<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No._______)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
IMMERSION CORPORATION
(Name of Registrant as Specified In Its Charter)
----------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement no.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
[LOGO]
April , 2000
TO THE STOCKHOLDERS OF IMMERSION CORPORATION
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Immersion Corporation (the "Company"), which will be held
at the Silicon Valley Convention Center, 2161 North First Street, San Jose,
California 95131, on Tuesday, June 6, 2000, at 10:00 a.m.
Details of the business to be conducted at the Annual Meeting are given in
the attached Proxy Statement and Notice of Annual Meeting of Stockholders.
It is important that your shares be represented and voted at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. Returning the proxy does NOT deprive you of your right to attend the
Annual Meeting. If you decide to attend the Annual Meeting and wish to change
your proxy vote, you may do so automatically by voting in person at the meeting.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
Louis Rosenberg, Ph.D.
Chairman of the Board of Directors
<PAGE> 3
IMMERSION CORPORATION
2158 PARAGON DRIVE
SAN JOSE, CALIFORNIA 95131
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 6, 2000
------------------------
The Annual Meeting of Stockholders (the "Annual Meeting") of Immersion
Corporation (the "Company") will be held at the Silicon Valley Convention
Center, 2161 North First Street, San Jose, California 95131 , on Tuesday, June
6, 2000, at 10:00 a.m. for the following purposes:
1. To elect two (2) members of the Board of Directors to serve for
three-year terms as Class I directors;
2. To amend and restate the Certificate of Incorporation of the
Company to eliminate the provision requiring an affirmative vote of at
least 66 2/3% of the outstanding shares to amend or repeal the bylaws and
certain provisions of the certificate of incorporation of the Company and
to eliminate the right of stockholders to remove Board members without
cause.
3. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent public accountants for the fiscal year ending December 31,
2000; and
4. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the attached
Proxy Statement.
Only stockholders of record at the close of business on April 10, 2000 are
entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the Company's headquarters located at 2158 Paragon
Drive San Jose, California 95131 during ordinary business hours for the ten-day
period prior to the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
Bruce Schena
Secretary
San Jose, California
April , 2000
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE
ANNUAL MEETING. IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO
CHANGE YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT
THE MEETING.
<PAGE> 4
IMMERSION CORPORATION
2158 PARAGON DRIVE
SAN JOSE, CALIFORNIA 95131
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 6, 2000
------------------------
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Immersion Corporation, a
Delaware corporation (the "Company"), for the Annual Meeting of Stockholders
(the "Annual Meeting") to be held at the Silicon Valley Convention Center, 2161
North First Street, San Jose, California 95131, on Tuesday, June 6, 2000, at
10:00 a.m., and at any adjournment or postponement of the Annual Meeting. These
proxy materials were first mailed to stockholders on or about April , 2000.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Company's Common Stock is the only type of security entitled to vote at
the Annual Meeting. On April 10, 2000, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were
[ ] shares of Common Stock outstanding. Each stockholder of record
on April 10, 2000 is entitled to one vote for each share of Common Stock held by
such stockholder on April 10, 2000. Shares of Common Stock may not be voted
cumulatively. All votes will be tabulated by the inspector of election appointed
for the meeting, who will separately tabulate affirmative and negative votes,
abstentions, and broker non-votes.
QUORUM REQUIRED
The Company's bylaws provide that the holders of a majority of the
Company's Common Stock issued and outstanding and entitled to vote at the Annual
Meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
non-votes will be counted as present for the purpose of determining the presence
of a quorum.
VOTES REQUIRED
Directors are elected by a plurality of the affirmative votes cast by those
shares present in person or represented by proxy and entitled to vote at the
Annual Meeting. The two nominees for director receiving the highest number of
affirmative votes will be elected. Stockholders may not cumulate votes in the
election of directors.
For Proposal 2, to amend and restate the Certificate of Incorporation of
the Company to eliminate the provision requiring an affirmative vote of at least
66 2/3% of the outstanding shares to amend or repeal the bylaws and certain
provisions of the certificate of incorporation of the Company and to eliminate
the right of stockholders to remove Board members without cause, the vote
required is 66 2/3 of the outstanding shares.
Proposal 3, ratification of the appointment of Deloitte & Touche LLP as the
Company's independent public accountants for the fiscal year ending December 31,
2000, requires the affirmative vote of a majority of those shares present in
person, or represented by proxy, and cast either affirmatively or negatively at
the Annual Meeting.
<PAGE> 5
For Proposal 1 and Proposal 3, abstentions and broker non-votes have no
effect on the outcome of the vote. For Proposal 2, abstentions and broker
non-votes have the same effect as a negative vote.
PROXIES
Whether or not you are able to attend the Company's Annual Meeting, you are
urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your proxy
when properly completed. In the event no directions are specified, such proxies
will be voted FOR Proposals No. 1, No. 2 and No. 3 and, in the discretion of the
proxy holders, as to other matters that may properly come before the Annual
Meeting. You may also revoke or change your proxy at any time before the Annual
Meeting. To do this, send a written notice of revocation or another signed proxy
with a later date to Victor Viegas, Vice President, Finance and Chief Financial
Officer of the Company, at the Company's principal executive offices before the
beginning of the Annual Meeting. You may also automatically revoke your proxy by
attending the Annual Meeting and voting in person. All shares represented by a
valid proxy received prior to the Annual Meeting will be voted.
SOLICITATION OF PROXIES
The cost of solicitation of proxies will be borne by the Company, and in
addition to soliciting stockholders by mail through its regular employees, the
Company may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Company registered
in the names of a nominee and, if so, will reimburse such banks, brokers and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
costs. Solicitation by officers and employees of the Company may also be made of
some stockholders in person or by mail, telephone or telegraph following the
original solicitation. The Company has retained MacKenzie Partners, Inc., a
proxy solicitation firm, to assist in the solicitation of proxies in connection
with the Meeting. The Company will pay such firm customary fees, expected to be
approximately $6,000, plus expenses.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Pursuant to the Company's Amended Certificate of Incorporation (the
"Certificate of Incorporation"), the Company's Board is divided into three
classes -- Class I, II and III directors. Each director is elected for a three
year term of office, with one class of directors being elected at each annual
meeting of stockholders. Each director holds office until his successor is
elected and qualified or until his earlier death, resignation or removal. In
accordance with the Certificate of Incorporation, Class I directors are to be
elected at the annual meeting in the year 2000, Class II directors are to be
elected at the annual meeting in 2001 and Class III directors are to be elected
at the annual meeting in 2002.
Two Class I directors are to be elected to the Board at the Annual Meeting,
each to serve until the annual meeting of stockholders to be held in 2003 and
until his successor has been elected and qualified, or until his earlier death,
resignation or removal.
NOMINEES
The nominees for election of Class I Directors are Steven Blank and Charles
Boesenberg. Each of the nominees is presently serving as a director of the
Company. Shares represented by all proxies received by the Board of Directors
and not so marked as to withhold authority to vote for Mr. Blank or Mr.
