UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
 
¨      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to              
Commission file number 001-38334
IMMERSION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
94-3180138
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
50 Rio Robles, San Jose, California 95134
(Address of principal executive offices) (Zip Code)
(408) 467-1900
(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.001 par value
IMMR
NASDAQ Global Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý      No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer," “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
¨
  
Accelerated filer
 
ý
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller Reporting Company
 
¨
 
 
 
 
Emerging Growth Company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   ¨     No   ý
Number of shares of common stock outstanding at August 5, 2019 : 31,684,111 .

Table of Contents

IMMERSION CORPORATION
INDEX
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

IMMERSION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
92,614

 
$
110,988

Short-term investments
 
8,997

 
13,930

Accounts and other receivables
 
4,967

 
1,051

Prepaid expenses and other current assets
 
8,240

 
9,856

Total current assets
 
114,818

 
135,825

Property and equipment, net
 
1,947

 
2,343

Other assets, net
 
18,271

 
7,827

Total assets
 
$
135,036

 
$
145,995

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
7,371

 
$
3,612

Accrued compensation
 
1,945

 
3,948

Other current liabilities
 
5,968

 
3,194

Deferred revenue
 
4,742

 
4,591

Total current liabilities
 
20,026

 
15,345

Long-term deferred revenue
 
27,945

 
30,203

Other long-term liabilities
 
3,355

 
787

Total liabilities
 
51,326

 
46,335

Contingencies (Note 12)
 

 

Stockholders’ equity:
 
 
 
 
Common stock and additional paid-in capital — $0.001 par value; 100,000,000 shares authorized; 38,488,327 and 37,652,498 shares issued, respectively; 31,665,180 and 30,829,351 shares outstanding, respectively
 
250,079

 
246,415

Accumulated other comprehensive income
 
138

 
116

Accumulated deficit
 
(118,157
)
 
(98,521
)
Treasury stock at cost: 6,823,147 and 6,823,147 shares, respectively
 
(48,350
)
 
(48,350
)
Total stockholders’ equity
 
83,710

 
99,660

Total liabilities and stockholders’ equity
 
$
135,036

 
$
145,995

See accompanying Notes to Condensed Consolidated Financial Statements.


3
Table of Contents


IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Royalty and license
$
8,668

 
$
5,992

 
$
13,715

 
$
91,327

Development, services, and other
75

 
152

 
150

 
233

Total revenues
8,743

 
6,144

 
13,865

 
91,560

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues
40

 
94

 
55

 
129

Sales and marketing
1,579

 
1,570

 
3,188

 
2,790

Research and development
1,831

 
2,222

 
4,133

 
5,042

General and administrative
14,448

 
10,553

 
27,143

 
21,789

Total costs and expenses
17,898

 
14,439

 
34,519

 
29,750

Operating income (loss)
(9,155
)
 
(8,295
)
 
(20,654
)
 
61,810

Interest and other income
532

 
375

 
1,130

 
606

Income (loss) before benefit (provision) for income taxes
(8,623
)
 
(7,920
)
 
(19,524
)
 
62,416

Benefit (provision) for income taxes
3

 
162

 
(112
)
 
(291
)
Net income (loss)
$
(8,620
)
 
$
(7,758
)
 
$
(19,636
)
 
$
62,125

Basic net income (loss) per share
$
(0.27
)
 
$
(0.25
)
 
$
(0.63
)
 
$
2.06

Shares used in calculating basic net income (loss) per share
31,578

 
30,527

 
31,335

 
30,116

Diluted net income (loss) per share
$
(0.27
)
 
$
(0.25
)
 
$
(0.63
)
 
$
2.00

Shares used in calculating diluted net income (loss) per share
31,578

 
30,527

 
31,335

 
31,074

Other comprehensive income
 
 
 
 
 
 
 
Change in unrealized gains on short-term investments
16

 
5

 
22

 
10

Total other comprehensive income
16

 
5

 
22

 
10

Total comprehensive income (loss)
$
(8,604
)
 
$
(7,753
)
 
$
(19,614
)
 
$
62,135

See accompanying Notes to Condensed Consolidated Financial Statements.

