
6
<PAGE> 7
12. Right of First Refusal.
12.1 Restriction on Transfer. Optionee shall not sell or engage in
any transaction which has resulted in or will result in a change in the
beneficial or record ownership of the Vested Shares, including without
limitation a voluntary or involuntary sale, assignment, transfer, pledge,
hypothecation, encumbrance, disposal, loan, gift, attachment or levy (a
"Transfer"), except in accordance with the terms of this Section 12 (the "Right
of First Refusal").
12.2 Right of First Refusal. If Optionee desires (or is required by
operation of law or other involuntary Transfer) to sell or otherwise Transfer
any or all of his Vested Shares (whether now held or hereafter acquired) (the
"Offered Securities") to any person, Optionee shall first offer such Offered
Securities as follows:
(a) Optionee shall give IMMERSION written notice (the
"Rights Notice") of his intention, describing the proposed purchaser, the price
and the terms of the Transfer. The IMMERSION will have 30 days from the date of
receipt of the Rights Notice to agree to purchase some or all of the Offered
Securities for the price and on the terms specified in the Rights Notice by
giving written notice to the Optionee. In the event of an involuntary sale or a
gift of such Offered Securities, the price and terms of such Transfer shall be
the fair market value thereof as established by the good faith determination of
the Board.
(b) If IMMERSION shall not elect to purchase all of the
Offered Securities, it shall give Optionee notice thereof (the "IMMERSION
Notice") and of the amount of the Offered Securities it elects to purchase.
(c) If IMMERSION does not elect to purchase all of the
Offered Securities, Optionee will have 120 days from the date of receipt of
IMMERSION Notice to sell such portion of the Offered Securities that IMMERSION
has not elected to purchase to the proposed purchaser at a price and upon
general terms no more favorable to the purchaser thereof than specified in the
Rights Notice. If Optionee has not sold the Offered Securities within said 120
day period, Optionee will not thereafter sell any Offered Securities without
first offering such securities to IMMERSION in the manner provided above.
(d) The rights provided in this Section 12 shall not apply to
the Transfer: (i) to an affiliate or equity holder of the Optionee, (ii) to a
spouse, lineal descendant, father, mother, brother or sister of the Optionee,
(iii) to the estate of any of the foregoing by gift, will or intestate
succession, (iv) to the personal trust of the Optionee, or (v) to nonprofit
institutions by gift or will; provided that the foregoing Transfers shall be
permitted without compliance with this Section 12 if, and only if, such
transferee becomes a party to and executes this Agreement.
(e) The right of first refusal described in this Section 12
shall terminate immediately upon the first to occur of (i) a Transfer of Control
or (ii) closing of the sale of stock pursuant to a registration statement filed
under the Securities Act for an underwritten public offering (other than a
registration on Form S-8, Form S-4 or comparable forms) covering IMMERSION's
Common Stock or (iii) the date forty-eight (48) months after the
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Date of Option Grant.
12.3 Transferees. Any transferee or successor in interest for the
Vested Shares will be subject to this right of first refusal with respect to
such Shares and as a condition of the transfer of such Shares shall agree in
writing to be bound by the provisions of this Section 12.
12.4 Assignment of Right of First Refusal. The IMMERSION shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by
IMMERSION.
13. Repurchase from Spouse.
13.1 In the event of the dissolution of Optionee's marriage,
Optionee shall have the right and option to purchase from his spouse all or any
portion of Vested Shares (i) awarded to the spouse pursuant to a decree of
dissolution of marriage or any other order by any court of competent
jurisdiction and/or by any property settlement agreement (whether or not
incorporated by reference in any such decree), or (ii) gifted to the spouse by
Optionee prior to the dissolution, at the fair market value of said Vested
Shares as determined by the Board, upon the terms set forth below. If either
Optionee or Optionee's spouse disputes the fair market valuation of the Vested
Shares by the Board, such fair market value shall be determined by arbitration
in accordance with the rules of the American Arbitration Association. Optionee
shall exercise his right, if at all, within thirty (30) days of the entry of any
such decree or property settlement agreement by delivery to Optionee's former
spouse of written notice of exercise, specifying the number of Vested Shares
Optionee elects to purchase. The purchase price for the Vested Shares shall be
paid by delivery of a promissory note for the purchase price bearing interest at
the rate of ten percent (10%) per annum payable in four (4) equal annual
installments of principal and interest, commencing on the anniversary date of
the exercise of the option described in this Section 13.
13.2 In the event Optionee does not exercise his right to purchase
all of the Vested Shares awarded to Optionee's former spouse, Optionee shall
provide written notice to IMMERSION of the number of Vested Shares available
for purchase pursuant to Paragraph 13.1 above within thirty (30) days of the
entry of the decree. The IMMERSION shall then have the right to purchase any of
the Vested Shares not acquired by Optionee directly from Optionee's former
spouse in the manner provided in Paragraphs 12.2(b) through 12.2(d) above at the
same price and on the same terms that were available to Optionee.
14. Spousal Consent. Optionee's spouse shall execute a Consent of
Spouse in the form of Exhibit A hereto, effective on the date hereof. Such
consent shall not be deemed to confer or convey to the spouse any rights in the
Vested Shares that do not otherwise exist by operation of law or the agreement
of the parties. If Optionee should marry or remarry subsequent to the date of
this Agreement, Optionee shall within thirty (30) days thereafter obtain his new
spouse's acknowledgement of and consent to the existence and binding effect of
all restrictions contained in this Agreement by signing an additional Consent of
Spouse in the form of Exhibit A.
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15. Right to Maintain Percentage Interest.
15.1 If, at any time prior to the expiration of the period set
forth in Section 15.6 below, IMMERSION should desire to issue, in a
transaction not registered under the Securities Act in reliance upon a claimed
exemption thereunder, any Equity Securities (as defined in Section 15.5 below),
it shall give the Optionee, so long as the Option remains exercisable or the
Optionee continues to hold any Shares acquired upon exercise of the Option, the
right to purchase that number of shares of Equity Securities which, when added
to the Equity Securities held by the Optionee prior to such purchase, shall
represent the same percentage of the total Equity Securities of IMMERSION
outstanding after the completion of such sales and issuances to others and the
Optionee as the percentage of Equity Securities held by such Optionee prior to
such issuances and sales.
15.2 Prior to any sale or issuance by IMMERSION of any Equity
Securities, IMMERSION shall notify the Optionee, in writing, of its intention
to sell and issue such securities, setting forth the terms under which it
proposes to make such sale. Within ten (10) days after receipt of such notice,
Optionee shall notify IMMERSION that he elects to purchase the Equity
Securities to which it is entitled under this Section 15.
15.3 If the Optionee gives IMMERSION notice that he desires to
purchase the Equity Securities he is entitled to purchase under this Section 15,
then payment for the Equity Securities shall be by check or wire transfer,
against delivery of the securities at the executive offices of IMMERSION
within five (5) days after giving IMMERSION such notice, or, if later, the
closing date for the sale of such Equity Securities to persons other than the
Optionee. The IMMERSION shall take all such action as may be required by any
regulatory authority in connection with the exercise by the Optionee of the
right to purchase Equity Securities as set forth in this Section 15.
15.4 The right to maintain percentage ownership contained in this
Section 15 shall not apply to the issuance by IMMERSION of:
(i) Shares of Common Stock (or rights, options or warrants to
purchase Common Stock) to employees, prospective employees, directors, officers,
consultants, vendors and equipment lessors pursuant to stock options or stock
purchase plans or agreements approved by the Board other than issuances to Louis
B. Rosenberg or Timothy A. Lacey;
(ii) Common Stock issued upon the consummation of a
consolidation or merger or other reorganization where IMMERSION is the
surviving corporation or any other transaction involving the acquisition by
IMMERSION of the stock or assets of another corporation;
(iii) Common Stock issued pursuant to a firm underwritten
public offering registered under the Securities Act;
(iv) Series B Preferred Stock;
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(v) Common Stock issued or issuable upon conversion of
Preferred Stock; or
(vi) Equity Securities issued to an investor determined to be
a corporate or other investor whose involvement with IMMERSION is deemed
important to IMMERSION's financial success (a "Strategic Investor"). A
Strategic Investor will not include an investor whose only contribution to
IMMERSION is such Investor's financial investment. The determination of whether
an investor is a Strategic Investor shall be made by the Board.
15.5 The term "Equity Securities" shall mean (i) Common Stock of
IMMERSION; (ii) any rights, options or warrants to purchase Common Stock;
(iii) any security of IMMERSION, other than Common Stock, having voting rights
in the election of the Board; or (iv) any security convertible into or
exchangeable for any of the foregoing. Despite the foregoing definition of
Equity Securities, if IMMERSION issues any securities or executes any
agreement or commitment to issue a security constituting an Equity Security
pursuant to clauses (ii), (iii), (iv) or (v) above, the subsequent issuance of
Common Stock or other security issued upon exercise or conversion of such Equity
Security or issued pursuant to the terms of such Equity Security shall not give
rise to the right to maintain percentage ownership contained in this Section 15.
15.6 The rights of the Optionee contained in Section 15 of this
Agreement shall terminate upon the first to occur of (i) a Transfer of Control
or (ii) closing of the sale of stock pursuant to a registration statement filed
under the Securities Act, of an underwritten public offering of shares of
IMMERSION's Common Stock.
15.7 The right set forth in this Section 15 shall be personal to
Optionee and shall not be assignable or transferable.
15.8 Equity Securities acquired by Optionee upon exercise of his
rights under this Section 15 shall be deemed to be subject to all of the rights
and obligations set forth herein, including but not limited to the Right of
First Refusal, except that such Equity Securities shall not be subject to the
Unvested Share Repurchase Option of Section 11.
16. Escrow. To ensure that shares subject to the Unvested Share
Repurchase Option will be available for repurchase, IMMERSION may require the
Optionee to deposit the certificate evidencing the shares which the Optionee
purchases upon exercise of the Option with an agent designated by IMMERSION
under the terms and conditions of an escrow agreement approved by IMMERSION.
If IMMERSION does not require such deposit as a condition of exercise of the
Option, IMMERSION reserves the right at any time to require the Optionee to so
deposit the certificate in escrow. Upon the occurrence of an Ownership Change or
a change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change or change described in Section 9,
subject to the Unvested Share Repurchase Option shall be immediately subject to
the escrow to the same extent as such
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shares of Stock immediately before such event. The IMMERSION shall bear the
expenses of the escrow.
17. Stock Distributions Subject to Option Agreement. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option and the Right of
First Refusal with the same force and effect as the shares subject to the
Unvested Share Repurchase Option and the Right of First Refusal immediately
before such event.
18. Representations and Warranties. In connection with the receipt of
the Option and any acquisition of shares upon the exercise thereof, the Optionee
hereby agrees, represents and warrants as follows:
18.1 The Optionee is acquiring the Option and will acquire any
shares of Stock upon exercise of the Option for the Optionee's own account, and
not on behalf of any other person or as a nominee, for investment and not with a
view to, or sale in connection with, any distribution of the Option or such
shares.
18.2 The Optionee was not presented with or solicited by any form
of general solicitation or general advertising, including, but not limited to,
any advertisement, article, notice, or other communication published in any
newspaper, magazine, or similar media, or broadcast over television, radio or
similar communications media, or presented at any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
18.3 The Optionee has either (a) a preexisting personal or business
relationship with IMMERSION or any of its officers, directors, or controlling
persons, consisting of personal or business contacts of a nature and duration to
enable the Optionee to be aware of the character, business acumen and general
business and financial circumstances of the person with whom such relationship
exists, or (b) such knowledge and experience in financial and business matters
(or has relied on the financial and business knowledge and experience of the
Optionee's professional advisor who is unaffiliated with and who is not,
directly or indirectly, compensated by IMMERSION or any affiliate or selling
agent of IMMERSION) as to make the Optionee capable of evaluating the merits
and risks of the Option and any investment in shares acquired pursuant to the
Option and to protect the Optionee's own interests in the transaction, or (c)
both such relationship and such knowledge and experience.
18.4 The Optionee understands that the Option and any shares
acquired upon exercise of the Option have not been qualified under the Corporate
Securities Law of 1968, as amended, of the State of California by reason of a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the Optionee's representations as expressed herein. The
Optionee understands that IMMERSION is relying on the Optionee's
representations and warrants that IMMERSION is entitled to rely on such
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representations and that such reliance is reasonable.
19. Legends. The IMMERSION may at any time place legends referencing
the Unvested Share Repurchase Option, the Right of First Refusal, and any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of IMMERSION, promptly
present to IMMERSION any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section. Unless otherwise specified by IMMERSION, legends
placed on such certificates may include, but shall not be limited to, the
following:
19.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
19.2 Any legend required to be placed thereon by the Commissioner
of Corporations of the State of California.
19.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
19.4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
20. Public Offering. The Optionee hereby agrees that in the event of
any underwritten public offering of stock, including an initial public offering
of stock, made by IMMERSION pursuant to an effective registration statement
filed under the Securities Act, the Optionee shall not offer, sell, contract to
sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of IMMERSION or any rights to
acquire stock of IMMERSION for such period of time from and after the
effective date of such registration statement as may be established by the
underwriter for such public offering;
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provided, however, that such period of time shall not exceed one hundred eighty
(180) days from the effective date of the registration statement to be filed in
connection with such public offering. The foregoing limitation shall not apply
to shares registered in the public offering under the Securities Act. The
Optionee shall be subject to this Section provided and only if the officers and
directors of IMMERSION are also subject to similar arrangements.
21. Restrictions on Transfer of Shares. No shares acquired upon
exercise of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement and,
except pursuant to an Ownership Change, until the date on which such shares
become Vested Shares, and any such attempted disposition shall be void. The
IMMERSION shall not be required (a) to transfer on its books any shares which
will have been transferred in violation of any of the provisions set forth in
this Option Agreement or (b) to treat as owner of such shares or to accord the
right to vote as such owner or to pay dividends to any transferee to whom such
shares will have been so transferred.
22. Binding Effect. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
23. Termination or Amendment. The Board may terminate or amend the
Option at any time; provided, however, that no such termination or amendment may
adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation. No amendment or
addition to this Option Agreement shall be effective unless in writing.
24. Integrated Agreement. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and IMMERSION with respect to the
subject matter contained herein and there are no agreements, understandings,
restrictions, representations, or warranties among the Optionee and IMMERSION
with respect to such subject matter other than those as set forth or provided
for herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
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25. Applicable Law. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
IMMERSION HUMAN INTERFACE CORPORATION
By: /s/ Louis Rosenberg
-------------------------------------
Title: President
----------------------------------
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11 and the Right of First Refusal set forth in
Section 12, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement.
OPTIONEE
Date: November , 1996 /s/ Steven Blank
---- ----------------------------------------
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EXHIBIT A
CONSENT OF SPOUSE
I, Alison Eliot, spouse of Steven G. Blank, acknowledge that I have
read the Option Agreement dated as of November 1, 1996 to which this Consent is
attached as Exhibit A (the "Agreement") and that I know its contents. I am aware
that by its provisions (a) Immersion Human Interface Corporation (hereinafter
called the "Corporation") has the option to purchase certain shares of Stock of
the Corporation which my spouse may acquire pursuant to the Agreement, including
shares acquired pursuant to the terms of or right to maintain his percentage
interest of the Corporation as set forth in the Agreement, including any
interest I might have therein, upon termination of his service as a director of
the Corporation under circumstances set forth in the Agreement, and (b) certain
other restrictions are imposed upon the sale or other disposition of the Stock.
I hereby consent to the sale of the Stock by my spouse or his legal
representative in accordance with the provisions of the Agreement.
Date: 2-25-97 /s/ Alison Eliot
----------------- -----------------------------------
Alison Eliot
<PAGE> 1
EXHIBIT 10.5
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE
ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Void after March 5, 2009
IMMERSION CORPORATION
COMMON STOCK PURCHASE WARRANT
THIS COMMON STOCK PURCHASE WARRANT is made and entered into as of March
5, 1999 by and between Immersion Corporation and Cybernet Systems Corporation, a
Delaware corporation (the "Initial Holder" or "Cybernet").
THIS CERTIFIES THAT, for value received, Cybernet is entitled to
purchase Three Hundred Eighty-Six Thousand (386,000) shares ("Warrant Shares")
of Common Stock ("Common Stock") of Immersion Corporation, a California
corporation, at a price of $2.95 per share, subject to adjustments as provided
for in Section 5 and subject to all other terms and conditions set forth in this
Warrant.
1. Definitions. As used herein, the following terms, unless the context
otherwise requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(b) "Commission" shall mean the Securities and Exchange Commission,
or any other Federal agency at the time administering the Act.
(c) "IMMERSION" shall mean Immersion Corporation, a California
corporation, and any corporation which shall succeed to or assume the
obligations of Immersion Corporation, under this Warrant in accordance with the
terms hereof.
(d) "Date of Grant" shall mean March 5, 1999.
(e) "Exercise Price" shall mean $2.95, subject to adjustments as set
forth in Section 5.
(f) "Fair Market Value" means, as of any date, the value of a share
of Common Stock or other property as determined by the Board of Directors of
IMMERSION, in its sole discretion, or by IMMERSION, in its sole discretion, if
such determination is expressly allocated to IMMERSION, herein, subject to the
following:
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(i) If, on such date, there is a public market for the Common
Stock, the Fair Market Value of a share of Common Stock shall be the closing
sale price of a share of Common Stock (or the mean of the closing bid and asked
price of a share of Common Stock if the Common Stock is so quoted instead) as
quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market, or such other
national or regional securities exchanges or market systems constituting the
primary market for the Common Stock, as reported in the Wall Street Journal or
such other source as IMMERSION deems reliable. If the relevant date does not
fall on a day on which the Common Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Common Stock was so traded prior to the
relevant date, or such other approved day as shall be determined by the Board,
in its sole discretion.
(ii) If, on such day, there is no public market for the Common
Stock, the Fair Market Value of a share of Common Stock shall be determined by
the Board without regard to any restriction other than a restriction which, by
its terms will never lapse.
(g) "Holder" shall mean any person who shall at the time be the
registered holder of this Warrant.
(h) "Initial Holder" shall mean Cybernet Systems Corporation.
(i) "Original Exercise Price" shall mean $2.95.
(j) "Recapitalization Event" shall mean an event described in
Section 5(a)(i) or 5(a)(ii).
(k) "Warrant Expiration Date" shall mean March 5, 2009.
2. Issuance of Warrant and Consideration Therefor. This Warrant is
issued in consideration for the consulting services to be provided to IMMERSION
pursuant to the Consulting Services Agreement of even date herewith.
3. Method of Exercise and Payment.
(a) Exercise of Warrant. This Warrant may be exercised in whole or
part by the Holder, at any time prior to its expiration as set forth in Section
16 herein, by the surrender of this Warrant, together with the Notice of
Exercise or Conversion and Investment Representation Statement in the forms
attached hereto as Exhibits A and B, respectively, duly completed and delivered
to the principal office of IMMERSION, specifying the portion of the Warrant to
be exercised and accompanied by payment in full of the Exercise Price in cash or
by check with respect to the Warrant Shares being purchased. This Warrant shall
be deemed to have been exercised immediately prior to the close of business on
the date of its surrender for exercise as provided above, and the person
entitled to receive the Warrant Shares issuable upon such exercise shall be
treated for all purposes as Holder of such shares of record as of the close of
business on such date. As promptly as practicable after such date, IMMERSION
shall issue and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of Warrant Shares issuable upon such
exercise. If the Warrant shall be exercised for less than the total number of
shares of Warrant Shares then issuable upon exercise, promptly after
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surrender of the Warrant upon such exercise, IMMERSION will execute and
deliver a new Warrant, dated the date hereof, evidencing the right of the Holder
to purchase the balance of the Warrant Shares purchasable hereunder upon the
same terms and conditions set forth herein.
(b) Conversion. In lieu of exercising this Warrant or any portion
hereof, the Holder hereof shall have the right to convert this Warrant or any
portion hereof, at any time prior to its expiration, into a portion of the
Warrant Shares by executing and delivering to IMMERSION at its principal
office the written Notice of Exercise or Conversion and Investment
Representation Statement in the forms attached hereto as Exhibits A and B,
specifying the portion of the Warrant to be converted, and accompanied by this
Warrant. The number of the Warrant Shares to be issued to Holder upon such
conversion shall be computed by dividing (a) the aggregate Fair Market Value of
the Warrant Shares issuable upon the exercise of the Warrant minus the aggregate
Exercise Price of such Warrant Shares by (b) the Fair Market Value of one
Warrant Share. For purposes of clause (a) of the preceding sentence of this
Section 3(b), the "Warrant Shares issuable upon the exercise of the Warrant"
shall refer to the Number of Warrant Shares specified in the notice delivered by
the Initial Holder pursuant to this Section 3(b) upon the conversion of the
Warrant pursuant to this Section 3(b), which number shall not exceed with
respect to any exercise of the conversion right set forth in this Section 3(b),
the Number of Warrant Shares less the number of shares previously acquired upon
exercise of the Warrant or deemed to be exercised upon conversion of the Warrant
pursuant to this Section 3(b).
(i) Any portion of this Warrant that is converted shall be
immediately canceled. This Warrant or any portion hereof shall be deemed to have
been converted immediately prior to the close of business on the date of its
surrender for conversion as provided above, and the person entitled to receive
the Warrant Shares issuable upon such conversion shall be treated for all
purposes as Holder of such shares of record as of the close of business on such
date. As promptly as practicable after such date, IMMERSION shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of Warrant Shares issuable upon such conversion.