Boesenberg (by writing Mr. Blank's name or Mr. Boesenberg's name, where
indicated on the proxy) will be voted (unless Mr. Blank or Mr. Boesenberg are
unable or unwilling to serve) FOR the election of the nominees for Class I
Directors. The Board knows of no reason why Mr. Blank or Mr. Boesenberg would be
unable or unwilling to serve, but if such should be the case, proxies may be
voted for the election of another nominee of the Board.
2
<PAGE> 6
The information below sets forth the current members of the Board of
Directors, including the nominees for Class I Directors:
<TABLE>
<CAPTION>
CLASS OF DIRECTOR
NAME AGE DIRECTOR PRINCIPAL OCCUPATION SINCE
---- --- -------- -------------------- --------
<S> <C> <C> <C> <C>
Steven Blank........... 46 I Private Investor 10/96
Charles Boesenberg..... 51 I Co-Manager of the Merger Transition and 2/00
Integration Team of Wind River Systems, Inc.
Jonathan Rubinstein.... 43 II Senior Vice President of Hardware Engineering, 10/99
Apple Computer, Inc.
Louis Rosenberg........ 31 III Chairman of the Board of Directors, President and 5/93
Chief Executive Officer of Immersion Corporation.
</TABLE>
NOMINEES TO SERVE AS A DIRECTOR FOR A TERM EXPIRING AT THE 2003 ANNUAL MEETING
OF STOCKHOLDERS (CLASS I DIRECTOR):
Steven Blank
Mr. Blank has served as a member of the Board since October 1996. From
November 1996, until August 1999, Mr. Blank served as executive vice president
of marketing for E.piphany, an enterprise software company that Mr. Blank
co-founded. From February 1993 to October 1996, Mr. Blank served as chief
executive officer of Rocket Science Games, a video game software company. From
February 1990 to January 1993, Mr. Blank served as vice president of marketing
of SuperMac, a supplier of Macintosh peripherals.
Charles Boesenberg
Mr. Boesenberg has served as a member of the Board since February 2000.
Since February 2000, Mr. Boesenberg has served as co-manager of the merger
transition and integration team of Wind River Systems, Inc., an embedded
software and services company which was the surviving corporation of a merger
with Integrated Systems, Inc., an embedded systems software company, where Mr.
Boesenberg served as president and chief executive officer from December 1998
until February 2000. From December 1997 to December 1998, Mr. Boesenberg served
as president and chief executive officer of Magellan Corporation, a satellite
access products company, which was the surviving corporation of a merger with
Ashtech, Inc., a business-to-business global positioning systems company, where
Mr. Boesenberg served as president and chief executive officer from January 1995
to January 1997. Mr. Boesenberg currently serves as a director of Symantec
Corporation and Blaze Software. Mr. Boesenberg has a bachelor of science degree
in mechanical engineering from the Rose Hulman Institute of Technology and a
master of science degree in business administration from Boston University.
DIRECTOR SERVING FOR A TERM EXPIRING AT THE 2001 ANNUAL MEETING OF STOCKHOLDERS
(CLASS II DIRECTOR):
Jonathan Rubinstein
Mr. Rubinstein has served as a member of the Board since October 1999.
Since February 1997, Mr. Rubinstein has served as senior vice president of
hardware engineering at Apple Computer, Inc., a personal computer company. From
August 1993 to August 1996, Mr. Rubinstein was executive vice president and
chief operating officer of Fire Power Systems, a developer and manufacturer of
Power PC-based computer systems. Mr. Rubinstein has a bachelors and masters of
science degree in electrical engineering from Cornell University and a master of
science degree in computer science from Colorado State University.
DIRECTOR SERVING FOR A TERM EXPIRING AT THE 2002 ANNUAL MEETING OF STOCKHOLDERS
(CLASS III DIRECTOR):
Louis Rosenberg
Dr. Louis Rosenberg is a founder of the Company and has served as Chairman
of the Board and as President and Chief Executive Officer since May 1993. Since
April 1997, Dr. Rosenberg has also served as a manager of MicroScribe LLC, a
licensing company in which the Company holds a membership interest.
3
<PAGE> 7
Dr. Rosenberg holds bachelor of science, master of science and doctorate degrees
in mechanical engineering from Stanford University.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE CLASS I DIRECTOR NOMINEES LISTED HEREIN.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1999, the Board held 2 meetings
and acted by written consent on 12 occasions. For the fiscal year, each of the
then current directors attended at least 75% of the total number of meetings of
the Board and meetings held by all Committees of the Board on which each such
director served. The Board has a standing audit committee and compensation
committee.
Audit Committee
The audit committee was formed in October, 1999 and did not meet for the
remainder of the year. Prior to the formation of the audit committee, the full
Board acted as an audit committee. The audit committee reviews with the
Company's independent auditors the scope and timing of their audit services and
any other services that the auditors are asked to perform, the auditors' report
on the Company's consolidated financial statements following completion of their
audit, and the Company's policies and procedures with respect to internal
accounting and financial controls. In addition, the audit committee makes annual
recommendations to the Board regarding the appointment of independent auditors
for the upcoming year. The members of the audit committee are Mr. Blank and Mr.
Rubinstein.
Compensation Committee
The compensation committee was formed in October, 1999 and did not meet for
the remainder of the year. Prior to the formation of the compensation committee,
the full Board acted as a compensation committee. The purpose of the
compensation committee is to review and approve the compensation of the
Company's executives and administers the Company's stock plans. The members of
the compensation committee are Mr. Blank and Mr. Rubinstein.
Executive Committee
The executive committee was formed in February, 2000. The purpose of the
executive committee is to exercise certain powers of the Board during intervals
between meetings of the Board. The members of the executive committee are Mr.
Rosenberg and Mr. Boesenberg.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their
services as directors. Under the 1997 Immersion Corporation Stock Option Plan,
nonemployee directors are eligible to receive stock option grants at the
discretion of the Board.
In 1999, the Company granted to Mr. Blank options to purchase shares of the
Company's common stock as follows:
<TABLE>
<CAPTION>
SHARE SUBJECT EXERCISE PRICE
DATE OF GRANT TO OPTION PER SHARE
------------- ------------- --------------
<S> <C> <C>
April 22, 1999.................................... 20,175 $3.66
June 21, 1999..................................... 3,228 $3.66
</TABLE>
4
<PAGE> 8
In 1999, the Company granted to Mr. Rubinstein options to purchase shares
of the Company's common stock as follows:
<TABLE>
<CAPTION>
SHARE SUBJECT EXERCISE PRICE
DATE OF GRANT TO OPTION PER SHARE
------------- ------------- --------------
<S> <C> <C>
June 21, 1999*.................................... 32,280 $ 3.66
November 5, 1999.................................. 48,000 $10.00
</TABLE>
- ---------------
* The options granted to Mr. Rubinstein on June 21, 1999 were cancelled except
for 5,380 options which remain exercisable.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table presents information concerning compensation received
during the year ended December 31, 1999 by the Company's chief executive officer
and each of the Company's three other executive officers whose total salary and
bonus earned during that year exceeded $100,000 (collectively, the "Named
Executive Officers"). In accordance with the rules of the Securities and
Exchange Commission (the "SEC"), 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 $50,000 or 10% of the total salary and
bonus reported for these officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
--------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS(1) UNDERLYING OPTIONS(2)
--------------------------- ----------- --------- -------- ---------------------
<S> <C> <C> <C> <C>
Louis Rosenberg, Ph.D................... 1999 $179,587 $50,000 227,894
President and Chief Executive Officer
Bruce Schena............................ 1999 $141,963 -- 49,087
Vice President, Chief Technology
Officer
Kenneth Martin.......................... 1999 $117,275 $10,000 14,526
Vice President, Engineering
Timothy Lacey........................... 1999 $131,250 -- 59,524
Vice President, Operations(3)
</TABLE>
- ---------------
(1) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(2) All figures in this column represent options to purchase the Company's
common stock.