4
Table of Contents


IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except number of shares)
(Unaudited)

 
Three Months Ended June 30, 2019
 
Common Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Treasury Stock
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Balances at March 31, 2019
38,375,744

 
$
248,698

 
$
122

 
$
(109,537
)
 
6,823,147

 
$
(48,350
)
 
$
90,933

Net loss
 
 
 
 
 
 
(8,620
)
 
 
 
 
 
(8,620
)
Unrealized gain on available-for-sale securities, net of taxes
 
 
 
 
16

 
 
 
 
 
 
 
16

Exercise of stock options, net of shares withheld for employee taxes
50,027

 
300

 
 
 
 
 
 
 
 
 
300

Release of restricted stock units and awards
62,556

 
 
 
 
 
 
 
 
 
 
 
—

Stock based compensation
 
 
1,081

 
 
 
 
 
 
 
 
 
1,081

Balances at June 30, 2019
38,488,327

 
$
250,079

 
$
138

 
$
(118,157
)
 
6,823,147

 
$
(48,350
)
 
$
83,710



 
Three Months Ended June 30, 2018
 
Common Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Treasury Stock
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Balances at March 31, 2018
37,043,975

 
$
235,438

 
$
104

 
$
(83,398
)
 
6,685,690

 
$
(46,872
)
 
$
105,272

Net loss
 
 
 
 
 
 
(7,758
)
 
 
 
 
 
(7,758
)
Unrealized gain on available-for-sale securities, net of taxes
 
 
 
 
5

 
 
 
 
 
 
 
5

Exercise of stock options, net of shares withheld for employee taxes
399,189

 
2,477

 
 
 
 
 
40,695

 
(569
)
 
1,908

Release of restricted stock units and awards
45,371

 


 
 
 
 
 
 
 
 
 
—

Stock based compensation
 
 
2,530

 
 
 
 
 
 
 
 
 
2,530

Balances at June 30, 2018
37,488,535

 
$
240,445

 
$
109

 
$
(91,156
)
 
6,726,385

 
$
(47,441
)
 
$
101,957


See accompanying Notes to Condensed Consolidated Financial Statements.


5
Table of Contents

IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except number of shares)
(Unaudited)

 
Six Months Ended June 30, 2019
 
 
 
Common Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Treasury Stock
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Balances at December 31, 2018
37,652,498

 
$
246,415

 
$
116

 
$
(98,521
)
 
6,823,147

 
$
(48,350
)
 
$
99,660

Net loss
 
 
 
 
 
 
(19,636
)
 
 
 
 
 
(19,636
)
Unrealized gain on available-for-sale securities, net of taxes
 
 
 
 
22

 
 
 
 
 
 
 
22

Issuance of stock for ESPP purchase
13,479

 
109

 
 
 
 
 
 
 
 
 
109

Exercise of stock options, net of shares withheld for employee taxes
61,798

 
371

 
 
 
 
 
 
 
 
 
371

Release of restricted stock units and awards
760,552

 
 
 
 
 
 
 
 
 
 
 
—

Stock based compensation
 
 
3,184

 
 
 
 
 
 
 
 
 
3,184

Balances at June 30, 2019
38,488,327

 
$
250,079

 
$
138

 
$
(118,157
)
 
6,823,147

 
$
(48,350
)
 
83,710




 
Six Months Ended June 30, 2018
 
Common Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Treasury Stock
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Balances at December 31, 2017
35,950,518

 
$
228,046

 
$
99

 
$
(171,616
)
 
6,686,690

 
$
(46,872
)
 
$
9,657

Net income
 
 
 
 
 
 
62,125

 
 
 
 
 
62,125

Unrealized gain on available-for-sale securities, net of taxes
 
 
 
 
10

 
 
 
 
 
 
 
10

Issuance of common stock for employee stock purchase
13,834

 
98

 
 
 
 
 
 
 
 