(ii) If the Warrant shall be converted for less than the total
number of Warrant Shares then issuable upon conversion, promptly after surrender
of the Warrant upon such conversion, IMMERSION will execute and deliver a new
Warrant as to the portion of the Warrant not converted, dated the date hereof,
evidencing the right of the Holder to purchase the balance of the Warrant Shares
purchasable hereunder with respect to the portion of the Warrant not converted
upon the same terms and conditions set forth herein.
(c) Method of Payment. Payment upon exercise of this Warrant
pursuant to Section 3(a) shall be made either (i) by check drawn on a United
States bank and for United States funds made payable to IMMERSION or (ii) by
wire transfer of United States funds for the account of IMMERSION.
(d) No Fractional Shares. No fractional shares shall be issued in
connection with any exercise or provision hereunder, but in lieu of such
fractional shares IMMERSION shall make a cash payment therefor upon the basis
of the Fair Market Value of a Warrant Share as of the date of exercise or
conversion.
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4. Corporate Sale.
(a) "Corporate Sale". A "Corporate Sale" means the occurrence of one
of the following events: (i) a consolidation or merger of IMMERSION with or
into any other corporation or corporations (other than a wholly-owned
subsidiary) in which the shareholders of IMMERSION immediately prior to such
transaction hold fifty percent (50%) or less of the total voting power for the
election of directors of the acquiring or surviving entity immediately following
the transaction, or (ii) the sale, transfer or other disposition of all or
substantially all of the assets of IMMERSION or (iii) the consummation of any
transaction or series of related transactions which results in IMMERSION's
shareholders immediately prior to such transaction holding fifty percent (50%)
or less of the voting power of the acquiring or surviving entity immediately
following the transaction.
(b) Effect of a Corporate Sale. Immediately prior to the occurrence
of any Corporate Sale, this Warrant shall be deemed to have been automatically
converted into Warrant Shares as if the Holder had converted the Warrant in full
pursuant to Section 3(b), and Holder shall be required to deliver to IMMERSION
the written Notice of Exercise or Conversion and Investment Representation
Statements in accordance with Section 3(b). Holder shall participate in the
Corporate Sale on the same terms as other holders of the class and series of
capital stock of IMMERSION into which the Warrant has been converted to the
extent holders of such class and series of capital stock are entitled to do so.
5. Adjustment of Exercise Price and Number of Warrant Shares. The number
and type of securities issuable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Recapitalization Events.
(i) Stock Splits, Stock Dividends and Combinations. In case
IMMERSION shall at any time subdivide the outstanding shares of Common Stock or
shall issue a stock dividend on its outstanding Common Stock, the Exercise Price
in effect immediately prior to such subdivision or the issuance of such stock
dividend shall be proportionately decreased, and the number of Warrant Shares
shall be proportionately increased, and in case IMMERSION shall at any time
combine the outstanding shares of Common Stock, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased, and
the number of Warrant Shares shall be proportionately decreased, effective at
the close of business on the date of such subdivision, stock dividend or
combination, as the case may be.
(ii) Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant (other than a Corporate Sale), the Exercise Price
shall be appropriately adjusted and the Holder shall be entitled to receive,
upon exercise or conversion of this Warrant, the number and kind of securities
and property that Holder would have received for the Warrant Shares if this
Warrant had been exercised or converted immediately before such
reclassification, exchange, substitution, or other event. The provisions of this
Section 5(a)(ii) shall similarly apply to
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<PAGE> 5
successive reclassifications, exchanges, substitutions, or other events (other
than a Corporate Sale).
(b) Adjustment of Exercise Price and Number of Warrant Shares for
Antidilution Events.
(i) Special Definitions. For purposes of this Section 5(b)(i),
the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(3) "Additional Shares of Common" shall mean all shares of
Common Stock issued (or, pursuant to Section 5(b)(iii) below, deemed to be
issued) by the Corporation after the Date of Grant, other than shares of Common
Stock issued or issuable:
(A) upon conversion of shares of Series A, Series B,
Series C and Series D Preferred Stock of IMMERSION or as a result of an
adjustment of the price at which the Series C or Series D Preferred Stock
convert into Common Stock pursuant to IMMERSION's Amended and Restated
Articles of Incorporation or as a consequence or effect of the operation of this
Section 5;
(B) upon exercise of warrants to purchase an aggregate
of (i) 228,250 shares of Common Stock, (ii) 7,500 shares of Series A Preferred
Stock, and (iii) 18,000 shares of Series C Preferred Stock of IMMERSION
outstanding as of the Date of Grant (as adjusted for Recapitalization Events);
(C) to officers, directors or employees of, or
consultants to, the Corporation pursuant to a stock grant, option plan or
purchase plan or other employee stock incentive program or agreement approved by
the Board, not to exceed 8,400,000 shares, inclusive of the 3,608,002 shares
subject to outstanding options and the 1,443,301 shares issued upon exercise of
outstanding options but net of repurchases, cancellations, terminations and
expirations, since the Date of Grant (as adjusted for Recapitalization Events);
(D) in connection with the acquisition by IMMERSION of
another business entity or majority ownership thereof or technology or other
assets thereof, provided that (A) such entity is not an affiliate (any person or
entity controlling, controlled by or under common control with IMMERSION, an
"Affiliate") of any director, officer or other natural person who is an
Affiliate of IMMERSION (a "Control Person") other than in such Control
Person's capacity as an officer, director or shareholder of IMMERSION and such
Control Person does not have a material interest in such entity other than as an
officer, director or shareholder of IMMERSION, or (B) such issuances of Common
Stock issued or issuable are made in a bona fide arm's length transaction as
determined by the Board of Directors of IMMERSION;
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<PAGE> 6
(E) in an amount up to 750,000 shares of Common Stock
(as adjusted for Recapitalization Events), in connection with any lease
financing transaction approved by IMMERSION's Board of Directors;
(F) as a dividend or distribution on Series A, Series B,
Series C or Series D Preferred Stock of IMMERSION;
(G) upon exercise of nonqualified stock options
outstanding as of the Date of Grant to purchase 100,000 shares of Common Stock
(as adjusted for Recapitalization Events);
(H) in an amount up to 500,00 shares of Common Stock or
options to purchase Common Stock for general corporate purposes provided such
issuance is approved by IMMERSION's Board of Directors;
(I) by way of dividend or other distribution on shares
of Common Stock excluded from the definition of Additional Shares of Common by
the foregoing clauses (A) through (I) or this clause (J); or
(J) as a result of a Recapitalization Event.
(ii) No Adjustment of Exercise Price. No adjustment to the
Exercise Price shall be made in respect of the issuance of Additional Shares of
Common unless the consideration per share for an Additional Share of Common
issued or deemed to be issued by the Corporation is less than the Exercise
Price, as applicable, in effect on the date of, and immediately prior to, such
issue and such issue is not approved by the holders of a majority of the
Preferred Stock outstanding as of the date of such issue, or such record date,
as the case may be.
(iii) Deemed Issue of Additional Shares of Common.
(1) Options and Convertible Securities. In the event the
Corporation at any time or from time to time after the Date of Grant shall issue
any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the exercise of such Options and conversion or
exchange of such Convertible Securities shall be deemed to be Additional Shares
of Common issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date, provided
that Additional Shares of Common shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 5(b)(v) hereof) of
such Additional Shares of Common would be less than the Exercise Price
immediately prior to such issue, or such record date, as the case may be, and
such issue is not approved by the holders of a majority of the Preferred Stock
outstanding as of the date of such issue, or such record date, as the case may
be and provided further that in any such case in which Additional Shares of
Common are deemed to be issued:
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<PAGE> 7
(A) except as provided in Section 5(b)(iii)(1)(C) below,
no further adjustment to the Exercise Price shall be made upon the subsequent
issue of Convertible Securities or shares of Common Stock upon the exercise of
such Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any change in the
consideration payable to the Corporation, or change in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof (other
than under or by reason of provisions designed to protect against dilution), the
Exercise Price computed upon the original issue thereof (or upon the occurrence
of a record date with respect thereto) and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities; and
(C) no readjustment pursuant to clause (B) above shall
have the effect of increasing the Exercise Price to an amount which exceeds the
lower of (1) the Exercise Price on the original adjustment date or (2) the
Exercise Price that would have resulted from any issuance of Additional Shares
of Common between the original adjustment date and such readjustment date.
(iv) Adjustment to the Number of Warrant Shares and the
Exercise Price Upon Issuance of Additional Shares of Common. In the event this
Corporation shall issue Additional Shares of Common (including Additional Shares
of Common deemed to be issued pursuant to Section 5(b)(iii)) without
consideration or for a consideration per share less than the Exercise Price in
effect on the date of and immediately prior to such issue and such issuances are
not approved by the holders of a majority of the Preferred Stock outstanding as
of the date of such issue, or such record date, as the case may be (such
issuance price being referred to herein as the "Dilution Price"), then and in
each such event:
(1) The number of Warrant Shares which the Holder of this
Warrant shall be entitled to purchase immediately after such issue shall be the
number computed by multiplying
(A) the number of Warrant Shares which remain
outstanding pursuant to this Warrant by
(B) a fraction, the numerator of which shall be the
Exercise Price and the denominator of which shall be the Adjusted Exercise Price
as hereinafter defined and determined; and
(2) The Exercise Price payable and in effect upon exercise
of the Warrant immediately after such issue (the "Adjusted Exercise Price")
shall be calculated by multiplying the Exercise Price then in effect by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by IMMERSION for the total
number of Additional Shares of Common so issued would purchase at such Exercise
Price;
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<PAGE> 8
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common so issued. For the purpose of the above calculation, the number
of shares of Common Stock outstanding immediately prior to such issue shall be
calculated on a fully diluted basis, as if all Preferred Stock and all
Convertible Securities had been fully converted into shares of Common Stock
immediately prior to such issuance and any outstanding warrants, options or
other rights for the purchase of shares of stock or convertible securities had
been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into shares of Common Stock, if so converted) as of
such date.
(v) Determination of Consideration. For purposes of this Section
5(b), the consideration received by the Corporation for the issue of any
Additional Shares of Common shall be computed as follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by IMMERSION;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
by IMMERSION's Board of Directors in the good faith exercise of its reasonable
business judgment; and
(C) in the event Additional Shares of Common are issued
together with other shares or securities or other assets of IMMERSION for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (A) and (B) above, as determined in
good faith by IMMERSION's Board of Directors.
(2) Options and Convertible Securities. The consideration
per share received by IMMERSION for Additional Shares of Common deemed to have
been issued pursuant to Section 5(b), relating to Options and Convertible
Securities, shall be determined by dividing.
(A) the total amount, if any, received or receivable by
IMMERSION as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
IMMERSION upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
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<PAGE> 9
(c) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment to the number of Warrant Shares pursuant to this
Section 5(b), IMMERSION at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to Holder a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.
6. Rights of Shareholders. No Holder shall be entitled to vote or
receive dividends or be deemed the holder of Common Stock or any other
securities of IMMERSION which may at any time be issuable on the exercise or
conversion of this Warrant for any purpose, nor shall anything contained herein
be construed to confer upon the Holder, as such, any of the rights of a
shareholder of IMMERSION or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issuance of stock, reclassification of stock, consolidation, merger, transfer of
assets or otherwise) or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise until this Warrant shall have been exercised
or converted and the Warrant Shares issuable upon exercise or conversion hereof
shall have become deliverable, as provided herein.
7. Replacement of Warrants. On receipt of evidence reasonably
satisfactory to IMMERSION of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to IMMERSION
or, in the case of mutilation, on surrender and cancellation of this Warrant,
IMMERSION at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
8. Exchange of Warrant. On surrender of this Warrant for exchange,
properly endorsed and subject to the provisions of this Warrant with respect to
compliance with the Act and to compliance with the Act, IMMERSION at its expense
shall issue to or on the order of the Holder a new warrant or warrants of like
tenor, in the name of the Holder or as the Holder (on payment by the Holder of
any applicable transfer taxes) may direct, for the number of Common Stock
issuable upon exercise thereof. The IMMERSION may treat the holder of record of
this Warrant as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
9. Legends. The IMMERSION may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Warrant. The Holder shall, at the request of IMMERSION, promptly present to
IMMERSION any and all certificates representing shares acquired pursuant to
the Warrant in the possession of the Holder in order to carry out the provisions
of this Section. Unless otherwise specified by IMMERSION, legends placed on
such certificates may include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH
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<PAGE> 10
RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California or other applicable state securities
laws.
10. Representations and Warranties.
In connection with the acquisition of the Warrant Shares the Initial
Holder hereby agrees, represents and warrants as follows:
(a) The Initial Holder is acquiring the Warrant and will acquire any
Warrant Shares solely for the Initial Holder's own account and not with a view
to, or for resale in connection with, any distribution thereof within meaning of
the Securities Act.
(b) The Initial Holder has such knowledge and experience in
financial and business matters as to make the Initial Holder capable of
evaluating the merits and risks of the Warrant and any investment in shares
acquired pursuant to the Warrant and to protect the Initial Holder's own
interests in the transaction.
(c) The Initial Holder has either (a) a preexisting relationship
with IMMERSION or any of its officers, directors, or controlling persons,
consisting of contacts or a nature and duration to enable the Initial Holder to
be aware of the character, business acumen and general business and financial
circumstances of the person with whom such relationship exists, or (b) such
knowledge and experience in financial and business matters (or has relied on the
financial and business knowledge and experience of the Initial Holder's
professional advisor who is unaffiliated with and who is not, directly or
indirectly, compensated by IMMERSION or any affiliate or selling agent of
IMMERSION) as to make the Initial Holder capable of evaluating the merits and
the risks of the Warrant and any investment in shares acquired pursuant to the
Warrant and to protect the Initial Holder's own interests in the transaction, or
(c) both such relationships and such knowledge and experience.
(d) The Initial Holder realizes that the acquisition of Warrant
Shares will be a highly speculative investment, and that the Initial Holder is
able, without impairing its financial condition, to hold such Warrant Shares for
an indefinite period of time and to suffer a complete loss on its investment.
(e) The Initial Holder understands that the Warrant Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from IMMERSION in a transaction not
involving a public offering and that under such laws and applicable regulations
such shares may be resold without registration under the Securities Act only in
certain limited circumstances. The Initial Holder is aware of the provisions of
Rule 144 promulgated under the Securities Act as presently in effect and
understands the resale provisions imposed thereunder and by the Securities Act.
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<PAGE> 11
(f) The Initial Holder understands that no public market now exists
for any of the securities issued by IMMERSION, that IMMERSION has made no
assurance that a public market will ever exist for the Warrant Shares and that,
even if such a public market exists at some future time, IMMERSION may not
then be satisfying the current public information requirements which would
permit the limited resale of the shares under Rule 144.
(g) Without in any way limiting the Initial Holder's representation
and warranties set forth above, the Initial Holder further agrees that it shall
in no event make any disposition of any Warrant Shares unless and until:
(i) There is an effective registration statement under the
Securities Act covering such proposed disposition is made in accordance with
said registration statement; or
(ii) the Initial Holder shall have (i) notified IMMERSION of
the proposed disposition and furnished IMMERSION with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) furnished
IMMERSION with an opinion of its own counsel to the effect that such disposition
will not require the registration of such shares under the Securities Act, such
opinion of the Initial Holders counsel shall have been concurred in by counsel
for IMMERSION, and IMMERSION shall have advised the Initial Holder of such
concurrence.
(h) The Initial Holder was not presented with or solicited by any
form of general solicitation or general advertising, including, but not limited
to, any such advertisement, article, notice, or other communication published in
any newspaper, magazine, or similar media, or broadcast over television, radio
or similar communications media, or presented at any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
11. Restrictions on Transfer of Shares. Subject to applicable federal
and state securities laws, IMMERSION shall not unreasonably restrict the
transfer of the Warrant Shares or Common Stock issuable upon exercise or
conversion of this Warrant.
12. Binding Effect. Subject to the restrictions on transfer set forth
herein, this Warrant shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
13. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given (except to the extent that this
Warrant provides for effectiveness only upon actual receipt of such notice) upon
personal delivery, overnight delivery service or upon deposit in the United
States Post Office, by registered or certified mail return receipt requested,
with postage and fees prepaid, addressed to the other party at the address shown
below that party's signature or at such other address as such party may
designate in writing from time to time to the other party.
14. Applicable Law. This Warrant shall be governed by the laws of the
State of California as such laws are applied to agreements between California
residents entered into and to be performed entirely within the State of
California.
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15. Arbitration. In the event of any dispute or claim relating to or
arising out of this Warrant, Initial Holder and IMMERSION agree that all such
disputes shall be fully, finally and exclusively resolved by binding arbitration
conducted by the American Arbitration Association in San Jose County,
California. Initial Holder and IMMERSION hereby knowingly and willingly waive
their respective rights to have any such disputes or claims tried to a judge or
jury.
16. Reservation of Shares. The IMMERSION at all times shall reserve and
keep available out of its authorized but unissued shares of Common Stock solely
for the purpose of effecting the exercise or conversion of this Warrant, such
number of shares of Common Stock as from time to time shall be sufficient to
effect the exercise or conversion of this Warrant.
17. Expiration. The right to exercise or convert this Warrant shall
expire on the first to occur of (a) 5:00 P.M. California time or the Warrant
Expiration Date or (b) a Corporate Sale to the extent provided in Section 4.
IMMERSION CORPORATION
/s/ Louis B. Rosenberg
--------------------------------------
By: Louis B. Rosenberg
Title: President
Corporate Address: 2158 Paragon Drive
San Jose, CA 95131
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EXHIBIT A
NOTICE OF EXERCISE OR CONVERSION
Date: __________, 19___
Immersion Corporation
2158 Paragon Drive
San Jose, CA 95131
Attention: ________________
Dear M_____________________:
The undersigned hereby elects to exercise or convert the enclosed
Warrant dated January ___, 1999 issued to it by Immersion Corporation (the
"IMMERSION").
The undersigned elects to:
/_/ Exercise the Warrant and to purchase thereunder __________ Warrant
Shares (as defined in the Warrant) at an exercise price of $_____ per Share, or
an aggregate purchase price of ____________ Dollars ($_________ ) (the "Purchase
Price"). Pursuant to the terms of the Warrant, the undersigned has delivered the
Purchase Price herewith in full, by cash or wire transfer.
/_/ Convert the value of _________ Warrant Shares issuable upon exercise
of the Warrant (that is, % of the Warrant).
Very truly yours,
Warrant Holder
By: ____________________________
Title: _________________________
Accepted and Acknowledged:
Immersion Corporation
By: _____________________________
Dated: ___________________________,
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EXHIBIT B
THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO IMMERSION CORPORATION
ALONG WITH THE NOTICE OF EXERCISE OR CONVERSION BEFORE THE COMMON STOCK ISSUABLE
UPON EXERCISE OF THE WARRANT DATED JANUARY ___, 1999 WILL BE ISSUED.
INVESTMENT REPRESENTATION STATEMENT
------------------, ---
Immersion Corporation
2158 Paragon Drive
San Jose, CA 95131
Attention: ___________________
Gentlemen:
The undersigned, ______________________ ("Purchaser"), intends to
acquire up to ___________________ shares of the Common Stock (the "Stock") of
Immersion Corporation (the "IMMERSION") pursuant to the exercise of certain
warrants to purchase common stock held by the Purchaser. The Stock will be
issued to Purchaser in a transaction not involving a public offering and
pursuant to an exemption from registration under the Securities Act of 1933, as
amended (the "1933 Act") and applicable state securities laws. In connection
with such purchase and in order to comply with the exemptions from registration
relied upon by IMMERSION, Purchaser represents, warrants and agrees as
follows:
The Purchaser is an accredited investor within the meaning of Rule 501
under the 1933 Act and has such knowledge and experience in financial and
business matters that the Purchaser is capable of evaluating the merits and
risks of the purchase of the Stock and of protecting Purchaser's interests in
connection therewith.
Purchaser is acquiring the Stock for its own account, to hold for
investment, and Purchaser shall not make any sale, transfer or other disposition
of the Stock in violation of the 1933 Act or the general rules and regulations
promulgated thereunder by the Securities and Exchange Commission (the "SEC") or
in violation of any applicable state securities law.
Purchaser has been advised that the Stock has not been registered under
the 1933 Act or state securities laws on the grounds that this transaction is
exempt from registration, and that reliance by IMMERSION on such exemptions is
predicated in part on Purchaser's representations set forth in this letter.
Purchaser has been informed that under the 1933 Act, the Stock must be
held indefinitely unless it is subsequently registered under the 1933 Act or
unless an exemption from such registration (such as Rule 144) is available with
respect to any proposed transfer or disposition by Purchaser of the Stock.
Purchaser further agrees that IMMERSION may refuse to permit Purchaser to
sell, transfer or dispose of the Stock (except as permitted under Rule 144)
unless
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<PAGE> 15
there is in effect a registration statement under the 1933 Act and any
applicable state securities laws covering such transfer, or unless Purchaser
furnishes an opinion of counsel reasonably satisfactory to counsel for
IMMERSION, to the effect that such registration is not required.
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Stock, or any substitutions therefor, a legend stating in
substance:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
Purchaser has carefully read this letter and has discussed its
requirements and other applicable limitations upon Purchaser's resale of the
Stock with Purchaser's counsel.