(3) Mr. Lacey was serving as the Company's Chief Financial Officer until August
1999 when he resigned as the Company's Chief Financial Officer and was
appointed Vice President of Operations.
5
<PAGE> 9
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1999.
The following table presents information with respect to stock options
granted during 1999 to the Named Executive Officers.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM(2)
GRANTED DURING PRICE EXPIRATION ---------------------
NAME (#)(1) PERIOD(%) ($/SHARE) DATE 5% 10%
---- ---------- ---------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Louis Rosenberg, Ph.D.(3)................ 71,984 3.06 4.02 3/19/09 $181,987 $461,190
403* 0.02 4.02 6/21/04 448 989
71,984 3.06 4.02 6/21/09 181,987 461,190
80,700 3.43 4.02 6/29/09 204,022 517,032
1,008* 0.04 8.67 7/27/09 5,496 13,928
1,210* 0.05 11.00 11/07/09 8,371 21,213
605* 0.03 11.00 11/05/09 4,185 10,606
Bruce Schena............................. 23,838 1.01 3.66 3/8/09 54,869 139,049
403* 0.02 3.66 6/21/09 928 2,351
23,838 1.01 3.66 6/21/09 54,869 139,049
1,008* 0.04 8.67 7/29/09 5,496 13,928
Kenneth Martin........................... 7,263 0.31 3.66 3/8/09 16,718 42,366
7,263 0.31 3.66 6/21/09 16,718 42,366
Timothy Lacey............................ 29,762 1.26 3.66 3/8/09 68,505 173,605
29,762 1.26 3.66 6/21/09 68,505 173,605
</TABLE>
- ---------------
(1) Except where noted otherwise by an * (in which case the options vest
immediately), each option vests as to 1/24 of the shares per month for 24
months. The exercise price for the option may be paid in cash, in shares of
Common Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The option has a maximum term of ten years measured from the option
grant date, subject to earlier termination in the event of the optionee's
cessation of service with the Company. Under the option, the option will
vest upon an acquisition of the Company by merger or asset sale, unless the
option is assumed by the acquiring entity.
(2) The potential realizable value represents the hypothetical gains of the
options granted based on assumed annual compound stock appreciation rates
over the exercise price per share (before taxes). Actual gains, if any, on
stock option exercises are dependent on the future performance of the
Company's Common Stock. There can be no assurance that any of the value
reflected in this table will be achieved.
(3) In 1999, the Company granted options to purchase an aggregate of 2,352,767
shares to employees. The exercise price of each option granted to Dr.
Rosenberg was equal to 110% of the fair market value of the common stock on
the date of grant as determined by the Board, except for the non-statutory
stock option granted on July 27, 1999 for 1,008 shares, in which the option
exercise price is equal to 100% of the fair market value of the common stock
on the date of grant as determined by the Board.
6
<PAGE> 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table presents information for the Company's executive
officers listed in the summary compensation table concerning option exercises
during 1999 and the value of exercisable and unexercisable options held as of
December 31, 1999 by these officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END($)(2)
ACQUIRED VALUE REALIZED ---------------------------- ----------------------------
NAME ON EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISEABLE EXERCISABLE UNEXERCISEABLE
---- -------------- -------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Louis Rosenberg, Ph.D.......... 80,700 $284,064 1,045,954 177,539 $39,642,081 $6,121,384
Bruce Schena................... 16,140 $ 58,427 432,078 35,404 $16,441,145 $1,235,582
Kenneth Martin................. 40,350 $142,113 83,075 27,847 $ 3,150,134 $1,028,842
Timothy Lacey.................. -- -- 201,871 44,201 $ 7,602,088 $1,542,196
</TABLE>
- ---------------
(1) Upon exercise of the options, an option holder did not necessarily receive
the amount reported above under the column "Value Realized." The amounts
reported above under the column "Value Realized" merely reflect the amount
by which the fair market value of the Common Stock of the Company on the
date the option was exercised exceeded the exercise price of the option. The
option holder does not realize any cash until the shares of Common Stock
issued upon exercise of the options are sold.
(2) Based on the closing price of the Common Stock of the Company as reported on
The Nasdaq National Market System at December 31, 1999, the last day of
trading of the Company's Common Stock during fiscal year 1999, of $38.375
per share, less the exercise price payable for such shares.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The options granted to Victor Viegas, Vice President, Finance and Chief
Financial Officer of the Company, accelerate in the event of a change in control
of the Company, if he resigns due to a material reduction in his duties or if
the Company moves his principal office more than 60 miles from San Jose. If one
of these events occurs within 18 months of his start date, vesting will be
accelerated by 12 months and if one of these events occurs more than 18 months
after his start date, 50% of the unvested shares will become vested. In
addition, if the Company terminates Mr. Viegas' employment other than for cause,
the Company will pay him a severance payment equal to six months of base salary
(or, if lesser, the number of months before he finds other employment) and a
portion of his options will also accelerate. If the termination occurs before
the first anniversary of his start date, 37.5% of the shares will become vested,
and if the termination occurs after his first anniversary but within 18 months
of his start date, vesting will be accelerated by 12 months.
The options granted to J. Stuart Mitchell, Vice President, Business
Development of the Company, accelerate in the event that the Company moves his
principal office more than 60 miles from San Jose within 12 months of his start
date, there is a change in the Company's control that results in his termination
of employment or if he resigns due to a material reduction in his duties. If one
of the events occurs, vesting will be accelerated by 12 months. In addition, if
the Company terminates Mr. Mitchell's employment other than for cause, the
Company will pay him a severance payment equal to three months of base salary
(or, if lesser, the number of months before he finds other employment) and the
vesting of his options will be accelerated by three months.
The options granted to Jennifer Saffo, Vice President Marketing of the
Company, accelerate in the event of a change in control of the Company that
results in her termination of employment, if she resigns due to a material
reduction in her duties or if the Company moves her principal office more than
60 miles from San Jose within 12 months of her start date. If one of these
events occurs, vesting will be accelerated by 12 months. In addition, if the
Company terminates Ms. Saffo's employment other than for cause, the Company will
pay her a severance payment equal to three months of base salary (or, if lesser,
the number of months before she finds other employment) and the vesting of her
options will be accelerated by three months.
7
<PAGE> 11
The Company's 1994 stock option plan provides that, in the event of a
change in control, the Board 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
portions of the outstanding options 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.
COMPENSATION REPORT
This Compensation Report describes the compensation policies and rationale
applied to the compensation paid to the Company's executive officers for the
fiscal year ended December 31, 1999. The compensation committee was formed in
October, 1999 and did not meet for the remainder of the year. Prior to the
formation of the compensation committee, the full Board acted as a compensation
committee. For the fiscal year ended December 31, 1999, the Company's Board
determined the compensation of the Company's executive officers and administered
the Company's 1997 Stock Option Plan under which option grants were to be made
to the CEO and the other executive officers.