 
98

Exercise of stock options, net of shares withheld for employee taxes
1,322,031

 
8,549

 
 
 
 
 
39,695

 
(569
)
 
7,980

Release of restricted stock units and awards
202,152

 
 
 
 
 
 
 
 
 
 
 
—

Stock based compensation
 
 
3,752

 
 
 
 
 
 
 
 
 
3,752

Effect of change in accounting policy (1)
 
 
 
 
 
 
18,335

 
 
 
 
 
18,335

Balances at June 30, 2018
37,488,535

 
$
240,445

 
$
109

 
$
(91,156
)
 
6,726,385

 
$
(47,441
)
 
$
101,957


(1) Effect of adoption of ASC 606 effective January 1, 2018. See Note 2. Revenue Recognition for additional information.

See accompanying Notes to Condensed Consolidated Financial Statements.

6
Table of Contents

IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2019
 
2018
Cash flows provided by (used in) operating activities:
 
 
 
 
Net income (loss)
 
$
(19,636
)
 
$
62,125

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
405

 
439

Stock-based compensation
 
3,184

 
3,752

Deferred income taxes
 
60

 
66

Other
 
—

 
26

Changes in operating assets and liabilities:
 
 
 
 
Accounts and other receivables
 
(3,916
)
 
(220
)
Prepaid expenses and other current assets
 
1,539

 
(215
)
Other assets
 
(11,175
)
 
(4,077
)
Accounts payable
 
3,762

 
(3,288
)
Accrued compensation
 
(2,003
)
 
(953
)
Other current liabilities
 
1,742

 
150

Deferred revenue
 
(2,108
)
 
23,917

Other long-term liabilities
 
4,231

 
239

Net cash provided by (used in) operating activities
 
(23,915
)
 
81,961

Cash flows provided by (used in) investing activities:
 
 
 
 
Purchases of short-term investments
 
(8,930
)
 
(17,693
)
Proceeds from maturities of short-term investments
 
14,000

 
19,500

Purchases of property and equipment
 
(9
)
 
(31
)
Net cash provided by investing activities
 
5,061

 
1,776

Cash flows provided by financing activities:
 
 
 
 
Proceeds from issuance of common stock under employee stock purchase plan
 
109

 
98

Proceeds from stock options exercises
 
371

 
7,980

Net cash provided by financing activities
 
480

 
8,078

Net increase (decrease) in cash and cash equivalents
 
(18,374
)
 
91,815

Cash and cash equivalents:
 
 
 
 
Beginning of period
 
110,988

 
24,622

End of period
 
$
92,614

 
$
116,437

Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid for income taxes
 
$
25

 
$
81

Supplemental disclosure of noncash operating, investing, and financing activities:
 
 
 
 
Release of restricted stock units and awards under company stock plan
 
$
7,065

 
$
2,546


See accompanying Notes to Condensed Consolidated Financial Statements.

7
Table of Contents

IMMERSION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Immersion Corporation (the “Company”) was incorporated in 1993 in California and reincorporated in Delaware in 1999. The Company focuses on the creation, design, development, and licensing of innovative haptic technologies that allow people to use their sense of touch more fully as they engage with products and experience the digital world around them. The Company has adopted a business model under which it provides advanced tactile software, related tools, and technical assistance designed to help integrate its patented technology into its customers’ products or enhance the functionality of its patented technology to certain customers, and offers licenses to the Company's patented technology to other customers.

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Immersion Corporation and its wholly owned subsidiaries: Immersion Canada Corporation; Immersion International, LLC; Immersion Medical, Inc.; Immersion Japan K.K.; Immersion Ltd.; Immersion Software Ireland Ltd.; Haptify, Inc.; Immersion (Shanghai) Science & Technology Company, Ltd.; and Immersion Technology International Ltd. All intercompany accounts, transactions, and balances have been eliminated in consolidation.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“ U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all information and footnotes necessary for a complete presentation of the financial position, results of operations, and cash flows, in conformity with U.S. GAAP and should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 . In the opinion of management, all adjustments consisting of only normal and recurring items necessary for the fair presentation of the financial position and results of operations for the interim periods presented have been included.