Very truly yours,
Cybernet Systems Corporation
By
--------------------------------
Title
------------------------------
15
<PAGE> 1
EXHIBIT 10.6
CONSULTING SERVICES AGREEMENT
(and assignment of intellectual property)
THIS AGREEMENT is made (the "Agreement") as of March 5, 1999 (the "Closing
Date") by and between Cybernet Systems Corporation, a Delaware corporation, with
an address at 727 Airport Boulevard, Ann Arbor, Michigan 48108-1639 (the
"Consultant"); and Immersion Corporation, a California corporation, with an
address at 2158 Paragon Drive, San Jose, California 95131, ("Immersion").
RECITALS
WHEREAS, the Consultant desires to provide certain force feedback
consulting services to Immersion, and Immersion desires to obtain such force
feedback consulting services from the Consultant.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter contained, the parties hereto hereby agree as follows:
1. CONSULTING SERVICES
1.1. Scope of Consulting Services. The Consultant is an expert in
force feedback technology as applied to a variety of industry segments.
Immersion desires to obtain consulting services from the Consultant with regards
to force feedback technology and the Consultant has agreed to provide such
consulting services as described in this Section 1 ("Consulting Services"). The
Consultant will provide consulting services to Immersion in six areas of
competency: (i) industry specific consulting as described in Section 1.2
("Industry Specific Consulting"); (ii) patent related consulting as described in
Section 1.3 ("Patent Related Consulting"); (iii) product positioning and
marketing consulting as described in Section 1.4 ("Marketing and Advertising
Collaboration"); (iv) technical advice related to Immersion's business and
technology strategy as described in Section 1.5 ("Technical Advisory Board");
and (v) general technical consultation and engineering guidance as described in
Section 1.7 ("General Engineering Input").
1.2. Industry Specific Consulting. Consultant will consult with
Immersion in four discrete industry segments as follows:
(a) Automotive. The Consultant will work with Immersion to
design, coordinate and implement a business strategy for Immersion to gain entry
into and exploit the force feedback opportunities in the automotive industry.
Such services will include strategic marketing planning, industry information
gathering, introductions based on Consultant's industry contacts and lead
generation.
(b) Internet. The Consultant will consult with Immersion to
evolve Immersion's internet strategy and as one component of such strategy, the
Consultant will work
<PAGE> 2
with Immersion to develop an internet based force feedback toolkit to enable
Immersion to launch Immersion's internet force feedback product line.
(c) Telerobotics. The Consultant will advise Immersion in the
area of force feedback as implemented in telerobotics applications and will
provide Immersion with a productization roadmap which deploys Immersion's
existing technology towards a new business opportunity for Immersion in the
telerobotics area.
(d) Government and Military. The Consultant will provide
Immersion with a basic background in the military areas of interest where
deployment of force feedback may be useful, including but not limited to mine
defuser technology, rugidized computers for military applications, and other
related secure applications. In addition, the Consultant will advise Immersion
in improving Immersion's strategic planning for government contract
opportunities and will assist Immersion in targeting opportunities in government
contracts where force feedback technology would be a value-add or the subject of
basic research. In addition, Consultant will assist Immersion with and consult
with Immersion in proposal preparation, drafting of bid responses and contract
processes.
1.3. Patent Related Consulting: Consultant agrees to cooperate with
Immersion by provision of "Patent Related Consulting" which will enable
Immersion to enjoy to the fullest extent in the United States and foreign
countries, the right, title and interest in the Intellectual Property and
Related Materials as defined in and, as acquired by Immersion pursuant to, the
Agreement and Plan of Reorganization among Immersion Corporation, Immersion
Acquisition Corporation, Cybernet Systems corporation and Cybernet Haptic
Systems dated March 4, 1999 (the "Merger Agreement"). Such cooperation by
Consultant shall include reasonably prompt production of pertinent facts,
information and documents, executing and delivering such other and further
instruments of conveyance, assignment, transfer and consent, taking such other
action as Immersion may reasonably request, giving of testimony, execution of
petitions, oaths, specifications, declarations or other papers, and other
assistance, all to the extent deemed necessary or desirable by Immersion (i) for
establishing and perfecting in Immersion the right, title and interest herein
conveyed and carrying out the intent and purpose of this Agreement, (ii) for
filing and prosecuting substitute, divisional, continuing or additional
applications covering the Patents as defined in, and acquired by Immersion
pursuant to, the Merger Agreement; (iii) for filing and prosecuting applications
for reissuance of any of the Patents; (iv) for interference or other priority
proceedings involving the Patents; and (e) for legal proceedings involving the
Patents, including without limitation cancellation proceedings, priority
consents, public use proceedings, infringement actions and court actions.
Consultant agrees to provide Immersion with copies of all correspondence between
Consultant and potential infringers of the Patents. Consultant agrees to provide
Immersion with legal materials prepared by Consultant's attorneys that would
facilitate enforcement of the Patents against potential infringers.
1.4. Marketing and Advertising Collaboration. Consultant agrees to
consult with Immersion and collaborate with Immersion with respect to the
positioning of the Intellectual Property and Related Materials from a marketing
standpoint. On a going forward basis,
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Consultant and Immersion each agree to provide a link between Consultant and
Immersion's web sites. Consultant agrees to forward commercial business leads
related to force feedback products and services to Immersion on an ongoing basis
and if a third party, other than the government, contacts Consultant regarding
any of the Intellectual Property and Related Materials or services or products
to be provided in connection with the Intellectual Property and Related
Materials, Consultant agrees to direct such third party to Immersion. To
facilitate Immersion's marketing activities, Consultant agrees to provide
Immersion with electronic files, camera ready artwork, images and other
reproducible forms of Consultant's marketing and advertising materials related
to the hardware and software products which are included in the Intellectual
Property and Related Materials.
1.5. Technical Transfer Consulting. Within three (3) months from the
date of this Agreement, Consultant shall send an engineer of Consultant with
suitable knowledge and expertise regarding the Intellectual Property and Related
Materials to the offices of Immersion to provide an aggregate of three (3) days
(24 hours) of consulting services related to the transfer of the Intellectual
Property and Related Materials.
1.6. Technical Advisory Board. Charles Jacobus shall serve on
Immersion's Technical Advisory Board. As a member of the Technical Advisory
Board, Mr. Jacobus shall attend in person or by teleconference Technical
Advisory Board meetings, and other meetings as may be requested by Immersion
from time to time and will provide Immersion with advice on the overall business
and technology strategy of IMMERSION. Immersion shall reimburse Consultant for
all reasonable expenses incurred with respect to Mr. Jacobus's Advisory Board
activities, including reasonable travel expenses incurred in connection with
attending meetings of the Technical Advisory Board.
1.7. General Engineering Input. Consultant will, as requested by
Immersion, provide Immersion with general consultation and engineering input
with regards to force feedback related source code, mechanisms, control
algorithms, sensors, human factors, ergonomics, power electronics, safety
features, and brushless motors.
1.8. Government and Other Contracts.
(a) Force Feedback Research Collaboration. Consultant
currently has thirty-six (36) employees conducting force feedback related
research. These staff members periodically execute teaming agreements and write
proposals to Government and commercial sponsors in a wide range of activities
including force feedback. Subject to any legal or regulatory restrictions, for a
period of three years from the Closing Date (the "Exclusive Force Feedback
Teaming Period") if Consultant plans to involve a third party in a teaming
arrangement related to commercial and Government proposals (and resulting
contracts) Consultant initiates in the areas containing force feedback device
technology development or deployment, Consultant will exclusively team with
Immersion, subject to Immersion's prior written consent and mutual written
agreement on terms, when such a teaming arrangement is appropriate to the
proposed efforts. In instances where Immersion has agreed to team with
Consultant:
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<PAGE> 4
(i) Consultant and Immersion agree to work together to
assist Consultant's proposal efforts;
(ii) Consultant agrees to use its best efforts to
prepare a compliant proposal by the required deadline and to respond to
government requests for clarification. During the Exclusive Force Feedback
Teaming Period, Consultant shall team with Immersion on Immersion initiated
proposals (and resulting contracts) when Immersion deems such a teaming
arrangement to be advantageous;
(iii) give Immersion a reasonable opportunity during the
preparation of the proposal to be included in any significant technical
discussions and activities with the government regarding the proposal;
(iv) give Immersion appropriate recognition for data and
proposal information submitted and utilized in the proposal.
During the term of any contract awarded to Consultant during the Exclusive
Force Feedback Teaming Period, or during the Exclusive Force Feedback Teaming
Period, whichever is longer, Consultant hereby grants Immersion a non-exclusive
license to all intellectual property rights arising from Consultant's force
feedback research activities. Consultant further grants Immersion a right of
first refusal to obtain an exclusive license to the intellectual property rights
arising from Consultant's force feedback research activities, at Immersion's
election and agrees to negotiate with Immersion in good faith regarding the
terms of such exclusive license.
(b) Existing Government Contracts. As of the Closing Date,
Consultant is currently a party to certain government contracts described in
Exhibit A ("Existing Government Contracts") which involve the use of the
specific Intellectual Property and Related Materials identified in Exhibit A
("Existing Government Contracts"). Immersion hereby grants Consultant a limited
license to use, and have in Consultant's possession, such Intellectual Property
and Related Materials solely within the scope of such government contracts and
to the extent required by such government contracts and only for the term of
such government contracts. Consultant agrees to promptly return all such
Intellectual Property and Related Materials, including any copies thereof, upon
termination or expiration of such government contracts. In addition, to the
extent that Consultant's force feedback research activities under such Existing
Government Contracts result in the creation of additional intellectual property
rights relating to the Intellectual Property and Related Materials, Consultant
grants Immersion a non-exclusive license to all such intellectual property
rights arising from the ongoing force feedback research activities.
(c) Government Rights. Immersion acknowledges and agrees that
any Intellectual Property Rights and Related Materials which relate to or arose
out of research conducted under a U.S. Government contract will be subject to
certain Government rights in such Intellectual Property and Related Materials
which Consultant has identified and which are set forth in Exhibit B
("Governments Rights").
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<PAGE> 5
2. PATENT ENFORCEMENT. Immersion shall have the right to enforce the
Patents against an infringing third party and to control any such lawsuit or
settlement. Immersion shall have the right to grant a sublicense to such third
party infringer, or to settle with such third party infringer, or bring an
infringement action against the third party infringer and to use Consultant's
name in connection therewith as needed. In either event, Consultant shall assist
Immersion, at Immersion's request and expense, in pursuing such action or
sublicense. If Immersion chooses to enforce the Patents against a third party
and obtains either a settlement or judgment which includes a cash payment for
damages attributable to the Patents and which are awarded for infringement of
the Patents (to the extent not offset by a cash payment by Immersion to such
third party) (the "Award") then Immersion shall pay Consultant a certain amount
as described below. Immersion shall first subtract any litigation related
expenses and attorney fees incurred by Immersion with respect to such Patent
enforcement from the Award (the "Net Award"); provided however that if Immersion
recovers all or any portion of the actual litigation related expenses and
attorney fees, incurred by Immersion in the form of a specific award by the
court of litigation related expenses and attorney fees, Immersion shall not
subtract such actual litigation related expenses and attorney fees from the
Award. Immersion shall pay Consultant an amount equal to twenty percent (20%) of
the Net Award. The amount payable to Consultant pursuant to this Section 2
("Patent Enforcement") shall be limited to an aggregate amount of thirty million
dollars ($30,000,000).
3. PAYMENT FOR CONSULTING SERVICES. In consideration for the provision of
Consulting Services pursuant to Section 1 ("Consulting Services"), Immersion
shall pay, and grant to, Consultant, as follows:
(a) Force Feedback Services Warrant. Deliverable at the
Closing, a ten year warrant (the "Warrant") to purchase 400,000 shares of the
Common Stock of Immersion at an exercise price of two dollars and ninety-five
cents ($2.95) per share, in the form attached hereto in Exhibit C ("Force
Feedback Services Warrant").
(b) Services Cash Payment. The sum of one hundred fifty
thousand dollars ($150,000) payable at Closing, an additional seventy five
thousand dollars ($75,000) payable within thirty (30) days of January 1, 2000
and an additional seventy five thousand dollars ($75,000) payable within thirty
(30) days of January 1, 2001, each payment to be paid in cash by wire transfer
to an account designated in writing by Consultant.
4. INDEPENDENT CONTRACTOR RELATIONSHIP
4.1. Nature of Relationship. Consultant's relationship with
Immersion will be that of an independent contractor and nothing in this
Agreement should be construed to create a partnership, joint venture, or
employer-employee relationship. Since Consultant will not be an employee of
Immersion, Consultant will not be entitled to any of the benefits which
Immersion may make available to its employees, such as group insurance,
profit-sharing or retirement benefits. Consultant is not the agent of Immersion
and is not authorized to make any representation, contract, or commitment on
behalf of Immersion unless specifically requested or authorized to do so in
writing by an Immersion manager.
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4.2. Consultant Responsible for Taxes and Records. Consultant will
be solely responsible for and will file, on a timely basis, all tax returns and
payments required to be filed with or made to any federal, state or local tax
authority with respect to Consultant's performance of services and receipt of
fees under this Agreement. Consultant will be solely responsible for and must
maintain adequate records of expenses incurred in the course of performing
services under this Agreement. No part of Consultant's compensation will be
subject to withholding by Immersion for the payment of any social security,
federal, state or any other employee payroll taxes. Immersion will regularly
report amounts paid to Consultant by filing Form 1099-MISC with the Internal
Revenue Service as required by law.
5. CONFIDENTIAL INFORMATION
5.1. Definition of Confidential Information. "Confidential
Information" as used in this Agreement shall mean any and all technical and
non-technical information including patent, copyright, trade secret, and
proprietary information, techniques, sketches, drawings, models, inventions,
know-how, processes, apparatus, equipment, algorithms, software programs,
software source documents, and formulae related to the current, future and
proposed products and services of Immersion, IMMERSION's suppliers and
customers, and includes, without limitation, IMMERSION Innovations, IMMERSION
Property, and IMMERSION's information concerning research, experimental work,
development, design details and specifications, engineering, financial
information, procurement requirements, purchasing manufacturing, customer lists,
business forecasts, sales and merchandising and marketing plans and information.
5.2. Nondisclosure and Nonuse Obligations. Except as permitted in
this paragraph, Consultant shall neither use nor disclose the Confidential
Information. Consultant may use the Confidential Information solely to provide
the services hereunder for the benefit of IMMERSION. Consultant agrees that
Consultant shall treat all Confidential Information of IMMERSION with the same
degree of care as Consultant accords to Consultant's own Confidential
Information, but in no case less than reasonable care. Consultant agrees that
Consultant shall disclose Confidential Information only to those of Consultant's
employees who need to know such information, and Consultant certifies that such
employees have previously agreed, either as a condition of employment or in
order to obtain the Confidential Information, to be bound by terms and
conditions substantially similar to those terms and conditions applicable to
Consultant under this Agreement. Consultant agrees not to communicate any
information to IMMERSION in violation of the proprietary rights of any third
party. Consultant will immediately give notice to IMMERSION of any unauthorized
use or disclosure of the Confidential Information. Consultant agrees to assist
IMMERSION in remedying any such unauthorized use or disclosure of the
Confidential Information.
5.3. Exclusions from Nondisclosure and Nonuse Obligations.
Consultant's obligations under Paragraph 5.2 ("Nondisclosure and Nonuse
Obligations") with respect to any portion of the Confidential Information shall
not apply to any such portion which Consultant can demonstrate, (a) was in the
public domain at or subsequent to the time such
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portion was communicated to Consultant by IMMERSION through no fault of
Consultant; (b) was rightfully in Consultant's possession free of any obligation
of confidence at or subsequent to the time such portion was communicated to
Consultant by IMMERSION; or (c) was developed by employees of Consultant
independently of and without reference to any information communicated to
Consultant by IMMERSION. A disclosure of Confidential Information by Consultant,
either (a) in response to a valid order by a court or other governmental body,
(b) otherwise required by law, or (c) necessary to establish the rights of
either party under this Agreement, shall not be considered to be a breach of
this Agreement or a waiver of confidentiality for other purposes; provided,
however, that Consultant shall provide prompt prior written notice thereof to
IMMERSION to enable IMMERSION to seek a protective order or otherwise prevent
such disclosure.
5.4. Ownership and Return of IMMERSION Property. All materials
(including, without limitation, documents, drawings, models, apparatus,
sketches, designs, lists, and all other tangible media of expression) furnished
to Consultant by IMMERSION, whether delivered to Consultant by IMMERSION or made
by Consultant in the performance of services under this Agreement (collectively,
the "IMMERSION Property") are the sole and exclusive property of IMMERSION or
IMMERSION's suppliers or customers, and Consultant hereby does and will assign
to IMMERSION all rights, title and interest Consultant may have or acquire in
IMMERSION Property. Consultant agrees to keep all IMMERSION Property at
Consultant's premises unless otherwise permitted in writing by IMMERSION. At
IMMERSION's request and no later than five (5) days after such request,
Consultant shall destroy or deliver to IMMERSION, at IMMERSION's option, (a) all
IMMERSION Property, (b) all tangible media of expression in Consultant's
possession or control which incorporate or in which are fixed any Confidential
Information, and (c) written certification of Consultant's compliance with
Consultant's obligations under this sentence.
6. MISCELLANEOUS
6.1. Expenses of the Parties. Each party shall pay its own expenses
incurred by it in connection with the negotiation, execution and performance of
this Agreement.
6.2. Waivers. No term or provision hereof will be considered waived
by either party, and no breach excused by either party, unless such waiver or
consent is in writing signed on behalf of the party against whom the waiver is
asserted. No consent by either party to, or waiver of, a breach by either party,
whether express or implied, will constitute a consent to, waiver of, or excuse
of any other different or subsequent breach by either party.
6.3. Amendment and Modification. This Agreement may be amended,
modified and supplemented by mutual consent of the parties hereto with respect
to any of the terms contained herein, in such manner as may be agreed upon in
writing by such parties.
6.4. Notices. Any notice to any party hereto given pursuant to this
Agreement shall be given by certified or registered first-class mail, return
receipt requested, addressed as follows:
if to Immersion to: Immersion Corporation
2158 Paragon Drive
San Jose, CA 95131
Attn: Louis B. Rosenberg
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with a copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Ave.
Palo Alto, CA 94301
Attn: Bruce Schaeffer
Stacy Snowman
if to the Consultant: Cybernet Systems Corporation
727 Airport Boulevard
Ann Arbor, Michigan 48108-1639
Attn: Chuck Jacobus
with a copy to: Russell & Stoychoff
2855 Coolidge, Suite 218
Troy, Michigan 48084-3216
Attn: Lyle Russell
Any such address may be changed by any party by written notice to the other
party. Any notice shall be deemed delivered when placed for delivery so
addressed with postage or other charges prepaid.
6.5. Governing Law. This Agreement is made and shall be construed in
accordance with the laws of the State of California, without regard to the
conflict of laws provisions thereof.
6.6. Successors and Assigns. This Agreement shall inure to the
benefit of, and be binding upon and enforceable against, the respective
successors and assigns of the parties hereto but may not be assigned by
Consultant without the prior written consent of Immersion.
6.7. Headings. Headings are supplied herein for convenience
only and shall not be deemed a part of this Agreement for any purpose.
6.8. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original for all purposes.
6.9. Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Agreement or the application of
such terms or provisions to persons or circumstances other than those as to
which it is invalid or unenforceable, shall not be affected thereby and each
term and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
6.10. Publicity. Consultant and Immersion shall consult with and
cooperate with the other with respect to the content and timing of all press
releases and other public announcements concerning this agreement and the
transactions contemplated hereby. Except as
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otherwise provided in Section 5.8 of the Merger Agreement, this Agreement or as
may be required by law, Consultant shall not disclose any of the provisions of
this Agreement without the prior written consent of Immersion. Notwithstanding
the foregoing, disclosures of the contents hereof made to Consultant's
accountants, legal advisors, consultants or other parties who have a need to
know for the purpose of providing the services to Consultant for which they are
retained, and subject to restriction against further disclosure, are expressly
permitted. Consultant shall not disclose the existence of this Agreement nor
identify Immersion with regard to the subject matter of this Agreement,
including but not limited to any advertising, solicitation or promotional
activity, without the prior written consent and approval of Immersion, which
consent and approval shall be required for each such specific use.
6.11. Entire Agreement. This Agreement comprises the entire
agreement between the parties hereto as to the subject matter hereof and
supersedes all prior agreements and understandings between the parties relating
thereto, whether written or oral.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed by the authorized representatives of each of the parties.
Consultant: Immersion:
Cybernet Systems Corporation Immersion Corporation
By: /s/ Charles Jacobus By: /s/ Louis Rosenberg
----------------------- --------------------------
Print Name: Charles Jacobus Print Name: Louis Rosenberg
----------------------- --------------------------
Title: President Title: President
----------------------- --------------------------
Date: March 5, 1999 Date: March 5, 1999
----------------------- --------------------------
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EXHIBIT 10.7
IMMERSION CORPORATION
AMENDMENT TO WARRANT TO PURCHASE
SHARES OF SERIES B PREFERRED STOCK
This Amendment is entered into as of September 22, 1998 and amends the Warrant
to Purchase 8,000 shares of Series B Preferred Stock granted by Immersion
Corporation, a California corporation ("IMMERSION") on November 22, 1996 (the
"Warrant") to Mr. Bruce Paul ("Paul").