For 2000, it is intended that the compensation committee will have the
authority to administer the Company's 1997 Stock Option Plan, establish the
level of base salary payable to the Chief Executive Officer ("CEO") and the
other executive officers of the Company and have the responsibility of approving
the bonus program to be in effect for the CEO and the other executive officers.
The Board's fundamental compensation policy is to align compensation with
business objectives and performance and to enable the Company to attract, retain
and reward executive officers whose contributions are necessary for the long
term success of the Company. Accordingly, each executive officer's compensation
package consists of: (i) base salary and (ii) long-term stock-based incentive
awards.
The base salary for each executive officer is set on the basis of personal
performance, taking into account the average salary levels in effect for
comparable positions with companies having total revenues similar to the
Company's. Each individual's base pay is positioned relative to the total
compensation package, including cash bonus incentives and long-term stock-based
incentives.
For the fiscal year ended December 31, 1999, the Company did not have a
bonus program for its executive officers. No executive officer received a bonus
except Kenneth Martin, Vice President, Engineering, upon his promotion to an
executive officer, and the CEO which is described below.
During the fiscal year ended December 31, 1999, the Board made
discretionary option grants to Louis Rosenberg, the Company's President and
Chief Executive Officer, Bruce Schena, the Company's Vice President, Chief
Technology Officer and Secretary, and Timothy Lacey, the Company's Chief
Financial Officer until August 1999, under the Company's 1997 Stock Option Plan
based on each officer's personal performance. Option grants were generally made
at varying times and in varying amounts in the discretion of the Board.
Typically, the size of each grant was set at a level that is deemed appropriate
to create a meaningful opportunity for stock ownership based upon the
individual's position with the Company, the individual's potential for future
responsibility and promotion, the individual's performance in the recent period
and the number of unvested options held by the individual at the time of the new
grant. The relative weight given to each of these factors varied from individual
to individual.
During 1999, in order to promote and reward employee innovation, patent
bonus options were awarded to employees of the Company that were listed as
inventors on newly issued Company patents. An aggregate of 1,210 fully-vested
shares subject to options was split equally among the employee inventors for
each such newly issued Company patent.
Options generally vest over time. Thus, the vesting of each option is
contingent upon the executive officer's continued employment with the Company.
Accordingly, the options provided compensation to the executive officer only if
he remained in the Company's employ, and then only if the market price of the
Company's Common Stock appreciated over the option term.
8
<PAGE> 12
The annual base salary for Mr. Rosenberg, the Company's President and Chief
Executive Officer, was established by the Board prior to the Company's initial
public offering. The Board's decision was made on the basis of Mr. Rosenberg's
personal performance of his duties. Mr. Rosenberg did not participate in the
discussions and determination of his own compensation. Mr. Rosenberg received a
bonus of $50,000 based upon his performance.
Under the Federal tax laws, a publicly-held company such as the Company
will not be allowed a federal income tax deduction for compensation paid to
certain executive officers to the extent that compensation exceeds $1 million
per officer in any year. To qualify for an exemption from the $1 million
deduction limitation, the stockholders were asked to approve a limitation under
the Company's 1997 Stock Option Plan on the maximum number of shares of Common
Stock for which any one participant may be granted stock options per calendar
year. Because this limitation was adopted, any compensation deemed paid to an
executive officer when he exercises an outstanding option under the 1997 Stock
Option Plan with an exercise price equal to the fair market value of the option
shares on the grant date will qualify as performance-based compensation that
will not be subject to the $1 million limitation. Since it is not expected that
the cash compensation to be paid to the Company's executive officers for the
fiscal year ended December 31, 1999 will exceed the $1 million limit per
officer, the Board of Directors will defer any decision on whether to limit the
dollar amount of all other compensation payable to the Company's executive
officers to the $1 million cap.
Board of Directors
Louis Rosenberg, Steven Blank, Jonathan Rubinstein and Charles Boesenberg.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the compensation committee in October 1999, the
duties customarily performed by a compensation committee were the responsibility
of the Board. The members of the Board who were also officers or employees of
the Company are Dr. Rosenberg, Mr. Lacey and Mr. Schena. These directors
abstained from voting on their own compensation.
In 1999, Mr. Rosenberg and Mr. Schena served as directors and executive
officers of the Company and Mr. Lacey served as a director of the Company. In
addition, they had certain interests in agreements with MicroScribe, which are
more fully discussed below under "Certain Relationships and Related
Transactions."
Neither of the members currently serving on the Company's compensation
committee has at any time since MicroScribe's formation been one of its officers
or employees, and neither had a material interest in the transactions described
under "Certain Relationships and Related Transactions." None of MicroScribe's
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 the Company's Board or
compensation committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1999, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company is or was
a party in which the amount involved exceeds $60,000 and in which any of its
directors, executive officers or holders of more than 5% of the Company's
capital stock had or will have a direct or indirect material interest other
than: the salaries, options, share repurchase and other agreements that are
described in the transactions described below.
OTHER TRANSACTIONS
Logitech Agreements.
In addition to Logitech Inc. ("Logitech") being an affiliate of the holder
of more than 5% of the Company's capital stock, Logitech is a licensee which
accounts for a large portion of the Company's licensing and consulting services
revenue. In 1999, the Company recorded revenue of approximately $1.0 million
from Logitech. In
9
<PAGE> 13
October 1996, the Company entered into a royalty-based license agreement and a
technology product development agreement with Logitech. The license agreement
grants Logitech a world-wide, irrevocable, non-exclusive license under the
Company's patents for touch-enabled gaming products. Pursuant to the technology
product development agreement, the Company provided Logitech consulting services
with respect to the development of a touch-enabled joystick. In March 2000, the
Company and Logitech amended this technology product development agreement in
response to Logitech's desire for the Company's assistance in developing an
updated joystick product. Pursuant to the license agreement, Logitech is
required to pay the Company a royalty of 5% of the revenue it receives when it
sells a gaming product incorporating the Company's technology to third parties.
If Logitech ships more than 100,000 units in a single year without a
modification in technical specifications, the royalty for that product will be
reduced by 0.67% for the following year. If Logitech ships more than 200,000
units in subsequent years without a modification in technical specifications,
the royalty will be reduced in each subsequent year by a further 0.67%. However,
the royalty rate may not drop below 3%.
In April 1998, the Company entered into a royalty-based license agreement
and a technology product development agreement with Logitech. Pursuant to the
technology product development agreement, the Company provided Logitech
consulting services with respect to the development of a touch-enabled mouse.
Pursuant to the license agreement, the Company granted Logitech an irrevocable,
non-exclusive, worldwide license to technology incorporated by Logitech into a
touch-enabled mouse product. Pursuant to the license agreement, Logitech is
required to pay the Company a royalty of 5% of the revenue it receives from the
sale of touch-enabled mouse products. In March 2000, the Company and Logitech
amended this license agreement to cover a new technology developed by the
Company for a lower-cost, touch-enabled mouse to be targeted for use with
productivity and web applications. Under the amendment, the Company and Logitech
have agreed to promote the existing mouse technology together with the new
lower-cost mouse technology as a product family. The amendment also requires
Logitech to pay the Company a royalty of 5% of the revenue it receives from
products based upon this new tactile mouse technology.