The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.

Segment Information

The Company develops, licenses, and supports software and a wide-range of IP that more fully engage users’ sense of touch as they engage with products and experience the digital world around them. The Company currently focuses on the following target application areas: mobility, automotive, gaming, medical and wearables. The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM allocates resources to and assesses the performance of the Company using information about its financial results as one operating and reporting segment.

Revenue Recognition

The Company adopted the Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers (Topic 606)" ("ASC 606"), effective January 1, 2018 using the modified retrospective transition method where the cumulative effect of the initial application is recognized as an adjustment to the opening balance of the accumulated deficit at January 1, 2018, the date of adoption. Refer to Note 2 to the condensed consolidated financial statements for the Company's revenue recognition accounting policy.

Leases

The Company leases all of its office space which expire through 2024. On January 1, 2019 (the "Adoption Date"), the Company adopted the Accounting Standards Codification Section ASC 842 Leases (“ASC 842”), using the alternative modified transition method to apply the standard and measure leases existed at, or entered into after the Adoption Date. The Company's operating leases accounted for as right-of-use ("ROU") assets and lease liability obligations in the Company's condensed consolidated balance sheets under Other assets, and Other current liabilities and Other long-term liabilities, respectively. ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liability obligations represent the

8

Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The Company has lease agreements that combine lease and non-lease components, and the Company elects to account for such components as a single lease component. As the Company's leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets also include any lease payments made and exclude lease incentives and direct costs. Lease expense is recognized on a straight-line basis over the lease term. The Company elects to not present leases with an initial term of 12 months or less on its condensed consolidated balance sheet. See Note 11 for further information on ASC 842 adoption.

Recently Adopted Accounting Pronouncements

In July 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-09 "Codification Improvement" ("ASU 2018-09"). This ASU amends a wide variety of Topics in the Codification issued by FASB with technical corrections, clarifications, and other minor improvements, and should eliminate the need for periodic agenda requests for narrow and incremental items. Many of the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2018 for public entities. The Company adopted this ASU as of January 1, 2019. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07 "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting" ("ASU 2018-07"). This ASU expands the scope of Topic 718 to include share-based payment transaction for acquiring goods and services from nonemployees and supersedes subtopic 505-50. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, and early adoption is permitted but no earlier than adoption of Topic 606. The Company adopted this ASU as of January 1, 2019. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02 "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"). The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, and early adoption is permitted. The Company adopted this ASU as of January 1, 2019. The amount of stranded tax effects that was reclassified from accumulated other comprehensive loss to retained earnings was not material to the Company's condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 Leases: Topic 842 (“ASU 2016-02”) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior U.S. GAAP. Subsequently, the FASB issued numerous amendments to the initial guidance including ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, "ASC 842"). ASC 842 requires that a lessee should recognize a liability to make lease payments ("lease liabilities") and a ROU asset representing its right to use the underlying asset for the lease term on the balance sheet. ASC 842 also requires additional disclosures related to key information about leasing arrangements, including but not limited to, amounts, timing, and uncertainty of cash flows arising from leases.

The Company adopted ASC 842 on January 1, 2019 (the "Adoption Date"), using the alternative modified transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the Adoption Date with prior periods not restated. The Company elected certain practical expedients including 1) not to reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases, 2) not to use hindsight to determine lease terms, 3) to not separate non-lease components within our lease portfolio, and 4) not to present leases with an initial term of 12 months or less on its condensed consolidated balance sheets. The adoption of ASC 842 resulted in the recognition of ROU assets of $4.0 million , and lease liabilities for operating leases of $4.9 million . There was no cumulative effect adjustment recognized on the beginning retained earnings as a result of the adoption. The comparative period presented in this Form 10-Q reflects the former lease accounting guidance. See Note 11 to the condensed consolidated financial statements for further information regarding the impact of the adoption of ASC 842 on the Company's condensed consolidated financial statements.