The IMMERSION desires to amend the Warrant by extending the date of exercise
from November 22, 1998 to November 22, 2001.
Therefore IMMERSION agrees that Section 3 and Section 15 of the Warrant are
deleted in their entirety and amended to read as set forth below and that all
other provisions of the Warrant will remain in effect.
3. TERM The purchase right represented by this Warrant is exercisable
only during the period commencing upon the Date of Grant and ending on
the earlier of (i) November 22, 2001; (ii) the closing of an
underwritten public offering of IMMERSION's Common Stock registered
under the Act; or (iii) upon the closing of a consolidation or merger
of IMMERSION (other than its wholly-owned subsidiary) with or into, or
the transfer of all or substantially all of the Companies assets to,
another corporation (unless the owners of the capital stock of the
IMMERSION, prior to such a transaction, continue to own a majority of
the capital stock of the surviving corporation).
15. EXPIRATION. Subject to earlier termination pursuant to Section 3
above, the right to exercise this Warrant shall expire on November 22,
2001.
This Amendment when fully executed and delivered shall constitute an amendment
thereto.
Date: September 22, 1998
IMMERSION CORPORATION
By: /s/ LOUIS ROSENBERG
--------------------------
Louis Rosenberg, President
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EXHIBIT 10.8
IMMERSION CORPORATION
AMENDMENT TO WARRANT TO PURCHASE
SHARES OF SERIES B PREFERRED STOCK
This Amendment is entered into as of September 22, 1998 and amends the Warrant
to Purchase 10,000 shares of Series B Preferred Stock granted by Immersion
Corporation, a California corporation ("IMMERSION") on September 23, 1996 (the
"Warrant") to Mr. Bruce Paul ("Paul").
The IMMERSION desires to amend the Warrant by extending the date of exercise
from September 23, 1998 to September 23, 2001.
Therefore IMMERSION agrees that Section 3 and Section 15 of the Warrant are
deleted in their entirety and amended to read as set forth below and that all
other provisions of the Warrant will remain in effect.
3. Term. The purchase right represented by this Warrant is exercisable
only during the period commencing upon the Date of Grant and ending on the
earlier of (i) September 23, 2001; (ii) the closing of an underwritten
public offering of IMMERSION's Common Stock registered under the Act; or
(iii) upon the closing of a consolidation or merger of IMMERSION (other
than its wholly-owned subsidiary) with or into, or the transfer of all or
substantially all of the Companies assets to, another corporation (unless
the owners of the capital stock of IMMERSION, prior to such a
transaction, continue to own a majority of the capital stock of the
surviving corporation).
15. Expiration. Subject to earlier termination pursuant to Section 3
above, the right to exercise this Warrant shall expire on September 23,
2001.
This Amendment when fully executed and delivered shall constitute an amendment
thereto.
Date: September 22, 1998
IMMERSION CORPORATION
By: /s/ Louis Rosenberg
-------------------------------------
Louis Rosenberg, President
<PAGE> 1
EXHIBIT 10.9
OPERATING AGREEMENT
FOR
MICROSCRIBE, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND
REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND
REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS
AGREEMENT IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH
ARE SET FORTH HEREIN.
<PAGE> 2
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
MICROSCRIBE, LLC
This Limited Liability IMMERSION Operating Agreement (the "Agreement")
is entered into effective as of July 1, 1997 by and among the parties listed on
the signature page hereof (referred to individually as a "Member" and
collectively as "Members"), with reference to the following facts:
A. On June 2, 1997, Articles of Organization for MicroScribe, LLC (the
"IMMERSION"), a limited liability company organized under the laws of the State
of California, were filed with the California Secretary of State.
B. The Members desire to adopt and approve an operating agreement for
IMMERSION.
NOW THEREFORE, the Members by this Agreement set forth the operating
agreement for IMMERSION under the laws of the State of California, upon the
terms and subject to the conditions of this Agreement.
ARTICLE 1.
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
set forth below (all terms used in this Agreement that are not defined in this
Article 1 shall have the meanings set forth elsewhere in this Agreement):
ARTICLE 1.1 "Act" shall mean the Beverly-Killea Limited Liability
IMMERSION Act, codified in the California Corporations Code, Section 17000 et
seq., as amended from time to time.
ARTICLE 1.2 "Affiliate" of a Member or Manager shall mean any Person,
directly or indirectly, through one or more intermediaries, controlling,
controlled by, or under common control with a Member or Manager, as applicable.
The term "control," as used in the immediately preceding sentence, shall mean
with respect to a corporation or limited liability company the right to
exercise, directly or indirectly, more than fifty percent (50%) of the voting
rights attributable to the controlled corporation or limited liability company,
and, with respect to any individual, partnership, trust, other entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled entity.
ARTICLE 1.3 "Agreement" shall mean this Operating Agreement, as
originally executed
<PAGE> 3
and as amended from time to time.
ARTICLE 1.4 "Articles" shall mean the Articles of Organization for
IMMERSION originally filed with the California Secretary of State, as amended
from time to time.
ARTICLE 1.5 "Assignee" shall mean the owner of an Economic Interest who
has not been admitted as a substitute Member in accordance with Article 7.
ARTICLE 1.6 "Bankruptcy" shall mean: (a) the filing of an application by
a Member for, or the Member's consent to, the appointment of a trustee,
receiver, or custodian of the Member's other assets; (b) the entry of an order
for relief with respect to a Member in proceedings under the United States
Bankruptcy Code, as amended or superseded from time to time; (c) the making by a
Member of a general assignment for the benefit of creditors; (d) the entry of an
order, judgment, or decree by any court of competent jurisdiction appointing a
trustee, receiver, or custodian of the assets of a Member unless the proceedings
and the person appointed are dismissed within ninety (90) days; or (e) the
failure by a Member generally to pay the Member's debts as the debts become due
within the meaning of Section 303(h)(1) of the United States Bankruptcy Code, as
determined by the Bankruptcy Court, or the admission in writing of the Member's
inability to pay the Member's debts as they become due.
ARTICLE 1.7 "Capital Account" shall mean with respect to any Member the
capital account which IMMERSION establishes and maintains for such Member as
follows:
Each Member's Capital Account shall be:
A. increased by (1) the aggregate amount of cash contributions to
IMMERSION by such Member, (2) such Member's share of IMMERSION Income, (3) the
fair market value of property contributed by the Member net of liabilities
secured by such property that IMMERSION is considered to assume or take
subject to under Section 752 of the Code, and (4) the amount of any other upward
adjustment to the Member's Capital Account required under Regulations Section
1.704-1(b), or any successor thereto; and
B. decreased by (1) cash distributions to such Member from
IMMERSION (other than to any Member in repayment of any loan or advance), (2)
such Member's share of IMMERSION Losses, (3) the fair market value of property
distributed to the Member by IMMERSION net of liabilities secured by such
property that such Member is considered to assume or take subject to under
Section 752 of the Code, and (4) the amount of any other downward adjustment to
the Member's Capital Account required under Regulations Section 1.704-1(b), or
any successor thereto.
For purposes of computing the balance in a Member's Capital Account, no
credit shall be given for any capital contribution which the Member is obligated
to make until such contribution is actually made. For purposes of this
Agreement, a transferee of any part of the interest of a Member who succeeds to
the Economic Interest of a Member shall be deemed to have made the
<PAGE> 4
capital contributions which were made by the Member with respect to the Economic
Interest to which the transferee succeeds and to have received from IMMERSION
the credits, allocations and charges received from IMMERSION by such transferor
Member with respect to the transferred Economic Interest.
Notwithstanding any other provision in this Agreement, the Capital
Accounts of the Members shall be maintained in accordance with Regulations
Section 1.704-1(b), or any successor thereto. If a Member holds an interest as
both a Class 1 Member and a Class 2 Member, a single Capital Account shall
nevertheless be maintained for such Member.
ARTICLE 1.8 "Capital Contribution" shall mean the total amount of cash
and fair market value of property contributed to IMMERSION by a Member.
ARTICLE 1.9 "Capital Event" means a sale or disposition of any of
IMMERSION's capital assets, the receipt of insurance and other proceeds derived
from the involuntary conversion of IMMERSION property, or a similar event with
respect to IMMERSION property or assets.
ARTICLE 1.10 "Class 1 Member" means a Member holding Units as a Class 1
Member.
ARTICLE 1.11 "Class 2 Member" means a Member holding Units as a Class 2
Member.
ARTICLE 1.12 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, the provisions of succeeding law, and to the extent
applicable, the Regulations.
ARTICLE 1.13 "Common Stock" has the meaning set forth in Article 7.8.
ARTICLE 1.14 "IMMERSION" shall mean MicroScribe, LLC, a California
limited liability company.
ARTICLE 1.15 "IMMERSION Minimum Gain" shall have the meaning ascribed to
the term "Partnership Minimum Gain" in Regulations Section 1.704-2(d).
ARTICLE 1.16 "Corporations Code" shall mean the California Corporations
Code, as amended from time to time, and the provisions of succeeding law.
ARTICLE 1.17 "Dissolution Event" shall mean with respect to all Managers
who are Members one or more of the following: the death, insanity, withdrawal,
resignation, retirement, expulsion, bankruptcy or dissolution of any such
Member-Managers.
ARTICLE 1.18 "Distributable Cash" shall mean the amount of cash which
the Managers deem available for distribution to the Members, taking into account
all debts,
<PAGE> 5
liabilities, and obligations of IMMERSION then due, and working capital and
other amounts which the Managers deem necessary for IMMERSION's business or to
place into reserves for customary and usual claims with respect to such
business.
ARTICLE 1.19 "Economic Interest" shall mean the right to receive
distributions of IMMERSION's assets and allocations of income, gain, loss,
deduction, credit and similar items from IMMERSION pursuant to this Agreement
and the Act, but shall not include any other rights of a Member, including,
without limitation, the right to vote or participate in the management of
IMMERSION, or except as provided in Section 17106 of the Corporations Code, any
right to information concerning the business and affairs of IMMERSION.
ARTICLE 1.20 "Fiscal Year" shall mean IMMERSION's fiscal year, which
shall be the calendar year.
ARTICLE 1.21 "Income" and "Losses" The IMMERSION's "Income" and "Losses"
shall be determined as of December 31 or any other year end of each year of
IMMERSION, and shall be deemed to mean the income and losses of IMMERSION for
federal income tax purposes as determined by the Managers on the advice of the
certified public accountant who prepares the company's federal income tax
returns. "Income" shall include income exempt from federal income taxation and
"Losses" shall include expenditures described in Section 705(a)(2)(B) of the
Code or treated as such under Regulations Section 1.704-1(b). Income or Losses
upon the disposition of any property contributed to IMMERSION shall be
determined with respect to the book basis of such property instead of its income
tax basis. Any items of gross income allocated pursuant to Articles 6.2B or 6.2C
shall be excluded in determining Income or Losses for the years in which
allocated.
ARTICLE 1.22 "Majority Interest" shall mean those Members who hold a
majority of the Percentage Interests which all Members who are not defaulting
Members hold.
ARTICLE 1.23 "Manager" shall mean each of the persons named as Managers
on Exhibit A, or any other persons that succeed any of them as a manager of
IMMERSION.
ARTICLE 1.24 "Member" shall mean each Person who (a) is an initial
signatory to this Agreement, has been admitted to IMMERSION as a Member in
accordance with the Articles or this Agreement or is an Assignee who has become
a Member in accordance with Article 7, and (b) has not ceased to be a Member for
any reason.
ARTICLE 1.25 "Member Nonrecourse Debt" shall have the meaning ascribed
to the term "Partner Nonrecourse Debt" in Regulations Section 1.704-2(b)(4).
ARTICLE 1.26 "Member Nonrecourse Deductions" shall mean items of
IMMERSION loss, deduction, or Code Section 705(a)(2)(B) expenditures which are
attributable to Member Nonrecourse Debt.
<PAGE> 6
ARTICLE 1.27 "Membership Interest" shall mean a Member's entire interest
in IMMERSION including the Member's Economic Interest, the right to vote on or
participate in the management, and the right to receive information concerning
the business and affairs, of IMMERSION.
ARTICLE 1.28 "Nonrecourse Liability" shall have the meaning set forth in
Regulations Section 1.752-1(a)(2).
ARTICLE 1.29 "Percentage Interest" shall mean the percentage of a Member
as of any relevant date determined by dividing a Member's Units by the total
outstanding Units as of that date, as such percentage may be adjusted from time
to time pursuant to the terms of this Agreement.
ARTICLE 1.30 "Person" shall mean an individual, partnership, limited
partnership, limited liability company, corporation, trust, estate, association
or any other entity.
ARTICLE 1.31 "Preferred Stock" has the meaning set forth in Article 7.8.
ARTICLE 1.32 "Regulations" shall, unless the context clearly indicates
otherwise, mean the regulations in force as final or temporary that have been
issued by the U.S. Department of Treasury pursuant to its authority under the
Code, and any successor regulations.
ARTICLE 1.33 "Tax Matters Partner" (as defined in Code Section 6231)
shall be Timothy Lacey or his successor as designated pursuant to Article 8.8.
ARTICLE 1.34 "Unit" means a Unit held as a Class 1 or Class 2 Member in
IMMERSION, as applicable.
ARTICLE 1.35 "Unreturned Capital" means the excess of a Member's
aggregate Capital Contributions to IMMERSION over the aggregate distributions
to the Member under Article 6.4, as such excess may vary from time to time.
ARTICLE 2.
ORGANIZATIONAL MATTERS
ARTICLE 2.1 Formation. The Members have formed a California limited
liability company under the laws of the State of California by filing the
Articles with the California Secretary of State and entering into this
Agreement, which Agreement shall be deemed effective as of the date of this
Agreement. The rights and liabilities of the Members shall be determined
pursuant to the Act and this Agreement. To the extent that the rights or
obligation of any Member are different by reason of any provision of this
Agreement than they would be in the
<PAGE> 7
absence of such provision, this Agreement shall, to the extent permitted by the
Act, control.
ARTICLE 2.2 Name. The name of IMMERSION shall be "MicroScribe, LLC."
The business of IMMERSION may be conducted under that name or, upon compliance
with applicable laws, any other name that the Managers deem appropriate or
advisable.
ARTICLE 2.3 Term. The term of this Agreement commenced on the filing of
the Articles and shall continue until December 31, 2047, unless extended or
sooner terminated as hereinafter provided.
ARTICLE 2.4 Office and Agent. The IMMERSION shall continuously maintain
an office and registered agent in the State of California. The principal office
of IMMERSION shall be at 2158 Paragon Drive, San Jose, California or as the
Managers may determine. The IMMERSION may also have such offices, anywhere
within and without the State of California, as the Managers may determine from
time to time, or the business of IMMERSION may require. The registered agent
shall be as stated in the Articles or as otherwise determined by the Managers.
ARTICLE 2.5 Addresses of the Members and the Managers. The respective
addresses of the Members and the Managers are set forth on Exhibit A. A Member
may change the Member's address upon notice thereof to the Managers.
ARTICLE 2.6 Purpose and Business of IMMERSION. The purpose of IMMERSION
is to engage in any lawful activity for which a limited liability company may be
organized under the Act.
ARTICLE 3.
CAPITAL CONTRIBUTIONS
ARTICLE 3.1 Initial Capital Contributions.
A. Immersion Corporation. Immersion Corporation, a California
corporation ("Immersion") shall contribute to IMMERSION all of its right, title
and interest in and to certain hardware, software, know-how, patent rights and
trademarks related to three dimensional ("3D") digitizing technology,
specifically including the assets described on Exhibit C, subject to all of the
liabilities related thereto, in exchange for One Thousand (1,000) Units as a
Class 1 Member and Ninety-Eight Thousand Nine Hundred Ninety-Nine (98,999) Units
as a Class 2 Member. Upon its execution of this Agreement, Immersion shall
receive a credit to its Capital Account in the amount set forth on Exhibit A.
The Members acknowledge their understanding that Immersion intends to declare a
dividend and distribute all of its Class 2 Member Units to its shareholders.
B. Other Member. The Capital Contribution of the other Class 2
Member as
<PAGE> 8
set forth on Exhibit A will be paid in cash. The Class 2 Member will receive One
Unit for One Cent ($.01) contributed to IMMERSION as a Class 2 Member, and
receive a corresponding credit to the Member's Capital Account as and when the
Member's contribution is made.
ARTICLE 3.2 Additional Capital Contributions. No Member shall be
required to make any additional Capital Contributions. To the extent approved by
the Managers and a Majority Interest, from time to time, the Members may be
permitted to make additional Capital Contributions if and to the extent they so
desire. If the Managers determine that such additional Capital Contributions are
necessary or appropriate for the conduct of IMMERSION's business, including
without limitation, expansion or diversification. In that event, the Members
desiring to make such contributions shall have the opportunity, but not the
obligation, for a period of up to twenty (20) days from receipt of written
notice from IMMERSION of the opportunity, to participate in such additional
Capital Contributions for additional Units on a pro rata basis in accordance
with their Percentage Interests. Each Member shall receive a credit to the
Member's Capital Account in the amount of any additional capital which he
contributes to IMMERSION. Immediately following any such Capital
Contributions, the Percentage Interests shall be as adjusted by the Managers as
agreed by a Majority Interest.
ARTICLE 3.3 No Interest. No Member shall be entitled to receive any
interest on the Member's Capital Contributions.
ARTICLE 4.
MEMBERS
ARTICLE 4.1 Limited Liability. Except as expressly set forth in this
Agreement or required by law, no Member shall be personally liable for any debt,
obligation, or liability of IMMERSION, whether that liability or obligation
arises in contract, tort, or otherwise.
ARTICLE 4.2 Admission of Additional Members.
A. Subject to Article 4.2B, the Managers may issue additional
Membership Interests and admit additional Members to IMMERSION. Any additional
Members shall obtain Membership Interests and Units and will participate in the
management, Income and Losses, and distributions of IMMERSION on such terms as
are determined by the Managers and approved by a Majority Interest.
B. If at any time IMMERSION should desire to issue any
additional Membership Interests approved pursuant to Article 4.2A, it shall give
the Members notice of the first right to purchase the Member's pro rata share
(or any part thereof) of all such offered Membership Interests, on the same
terms and subject to the same conditions, as IMMERSION is willing to sell such
Membership Interests to any other person (the "Right of First Refusal Notice").
Each Member's pro rata share shall be such Member's Percentage Interest
immediately
<PAGE> 9
prior to the offering.
(i) Within twenty (20) days after receipt of the Right of
First Refusal Notice, each Member shall notify IMMERSION whether such Member
desires to exercise the option to purchase the Member's pro rata share (or any
part thereof) of the Membership Interests so offered.
(ii) After termination of the twenty (20) day period
specified in Article 4.2B(i) above, IMMERSION may, during a period of ninety
(90) days following the end of such twenty (20) day period, sell and issue such
Membership Interests as to which no Member indicates a desire to purchase
pursuant to the Member's Right of First Refusal Notice to other persons, upon
the same terms and conditions as those set forth in the Right of First Refusal
Notice to the Members.
(iii) If the Member gives IMMERSION notice that the Member
desires to purchase any of the Membership Interests offered by IMMERSION,
payment for the Membership Interests shall be by check or wire transfer against
delivery of the Membership Interests at the executive offices of IMMERSION
within ten (10) days after giving IMMERSION such notice, or, if later, the
closing date for the sale of such Membership Interests. The IMMERSION shall take
all the action as may be required by any regulatory authority in connection with
the exercise by such Member of the Right of First Refusal.
(iv) The Right of First Refusal contained in this Article
4.2 shall not apply to the issuance by IMMERSION of Membership Interests (i) to
employees, officers, directors or consultants of IMMERSION when approved by the
Managers, (ii) as part of an acquisition by IMMERSION of all or substantially
all of the assets or shares of another company or entity whether through a
merger, exchange, reorganization or the like, or (iii) pursuant to equipment
financing or leasing arrangements or in connection with strategic partnering
transactions approved by the Managers.
(v) A Member shall have the right to assign the Member's
Right of First Refusal to an Affiliate of the Member.
ARTICLE 4.3 Withdrawals or Resignations. Any Member who is under an
obligation to render services to IMMERSION may withdraw or resign as a Member at
any time upon sixty (60) days prior written notice to IMMERSION, without
prejudice to the rights, if any, of IMMERSION or the other Members under any
contract to which the withdrawing Member is a party. Upon such withdrawal, such
Member's Membership Interest shall terminate pursuant to Article 4.4. No other
Member may withdraw or resign from IMMERSION.
ARTICLE 4.4 Termination of Membership Interest. Upon (a) the transfer of
a Member's Membership Interest in violation of Article 7 or (b) the withdrawal
or resignation of a Member in accordance with Article 4.3, the Membership
Interest of a Member shall be terminated by the Managers and thereafter that
Member shall be an Assignee only. Each Member acknowledges
<PAGE> 10
and agrees that such termination or purchase of a Membership Interest upon the
occurrence of any of the foregoing events is not unreasonable under the
circumstances existing as of the date hereof.
ARTICLE 4.5 Competing Activities.
A. Except as provided in Article 5.6 with regard to Managers,
during the term of IMMERSION, the Members and their officers, directors,
shareholders, partners, members, managers, agents, employees and Affiliates may
engage or invest in, independently or with others, any business activity of any
type or description, including without limitation those that might be the same
as or similar to IMMERSION's business and that might be in direct or indirect
competition with IMMERSION. Neither IMMERSION nor any Member shall have any
right in or to such other ventures or activities or to the income or proceeds
derived therefrom.