The Company signed a co-marketing agreement with Logitech in November 1999
in which the Company agreed to assist Logitech with the launch and promotion of
its touch-enabled mice. Under the terms of the agreement, for a period of five
calendar quarters, beginning in the first calendar quarter of 2000, the Company
will reimburse Logitech for certain marketing related expenses not to exceed
$200,000 per quarter. Only third-party marketing services that are targeted at
promoting Logitech's touch-enabled mice are eligible for reimbursement. In
addition, all promotional activities will have to be approved by the Company in
advance. In order to remain eligible for reimbursement, Logitech will have to
include the Company's brand and slogan on all its marketing materials that
reference touch-enabled functionality or products, and commit to other
conditions regarding its touch-enabled mice.
MicroScribe Agreements.
On July 1, 1997, the Company formed MicroScribe LLC ("MicroScribe"), a
privately-held limited liability company with two types of outstanding
membership interests -- class 1 membership interests and class 2 membership
interests.
In July 1997, the Company entered into an exchange agreement, a patent
license agreement and an intellectual property license agreement with
MicroScribe. Pursuant to the exchange agreement and the patent license
agreement, the Company assigned its patents and associated intellectual property
relating to three-dimensional digitizing products and the Pin-Point arm, a
medical device used for image-guided biopsies whose design is based on the
Company's three-dimensional digitizing product, to MicroScribe in exchange for a
worldwide, royalty-free, exclusive, irrevocable license and all of the class 1
membership interests and class 2 membership interests in MicroScribe. The
Company retained the class 1 membership interest and distributed
10
<PAGE> 14
the class 2 membership interests to the stockholders of the Company at the time
of the exchange agreement, including:
<TABLE>
<CAPTION>
PERCENTAGE INTEREST
NAME OF BENEFICIAL HOLDER OWNED IN MICROSCRIBE
------------------------- --------------------
<S> <C>
Louis Rosenberg, Ph.D. ................................... 25.9%
Bruce Schena.............................................. 8.6
Timothy Lacey............................................. 10.8
</TABLE>
There are no membership interests in MicroScribe other than the class 1 and
class 2 membership interests. MicroScribe has not issued any additional
membership interests other than the initial issuance of the class 1 and class 2
membership interests to the Company. Accordingly, stockholders who have acquired
shares of the Company after the one-time distribution do not own any membership
interests in MicroScribe. The following table presents information regarding the
percentage interest in MicroScribe of each director, officer and 5% stockholder
and each member of the immediate family of such director, officer or 5%
stockholder.
<TABLE>
<CAPTION>
PERCENTAGE INTEREST
NAME OF BENEFICIAL HOLDER OWNED IN MICROSCRIBE
------------------------- --------------------
<S> <C>
5% STOCKHOLDERS
Cybernet Systems Corporation.............................. --%
Timothy Lacey............................................. 10.78
DIRECTORS AND EXECUTIVE OFFICERS
Steven Blank.............................................. 1.0
Kenneth Martin............................................ 2.0
J.Stuart Mitchell......................................... --
Louis Rosenberg, Ph.D. ................................... 25.94
Jonathan Rubinstein....................................... --
Jennifer Saffo............................................ --
Bruce Schena.............................................. 8.56
Victor Viegas............................................. --
IMMEDIATE FAMILY OF 5% STOCKHOLDER, DIRECTOR OR EXECUTIVE
OFFICER
Max and Helen Johnston.................................... 0.36
Patrick Lacey............................................. 0.37
Patrick and Nina Lacey.................................... 0.29
Arthur and Marilynn Rosenberg............................. 0.79
Arthur Rosenberg.......................................... 0.32
Marilynn Rosenberg........................................ 0.21
</TABLE>
The total distribution paid to these persons pursuant to their percentage
interests owned in MicroScribe in 1999 was approximately $45,000.
MicroScribe's sole business is the licensing of its patents and associated
intellectual property to the Company. Distributable cash from its licensing
activities is distributed 99% to the class 2 members and 1% to the Company, as
the sole class 1 member. Pursuant to the terms of the license agreement,
MicroScribe granted the Company rights to use intellectual property of
MicroScribe for the development and distribution of three-dimensional digitizing
products. Under the intellectual property license agreement, the Company pays
MicroScribe a formula-based royalty that varies between 5% and 10% of the net
receipts the Company receives from selling products incorporating MicroScribe
technology. Based upon the formula-based royalty with MicroScribe, the Company
recorded an expense of $116,000 in 1998 and $132,000 in 1999. The agreement,
which has a term of ten years and is scheduled to expire in 2007, also provides
that beginning in 2002 the royalty rate will be set at 10% for the remainder of
the license term. Products for which the Company currently pays MicroScribe a
royalty include the Company's MicroScribe-3D digitizing product and the Pin-
Point arm, a medical device used for image-guided biopsies whose design is based
upon the MicroScribe-3D.
11
<PAGE> 15
The agreement also requires MicroScribe to indemnify the Company against claims
that the technology it has delivered to the Company infringes a third party's
intellectual property rights.
Cybernet Agreements.
In March 1999, the Company acquired patents and in-process technology from
Cybernet Systems Corporation in exchange for 1,291,200 shares of the Company's
common stock. In addition, the Company entered into a consulting services
agreement with Cybernet, under which the Company 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. The Company paid $150,000 of this amount in March 1999
and $75,000 of this amount in January 2000. The Company will pay the remaining
$75,000 to Cybernet in January 2001. In connection with this acquisition and
consulting arrangement, the Company agreed to provide Cybernet with registration
rights with respect to their common stock and the common stock issuable upon
exercise of this warrant. As a result of these transactions, Cybernet is a
holder of more than 5% of the Company's capital stock.
There Agreements.
In October 1999, the Company entered into a Marketing Agreement with There.
Mr. Blank, a member of the Company's Board, serves as a director and is a
minority shareholder of There. Pursuant to the Marketing Agreement, There has
agreed to promote the Company's touch-enabling technologies and its licensees'
touch-enabled products. The Company also has agreed to promote There's services
through a number of means, including providing There up to $300,000 for its
advertising and marketing programs.
Indemnification.
In addition to indemnification provisions in the Company's bylaws, the
Company has entered into agreements to indemnify its directors and executive
officers. These agreements provide for indemnification of the Company's
directors and executive officers for some types of expenses, including
attorney's fees, judgments, fines and settlement amounts incurred by persons in
any action or proceeding, including any action by or in the right of the
Company, arising out of their services as the Company's director or executive
officer. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.
12
<PAGE> 16
STOCK PERFORMANCE GRAPH
The rules of the SEC require that the Company include in this Proxy
Statement a line-graph presentation comparing cumulative stockholder returns on
the Company's Common Stock with the Nasdaq Stock Market Total Return Index (U.S.