9

2. REVENUE RECOGNITION

Revenue Recognition Accounting Policy

The Company's revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements, along with less significant revenue earned from development, services and other revenue.

Fixed fee license revenue

The Company is required to recognize revenue from a fixed fee license agreement when it has satisfied its performance obligations, which typically occurs upon the transfer of rights to the Company's technology upon the execution of the license agreement. However, in certain contracts, the Company grants a license to its existing patent portfolio at the inception of the license agreement as well as rights to the portfolio as it evolves throughout the contract term. For such arrangements, the Company has concluded that it has two separate performance obligations:

•
Performance Obligation A: to transfer rights to the Company's patent portfolio as it exists when the contract is executed;

•
Performance Obligation B: to transfer rights to the Company's patent portfolio as it evolves over the term of the contract, including access to new patent applications that the licensee can benefit from over the term of the contract.

If a fixed fee license agreement contains only Performance Obligation A, the Company will recognize most or all of the revenue from the agreement at the inception of the contract. For fixed fee license agreements that contain both Performance Obligation A and B, the Company will allocate the transaction price based on the standalone price for each of the two performance obligations. The Company uses a number of factors primarily related to the attributes of its patent portfolio to estimate standalone prices related to Performance Obligation A and B. Once the transaction price is allocated, the portion of the transaction price allocable to Performance Obligation A will be recognized in the quarter the license agreement is signed and the customer can benefit from rights provided in the contract, and the portion allocable to Performance Obligation B will be recognized on a straight-line basis over the contract term. For such contracts, a contract liability account will be established and included within deferred revenue on the condensed consolidated balance sheets. As the rights and obligations in a contract are interdependent, contract assets and contract liabilities that arise in the same contract are presented on a net basis.

Some of the Company's license agreements contain fixed fees related to past infringements. Such fixed fees are recognized as revenue or recorded as a deduction to the Company's operating expense in the quarter the license agreement is signed.

Payments for fixed fee license contracts typically are due in full within 30 - 45 days from execution of the contract. From time to time, the Company enters into a fixed fee license contract with payments due in a number of installments payable throughout the contract term. In such cases, the Company will determine if a significant financing component exists and if it does, the Company will recognize more or less revenue and corresponding interest expense or income, as appropriate.

Per-unit Royalty revenue

ASC 606 requires an entity to record per-unit royalty revenue in the same period in which the licensee’s underlying sales occur. As the Company generally does not receive the per-unit licensee royalty reports for sales during a given quarter within the time frame that allows the Company to adequately review the reports and include the actual amounts in its quarterly results for such quarter, the Company accrues the related revenue based on estimates of its licensees’ underlying sales, subject to certain constraints on its ability to estimate such amounts. The Company develops such estimates based on a combination of available data including, but not limited to, approved customer forecasts, a lookback at historical royalty reporting for each of its customers, and industry information available for the licensed products.

As a result of accruing per-unit royalty revenue for the quarter based on such estimates, adjustments will be required in the following quarter to true up revenue to the actual amounts reported by its licensees. The Company recorded adjustments to increase royalty revenue by $234,000 during the three months ended June 30, 2019 . This adjustment represents the difference between the actual first quarter 2019 per-unit royalty revenue as reported by the Company's licensees during the second quarter of 2019 and the estimated first quarter 2019 per-unit royalty revenue that the Company reported during the first quarter of 2019. During the three months ended March 31, 2019, the Company recorded adjustments to increase royalty revenue by $149,000 based on actual sales that occurred in the previous quarter. During the three months ended June 30, 2018 , the Company recorded adjustments to decrease royalty revenue by $326,000 based on actual sales that occurred in the previous quarter. The Company had no true-ups for the three months ended March 31, 2018.