B. Except as provided in Article 5.6 with regard to Managers,
during the term of IMMERSION, the Members and their officers, directors,
shareholders, partners, members, managers, agents, employees and Affiliates
shall not be obligated to present any investment opportunity or prospective
economic advantage to IMMERSION. Neither IMMERSION nor any Member shall have
any right in or to such other ventures or activities or to the income or
proceeds derived therefrom.
ARTICLE 4.6 Transactions With The IMMERSION. Subject to any limitations
set forth in this Agreement and with the prior approval of the Managers, a
Member may lend money to and transact other business with IMMERSION. Subject
to other applicable law, such Member has the same rights and obligations with
respect thereto as a Person who is not a Member.
ARTICLE 4.7 Remuneration To Members. Except as otherwise specifically
provided in this Agreement, no Member is entitled to remuneration for acting in
IMMERSION business.
ARTICLE 4.8 Members Are Not Agents. Pursuant to Article 5.1 and the
Articles, the management of IMMERSION is vested in the Managers. The Members
shall have no power to participate in the management of IMMERSION except as
expressly authorized by this Agreement or the Articles and except as expressly
required by the Act. No Member, acting solely in the capacity of a Member, is an
agent of IMMERSION nor does any Member, unless expressly and duly authorized
in writing to do so by a Manager or Managers, have any power or authority to
bind or act on behalf of IMMERSION in any way, to pledge its credit, to
execute any instrument on its behalf or to render it liable for any purpose.
ARTICLE 4.9 Voting Rights. Except as expressly provided in this
Agreement or the Articles, Members shall have no voting, approval or consent
rights. Members shall have the right to approve or disapprove matters as
specifically stated in this Agreement, including the following:
A. Approval by Members Holding a Majority Interest. Except as set
forth in
<PAGE> 11
Article 5.3B, in all matters in which a vote, approval or consent of the Members
is required, a vote, consent or approval of a Majority Interest (or, in
instances in which there are defaulting or remaining members, non-defaulting or
remaining Members who hold a majority of the Percentage Interests held by all
non-defaulting or remaining Members) shall be sufficient to authorize or approve
such act.
B. Other Voting Rights. Members may vote, consent or approve to
the extent and on the terms provided in this Agreement including, but not
limited to, as provided in the following Articles:
(i) Article 3.2 on additional Capital Contributions;
(ii) Article 4.2 on issuance of additional Membership
interests;
(iii) Article 5.2 on election and removal of a
Manager;
(iv) Article 5.3B on reorganization of IMMERSION;
(v) Article 5.3B on other limitations on the
Managers' authority;
(vi) Article 5.7 on transactions with the Managers
and Affiliates of the Managers;
(vii) Article 5.9A on management fees payable to
Managers;
(viii) Article 7.1 on Transfer of Interests;
(ix) Articles 9.1 and 9.2 on dissolving IMMERSION;
and
(x) Article 12.14 on any amendment to the Articles
or this Agreement.
ARTICLE 4.10 Meetings of Members. No meetings of the Members are
required. If Meetings are held, they shall be called, written notice shall be
given or waived, a quorum shall be constituted, action shall be valid or
consented to, an agent or written proxy may be utilized, and participation may
be through the use of conference telephones or otherwise, all in accordance with
Corporations Code Section 17104. The Managers shall appoint a Person to preside
at the meeting and act as secretary of the meeting. The secretary of the meeting
shall prepare minutes of the meeting which shall be placed in the minute book of
IMMERSION. Any action that may be taken at a meeting of Members may be taken
without a meeting, if a consent in writing is signed and delivered to IMMERSION
in accordance with Corporations Code Section 17104. All such written consents
shall be maintained in IMMERSION's records.
<PAGE> 12
ARTICLE 4.11 Certificate of Membership Interest.
A. A Membership Interest shall be represented by a certificate of
membership. The exact contents of a certificate of membership may be determined
by action of the Managers but shall be issued substantially in conformity with
the following requirements. The certificates of membership shall be respectively
numbered serially, as they are issued and shall be signed by the Managers or
officers of IMMERSION. Each certificate of membership shall state the name of
IMMERSION, the fact that IMMERSION is organized under the laws of the State of
California as a limited liability company, the name of the person to whom
issued, the date of issue, and the number of Units and the Class of Units
represented thereby.
B. All certificates of membership surrendered to IMMERSION for
transfer shall be cancelled and no new certificates of membership shall be
issued in lieu therefor until the former certificates for a like number of
Membership Interests shall have been surrendered and cancelled, except as herein
provided with respect to lost, stolen, or destroyed certificates.
C. Any Member claiming that the Member's certificate of
membership is lost, stolen, or destroyed may make an affidavit or affirmation of
that fact and request a new certificate. Upon the giving of a satisfactory
indemnity to IMMERSION as reasonably required by the Managers, a new certificate
may be issued of the same tenor and representing the same number of Units of
membership of the particular Class as was represented by the certificate alleged
to be lost, stolen or destroyed.
ARTICLE 5.
MANAGEMENT AND CONTROL OF THE COMPANY
ARTICLE 5.1 Management of IMMERSION by Managers.
A. Exclusive Management by Managers. Subject to the provisions of
this Agreement relating to actions required to be approved by the Members, the
business, property and affairs of IMMERSION shall be managed and all powers of
IMMERSION shall be exercised by or under the direction of the Managers acting by
majority vote. Notwithstanding the foregoing, the Managers may delegate to
officers of the LLC the authority to carry out day-to-day functions of
IMMERSION, pursuant to the direction and policies established by the Managers.
B. Agency Authority of Managers. Subject to Article 5.3B, any
Manager, acting alone, is authorized to endorse checks, drafts, and other
evidences of indebtedness ("Instruments") made payable to the order of
IMMERSION, but only for the purpose of depositing such Instruments into
IMMERSION's accounts. All Instruments obligating IMMERSION to pay money
<PAGE> 13
in an amount less than Ten Thousand Dollars ($10,000.00) may be signed by any
one Manager, acting alone. All Instruments obligating IMMERSION to pay money in
an amount more than Ten Thousand Dollars ($10,000.00) must be signed on behalf
of IMMERSION by two (2) Managers acting together.
C. Meetings of Managers. The provisions of this Article 5.1C
govern meetings of the Managers if the Managers elect, in their discretion, to
hold meetings. Meetings of the Managers may be called by any Manager or by the
chairperson, president, any vice-president or the secretary. All meetings shall
be held upon four (4) days notice by mail or forty-eight (48) hours notice (or
upon such shorter notice period if necessary under the circumstances) delivered
personally or by telephone, telegraph or facsimile. A notice need not specify
the purpose of any meeting. Notice of a meeting need not be given to any Manager
who signs a waiver of notice or a consent to holding the meeting (which waiver
or consent need not specify the purpose of the meeting) or an approval of the
minutes thereof, whether before or after the meeting, or who attends the meeting
without protesting, prior to its commencement, the lack of notice to such
Manager. All such waivers, consents and approvals shall be filed with IMMERSION
records or made a part of the minutes of the meeting. A majority of the Managers
present, whether or not a quorum is present, may adjourn any meeting to another
time and place. If the meeting is adjourned for more than twenty-four (24)
hours, notice of any adjournment shall be given prior to the time of the
adjourned meeting to the Managers who are not present at the time of the
adjournment. Meetings of the Managers may be held at any place within or without
the State of California which has been designated in the notice of the meeting
or at such place as may be approved by the Managers. Managers may participate in
a meeting through use of conference telephone or similar communications
equipment, so long as all Managers participating in such meeting can hear one
another. Participation in a meeting in such manner constitutes a presence in
person at such meeting. A majority of the number of Managers constitutes a
quorum of the Managers for the transaction of business. Except to the extent
that this Agreement expressly requires the approval of all Managers, every act
or decision done or made by a majority of the Managers present at a meeting duly
held at which a quorum is present is the act of the Managers. A meeting at which
a quorum is initially present may continue to transact business notwithstanding
the withdrawal of Managers, if any action taken is approved by at least a
majority of the required quorum for such meeting.
Any action required or permitted to be taken by the Managers may be
taken by the Managers without a meeting, if a majority of the Managers
individually or collectively consent in writing to such action, unless the
action requires the unanimous vote of the Managers, in which case all Managers
must consent in writing. Such action by written consent shall have the same
force and effect as a majority vote or unanimous vote, as applicable, of such
Managers.
ARTICLE 5.2 Election of Managers.
A. Number, Term and Qualifications. The IMMERSION shall initially
have three (3) Managers who are as set forth on Exhibit A. The number of
Managers of IMMERSION shall be fixed from time to time by the Managers, provided
that in no instance shall there be less than one Manager and provided further
that if the number of Managers is reduced from more than one to one, the
Articles shall be amended to so state, and if the number of Managers is
increased to
<PAGE> 14
more than one, the Articles shall be amended to delete the statement that
IMMERSION has only one Manager. Unless he resigns or is removed, each Manager
shall hold office until a successor shall have been elected and qualified.
Managers shall be elected by the affirmative vote or written consent of the
Managers, by majority vote. A Manager need not be a Member, an individual, a
resident of the State of California, or a citizen of the United States.
B. Resignation. Any Manager may resign at any time by giving
written notice to the Members and remaining Managers without prejudice to the
rights, if any, of IMMERSION under any contract to which the Manager is a party.
The resignation of any Manager shall take effect upon receipt of that notice or
at such later time as shall be specified in the notice. Unless otherwise
specified in the notice, the acceptance of the resignation shall not be
necessary to make it effective. The resignation of a Manager who is also a
Member shall not affect the Manager's rights as a Member and shall not
constitute a withdrawal of a Member.
C. Removal. Any Manager may be removed at any time, with or
without cause, by the affirmative vote of a Majority Interest at a meeting
called expressly for that purpose, or by the written consent of a Majority
Interest. Any removal shall be without prejudice to the rights, if any, of the
Manager under any employment contract and, if the Manager is also a Member,
shall not affect the Manager's rights as a Member or constitute a withdrawal of
a Member. Any Manager may also be removed at any time, with cause, by the
affirmative vote or written consent of a majority of the Managers. For purpose
of this Article, "cause" shall mean fraud, gross negligence, willful misconduct,
embezzlement or a material breach of such Manager's obligations under this
Agreement or any employment contract with IMMERSION.
D. Vacancies. Any vacancy occurring for any reason in the number
of Managers may be filled by the affirmative vote or written consent of the
Managers.
ARTICLE 5.3 Powers of Managers.
A. Powers of Managers. Without limiting the generality of Article
5.1, but subject to Article 5.3B and to the express limitations set forth
elsewhere in this Agreement, the Managers shall have all necessary powers to
manage and carry out the purposes, business, property, and affairs of IMMERSION,
including, without limitation, the power to exercise on behalf and in the name
of IMMERSION all of the powers described in Corporations Code Section 17003
including, without limitation, the power to:
(i) Acquire, purchase, renovate, improve, alter, rebuild,
demolish, replace, and own real property and any other property or assets that
the Managers determine is necessary or appropriate or in the interest of the
business of IMMERSION, and to acquire options for the purchase of any such
property;
(ii) Endorse checks, drafts, and other evidences of
indebtedness made payable to the order of IMMERSION, but only for the purpose of
deposit into IMMERSION's accounts.
<PAGE> 15
(iii) Sell, exchange, lease, or otherwise dispose of the
real property and other property and assets owned by IMMERSION, or any part
thereof, or any interest therein;
(iv) Borrow money from any party including the Managers
and their Affiliates, issue evidences of indebtedness in connection therewith,
refinance, increase the amount of, modify, amend, or change the terms of, or
extend the time for the payment of any indebtedness or obligation of IMMERSION,
and secure such indebtedness by mortgage, deed of trust, pledge, security
interest, or other lien on IMMERSION assets;
(v) Guarantee the payment of money or the performance of
any contract or obligation of any Person;
(vi) Sue on, defend, or compromise any and all claims or
liabilities in favor of or against IMMERSION; submit any or all such claims or
liabilities to arbitration; and
(vii) Retain legal counsel, auditors, and other
professionals in connection with IMMERSION business and to pay therefor such
remuneration as the Managers may determine.
B. Limitations on Power of Managers. Notwithstanding any other
provisions of this Agreement, no debt or liability of more than Ten Thousand
Dollars ($10,000.00) may be contracted on behalf of IMMERSION except by the
written consent of a majority of the Managers. Additionally, the Managers shall
not have authority hereunder to cause IMMERSION to engage in the following
transactions without first obtaining the affirmative vote or written consent of
a Majority Interest (or all of the Members to the extent required by Article
5.3B(ii)):
(i) The sale, exchange or other disposition of all, or
substantially all, of IMMERSION's assets occurring as part of a single
transaction or plan, or in multiple transactions over a twelve (12) month
period, except in the orderly liquidation and winding up of the business of
IMMERSION upon its duly authorized dissolution;
(ii) The merger of IMMERSION with another limited
liability company or limited partnership; provided in no event shall a Member be
required to become a general partner in a merger with a limited partnership
without the Member's express written consent or unless the agreement of merger
provides each Member with the dissenter's rights described in the Act;
(iii) The merger of IMMERSION with a corporation or a
general partnership or other Person;
(iv) The establishment of different classes of Members;
(v) Transactions between IMMERSION and one or more of the
<PAGE> 16
Managers or Members or one or more of any Manager's or Member's Affiliates, or
transactions in which one or more Managers or Members, or one or more of any
Manager's or Member's Affiliates, has a material financial interest;
(vi) Without limiting subsection (v), the lending of money
by IMMERSION to any Manager, Member, or officer;
(vii) Any act which would make it impossible to carry on
the ordinary business of IMMERSION.
(viii) The confession of a judgment against IMMERSION;
(ix) To file a bankruptcy petition on behalf of IMMERSION;
and
(x) Any other transaction described in this Agreement as
requiring the vote, consent, or approval of the Members.
ARTICLE 5.4 Performance of Duties; Liability of Managers. A Manager
shall not be liable to IMMERSION or to any Member for any loss or damage
sustained by IMMERSION or any Member, unless the loss or damage shall have
been the result of fraud, deceit, gross negligence, reckless or intentional
misconduct, or a knowing violation of law by the Manager. The Managers shall
perform their managerial duties in good faith, in a manner they reasonably
believe to be in the best interests of IMMERSION and its Members, and with
such care, including reasonable inquiry, as an ordinarily prudent person in a
like position would use under similar circumstances. A Manager who so performs
the duties of Manager shall not have any liability by reason of being or having
been a Manager of IMMERSION.
In performing their duties, the Managers shall be entitled to rely on
information, opinions, reports, or statements, including financial statements
and other financial data, of the following persons or groups unless they have
knowledge concerning the matter in question that would cause such reliance to be
unwarranted and provided that the Managers act in good faith and after
reasonable inquiry when the need therefor is indicated by the circumstances:
A. One or more officers, employees or other agents of IMMERSION
whom the Managers reasonably believe to be reliable and competent in the matters
presented,
B. Any attorney, independent accountant, or other person as to
matters which the Managers reasonably believe to be within such person's
professional or expert competence; or
C. A committee upon which the Managers do not serve, duly
designated in accordance with a provision of the Articles or this Agreement, as
to matters within its designated authority, which committee the Managers
reasonably believe to merit competence.
<PAGE> 17
ARTICLE 5.5 Devotion of Time. The Managers, in their capacity as
Managers, shall devote whatever time, effort, and skill as they deem appropriate
for the operation of IMMERSION.
ARTICLE 5.6 Competing Activities.
A. The Managers and their officers, directors, shareholders,
partners, members, managers, agents, employees and Affiliates may not engage or
invest in, independently or with others, any Competing Ventures except for
Competing Ventures which have been disclosed to the Managers upon acceptance of
the position as a Manager. For this purpose, "Competing Ventures" are those
business activities that are the same as or similar to IMMERSION's business and
that might be in direct or indirect competition with IMMERSION. Neither
IMMERSION nor any Member shall have any right in or to non-Competing Ventures or
activities or to the income or proceeds derived therefrom.
B. The Managers shall not be obligated to present any investment
opportunity or prospective economic advantage to IMMERSION, unless the
opportunity is of the character that, if presented to IMMERSION, could be taken
by IMMERSION. The Managers shall have the right to hold any other investment
opportunity or prospective economic advantage for their own account or to
recommend such opportunity to Persons other than IMMERSION. Neither IMMERSION
nor any Member shall have any right in or to such other ventures or activities
or to the income or proceeds derived therefrom which the Managers are not
obligated to present to IMMERSION.
ARTICLE 5.7 Transactions between IMMERSION and the Managers.
Notwithstanding that it may constitute a conflict of interest, the Managers may,
and may cause their Affiliates to, engage in any transaction (including, without
limitation, the purchase, sale, lease, or exchange of any property or the
rendering of any service, or the establishment of any salary, other
compensation, or other terms of employment) with IMMERSION so long as such
transaction is not expressly prohibited by this Agreement and so long as the
terms and conditions of such transaction, on an overall basis, are fair and
reasonable to IMMERSION and are at least as favorable to IMMERSION as those that
are generally available from Persons capable of similarly performing them and in
similar transactions between parties operating at arm's length, and provided
that Members holding a majority of the Percentage Interests and having no
interest in such transaction (other than their interests as Members)
affirmatively vote or consent in writing to approve the transaction.
A transaction between the Managers and/or their Affiliates, on the one
hand, and IMMERSION, on the other hand, shall be conclusively determined to
constitute a transaction on terms and conditions, on an overall basis, fair and
reasonable to IMMERSION and at least as favorable to IMMERSION as those
generally available in a similar transaction between parties operating at arm's
length if a Majority Interest of the Members holding a majority of the
Percentage Interests and having no interest in such transaction (other than
their interests as Members) affirmatively vote or consent in writing to approve
the transaction. Notwithstanding
<PAGE> 18
the foregoing, the Managers shall not have any obligation, in connection with
any such transaction between IMMERSION and the Managers or an Affiliate of the
Managers, to seek the consent of the Members.
ARTICLE 5.8 Payments to Managers. Except agreed on by all Managers, no
Manager or Affiliate of a Manager is entitled to remuneration for services
rendered or goods provided to IMMERSION. The Managers have initially agreed
that each of them shall receive a salary equal to One Thousand Dollars ($1,000)
per quarter for each Fiscal Year. The Managers and their Affiliates shall
receive only the following payments:
A. Services Performed by Managers or Affiliates. The IMMERSION
shall pay the Managers or Affiliates of the Managers for services rendered or
goods provided to IMMERSION to the extent that the Managers are not required
to render such services or goods themselves without charge to IMMERSION, and
to the extent that the fees paid to such Managers or Affiliates do not exceed
the fees that would be payable to an independent responsible third party that is
willing to perform such services or provide such goods.
B. Expenses. The IMMERSION shall reimburse the Managers and their
Affiliates for the actual cost of materials used for or by IMMERSION. The
IMMERSION shall also pay or reimburse the Managers or their Affiliates for
organizational expenses (including, without limitation, legal and accounting
fees and costs) incurred to form IMMERSION and prepare and file the Articles
and this Agreement. Except as agreed on by the Managers, the Managers and their
Affiliates shall not be reimbursed by IMMERSION for the following expenses:
(i) salaries, compensation and fringe benefits of directors, officers or
employees of the Managers or their Affiliates; (ii) overhead expenses of the
Managers or their Affiliates, including, without limitation, rent and general
office expenses.
ARTICLE 5.9 Officers. The Managers may appoint officers at any time. The
officers of IMMERSION, if deemed necessary by the Managers, may include a
chairperson, president, vice president, secretary, and chief financial officer.
The officers shall serve at the pleasure of the Managers, subject to all rights,
if any, of an officer under any contract of employment. Any individual may hold
any number of offices. No officer need be a resident of the State of California
or citizen of the United States. If a Manager is not an individual, such
Manager's officers may serve as officers of IMMERSION if elected by the
Managers. The officers shall exercise such powers and perform such duties as
shall be determined from time to time by the Managers.
ARTICLE 5.10 Limited Liability. No person who is a Manager or officer or
both a Manager and officer of IMMERSION shall be personally liable under any
judgment of a court, or in any other manner, for any debt, obligation, or
liability of IMMERSION, whether that liability or obligation arises in
contract, tort, or otherwise, solely by reason of being a Manager or officer or
both a Manager and officer of IMMERSION.
ARTICLE 5.11 Membership Interests of Managers. Except as otherwise
provided
<PAGE> 19
in this Agreement, Membership Interests held by the Managers as Members shall
entitle each Manager to all the rights of a Member, including without limitation
the economic, voting, information and inspection rights of a Member.
ARTICLE 6.
ALLOCATIONS OF INCOME AND LOSSES
AND DISTRIBUTIONS
ARTICLE 6.1 Allocations of Income and Losses.
A. Income and Losses from Normal Business Operations. Income and
Losses other than from a Capital Event shall be allocated to the Members based
on their Percentage Interests. Notwithstanding the previous sentence, Loss
allocations to a Member shall be made only to the extent that such Loss
allocations will not create a deficit Capital Account balance for that Member in
excess of an amount, if any, equal to such Member's share of IMMERSION Minimum
Gain. Any Loss not allocated to a Member because of the foregoing provision
shall be allocated to the other Members (to the extent the other Members are not
limited in respect of the allocation of Losses under this Article 6.1.A). Any
Loss reallocated under this Article 6.1.A shall be taken into account in
computing subsequent allocations of Income and Losses pursuant to this Article
6, so that the net amount of any item so allocated and the Income and Losses
allocated to each Member pursuant to this Article 6, to the extent possible,
shall be equal to the net amount that would have been allocated to each such
Member pursuant to this Article 6 if no reallocation of Losses had occurred
under this Article 6.1.A.