Companies) (the "Nasdaq Stock Market (U.S.) Index") and a published industry
index. The graph set forth below compares the cumulative total stockholder
return on the Company's Common Stock between November 12, 1999 (the date the
Company's Common Stock commenced public trading) and December 31, 1999, with the
cumulative total return of (i) The Nasdaq Stock Market (U.S.) Index and (ii) the
Hambrecht & Quist Technology Sector Index (the "Hambrecht & Quist Technology
Index"), over the same period. This graph assumes the investment of $100.00 on
November 12, 1999, in the Company's Common Stock, The Nasdaq Stock Market (U.S.)
Index and the Hambrecht & Quist Technology Index, and assumes the reinvestment
of dividends, if any.
The comparisons shown in the graph below are based upon historical data and
the Company cautions that the stock price performance shown in the graph below
is not indicative of, nor intended to forecast, the potential future performance
of the Company's Common Stock. Information used in the graph was obtained from,
a source believed to be reliable, but the Company is not responsible for any
errors or omissions in such information.
COMPARISON OF 2 MONTH CUMULATIVE TOTAL RETURN*
AMONG IMMERSION CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
<TABLE>
<CAPTION>
NASDAQ STOCK
IMMERSION MARKET E (U.S.) HAMBRECHT & QUIST
CORPORATION INDEX TECHNOLOGY INDEX
----------- --------------- -----------------
<S> <C> <C> <C>
11/12/99 100.00 100.00 100.00
11/30/99 145.30 103.30 102.02
12/31/99 206.04 126.08 129.28
</TABLE>
- -------------------------
* $100 invested on 11/12/99 in stock or index -- including reinvestment of
dividends. Fiscal year ending December 31.
13
<PAGE> 17
The Company effected its initial public offering on November 12, 1999 at a
per share price of $12.00. The graph above, however, commences with the closing
price of $18.625 per share on November 12, 1999, the date the Company's Common
Stock commenced public trading.
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate this Proxy
Statement or future filings made by the Company under those statutes, the
Compensation Committee Report and Stock Performance Graph are not deemed filed
with the Securities and Exchange Commission and shall not be deemed incorporated
by reference into any of those prior filings or into any future filings made by
the Company under those statutes.
PROPOSAL NO. 2
AMENDMENT AND RESTATEMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION
GENERAL
A proposed new Restated Certificate of Incorporation of the Company (the
"Restated Certificate"), which will amend and restate the current Amended and
Restated Certificate of Incorporation of the Company (the "Old Certificate"), is
set forth in Appendix A to this Proxy Statement, and is marked to show changes
from the Old Certificate.
The Board has decided to propose amending the Old Certificate in order to
better reflect, and enable the Company and its stockholders to benefit from,
Delaware corporate law. If the Restated Certificate is approved, the overall
management of the affairs of the Company will generally be conducted in
accordance with standard provisions of Delaware law applicable to Delaware
companies that have staggered boards but not other special provisions in their
charter documents.
In addition to the amendment described below, the Restated Certificate will
be amended to remove those provisions in the Old Certificate which were
necessary for the sole purpose of effecting the initial public offering of the
Company.
Pursuant to its authority granted by the Company's Old Certificate, if this
Proposal 2 is approved, the Board will effect a conforming amendment to the
Company's Bylaws, including the provision that the Company's Bylaws may be
amended by the affirmative vote of a majority of shares entitled to vote, who
are present in person or are represented by proxy and entitled to vote.
The Board has unanimously approved and declared advisable the Restated
Certificate and recommends a vote FOR the Restated Certificate. If adopted, the
Restated Certificate will effect a number of changes from the Old Certificate,
the provisions of which are more fully described below.
THE DESCRIPTION OF THE RESTATED CERTIFICATE SET FORTH HEREIN IS A SUMMARY,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX A.
AMENDMENT TO THE OLD CERTIFICATE.
The Old Certificate provides that in order for stockholders to amend or
repeal the Bylaws and certain provisions of the certificate, an affirmative vote
of the holders of at least 66 2/3% of the outstanding shares entitled to vote is
required to effect such amendments. Delaware law provides that, unless the
corporation's bylaws or certificate of incorporation otherwise provides, a
company's bylaws may be amended by the affirmative vote of a majority of shares
entitled to vote, who are present in person or are represented by proxy and
entitled to vote, and the certificate of incorporation may be amended by the
majority of outstanding shares entitled to vote.
The Restated Certificate will eliminate the requirement in Article NINTH
that two-thirds of the voting power of the Company are required to approve any
amendment to Article FIFTH, SIXTH, SEVENTH,
14
<PAGE> 18
EIGHTH or NINTH of the Old Certificate, which govern certain matters related to
corporate governance, the composition and structure of the Board, the Company's
Bylaws, liability of directors and officers and amendments to the Old
Certificate.
Whereas the Old Certificate allows removal of directors with or without
cause and that vacancies created thereby may be filled by stockholders, Delaware
law provides that, unless the corporation's certificate of incorporation
otherwise provides, a director of a corporation with a classified board (such as
the Company) may be removed only for cause. The Restated Certificate provides
that directors may be removed from office by stockholders only for cause and
that vacancies created thereby may be filled only by directors.
The Board believes that the overall effect of the Restated Certificate,
which will conform with standard provisions of Delaware law applicable to
Delaware companies with staggered boards that do not have special provisions in
their charter documents, will ensure a good balance between democratic
participation by stockholders in the affairs of the Company and continued
effective corporate governance.
Provisions requiring a super-majority vote of stockholders to amend a
company's certificate are generally regarded as favorable to management, because
the provisions requiring a super-majority vote are more difficult to amend. In
the Board's view, the super-majority provisions described above permit a
minority of stockholders to defeat certain amendments to the Old Certificate
even if the holders of a majority of the Common Stock, as well as the Board,
believe that such amendments are in the best interests of the Company and its
stockholders. The Board believes that the Restated Certificate will make
stockholder voting more democratic because the super-majority requirements
described above give a disproportionate influence to the holders of a minority
of the shares by giving such holders a "blocking" position with respect to
important and fundamental corporate matters.
The Board believes the Restated Certificate, which allows the removal of
directors only for cause, is consistent with good corporate governance, and is
supportive of the concept of a classified board in that it tends to moderate the
pace of change in the Board. It further reflects the Board's view that the
Company should be in a position to benefit from the stability and the continuity
in the governance and management of its business and affairs that is provided by
a classified Board.
If this Proposal 2 is approved, Delaware law will govern any subsequent
amendment of the Restated Certificate, which allows the affirmative vote of the
holders of a majority of the outstanding shares of the Company's Common Stock
(the only class of the Company's capital stock that is currently outstanding) to
approve amendments to any provision of the Restated Certificate if such
amendment has been recommended by the Board.
CERTAIN CONSIDERATIONS IN CONNECTION WITH PROPOSAL 2.
The Restated Certificate, which allows removal of directors only for cause,
will make the removal of any director more difficult, even if such removal is
believed by the stockholders to be in their best interests, and will eliminate
the stockholders' ability to remove a director at will. Since the amendment will
make the removal of directors more difficult, it will increase the directors'
security in their positions and, since the Board has the power to retain and
discharge management, could perpetuate incumbent management. Stockholders
seeking to remove a director for cause could be forced to initiate a lawsuit to
clarify the exact meaning of "cause," which could be costly and time-consuming.