10


Certain of the Company's per-unit royalty agreements contains a minimum royalty provision which sets forth minimum amounts to be received by the Company during the contract term. Under ASC 606, minimum royalties are considered a fixed transaction price to which the Company will have an unconditional right once all other performance obligations, if any, are satisfied. The Company recognizes all minimum royalties as revenue at the inception of the license agreement, or in the period in which all remaining revenue recognition criteria have been met. The Company accounts for the unbilled minimum royalties as contract assets on a contract basis on its condensed consolidated balance sheets, and the balance of such contract assets will be reduced by the actual royalties to be reported by the licensee during the contract term until fully utilized, after which point any excess per-unit royalties reported will be recognized as revenue. As the rights and obligations in a contract are interdependent, contract assets and contract liabilities that arise in the same contract are presented on a net basis.

Payments of per-unit royalties typically are due within 30 to 60 days from the end of the calendar quarter in which the underlying sales took place.

Development, services, and other revenue

As the performance obligation related to the Company's development, service and other revenue is satisfied over a period of time, the Company recognizes such revenue evenly over the period of performance obligation, which is generally consistent with the contractual term.

Disaggregated Revenue

The following table presents the disaggregation of the Company's revenue for the three and six months ended June 30, 2019 and 2018 under ASC 606.
 
Three Months Ended
 June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Fixed fee license revenue
$
4,254

 
$
1,881

 
$
5,994

 
$
77,637

Per-Unit royalty revenue
4,414

 
4,111

 
7,721

 
13,690

Total royalty and license revenue
8,668

 
5,992

 
13,715

 
91,327

Development, services, and other revenue
75

 
152

 
150

 
233

Total revenues
$
8,743

 
$
6,144

 
$
13,865

 
$
91,560


The Company had contract assets of $7.4 million and $9.0 million included within prepaid expenses as of June 30, 2019 and December 31, 2018, respectively. The Company had contract assets of $7.1 million and $7.2 million included within other non-current assets on the condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, respectively. The balance of these contract assets decreased by $1.7 million during the six months ended June 30, 2019 primarily due to actual royalties billed during the six months ended June 30, 2019 that reduced the minimum royalties recognized in contract assets. The balance of the contract assets as of June 30, 2019 also included the Company's estimate of per-unit royalty related to the underlying sales that occurred in the second quarter of 2019.

Contracted Revenue

Based on contracts signed and payments received as of June 30, 2019 , the Company expects to recognize $32.2 million revenue related to Performance Obligation B under the Company's fixed fee license agreements, which is satisfied over time, including $13.5 million over one to three years and $18.7 million over more than three years. Revenue related to Performance Obligation B was $34.5 million as of December 31, 2018 . The $2.3 million decrease represents fixed fee license revenue recognized during the six months ended June 30, 2019.

3. FAIR VALUE MEASUREMENTS

Cash Equivalents and Short-term Investments

The Company's financial instruments measured at fair value on a recurring basis are cash equivalents and short-term investments.

11

The Company’s fixed income available-for-sale securities consist of high quality, investment grade securities. The Company values these securities based on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1) or inputs other than quoted prices that are observable either directly or indirectly (Level 2) in determining fair value.

Instruments valued based on quoted market prices in active markets include mostly money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

Instruments valued based on quoted prices in markets that are less active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency are generally classified within Level 2 of the fair value hierarchy and include U.S. treasury securities.

Instruments valued based on unobservable inputs which reflect the reporting entity’s own assumptions or data that market participants would use in valuing an instrument are generally classified within Level 3 of the fair value hierarchy. As of June 30, 2019 and December 31, 2018 , the Company did not hold any Level 3 instruments.

Financial instruments measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 are classified based on the valuation technique in the table below (in thousands):

 
 
June 30, 2019
 
 
 
 
Fair Value Measurements Using
 
 
 
 
Quoted Prices
 in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
 
Money market accounts
 
$
51,225

 
$
—

 
$
—

 
$
51,225

U.S. Treasury securities
 
—

 
8,997

 
—

 
8,997

Total assets at fair value (1)
 
$
51,225

 
$
8,997

 
$
—

 
$
60,222

(1) The above table excludes $41.4 million of cash held in banks.
 