B. Income from a Capital Event. Income from a Capital Event shall
be allocated (1) first to the Members in proportion to and to the extent of the
Members' respective Unreturned Capital Contributions; and (2) the balance to the
Members according to their respective Percentage Interests.
C. Losses from a Capital Event. Losses from a Capital Event shall
be allocated (1) first to the Members in proportion to and to the extent of the
credit balances in their respective Capital Accounts and (2) the balance to the
Members according to their Percentage Interests.
ARTICLE 6.2 Compliance with Allocation Requirements of the Code.
A. Allocations of book and tax items with respect to property
contributed by any Member shall be made solely for federal income tax purposes
as required by Section 704(c) of the Code using the traditional method.
Following any revaluation of IMMERSION's assets and the adjustment of any
Member's Capital Account pursuant to Regulations Section 1.704-1(b)(2)(iv)(f) to
reflect such revaluation, the Members' Capital Accounts shall be adjusted for
various items as computed for book purposes with respect to such revalued assets
as required by Regulations Section 1.704-1(b) and the Members' shares of such
items as computed for tax purposes with respect to such items shall be
determined as required by Regulations
<PAGE> 20
Section 1.701-1(b).
B. Any provisions as are required to have a "qualified income"
offset within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d), or any
successor thereto, and the provisions of that Section defining a qualified
income offset are included in this Agreement.
C. Notwithstanding any other provision of this Agreement to the
contrary, if in any year there is a net decrease in the amount of IMMERSION's
Minimum Gain (within the meaning of Regulations Section 1.704-2(d)), or any
successor thereto, then each Member shall first be allocated items of gross
income for such year equal to that Member's share of the net decrease in
IMMERSION Minimum Gain (within the meaning of Regulations Section 1.704-2(g)(1),
or any successor thereto).
D. Any allocations of items of Income or Loss pursuant to
Articles 6.2B or C shall be taken into account in computing subsequent
allocations of Income or Losses pursuant to Article 6.1 so that the net amounts
of the allocations under this Article 6 shall, to the maximum extent possible,
be equal to the net amounts that would have been allocated pursuant to this
Article 6 if there had been no allocations pursuant to Articles 6.2B or C.
ARTICLE 6.3 Allocation of Income and Losses and Distributions in Respect
of a Transferred Interest. If any Economic Interest is transferred, or is
increased or decreased by reason of the admission of a new Member or otherwise,
during any Fiscal Year of IMMERSION, Income or Losses for such Fiscal Year shall
be assigned pro rata to each day in the particular period of such Fiscal Year to
which such item is attributable (i.e., the day on or during which it is accrued
or otherwise incurred) and the amount of each such item so assigned to any such
day shall be allocated to the Member or Assignee based upon his or her
respective Economic Interest at the close of such day.
However, for the purpose of accounting convenience and simplicity,
IMMERSION shall treat a transfer of, or an increase or decrease in, an Economic
Interest which occurs at any time during a semi-monthly period (commencing with
the semi-monthly period including the date hereof) as having been consummated on
the last day of such semi-monthly period, regardless of when during such
semi-monthly period such transfer, increase, of decrease actually occurs (i.e.,
sales and dispositions made during the first fifteen (15) days of any month will
be deemed to have been made on the 15th day of the month).
Notwithstanding any provision above to the contrary, gain or loss of
IMMERSION realized in connection with a sale or other disposition of any of the
assets of IMMERSION shall be allocated solely to the parties owning Economic
Interests as of the date such sale or other disposition occurs.
ARTICLE 6.4 Distributions of Distributable Cash by IMMERSION. Subject to
applicable law and any limitations contained elsewhere in this Agreement, the
Managers may elect from time to time to distribute Distributable Cash to the
Members, which distributions other
<PAGE> 21
than on dissolution of IMMERSION shall be made to the Members as indicated
below. All such distributions shall be made only to the Persons who, according
to the books and records of IMMERSION, are the holders of record of the Economic
Interests in respect of which such distributions are made on the actual date of
distribution. Subject to Article 6.6, neither IMMERSION nor any Manager shall
incur any liability for making distributions in accordance with this Article
6.4.
A. Distributable Cash from Normal Business Operations.
Distributable Cash arising from other than a Capital Event shall be distributed
to the Members according to their Percentage Interests.
B. Distributable Cash from Capital Events. Distributable Cash
arising from a Capital Event shall be distributed (1) first to the Members, in
proportion to and to the extent of the Members' Unreturned Capital Contributions
and (2) the balance to the Members according to their respective Percentage
Interests.
ARTICLE 6.5 Form of Distribution. A Member, regardless of the nature of
the Member's Capital Contribution, has no right to demand and receive any
distribution from IMMERSION in any form other than money. Except as provided in
Article 9.4, no Member may be compelled to accept from IMMERSION a distribution
of any asset in kind in lieu of a proportionate distribution of money being made
to other Members and no Member may be compelled to accept a distribution of any
asset in kind.
ARTICLE 6.6 Restriction on Distributions.
A. No distribution shall be made if, after giving effect to the
distribution:
(i) The IMMERSION would not be able to pay its debts as
they become due in the usual course of business; or
(ii) The IMMERSION's total assets would be less than the
sum of its total liabilities plus, unless this Agreement provides otherwise, the
amount that would be needed, if IMMERSION were to be dissolved at the time of
the distribution, to satisfy the preferential rights of other Members, if any,
upon dissolution that are superior to the rights of the Member receiving the
distribution.
B. The Managers may base a determination that a distribution is
not prohibited on any of the following:
(i) Financial statements prepared on the basis of
accounting practices and principles that are reasonable in the circumstances;
(ii) A fair valuation; or
<PAGE> 22
(iii) Any other method that is reasonable in the
circumstances.
Except as provided in Corporations Code Section 17254(e), the effect of a
distribution is measured as of the date the distribution is authorized if the
payment occurs within 120 days after the date of authorization, or the date
payment is made if it occurs more than 120 days of the date of authorization.
C. A Member or Manager who votes for a distribution in violation
of this Agreement or the Act is personally liable to IMMERSION for the amount
of the distribution that exceeds what could have been distributed without
violating this Agreement or the Act if it is established that the Member or
Manager did not act in compliance with this Article 6.6 or Article 9.6. Any
Member or Manager who is so liable shall be entitled to compel contribution from
(i) each other Member or Manager who also is so liable and (ii) each Member for
the amount the Member received with knowledge of facts indicating that the
distribution was made in violation of this Agreement or the Act.
ARTICLE 6.7 Return of Distributions. Members and Assignees who receive
distributions made in violation of the Act or this Agreement shall return such
distributions to IMMERSION. Except for those distributions made in violation
of the Act or this Agreement, no Member or Assignee shall be obligated to return
any distribution to IMMERSION or pay the amount of any distribution for the
account of IMMERSION or to any creditor of IMMERSION. The amount of any
distribution returned to IMMERSION by a Member or Assignee or paid by a Member
or Assignee for the account of IMMERSION or to a creditor of IMMERSION shall
be added to the account or accounts from which it was subtracted when it was
distributed to the Member or Assignee.
ARTICLE 6.8 Obligations of Members to Report. The Members are aware of
the income tax consequences of the allocations made by this Article 6 and hereby
agree to be bound by the provisions of this Article 6 in reporting their shares
of IMMERSION Income and Loss for income tax purposes.
ARTICLE 7.
TRANSFER AND ASSIGNMENT OF INTERESTS
ARTICLE 7.1 Transfer and Assignment of Interests. No Member shall be
entitled to transfer, assign, convey, sell, encumber or in any way alienate all
or any part of the Member's Membership Interest (collectively, "transfer")
except with the prior written consent of the Managers who are Members or if
there is only one Manager who is a Member, with the prior consent of a Majority
Interest, which consent may be given or withheld, conditioned or delayed (as
allowed by this Agreement or the Act), as the Managers who are Members or
Majority Interest, as applicable, may determine in their sole and absolute
discretion. Transfers in violation of this Article 7 shall only be effective to
the extent set forth in Article 7.7. After the
<PAGE> 23
consummation of any transfer of any part of a Membership Interest, the
Membership Interest so transferred shall continue to be subject to the terms and
provisions of this Agreement and any further transfers shall be required to
comply with all the terms and provisions of this Agreement.
ARTICLE 7.2 Further Restrictions on Transfer of Interests. In addition
to other restrictions found in this Agreement, no Member shall transfer, assign,
convey, sell, encumber or in any way alienate all or any part of the Member's
Membership Interest: (i) without compliance with Article 11.9, or (ii) if the
Membership Interest to be transferred, when added to the total of all other
Membership Interests transferred in the preceding twelve (12) consecutive months
prior thereto, would cause the tax termination of IMMERSION under Code Section
708(b)(1)(B).
ARTICLE 7.3 Substitution of Members. An Assignee of a Membership
Interest shall have the right to become a substitute Member only if (i) the
requirements of Articles 7.1 and 7.2 are met, (ii) the Assignee executes an
instrument satisfactory to the Managers accepting and adopting the terms and
provisions of this Agreement, and (iii) the Assignee pays any reasonable
expenses in connection with the Assignee's admission as a new Member. The
admission of an Assignee as a substitute Member shall not result in the release
of the Member who assigned the Membership Interest from any liability that such
Member may have to IMMERSION.
ARTICLE 7.4 Permitted Transfers. The Membership Interest of any Member
may be transferred to any other Member, subject to compliance with Article 7.2,
and without the prior written consent of the Members or Managers. The Economic
Interest of any Member may be transferred subject to compliance with Article 7.2
by the Member (i) by inter vivos gift or by testamentary transfer to any spouse,
parent, sibling, in-law, child or grandchild of the Member, or to a trust for
the benefit of the Member or such spouse, parent, sibling, in-law, child or
grandchild of the Member, or (ii) to any Affiliate of the Member; it being
agreed that, in executing this Agreement, each Member has consented to such
transfers.
ARTICLE 7.5 Effective Date of Permitted Transfers. Any permitted
transfer of all or any portion of a Membership Interest or an Economic Interest
shall be effective as of the date provided in Article 6.3 following the date
upon which the applicable requirements of Articles 7.1, 7.2 and 7.3 have been
met. The Managers shall provide the Members with written notice of such transfer
as promptly as possible after the requirements of Articles 7.1, 7.2 and 7.3 have
been met. Any transferee of a Membership Interest shall take subject to the
restrictions on transfer imposed by this Agreement.
ARTICLE 7.6 Rights of Legal Representatives. If a Member who is an
individual dies or is adjudged by a court of competent jurisdiction to be
incompetent to manage the Member's person or property, the Member's executor,
administrator, guardian, conservator, or other legal representative may exercise
all of the Member's rights for the purpose of settling the Member's estate or
administering the Member's property, including any power the Member has under
the Articles or this Agreement to give an assignee the right to become a Member.
If a Member is a corporation, trust, or other entity and is dissolved or
terminated, the powers of that Member may be exercised by the Member's legal
representative or successor.
<PAGE> 24
ARTICLE 7.7 No Effect to Transfers in Violation of Agreement. Upon any
transfer of a Membership Interest in violation of this Article 7, the transferee
shall have no right to vote or participate in the management of the business,
property and affairs of IMMERSION or to exercise any rights of a Member. Such
transferee shall only be entitled to become an Assignee and thereafter shall
only receive the share of one or more of IMMERSION's Income, Losses and
distributions of IMMERSION's assets to which the transferor of such Economic
Interest would otherwise be entitled. Notwithstanding the immediately preceding
sentences, if, in the determination of the Managers, a transfer in violation of
this Article 7 would cause the tax termination of IMMERSION under Code Section
708(b)(1)(B), the transfer shall be null and void and the purported transferee
shall not become either a Member or an Assignee.
Upon and contemporaneously with any transfer (whether arising out of an
attempted charge upon that Member's Economic Interest by judicial process, a
foreclosure by a creditor of the Member or otherwise) of a Member's Economic
Interest (other than in accordance with Article 7.4) which does not at the same
time transfer the balance of the rights associated with the Membership Interest
transferred by the Member (including, without limitation, the rights of the
Member to vote or participate in the management of the business, property and
affairs of IMMERSION), IMMERSION shall purchase from the Member, and the Member
shall sell to IMMERSION for a purchase price of $100, all remaining rights and
interests retained by the Member that immediately before the transfer were
associated with the transferred Economic Interest. Such purchase and sale shall
not, however, result in the release of the Member from any liability to
IMMERSION as a Member.
Each Member acknowledges and agrees that the right of IMMERSION to
purchase such remaining rights and interests from a Member who transfers a
Membership Interest in violation of this Article 7 is not unreasonable under the
circumstances existing as of the date hereof.
ARTICLE 7.8 Right of First Refusal. Each time a Member proposes to
transfer all or any part of his Membership Interest (or as required by operation
of law or other involuntary transfer to do so) other than pursuant to Article
7.4, such Member shall first offer such Membership Interest to IMMERSION and the
non-transferring Members in accordance with the following provisions:
A. Such Member shall deliver a written notice ("Option Notice")
to IMMERSION and the other Members stating (i) such Member's bona fide intention
to transfer such Membership Interest, (ii) the Membership Interest to be
transferred, (iii) the purchase price and terms of payment for which the Member
proposes to transfer such Membership Interest and (iv) the name and address of
the proposed transferee.
B. Within thirty (30) days after receipt of the Option Notice,
IMMERSION shall have the right, but not the obligation, to elect to purchase all
or any part of the Membership Interest upon the price and terms of payment
designated in the Option Notice. If the Option Notice provides for the payment
of non-cash consideration, IMMERSION may elect to pay the
<PAGE> 25
consideration in cash equal to the good faith estimate of the present fair
market value of the non-cash consideration offered as determined by the
Managers. If IMMERSION exercises such right within such thirty (30) day period,
the Managers shall give written notice of that fact to the transferring and
non-transferring Members.
C. If IMMERSION fails to elect to purchase the entire Membership
Interest proposed to be transferred within the thirty (30) day period described
in Article 7.8, the non-transferring Members shall have the right, but not the
obligation, to elect to purchase any remaining share of such Membership Interest
upon the price and terms of payment designated in the Option Notice. If the
Option Notice provides for the payment of non-cash consideration, such
purchasing Members each may elect to pay the consideration in cash equal to the
good faith estimate of the present fair market value of the non-cash
consideration offered as determined by the Managers. Within sixty (60) days
after receipt of the Option Notice, each non-transferring Member shall notify
the Managers in writing of his desire to purchase a portion of the Membership
Interest proposed to be so transferred. The failure of any Member to submit a
notice within the applicable period shall constitute an election on the part of
that Member not to purchase any of the Membership Interest which may be so
transferred. Each Member so electing to purchase shall be entitled to purchase a
portion of such Membership Interest in the same proportion that the Percentage
Interest of such Member bears to the aggregate of the Percentage Interests of
all of the Members electing to so purchase the Membership Interest being
transferred. In the event any Member elects to purchase none or less than all of
his pro rata share of such Membership Interest, then the other Members can elect
to purchase more than their pro rata share.
D. If IMMERSION and the other Members elect to purchase or obtain
an or all of the Membership Interest designated in the Option Notice, then the
closing of such purchase shall occur within ninety (90) days after receipt of
such notice and the transferring Member, IMMERSION and/or the other Members
shall execute such documents and instruments and make such deliveries as may be
reasonably required to consummate such purchase.
E. If IMMERSION and the other Members elect not to purchase or
obtain, or default in their obligation to purchase or obtain, all of the
Membership Interest designated in the Option Notice, then the transferring
Member may transfer the portion of the Membership Interest described in the
Option Notice not so purchased, to the proposed transferee, providing such
transfer (i) is completed within thirty (30) days after the expiration of
IMMERSION's and the other Members' right to purchase such Membership Interest,
(ii) is made on terms no less favorable to the transferring Member than as
designated in the Option Notice, and (iii) complies with Articles 7.1, 7.2 and
7.3 relating to consent of Managers and Members, securities and tax
requirements; it being acknowledged by the Members that compliance with Article
7.8(a)-(d) does not otherwise entitle a Member to transfer his Membership
Interest other than as provided in this Agreement. If such Membership Interest
is not so transferred, the transferring Member must give notice in accordance
with this Article prior to any other or subsequent transfer of such Membership
Interest.
ARTICLE 7.9 Transfers on Incorporation.
<PAGE> 26
A. Upon the affirmative vote or written consent of a Majority
Interest, each Member will transfer all of the Member's right, title and
interest in IMMERSION to a corporation (the "Corporation") in exchange for its
stock in a transaction (hereinafter the "Section 351 Transaction") intended to
qualify under Section 351 of the Code. If the requisite approval has been
received, IMMERSION shall pay any and all organizational, legal and accounting
expenses and filing fees incurred in connection with the Section 351
Transaction.
B. In the event the requisite approval has been received as
required by Article 7.9A, the Corporation shall issue its stock in the Section
351 Transaction as follows (the following assumes that in the 351 Transaction
any stock to be issued by the Corporation would be issued only to the Members):
C. The Class 1 Members, as a group, shall in exchange for their
Units as Class 1 Members receive convertible Preferred Stock of the Corporation
having the substantive rights and preferences summarized on Exhibit B attached
hereto (the "Preferred Stock"). The Preferred Stock shall be initially
convertible into common stock (the "Common Stock") of the Corporation which,
immediately after the Section 351 Transaction, will represent that percentage of
the Corporation's outstanding Common Stock which is equal to the total
Percentage Interests of the Class 1 Members as Class 1 Members at the time of
the Section 351 Transaction. That Preferred Stock will be allocated among such
Class 1 Members based on their respective Percentage Interests as Class 1
Members at the time of the Section 351 Transaction.
D. The Class 2 Members shall in exchange for their Units as Class
2 Members receive Common Stock which, immediately after the Section 351
Transaction, will initially represent that percentage of the Corporation's
outstanding Common Stock (assuming conversion of the Preferred Stock) which is
equal to the aggregate Percentage Interests of the Class 2 Members as Class 2
Members at the time of the Section 351 Transaction. That Common Stock will be
allocated among such Class 2 Members based on their respective Percentage
Interests as Class 2 Members at the time of the Section 351 Transaction.
ARTICLE 8.
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
ARTICLE 8.1 Books and Records. The books and records of IMMERSION shall
be kept, and the financial position and the results of its operations recorded,
in accordance with the accounting methods followed by IMMERSION for federal
income tax purposes. The books and records of IMMERSION shall reflect all
IMMERSION transactions and shall be appropriate and adequate for IMMERSION's
business. The IMMERSION shall maintain at its principal office in California all
of the following:
A. A current list of the full name and last known business or
residence
<PAGE> 27
address of each Member and Assignee set forth in alphabetical order, together
with the Capital Contributions, Capital Account and Percentage Interest of each
Member and Assignee;
B. A current list of the full name and business or residence
address of each Manager;
C. A copy of the Articles and any and all amendments thereto
together with executed copies of any powers of attorney pursuant to which the
Articles or any amendments thereto have been executed;
D. Copies of IMMERSION's federal, state, and local income tax
or information returns and reports, if any, for the six (6) most recent taxable
years;
E. A copy of this Agreement and any and all amendments thereto
together with executed copies of any powers of attorney pursuant to which this
Agreement or any amendments thereto have been executed;
F. Copies of the financial statements of IMMERSION, if any, for
the six (6) most recent Fiscal Years; and
G. The IMMERSION's books and records as they relate to the
internal affairs of IMMERSION for at least the current and past six (6) Fiscal
Years.
ARTICLE 8.2 Delivery to Members and Inspection.
A. Upon the request of any Member or Assignee for purposes
reasonably related to the interest of that Person as a Member or Assignee, the
Managers shall promptly deliver to the requesting Member or Assignee, at the
expense of IMMERSION, a copy of the information required to be maintained under
Articles 8.1 A, B and D, and a copy of this Agreement.
B. Each Member, Manager and Assignee has the right, upon
reasonable request for purposes reasonably related to the interest of the Person
as Member, Manager or Assignee, to:
(i) inspect and copy during normal business hours any of
IMMERSION records described in Articles 8.1A through G; and
(ii) obtain from the Managers, promptly after their
becoming available, a copy of IMMERSION's federal, state, and local income tax
or information returns for each Fiscal Year.
C. Members representing at least five percent (5%) of the
Percentage Interests, or three or more Members, make a written request to the
Managers for an income
<PAGE> 28
statement of IMMERSION for the initial three-month, six-month, or nine-month
period of the current Fiscal Year ended more than thirty (30) days prior to the
date of the request, and a balance sheet of IMMERSION as of the end of that
period. Such statement shall be accompanied by the report thereon, if any, of
the independent accountants engaged by IMMERSION or, if there is no report,
the certificate of a Manager that the statement was prepared without audit from
the books and records of IMMERSION. If so requested, the statement shall be
delivered or mailed to the Members within 30 days thereafter.
D. Any request, inspection or copying by a Member or Assignee
under this Article 8.2 may be made by that Person or that Person's agent or
attorney.