Stockholders should recognize that the amendment will make more difficult the
removal of a director in circumstances which do not constitute a takeover
attempt and where, in the opinion of the holders of a majority of the Company's
outstanding shares, cause for such removal may exist. Moreover, the Restated
Certificate may have the effect of delaying an ultimate change in existing
management which might be desired by a majority of the stockholders.
Certain aspects of Proposal 2 are designed to promote conditions of
continuity and stability in the Company's management and policies. Although the
Restated Certificate may have certain anti-takeover effects, it is not in
response to any effort, of which the Company is aware, to accumulate the
Company's Common Stock or to obtain control of the Company. The Board of
Directors, however, has observed an
15
<PAGE> 19
increase in corporate takeover activity in recent years and the use of certain
takeover tactics, including proxy fights and partial tender offers, which have
become relatively common in corporate takeover practice.
The Restated Certificate would render more difficult, and may discourage,
an attempt to acquire control of the Company without the approval of the
Company's management. One popular method for an acquirer to obtain control is to
acquire a majority of the outstanding shares of a company through a tender offer
or open market purchases and to use that voting power to remove the existing
directors and replace them with persons chosen by the potential acquirer.
Requiring cause in order to remove a director would defeat this strategy,
thereby encouraging potential acquirers to obtain the cooperation of the
existing Board before attempting a takeover.
Delaware law permits a corporation to adopt certain measures designed to
make the corporation less vulnerable to a hostile takeover bid. Takeover
attempts which have not been negotiated and approved by the Board can seriously
disrupt business, distract management, and cause great expense. Such attempts
may take place at inopportune times and may involve terms which are less
favorable to all the stockholders than would be available in a transaction
negotiated and approved by the Board. On the other hand, Board-approved
transactions can be carefully planned and undertaken at an opportune time in
order to obtain maximum value for the Company and all its stockholders with due
consideration given to matters such as recognition or postponement of gain or
loss for tax purposes, the management and business of the acquiring corporation
and the maximum strategic deployment of the Company's assets.
The Restated Certificate could discourage takeover bids by means of a
hostile tender offer, proxy contest, or otherwise without the approval of the
Board. The principal disadvantages to the stockholders which result from
discouraging such hostile takeover bids would be to (i) reduce the likelihood
that any acquiror would make a hostile tender offer for the outstanding shares
of stock of the Company at a premium over the market price, and (ii) increase
the difficulty of removing the existing members of the Board and management even
if in a particular case removal would be beneficial to stockholders generally.
It should be noted, however, that the Board has a fiduciary duty to the
stockholders to negotiate for the best interests of the stockholders and not for
their own interests. Further, while the Restated Certificate may discourage
hostile takeover attempts, the Restated Certificate would not prevent a hostile
acquisition of the Company or a proxy contest for control of the Board
The terms of the Restated Certificate described in Proposal 2 are permitted
by law and are consistent with the rules of the Nasdaq on which the Company's
shares of Common Stock are listed. If stockholders approve the Restated
Certificate, the Company will cause the Restated Certificate to be filed with
the Secretary of State of the State of Delaware as soon as practicable after
such approval is final.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" PROPOSAL 2
PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the stockholders to ratify the appointment of
Deloitte & Touche LLP as the Company's independent accountants for the fiscal
year ending December 31, 2000. In the event the stockholders fail to ratify the
appointment, the Board of Directors will reconsider its selection. Even if the
appointment is ratified, the Board of Directors, in its discretion, may direct
the appointment of a different independent accounting firm at any time during
the year if the Board of Directors feels that such a change would be in the
Company's and its stockholders' best interests. Representatives of Deloitte &
Touche LLP are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" PROPOSAL 3.
16
<PAGE> 20
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, which require them to file reports
with respect to their ownership of the Company's Common Stock and their
transactions in such Common Stock. Based upon (i) the copies of Section 16(a)
reports that the Company received from such persons for their fiscal year 1999
transactions in the Common Stock and their Common Stock holdings and (ii) the
written representations received from one or more of such persons that no annual
Form 5 reports were required to be filed by them for fiscal year 1999, the
Company believes that all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by its executive officers, Board members
and greater than 10% stockholders.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 20, 2000 certain information
with respect to shares beneficially owned by (i) each person who is known by the
Company to be the beneficial owner of more than 5% of the Company's outstanding
shares of Common Stock, (ii) each of the Company's directors, and the executive
officers named in the Summary Compensation Table and (iii) all current directors
and executive officers as a group. Beneficial ownership has been determined in
accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain
shares may be deemed to be beneficially owned by more than one person (if, for
example, persons share the power to vote or the power to dispose of the shares).
In addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire shares (for example, upon exercise of an option
or warrant) within 60 days of the date as of which the information is provided;
in computing the percentage ownership of any person, the amount of shares is
deemed to include the amount of shares beneficially owned by such person (and
only such person) by reason of such acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in the following table
does not necessarily reflect the person's actual voting power at any particular
date.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF OPTIONS
BENEFICIAL INCLUDED IN PERCENT
OWNERSHIP BENEFICIAL OF
BENEFICIAL OWNER (1)(2) OWNERSHIP CLASS(3)
---------------- ---------- ----------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS
Cybernet Systems Corporation................................ 1,396,110 311,502 8.6
727 Airport Boulevard
Ann Arbor, Michigan 48108-1639
Logitech International S.A.................................. 1,197,329 -- 7.5
6505 Kaiser Drive
Freemont, CA 94555-3615
Timothy Lacey............................................... 1,056,392 217,549 6.5
EXECUTIVE OFFICERS AND DIRECTORS
Kenneth Martin.............................................. 213,461 103,960 1.3
J. Stuart Mitchell.......................................... 1,000 *
Louis Rosenberg............................................. 2,467,620 1,090,620 14.4
Jennifer Saffo.............................................. 2,500 -- *
Bruce Schena(4)............................................. 871,023 444,636 5.3
Victor Viegas............................................... 1,000 -- *
Steven Blank................................................ 147,899 62,165 *
Charles Boesenberg.......................................... 7,550 7,500 *
Jonathan Rubinstein......................................... 29,164 19,094 *
All executive officers and directors as a group (9
persons).................................................. 3,741,217 1,727,975 21.0
</TABLE>
17
<PAGE> 21
- ---------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock. To
the Company's knowledge, the entities named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them. Except as otherwise indicated, the address of
each of the persons in this table is as follows: c/o Immersion Corporation,
2158 Paragon Drive San Jose, California 95131.
(2) The number of shares of Common Stock deemed outstanding includes shares
issuable pursuant to stock options that may be exercised within 60 days
after March 20, 2000.
(3) Based on 16,008,241 shares of Common Stock deemed outstanding as of March
20, 2000.
(4) Includes 4,734 shares held of record by Mr. Schena's mother as custodian for
minor child.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Stockholders who intend to have a proposal considered for inclusion in the
Company's proxy materials for presentation at the 2001 Annual Meeting of
Stockholders or who intend to present a proposal without inclusion of such
proposal in the Company's proxy materials must submit the proposal to the
Company no later than December [ ], 2000. The Company reserves the
right to reject, rule out of order, or take other appropriate action with
respect to any proposal that does not comply with these and other applicable
requirements.
It is important that your stock be represented at the meeting, regardless
of the number of shares that you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying Proxy Card in the
envelope which has been enclosed.
OTHER MATTERS
The Board knows of no other matters to be presented for stockholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in accordance
with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
Bruce Schena
Secretary
San Jose, California
April , 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE- PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
18
<PAGE> 22
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
IMMERSION CORPORATION
FIRST: The name of the Corporation is Immersion Corporation.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Incorporating Services, Ltd., 15 East North Street, in the
City of Dover, County of Kent. The name of the registered agent at that address
is Incorporating Services, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: A. The Corporation is authorized to issue a total of 105,000,000
shares of stock in two classes designated respectively "Preferred Stock" and
"Common Stock". The total number of shares of all series of Preferred Stock that
the Corporation shall have the authority to issue is 5,000,000 and the total
number of shares of Common Stock that the Corporation shall have the authority
to issue is 100,000,000. All of the authorized shares shall have a par value of
$0.001.
B. The shares of Preferred Stock may be divided into such number of series
as the Board of Directors may determine. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions granted
to and imposed upon the Preferred Stock or any series thereof with respect to
any wholly unissued series of Preferred Stock, and to fix the number of shares
of any such series of Preferred Stock. The Board of Directors, within the limits
and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series, may
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series subsequent to the issue of
shares of that series.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. GOn and after the closing date of the first sale of the
Corporation's Common Stock pursuant to a firmly underwritten registered
public offering (the "IPO"), anyHANY action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing by such stockholders. GPrior to
such sale, unless otherwise provided by law, any action which may otherwise
be taken at any meeting of the stockholders may be taken without a meeting
and without prior notice, if a written consent describing such action is
signed by the holder 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.H
D. Special meetings of stockholders of the Corporation may be called
only (1) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
such resolution is presented to the Board for adoption) or (2) by the
holders of not less than ten percent (10%) of all of the shares entitled to
cast votes at the meeting.
A-1
<PAGE> 23
SIXTH: A. The number of directors shall initially be set at four (4) and,
thereafter, shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption). GUpon the closing of the IPO, theH THE directors shall be
divided into three classes with the term of office of the first class (Class I)
to expire at the first annual meeting of the stockholders following the GIPOH
INITIAL PUBLIC OFFERING OF THE CORPORATION'S COMMON STOCK (THE "IPO"); the term
of office of the second class (Class II) to expire at the second annual meeting
of stockholders held following the IPO; the term of office of the third class
(Class III) to expire at the third annual meeting of stockholders; and
thereafter for each such term to expire at each third succeeding annual meeting
of stockholders after such election. GSubject to the rights of the holders of
any series of Preferred Stock then outstanding, a vacancy resulting from the
removal of a director by the stockholders as provided in Article SIXTH, Section
C below may be filled at a special meeting of the stockholders held for that
purpose. All directors shall hold office until the expiration of the term for
which elected, and until their respective successors are elected, except in the
case of the death, resignation, or removal of any director.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation or other cause G(other than removal from
office by a vote of the stockholders)H may be filled only by a majority vote of
the directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the next annual meeting of stockholders
at which the term of office of the class to which they have been elected
expires, and until their respective successors are elected, except in the case
of the death, resignation, or removal of any director. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
GC. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any directory, or the entire Board of Directors, may be
removed from office at any time, with or without cause, but only by the
affirmative vote of the holders of at least a majority of the voting power of
all of the then outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class. Vacancies in the Board of Directors resulting from such removal may be
filled by a majority of the directors the in office, though less than a quorum,
or by the stockholders as provided in Article SIXTH, Section A above. Directors
so chosen shall hold office for a term expiring at the next annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires, and until their respective successors are elected, except in
the case of the death, resignation, or removal of any director.H
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of
the Corporation by the by the Board of Directors shall require the approval of a
majority total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any resolution
providing for adoption, amendment or repeal is presented to the Board) The
stockholders shall also have the power to adopt, amend or repeal the Bylaws of
the Corporation. GAny adoption, amendment or repeal of Bylaws of the Corporation
by the stockholders shall require, in addition to any vote of the holders of any
class or series of stock of the Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.H
EIGHTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
A-2
<PAGE> 24
If the Delaware General Corporation Law is hereafter amended to authorize
the further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article
EIGHTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
NINTH: The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation. G; provided, however, that, notwithstanding
any other provision of this Certificate of Incorporation or any provision of law
which might otherwise permit a lessor vote or no vote, but in addition to any
vote of the holders of any class or series of the stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least 66-2/3% of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal this Article NINTH, Article FIFTH, Article SIXTH,
Article SEVENTH or Article EIGHTHH.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate, which restates, integrates and further amends the Certificate of
Incorporation of the Company and which has been duly adopted in accordance with
Section 242 and 245 of the Delaware General Corporation Law, to be signed by a
duly authorized officer on this day of GOctober, 1999H JUNE, 2000.
IMMERSION CORPORATION
By:
------------------------------------
Louis Rosenberg, Ph.D.,
Chief Executive Officer
A-3
<PAGE> 25
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF
IMMERSION CORPORATION
IN CONJUNCTION WITH THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JUNE 6, 2000
The undersigned stockholder of IMMERSION CORPORATION, a Delaware corporation
(the "Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April [_], 2000, and hereby
appoints Louis Rosenberg and Victor Viegas, or either of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Annual Meeting of
Stockholders of IMMERSION CORPORATION to be held on Tuesday, June 6, 2000, at
10:00 a.m., local time, at the Silicon Valley Convention Center, 2161 North
First Street, San Jose, California 95131, and for any adjournment or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matter set forth below. Under Delaware law and the Company's By-laws, no
business shall be transacted at an annual meeting other than the matters stated
in the accompanying Notice of Meeting, which matters are set forth below.
However, should any other matter or matters properly come before the Annual
Meeting, or any adjournment or adjournments thereof, it is the intention of the
proxy holders named above to vote the shares they represent upon such other
matter or matters in their discretion.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR APPROVAL OF THE PROPOSAL TO ELECT TWO DIRECTORS AND FOR
PROPOSALS 2 AND 3 AND IN THE DISCRETION OF THE PROXIES UPON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 26
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, AND 3.
- --------------------------------------------------------------------------------
1. Proposal to elect as directors Steven Blank and Charles Boesenberg to
serve for three-year terms as Class 1 directors.
For Withhold
[ ] [ ]
To withhold authority to vote for any individual nominee, write that
nominee's name on the line provided below:
2. Proposal to amend the Certificate of Incorporation of the Company to
eliminate the supermajority vote required to amend or repeal certain
provisions of the bylaws and the certificate of incorporation and to
amend the right of stockholders to remove Board members without cause.
For Against Abstain
[ ] [ ] [ ]
3. Proposal to ratify the appointment of the Company's independent public
accountants.
For Against Abstain
[ ] [ ] [ ]
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, all such stockholders should sign.)
Signature(s):
- ---------------------------------------------------------
- ---------------------------------------------------------
Dated: , 2000
-------------------------------------------
(Be sure to date Proxy.)
Please mark, sign, date and return the proxy card promptly, using the enclosed
return-addressed and postage-paid envelope.