E. The Managers shall promptly furnish to a Member a copy of any
amendment to the Articles or this Agreement executed by a Manager pursuant to a
power of attorney from the Member.
ARTICLE 8.3 Annual Statements.
A. The Managers shall cause to be prepared at least annually, at
IMMERSION expense, information necessary for the preparation of the Members' and
Assignees' federal and state income tax returns. The Managers shall send or
cause to be sent to each Member or Assignee within ninety (90) days after the
end of each taxable year such information as is necessary to complete federal
and state income tax or information returns, and, if IMMERSION has thirty-five
(35) or fewer Members, a copy of IMMERSION's federal, state, and local income
tax or information returns for that year.
B. The Managers shall cause to be filed at least annually with
the California Secretary of State the statement required under California
Corporations Code Section 17060.
ARTICLE 8.4 Financial and Other Information. The Managers shall provide
such financial and other information relating to IMMERSION or any other Person
in which IMMERSION owns, directly or indirectly, an equity interest, as a
Member may reasonably request. The Managers shall distribute to the Members,
promptly after the preparation or receipt thereof by the Managers, any financial
or other information relating to any Person in which IMMERSION owns, directly
or indirectly, an equity interest, including any filings by such Person under
the Securities Exchange Act of 1934, as amended, that is received by IMMERSION
with respect to any equity interest of IMMERSION in such Person.
ARTICLE 8.5 Filings. The Managers, at IMMERSION expense, shall cause the
income tax returns for IMMERSION to be prepared and timely filed with the
appropriate authorities. The Managers, at IMMERSION expense, shall also cause to
be prepared and timely filed, with appropriate federal and state regulatory and
administrative bodies, amendments to, or restatements of, the Articles and all
reports required to be filed by IMMERSION with those entities under the Act or
other then current applicable laws, rules, and regulations. If a Manager
required by the Act to execute or file any document fails, after demand, to do
so within a
<PAGE> 29
reasonable period of time or refuses to do so, any other Manager or Member may
prepare, execute and file that document with the California Secretary of State.
ARTICLE 8.6 Bank Accounts. The Managers shall maintain the funds of
IMMERSION in one or more separate bank accounts in the name of IMMERSION, and
shall not permit the funds of IMMERSION to be commingled in any fashion with the
funds of any other Person.
ARTICLE 8.7 Accounting Decisions and Reliance on Others. All decisions
as to accounting matters, except as otherwise specifically set forth herein,
shall be made by the Managers. The Managers may rely upon the advice of the
company's certified public accountants as to whether such decisions are in
accordance with accounting methods followed for federal income tax purposes.
ARTICLE 8.8 Tax Matters for IMMERSION Handled by Managers and Tax
Matters Partner. The Managers shall from time to time cause IMMERSION to make
such tax elections as they deem appropriate. The Tax Matters Partner shall
represent IMMERSION (at IMMERSION's expense) in connection with all examinations
of IMMERSION's affairs by tax authorities, including resulting judicial and
administrative proceedings, and shall expend IMMERSION funds for professional
services and costs associated therewith. The Tax Matters Partner shall oversee
IMMERSION tax affairs in the overall best interests of IMMERSION but shall not
have the right to agree to extend any statute of limitations without the
approval of a Majority Interest. If for any reason the Tax Matters Partner can
no longer serve in that capacity or ceases to be a Member or Manager, as the
case may be, a Majority Interest may designate another Member to be Tax Matters
Partner.
ARTICLE 9.
DISSOLUTION AND WINDING UP
ARTICLE 9.1 Dissolution. The IMMERSION shall be dissolved, its assets
shall be disposed of, and its affairs wound up on the first to occur of the
following:
A. The happening of any event of dissolution specified in the
Articles;
B. The entry of a decree of judicial dissolution pursuant to
Corporations Code Section 17351;
C. The vote of a Majority Interest;
D. The occurrence of a Dissolution Event and the failure of the
Members to vote to continue the business of IMMERSION within ninety (90) days
after the occurrence of such event; or
<PAGE> 30
E. The sale of all or substantially all of the assets of
IMMERSION.
ARTICLE 9.2 Certificate of Dissolution. As soon as possible following
the occurrence of any of the events specified in Article 9.1, the Managers who
have not wrongfully dissolved IMMERSION or, if none, the Members, shall execute
a Certificate of Dissolution in such form as shall be prescribed by the
California Secretary of State and file the Certificate as required by the Act.
ARTICLE 9.3 Winding Up. Upon the occurrence of any event specified in
Article 9.1, IMMERSION shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the claims
of its creditors. The Managers who have not wrongfully dissolved IMMERSION or,
if none, a Majority interest, shall be responsible for overseeing the winding up
and liquidation of IMMERSION, shall take full account of the liabilities of
IMMERSION and assets, shall either cause its assets to be sold or distributed,
and if sold as promptly as is consistent with obtaining the fair market value
thereof, shall cause the proceeds therefrom, to the extent sufficient therefor,
to be applied and distributed as provided in Article 9.6. The Persons winding up
the affairs of IMMERSION shall give written notice of the commencement of
winding up by mail to all known creditors and claimants whose addresses appear
on the records of IMMERSION. The Managers or Members winding up the affairs of
IMMERSION shall be entitled to reasonable compensation for such services.
ARTICLE 9.4 Distributions in Kind. Any non-cash asset distributed to one
or more Members shall first be valued at its fair market value to determine the
Income or Loss that would have resulted if such asset were sold for such value,
such Income or Loss shall then be allocated pursuant to Article 6, and the
Members' Capital Accounts shall be adjusted to reflect such allocations. The
amount distributed and charged to the Capital Account of each Member receiving
an interest in such distributed asset shall be the fair market value of such
interest (net of any liability secured by such asset that such Member assumes or
takes subject to). The fair market value of such asset shall be determined by
the Managers or by a Majority Interest if there is no Manager.
ARTICLE 9.5 Order of Payment Upon Dissolution.
A. After determining that all known debts and liabilities of
IMMERSION, including, without limitation, debts and liabilities to Members who
are creditors of IMMERSION, have been paid or adequately provided for, the
remaining assets shall be distributed to the Members in accordance with their
positive Capital Account balances, after taking into account Income and Loss
allocations for IMMERSION's taxable year during which liquidation occurs. Such
liquidating distributions shall be made by the end of IMMERSION's taxable year
in which IMMERSION is liquidated, or, if later, within ninety (90) days after
the date of such liquidation.
B. The payment of a debt or liability, whether the whereabouts of
the creditor is known or unknown, has been adequately provided for if the
payment has been provided for by
<PAGE> 31
either of the following means:
(i) Payment thereof has been assumed or guaranteed in good
faith by one or more financially responsible persons or by the United States
government or any agency thereof, and the provision, including the financial
responsibility of the Person, was determined in good faith and with reasonable
care by the Members or Managers to be adequate at the time of any distribution
of the assets pursuant to this Article.
(ii) The amount of the debt or liability has been
deposited as provided in Section 2008 of the Corporations Code.
This Article 9.5B shall not prescribe the exclusive means of making
adequate provision for debts and liabilities.
ARTICLE 9.6 Limitations on Payments Made in Dissolution. Except as
otherwise specifically provided in this Agreement, each Member shall only be
entitled to look solely at the assets of IMMERSION for the return of his
positive Capital Account balance and shall have no recourse for his Capital
Contribution and/or share of Income (upon dissolution or otherwise) against the
Managers or any other Member.
ARTICLE 9.7 Certificate of Cancellation. The Managers or Members who
filed the Certificate of Dissolution shall cause to be filed in the office of,
and on a form prescribed by, the California Secretary of State, a Certificate of
Cancellation of the Articles upon the completion of the winding up of the
affairs of IMMERSION.
ARTICLE 9.8 No Action for Dissolution. Except as expressly permitted in
this Agreement, a Member shall not take any voluntary action that directly
causes a Dissolution Event. The Members acknowledge that irreparable damage
would be done to the goodwill and reputation of IMMERSION if any Member should
bring an action in court to dissolve IMMERSION under circumstances where
dissolution is not required by Article 9.1. This Agreement has been drawn
carefully to provide fair treatment of all parties and equitable payment in
liquidation of the Economic Interests. Accordingly, except where the Managers
have failed to liquidate IMMERSION as required by this Article 9 each Member
hereby waives and renounces his or her right to initiate legal action to seek
the appointment of a receiver or trustee to liquidate IMMERSION or to seek a
decree of judicial dissolution of IMMERSION on the ground that (a) it is not
reasonably practicable to carry on the business of IMMERSION in conformity
with the Articles or this Agreement, or (b) dissolution is reasonably necessary
for the protection of the rights or interests of the complaining Member. Damages
for breach of this Article 9.9 shall be monetary damages only (and not specific
performance), and the damages may be offset against distributions by IMMERSION
to which such Member would otherwise be entitled.
<PAGE> 32
ARTICLE 10.
INDEMNIFICATION AND INSURANCE
ARTICLE 10.1 Indemnification of Agents. The IMMERSION shall defend and
indemnify any Member or Manager and may indemnify any other Person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that he is or was a
Member, Manager, officer, employee or other agent of IMMERSION or that, being
or having been such a Member, Manager, officer, employee or agent, he is or was
serving at the request of IMMERSION as a manager, director, officer, employee
or other agent of another limited liability company, corporation, partnership,
joint venture, trust or other enterprise (all such persons being referred to
hereinafter as an "agent"), to the fullest extent permitted by applicable law in
effect on the date hereof and to such greater extent as applicable law may
hereafter from time to time permit. The Managers shall be authorized, on behalf
of IMMERSION, to enter into indemnity agreements from time to time with any
Person entitled to be indemnified by IMMERSION hereunder, upon such terms and
conditions as the Managers deem appropriate in their business judgment.
ARTICLE 10.2 Insurance. The IMMERSION shall have the power to purchase
and maintain insurance on behalf of any Person who is or was an agent of
IMMERSION against any liability asserted against such Person and incurred by
such Person in any such capacity, or arising out of such Person's status as an
agent, whether or not IMMERSION would have the power to indemnify such Person
against such liability under the provisions of Article 10.1 or under applicable
law.
ARTICLE 11.
MEMBER REPRESENTATIONS
Each Member hereby represents and warrants to, and agrees with, the
Managers, the other Members, and IMMERSION as follows:
ARTICLE 11.1 No Registration of Membership Interest. The Member
acknowledges that the Membership Interest has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or qualified under
the California Corporate Securities Law of 1968, as amended, in reliance, in
part, on his representations, warranties, and agreements herein.
ARTICLE 11.2 Membership Interest in Restricted Security. The Member
understands that the Membership Interest is a "restricted security" under the
Securities Act in that the Membership Interest will be acquired from IMMERSION
in a transaction not involving a public offering, and that the Membership
Interest may be resold without registration under the Securities Act only in
certain limited circumstances and that otherwise the Membership Interest
<PAGE> 33
must be held indefinitely.
ARTICLE 11.3 No Obligation to Register. The Member represents, warrants,
and agrees that IMMERSION and the Managers are under no obligation to register
or qualify the Membership Interest under the Securities Act or under any state
securities law, or to assist him in complying with any exemption from
registration and qualification.
ARTICLE 11.4 No Disposition in Violation of Law. Without limiting the
representations set forth above, and without limiting Article 7 of this
Agreement, he will not make any disposition of all or any part of the Membership
Interest which will result in the violation by him or by IMMERSION of the
Securities Act, the California Corporate Securities Law of 1968, or any other
applicable securities laws. Without limiting the foregoing, he agrees not to
make any disposition of all or any part of the Membership Interest unless and
until:
A. There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement and any applicable requirements
of state securities laws; or
B. (i) The Member has notified IMMERSION of the proposed
disposition and has furnished IMMERSION with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Managers, he has furnished IMMERSION with a written opinion
of counsel, reasonably satisfactory to IMMERSION, that such disposition will
not require registration of any securities under the Securities Act or the
consent of or a permit from appropriate authorities under any applicable state
securities law.
ARTICLE 11.5 Legends. The Member understands that the certificates (if
any) evidencing the Membership Interest may bear one or all of the following
legends:
A. "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND
REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND
REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS, AND CONDITIONS
WHICH ARE SET FORTH HEREIN IN THE COMPANY'S OPERATING AGREEMENT, A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
B. Any legend required by applicable state securities laws.
<PAGE> 34
ARTICLE 12.
MISCELLANEOUS
ARTICLE 12.1 Counsel to IMMERSION. Counsel to IMMERSION may also be
counsel to any Manager or any Affiliate of a Manager. The Managers may execute
on behalf of IMMERSION and the Members any consent to the representation of
IMMERSION that counsel may request pursuant to the California Rules of
Professional Conduct or similar rules in any other jurisdiction ("Rules"). The
IMMERSION has initially selected Gray Cary Ware & Freidenrich ("IMMERSION
Counsel") as legal counsel to IMMERSION. Each Member acknowledges that IMMERSION
Counsel does not represent any Member in the absence of a clear and explicit
written agreement to such effect between the Member and IMMERSION Counsel, and
that in the absence of any such agreement IMMERSION Counsel shall owe no duties
directly to a Member. Notwithstanding any adversity that may develop, in the
event any dispute or controversy arises between any Members and IMMERSION, or
between any Members or IMMERSION, on the one hand, and a Manager (or Affiliate
of a Manager) that IMMERSION Counsel represents, on the other hand, then each
Member agrees that IMMERSION Counsel may represent either IMMERSION or such
Manager (or his or her Affiliate), or both, in any such dispute or controversy
to the extent permitted by the Rules, and each Member hereby consents to such
representation.
ARTICLE 12.2 Complete Agreement. This Agreement and the Articles
constitute the complete and exclusive statement of agreement among the Members
and Managers with respect to the subject matter herein and therein and replace
and supersede all prior written and oral agreements or statements by and among
the Members and Managers or any of them. No representation, statement, condition
or warranty not contained in this Agreement or the Articles will be binding on
the Members or Managers or have any force or effect whatsoever. To the extent
that any provision of the Articles conflict with any provision of this
Agreement, the Articles shall control.
ARTICLE 12.3 Binding Effect. Subject to the provisions of this Agreement
relating to transferability, this Agreement will be binding upon and inure to
the benefit of the Members, and their respective successors and assigns.
ARTICLE 12.4 Parties in Interest. Except as expressly provided in the
Act, nothing in this Agreement shall confer any rights or remedies under or by
reason of this Agreement on any Persons other than the Members and Managers and
their respective successors and assigns nor shall anything in this Agreement
relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over or against any party to this Agreement.
ARTICLE 12.5 Pronouns; Statutory References. All pronouns and all
variations thereof shall be deemed to refer to the masculine, feminine, or
neuter, singular or plural, as the context in which they are used may require.
Any reference to the Code, the Regulations, the Act, Corporations Code or other
statutes or laws will include all amendments, modifications, or
<PAGE> 35
replacements of the specific sections and provisions concerned.
ARTICLE 12.6 Headings. All headings herein are inserted only for
convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this Agreement.
ARTICLE 12.7 Interpretation. In the event any claim is made by any
Member relating to any conflict, omission or ambiguity in this Agreement, no
presumption or burden of proof or persuasion shall be implied by virtue of the
fact that this Agreement was prepared by or at the request of a particular
Member or his counsel.
ARTICLE 12.8 References to this Agreement. Numbered or lettered
articles, sections and subsections herein contained refer to articles, sections
and subsections of this Agreement unless otherwise expressly stated.
ARTICLE 12.9 Jurisdiction. Each Member hereby consents to the exclusive
jurisdiction of the state and federal courts sitting in California in any action
on a claim arising out of, under or in connection with this Agreement or the
transactions contemplated by this Agreement. Each Member further agrees that
personal jurisdiction over him may be effected by service of process by
registered or certified mail addressed as provided in Article 12.13 of this
Agreement, and that when so made shall be as if served upon him personally
within the State of California.
ARTICLE 12.10 Exhibits. All Exhibits attached to this Agreement are
incorporated and shall be treated as if set forth herein.
ARTICLE 12.11 Severability. If any provision of this Agreement or the
application of such provision to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of such provision to
persons or circumstances other than those to which it is held invalid shall not
be affected thereby.
ARTICLE 12.12 Additional Documents and Acts. Each Member agrees to
execute and deliver such additional documents and instruments and to perform
such additional acts as may be necessary or appropriate to effectuate, carry out
and perform all of the terms, provisions, and conditions of this Agreement and
the transactions contemplated hereby.
ARTICLE 12.13 Notices. Any notice to be given or to be served upon
IMMERSION or any party hereto in connection with this Agreement must be in
writing (which may include facsimile provided a confirmation copy is
concurrently sent by a nationally recognized express courier for overnight
delivery) and will be deemed to have been given and received when delivered to
the address specified by the party to receive the notice. Such notices will be
given to a Member or Manager at the address specified in Exhibit A hereto. Any
party may, at any time by giving five (5) days' prior written notice to the
other parties, designate any other address in substitution of the foregoing
address to which such notice will be given.
<PAGE> 36
ARTICLE 12.14 Amendments. All amendments to this Agreement will be in
writing and signed by a Majority Interest. In the absence of any opinion of
counsel as to the effect thereof, no amendment to this Agreement or the Articles
shall be made which violates the Act or is likely to cause IMMERSION to be
taxed as a corporation.
ARTICLE 12.15 Reliance on Authority of Person Signing Agreement. If a
Member is not a natural person, neither IMMERSION nor any Member will (a) be
required to determine the authority of the individual signing this Agreement to
make any commitment or undertaking on behalf of such entity or to determine any
fact or circumstance bearing upon the existence of the authority of such
individual or (b) be responsible for the application or distribution of proceeds
paid or credited to individuals signing this Agreement on behalf of such entity.
ARTICLE 12.16 No Interest in IMMERSION Property; Waiver of Action for
Partition. No Member or Assignee has any interest in specific property of
IMMERSION. Without limiting the foregoing, each Member and Assignee irrevocably
waives during the term of IMMERSION any right that he may have to maintain any
action for partition with respect to the property of IMMERSION.
ARTICLE 12.17 Multiple Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
ARTICLE 12.18 Attorney Fees. In the event that any dispute between
IMMERSION and the Members or among the Members should result in litigation, the
prevailing party in such dispute shall be entitled to recover from the other
party all reasonable fees, costs and expenses of enforcing any right of the
prevailing party, including without limitation, reasonable attorneys' fees and
expenses, all of which shall be deemed to have accrued upon the commencement of
such action and shall be paid whether or not such action is prosecuted to
judgment. Any judgment or order entered in such action shall contain a specific
provision providing for the recovery of attorney fees and costs incurred in
enforcing such judgment and an award of prejudgment interest from the date of
the breach at the maximum rate of interest allowed by law. For the purposes of
this Article: (a) attorney fees shall include, without limitation, fees incurred
in the following: (1) post-judgment motions; (2) contempt proceedings; (3)
garnishment, levy, and debtor and third party examinations; (4) discovery; and
(5) bankruptcy litigation and (b) prevailing party shall mean the party who is
determined in the proceeding to have prevailed or who prevails by dismissal,
default or otherwise.
ARTICLE 12.19 Time is of the Essence. All dates and times in this
Agreement are of the essence.
ARTICLE 12.20 Remedies Cumulative. The remedies under this Agreement are
cumulative and shall not exclude any other remedies to which any person may be
lawfully entitled.
<PAGE> 37
ARTICLE 12.21 Special Power of Attorney.
A. Attorney in Fact. Each Member grants each Manager a special
power of attorney irrevocably making, constituting, and appointing the Manager
as the Member's attorney in fact, with all power and authority to act in the
Member's name and on the Member's behalf to execute, acknowledge and deliver and
swear to in the execution, acknowledgment, delivery and filing of the following
documents:
(i) Assignments of Membership Interests or other documents
of transfer to be delivered in connection with the transfer of a Membership
Interest pursuant to Article 7.7;
(ii) Any consent to the representation of IMMERSION by
counsel selected by the Managers as described in Article 12.1; and
(iii) Any amendment to this Agreement approved by a
Majority Interest.
B. Irrevocable Power. The special power granted in Article
12.21A: (i) is irrevocable, (ii) is coupled with an interest and (iii) shall
survive a Member's death, incapacity or dissolution.
C. Signatures. The Managers may exercise the special power of
attorney granted in Article 12.21A by a facsimile signature of any Manager or by
signature of any Manager.
ARTICLE 12.22 Statement of Restrictions. This Agreement and any
amendments hereto constitute an "Initial Transaction Statement" as described in
California Commercial Code Section 8408.
ARTICLE 12.23 Consent of Spouse. Within twenty (20) days after any
individual becomes a Member or a Member marries, such Member shall have his
spouse execute a consent substantially in the form attached to this Agreement.
<PAGE> 38
All of the Members of MicroScribe, LLC, a California limited liability
company, have executed this Agreement, effective as of the date written above.
Immersion Corporation,
a California corporation
By: /s/ Louis Rosenberg
-------------------------------
/s/ Timothy Lacey
----------------------------------
Timothy Lacey
<PAGE> 39
EXHIBIT A
CAPITAL CONTRIBUTION OF MEMBERS AND ADDRESSES OF MEMBERS
AND MANAGERS OF MICROSCRIBE, LLC
AS OF JULY 1, 1997
<TABLE>
<CAPTION>
MEMBER'S NAME AND MEMBERS CAPITAL
ADDRESS CONTRIBUTION MEMBERS UNITS
CLASS 1 CLASS 2 TOTAL
<S> <C> <C> <C> <C>
Immersion Corporation $128,000 1,000 98,999 98,999
2158 Paragon Drive
San Jose, CA
Timothy Lacey $ 0.01 0 1 1
</TABLE>
<TABLE>
<CAPTION>
Manager's Name Manager's Address
- -------------- -----------------
<S> <C>
Bruce Schena 2158 Paragon Drive, San Jose, CA 95131
Timothy Lacey same address
Louis Rosenberg same address
</TABLE>
<PAGE> 40
EXHIBIT B
The rights, preferences and privileges of the Preferred Stock which
could be issued to the Class 1 Members if the requirements of Article 7.9 of the
Agreement are fulfilled are summarized as follows:
(a) Dividends. The holders of Preferred Stock shall be entitled to
receive dividends when, as and if declared by the Board of Directors. The right
to such dividends will be noncumulative and no right shall accrue in any year if
dividends are not declared. Such dividends, when, as and if declared, shall be
payable in cash at the annual rate equal to nine percent (9%) of the liquidation
preference as defined in subparagraph (b) below per share prior to payment of
any dividend on Common Stock.
(b) Preference on Liquidation. The holders of shares of Preferred Stock
then outstanding shall be entitled to a liquidation preference equal to their
total unreturned capital contributions as Class 1 Members. If upon liquidation
the assets of the Corporation available for the distribution to its shareholders
shall be insufficient to pay the holders of the Preferred Stock such liquidation
price, the holders of the Preferred Stock shall share ratably in any
distribution of assets.
(c) Voting. The shares of the Preferred Stock shall have the number of
votes equal to the largest number of full shares of Common Stock into which the
Preferred Stock may be converted.
(d) Conversion Rights. Each holder of Preferred stock may, at any time
after the date of issuance convert any or all of such holder's Preferred Stock
into shares of Common Stock, at the rate of one (1) share of Common Stock for
each share of Preferred Stock so surrendered. The number of shares of Common
Stock into which Preferred Stock may be converted shall be subject to adjustment
from time to time in the event of subdivisions or combinations of the
Corporation's Common Stock or upon the issuance of a stock dividend or other
distribution to holders of Common Stock.
(e) Changes. So long as any shares of Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval of the holders
of at least a majority of the total number of shares of Preferred Stock
outstanding, voting separately as a class, alter or change any of the powers,
preferences or rights of the Preferred Stock.
<PAGE> 41
EXHIBIT C
Immersion shall contribute to IMMERSION its MicroScribe design and
manufacturing know-how; the MicroScribe-3D, Personal Digitizer and Immersion
Probe trademarks; and the all of its right, title and interest in and to the
following patents, pending patents and patent applications below:
1. MicroScribe Design Patent D 377,932 (issued February 11,
1997).
2. MicroScribe Technology Patents (pending patents 08/512,084;
08/741,190; 08/744,725; and 08/739,454).
3. MicroScribe PCT Patent Application (IMM1P010.P).
In connection with the foregoing assignment of patents, and pursuant to
the provisions of the Patent License Agreement by and between IMMERSION and
Immersion, IMMERSION shall grant to Immersion a worldwide, royalty-free,
exclusive, irrevocable, perpetual (for the duration of each product) license to
make, have made, use, sell, offer to sell and import products in the Force
Feedback Field of Use (as defined in the Patent License Agreement) and to
sublicense such rights to affiliates and to third parties through multiple tiers
of sublicenses.
<PAGE> 42
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. DEFINITIONS...........................................................1
ARTICLE 1.1 "Act".................................................................1
ARTICLE 1.2 "Affiliate"...........................................................1
ARTICLE 1.3 "Agreement"...........................................................1
ARTICLE 1.4 "Articles"............................................................2
ARTICLE 1.5 "Assignee"............................................................2
ARTICLE 1.6 "Bankruptcy"..........................................................2
ARTICLE 1.7 "Capital Account".....................................................2
ARTICLE 1.8 "Capital Contribution"................................................3
ARTICLE 1.9 "Capital Event".......................................................3
ARTICLE 1.10 "Class 1 Member"......................................................3
ARTICLE 1.11 "Class 2 Member"......................................................3
ARTICLE 1.12 "Code"................................................................3
ARTICLE 1.13 "Common Stock"........................................................3
ARTICLE 1.14 "IMMERSION".............................................................3
ARTICLE 1.15 "IMMERSION Minimum Gain"................................................3
ARTICLE 1.16 "Corporations Code"...................................................3
ARTICLE 1.17 "Dissolution Event"...................................................3
ARTICLE 1.18 "Distributable Cash"..................................................3
ARTICLE 1.19 "Economic Interest"...................................................4
ARTICLE 1.20 "Fiscal Year".........................................................4
ARTICLE 1.21 "Income" and "Losses".................................................4
ARTICLE 1.22 "Majority Interest"...................................................4
ARTICLE 1.23 "Manager".............................................................4
ARTICLE 1.24 "Member"..............................................................4
ARTICLE 1.25 "Member Nonrecourse Debt".............................................4
ARTICLE 1.26 "Member Nonrecourse Deductions".......................................4
ARTICLE 1.27 "Membership Interest".................................................5
ARTICLE 1.28 "Nonrecourse Liability"...............................................5
ARTICLE 1.29 "Percentage Interest".................................................5
ARTICLE 1.30 "Person"..............................................................5
ARTICLE 1.31 "Preferred Stock".....................................................5
ARTICLE 1.32 "Regulations".........................................................5
ARTICLE 1.33 "Tax Matters Partner".................................................5
ARTICLE 1.34 "Unit"................................................................5
ARTICLE 1.35 "Unreturned Capital"..................................................5
ARTICLE 2. ORGANIZATIONAL MATTERS................................................5
ARTICLE 2.1 Formation.............................................................5
ARTICLE 2.2 Name..................................................................6
</TABLE>
<PAGE> 43
<TABLE>
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ARTICLE 2.3 Term..................................................................6
ARTICLE 2.4 Office and Agent......................................................6
ARTICLE 2.5 Addresses of the Members and the Managers.............................6
ARTICLE 2.6 Purpose and Business of IMMERSION...................................6
ARTICLE 3 CAPITAL CONTRIBUTIONS.................................................6
ARTICLE 3.1 Initial Capital Contributions.........................................6
ARTICLE 3.2 Additional Capital Contributions......................................7
ARTICLE 3.3 No Interest...........................................................7
ARTICLE 4 MEMBERS...............................................................7
ARTICLE 4.1 Limited Liability.....................................................7
ARTICLE 4.2 Admission of Additional Members.......................................7
ARTICLE 4.3 Withdrawals or Resignations...........................................8
ARTICLE 4.4 Termination of Membership Interest....................................8
ARTICLE 4.5 Competing Activities..................................................9
ARTICLE 4.6 Transactions With The IMMERSION.........................................9
ARTICLE 4.7 Remuneration To Members...............................................9
ARTICLE 4.8 Members Are Not Agents................................................9
ARTICLE 4.9 Voting Rights.........................................................9
ARTICLE 4.10 Meetings of Members..................................................10
ARTICLE 4.11 Certificate of Membership Interest...................................11
ARTICLE 5 MANAGEMENT AND CONTROL OF THE COMPANY............................... 11
ARTICLE 5.1 Management of IMMERSION by Managers................................11
ARTICLE 5.2 Election of Managers.................................................12
ARTICLE 5.3 Powers of Managers...................................................13
ARTICLE 5.4 Performance of Duties; Liability of Managers.........................15
ARTICLE 5.5 Devotion of Time.....................................................15
ARTICLE 5.6 Competing Activities.................................................16
ARTICLE 5.7 Transactions between IMMERSION and the Managers....................16
ARTICLE 5.8 Payments to Managers.................................................17
ARTICLE 5.9 Officers.............................................................17
ARTICLE 5.10 Limited Liability....................................................17
ARTICLE 5.11 Membership Interests of Managers.....................................17
ARTICLE 6 ALLOCATIONS OF INCOME AND LOSSES AND DISTRIBUTIONS...................18
ARTICLE 6.1 Allocations of Income and Losses.....................................18
ARTICLE 6.2 Compliance with Allocation Requirements of the Code..................18
ARTICLE 6.3 Allocation of Income and Losses and Distributions in Respect
of a Transferred Interest............................................19
ARTICLE 6.4 Distributions of Distributable Cash by IMMERSION...................19
ARTICLE 6.5 Form of Distribution.................................................20
</TABLE>
<PAGE> 44
<TABLE>
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ARTICLE 6.6 Restriction on Distributions.........................................20
ARTICLE 6.7 Return of Distributions..............................................21
ARTICLE 6.8 Obligations of Members to Report.....................................21
ARTICLE 7. TRANSFER AND ASSIGNMENT OF INTERESTS.................................21
ARTICLE 7.1 Transfer and Assignment of Interests.................................21
ARTICLE 7.2 Further Restrictions on Transfer of Interests........................22
ARTICLE 7.3 Substitution of Members..............................................22
ARTICLE 7.4 Permitted Transfers..................................................22
ARTICLE 7.5 Effective Date of Permitted Transfers................................22
ARTICLE 7.6 Rights of Legal Representatives......................................22
ARTICLE 7.7 No Effect to Transfers in Violation of Agreement.....................22
ARTICLE 7.8 Right of First Refusal...............................................23
ARTICLE 7.9 Transfers on Incorporation...........................................24
ARTICLE 8. ACCOUNTING, RECORDS, REPORTING BY MEMBERS............................25
ARTICLE 8.1 Books and Records....................................................25
ARTICLE 8.2 Delivery to Members and Inspection...................................26
ARTICLE 8.3 Annual Statements....................................................27
ARTICLE 8.4 Financial and Other Information......................................27
ARTICLE 8.5 Filings..............................................................27
ARTICLE 8.6 Bank Accounts........................................................28
ARTICLE 8.7 Accounting Decisions and Reliance on Others..........................28
ARTICLE 8.8 Tax Matters for IMMERSION Handled by Managers and Tax Matters
Partner..............................................................28
ARTICLE 9. DISSOLUTION AND WINDING UP...........................................28
ARTICLE 9.1 Dissolution..........................................................28
ARTICLE 9.2 Certificate of Dissolution...........................................29
ARTICLE 9.3 Winding Up...........................................................29
ARTICLE 9.4 Distributions in Kind................................................29
ARTICLE 9.5 Order of Payment Upon Dissolution....................................29
ARTICLE 9.6 Limitations on Payments Made in Dissolution..........................30
ARTICLE 9.7 Certificate of Cancellation..........................................30
ARTICLE 9.8 No Action for Dissolution............................................30
ARTICLE 10. INDEMNIFICATION AND INSURANCE........................................31
ARTICLE 10.1 Indemnification of Agents............................................31
ARTICLE 10.2 Insurance............................................................31
ARTICLE 11. MEMBER REPRESENTATIONS...............................................31
ARTICLE 11.1 No Registration of Membership Interest...............................31
ARTICLE 11.2 Membership Interest in Restricted Security...........................31
ARTICLE 11.3 No Obligation to Register............................................32
</TABLE>
<PAGE> 45
<TABLE>
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ARTICLE 11.4 No Disposition in Violation of Law...................................32
ARTICLE 11.5 Legends..............................................................33
ARTICLE 12. MISCELLANEOUS........................................................33
ARTICLE 12.1 Counsel to IMMERSION...............................................33
ARTICLE 12.2 Complete Agreement...................................................33
ARTICLE 12.3 Binding Effect.......................................................33
ARTICLE 12.4 Parties in Interest..................................................33
ARTICLE 12.5 Pronouns; Statutory References.......................................33
ARTICLE 12.6 Headings.............................................................34
ARTICLE 12.7 Interpretation.......................................................34
ARTICLE 12.8 References to this Agreement.........................................34
ARTICLE 12.9 Jurisdiction.........................................................34
ARTICLE 12.10 Exhibits.............................................................34
ARTICLE 12.11 Severability.........................................................34
ARTICLE 12.12 Additional Documents and Acts........................................34
ARTICLE 12.13 Notices..............................................................34
ARTICLE 12.14 Amendments...........................................................35
ARTICLE 12.15 Reliance on Authority of Person Signing Agreement....................35
ARTICLE 12.16 No Interest in IMMERSION Property; Waiver of Action for Partition......35
ARTICLE 12.17 Multiple Counterparts................................................35
ARTICLE 12.18 Attorney Fees........................................................35
ARTICLE 12.19 Time is of the Essence...............................................35
ARTICLE 12.20 Remedies Cumulative..................................................35
ARTICLE 12.21 Special Power of Attorney............................................36
ARTICLE 12.22 Statement of Restrictions............................................36
ARTICLE 12.23 Consent of Spouse....................................................36
CONSENT OF SPOUSE .........................................................................38
</TABLE>
<PAGE> 46
<TABLE>
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EXHIBIT A CAPITAL CONTRIBUTION OF MEMBERS AND ADDRESSES OF MEMBERS AND MANAGERS
OF MICROSCRIBE, LLC AS OF JULY 1, 1997..........................................39
EXHIBIT B..................................................................................40
EXHIBIT C..................................................................................41
</TABLE>
<PAGE> 1
EXHIBIT 10.10
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (the "Agreement") is entered into effective as
of July 1, 1997, by and among Immersion Corporation, a California corporation
(the "Purchaser") and MicroScribe, LLC, a California limited liability company
(the "IMMERSION").
RECITALS
The Purchaser desires to transfer all of its right, title and interest
in and to certain intellectual property, to IMMERSION, in exchange for 1,000
Class 1 Units and 98,999 Class 2 Units of IMMERSION, in a transfer intended to
qualify as a nontaxable transaction under Section 721 of the Internal Revenue
Code of 1986, as amended (the "Exchange").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Issuance and Sale of Units. Subject to the terms and conditions
hereof, IMMERSION will issue and sell to the Purchaser, and the Purchaser will
purchase from IMMERSION, 1,000 Class 1 Units and 98,999 Class 2 Units of
IMMERSION (the "Units"). In consideration of IMMERSION's issuance of the Units,
and as a contribution to the capital of IMMERSION, the Purchaser hereby assigns,
transfers, and conveys to IMMERSION (the "Conveyance") all of its right, title,
and interest in and to the property described on EXHIBIT A hereto (the
"Property"), including the right to sue and recover for future infringements,
all pending or future divisional, renewal, substitute, continuation and
convention applications based in whole or in part upon the Property, all
reissues and extensions of forms of protection granted related to the Property
and every priority right that is or may be predicated upon or arise from the
Property. The Conveyance shall be subject to IMMERSION's license of patent
continuation applications to the Purchaser pursuant to the terms and conditions
of the Patent License Agreement dated effective as of July 1, 1997 the ("Patent
License Agreement). The IMMERSION agrees that it shall not supplement, amend,
alter or otherwise modify the four (4) continuation patent applications included
within the Conveyance and described on EXHIBIT A to add or include any claims
relating to the Force Feedback Field of Use as defined in the Patent License
Agreement.
2. Purchaser's Representations and Warranties. The Purchaser hereby
represents and warrants that, to the best of its knowledge, it has good title to
the Property and the right to assign the property. This Agreement hereby binds
Purchaser and its successors and assigns, to do all reasonable acts to assure
that the Property shall be held by IMMERSION and enjoyed by IMMERSION as
fully and entirely as the same could be held or enjoyed by the Purchaser if this
Agreement were not made.
3. Delivery of Certificate. As soon as practicable after execution of
this Agreement, IMMERSION shall deliver to the Purchaser a certificate for the
Units. The certificate
<PAGE> 2
representing the Units shall have endorsed thereon any legend required to be
placed thereon by the California Commissioner of Corporations and the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND ARE
`RESTRICTED SECURITIES' AS DEFINED IN RULE 144 PROMULGATED UNDER
THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE
REGISTRATION STATEMENT FOR THE UNITS UNDER THE ACT; (ii) IN
COMPLIANCE WITH RULE 144; OR (iii) PURSUANT TO AN OPINION OF
COUNSEL FOR THE HOLDERS OF THE SECURITIES SATISFACTORY TO THE
COMPANY STATING THAT SUCH REGISTRATION OR COMPLIANCE IS NOT
REQUIRED AS TO SAID SALE, OFFER OR DISTRIBUTION."
4. Severability. In the event that any provision of this Agreement shall
be held to be or become invalid or unenforceable in certain circumstances, the
validity and enforceability of the remaining provisions, or of such provision in
other circumstances, shall not in any way be affected or impaired. The
obligations of each Purchaser are independent obligations, and the failure of
any Purchaser to perform the obligations in this Agreement will not excuse any
other Purchaser from performing its obligations under this Agreement.
5. Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall be deemed an original, and when taken together
shall constitute one and the same Agreement.
6. No Waiver. No waiver of any breach of this Agreement shall constitute
a waiver of any other breach, whether of the same or any other covenant, term,
or condition.
7. Survival of Agreement. The parties' agreements, covenants, and
warranties contained herein shall continue after the date of this Agreement.
8. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto. There are no representations, agreements,
arrangements or understandings, oral or written, between the parties relating to
the subject matter of this Agreement which are not fully expressed herein. This
Agreement may not be changed orally but only by an Agreement in writing signed
by the party against whom enforcement of any waiver, change, modification or
discharge is sought.
9. Attorneys' Fees. The prevailing party in any action or proceeding
between the parties hereto shall be entitled to recover costs and reasonable
attorneys' fees, in addition to any other relief to which such party may be
entitled.
10. No Third Party Beneficiaries. All the provisions of this Agreement
are intended to bind and to benefit only the Purchaser, IMMERSION, and their
permitted successors and
<PAGE> 3
assigns. The parties do no not intend that any such provisions benefit, and it
shall not be construed that these provisions benefit, or are enforceable by, any
creditors or other third parties.
11. Further Acts. The parties hereto shall perform all further acts and
execute and deliver all documents that may be reasonably necessary to carry out
their obligations hereunder and the purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of July 1, 1997.
Immersion Corporation, MicroScribe, LLC,
a California corporation a California limited liability company
By: /s/ Louis Rosenberg By: /s/ Timothy A. Lacey
---------------------------- -------------------------------
<PAGE> 4
EXHIBIT A
The Property hereby assigned, transferred and conveyed by Purchaser to
IMMERSION includes the items listed below:
(1) trademarks for "Microscribe-3D" and "Personal
Digitizer";
(2) the following Microscribe software and source code:
(a) Microscribe firmware;
(b) Microscribe calibration software;
(c) Inscribe;
(d) Alias Driver;
(e) Vertisketch; and
(f) SDK (software development kit);
(3) the following Microscribe manufacturing documentation:
(a) Microscribe bill of materials;
(b) Microscribe drawings and database;
(c) Microscribe schematics; and
(d) Microscribe layout files and electronics;
(4) Microscribe fabrication tooling;
(5) Microscribe calibration, production fixtures, and test
electronics;
(6) Microscribe reseller contact information;
(7) Microscribe user documentation; and
(8) a copy of the Microscribe calibration files.
The Property also includes Purchaser's MicroScribe design and
manufacturing know-how; and the all of its right, title and interest in and to
the following patents, pending patents and patent applications below:
(1) MicroScribe Design Patent D 377,932 (issued February 11,
1997).
(2) MicroScribe Technology Patents (pending patents
08/512,084; 08/741,190; 08/744,725; and 08/739,454).
(3) MicroScribe PCT Patent Application (IMM1P010.P).
In connection with the foregoing assignment of patents, and pursuant to
the provisions of the Patent License Agreement by and between IMMERSION and
Immersion, IMMERSION shall grant to Immersion a worldwide, royalty-free,
exclusive, irrevocable, perpetual (for the duration of each product) license to
make, have made, use, sell, offer to sell and import products in the Force
Feedback Field of Use (as defined in the Patent License Agreement) and to
sublicense such rights to affiliates and to third parties through multiple tiers
of sublicenses.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF IMMERSION CORPORATION
<TABLE>
<CAPTION>
<S> <C>
Name Jurisdiction of Incorporation
- ----------------------------------- -----------------------------
Cybernet Haptic Systems Corporation Michigan
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
of Immersion Corporation:
We consent to the use in this Registration Statement of Immersion
Corporation on Form S-1 of our report dated April 2, 1999 (August 31, 1999 as to
Note 14) appearing in the Prospectus, which is part of this Registration
Statement, and of our report dated April 2, 1999 relating to the financial
statement schedule appearing elsewhere in this Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
San Jose, California
August 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 JUN-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 2,592 2,204
<SECURITIES> 402 200
<RECEIVABLES> 1,111 1,094
<ALLOWANCES> 92 76
<INVENTORY> 481 606
<CURRENT-ASSETS> 4,685 4,196
<PP&E> 627 781
<DEPRECIATION> 298 383
<TOTAL-ASSETS> 5,959 9,706
<CURRENT-LIABILITIES> 710 857
<BONDS> 0 0
1,476 1,479
6,955 6,955
<COMMON> 961 7,947
<OTHER-SE> (4,143) (7,532)
<TOTAL-LIABILITY-AND-EQUITY> 5,959 9,706
<SALES> 3,725 2,133
<TOTAL-REVENUES> 5,021 3,503
<CGS> 1,507 970
<TOTAL-COSTS> 6,868 5,687
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,673) (2,118)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,673) (2,118)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,679) (2,121)
<EPS-BASIC> (0.43) (0.42)
<EPS-DILUTED> (0.43) (0.42)
</TABLE>