 
 
December 31, 2018
 
 
 
 
Fair Value Measurements Using
 
 
 
 
Quoted Prices 
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
 
Money market accounts
 
$
81,425

 
$
—

 
$
—

 
$
81,425

U.S. Treasury securities
 
—

 
13,930

 
—

 
13,930

Total assets at fair value (2)
 
$
81,425

 
$
13,930

 
$
—

 
$
95,355

(2) The above table excludes $29.6 million of cash held in banks.

The contractual maturities of the Company’s available-for-sale securities on June 30, 2019 and December 31, 2018 were all due within one year. There were no transfers of instruments between Level 1 and 2 during the three and six months ended June 30, 2019 and the year ended December 31, 2018 .

Money market accounts are classified as cash equivalents and U.S. Treasury securities (classified as available-for-sale securities), with maturity dates less than one year, are within short-term investments on the Company’s condensed consolidated balance sheets.


12

Short-term Investments  

Short-term investments as of June 30, 2019 and December 31, 2018 consisted of the following (in thousands):

 
 
June 30, 2019
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
U.S. Treasury securities
 
$
8,981

 
$
16

 
$
—

 
$
8,997

Total
 
$
8,981

 
$
16

 
$
—

 
$
8,997


 
 
December 31, 2018
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
U.S. Treasury securities
 
$
13,936

 
$
—

 
$
(6
)
 
$
13,930

Total
 
$
13,936

 
$
—

 
$
(6
)
 
$
13,930


4. ACCOUNTS AND OTHER RECEIVABLES
Accounts and other receivables consisted of the following (in thousands):
 
 
June 30,
 2019
 
December 31,
2018
Trade accounts receivable
 
$
4,414

 
$
645

Other receivables
 
553

 
406

Accounts and other receivables
 
$
4,967

 
$
1,051


There was no estimated allowance for doubtful accounts as of June 30, 2019 and December 31, 2018 .


13

5. OTHER ASSETS

Other assets consisted of the following (in thousands):

 
 
June 30,
2019
 
December 31,
2018
Contract assets - long-term
 
$
7,136

 
$
7,231

Lease assets
 
3,628

 
—

Deferred tax assets
 
337

 
295

Other assets
 
7,170

 
301

Total other assets
 
$
18,271

 
$
7,827


The Company adopted ASC 842 on January 1, 2019 and recognized $4.0 million lease assets on its condensed consolidated balance sheets. See Note 1 and Note 11 to the condensed consolidated financial statements for more detail on ASC 842 adoption.

In March 2019, as part of a then-pending litigation matter with Samsung Electronics Co, the Company recorded a $6.9 million deposit included in Other assets along with related accounts payable which was paid in April 2019. See Note 12 for further disclosure.

6. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following (in thousands):
 
 
June 30,
2019
 
December 31,
2018
Accrued legal
 
$
3,146

 
$
1,827

Lease liabilities - current
 
1,170

 
—

Income taxes payable
 
307

 
204

Other current liabilities
 
1,345

 
1,163

Total other current liabilities
 
$
5,968

 
$
3,194


7. STOCK-BASED COMPENSATION

Stock Options and Awards

The Company’s equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for employees, consultants, officers, and directors and to align stockholder and employee interests. The Company may grant time-based options, market condition-based options, stock appreciation rights, restricted stock ("RSA"), restricted stock units (“RSUs”), performance shares, performance units, and other stock-based to employees, officers, directors, and consultants. Under this program, stock options may be granted at prices not less than the fair market value on the date of grant for stock options. These options generally vest over four years and expire from seven to ten years from the grant date. In addition to time-based vesting, market condition-based options are subject to a market condition where the closing price of the Company stock must exceed a certain level for a number of trading days within a specified timeframe or the options will be canceled before the expiration of the options. RSAs generally vest over one year . RSUs generally vest over 3 years . Awards granted other than an option or stock appreciation right shall reduce the common stock shares available for grant by 1.75 shares for every share issued. On June 14, 2019, the Company's stockholders approved an increase to the number of shares reserved for issuance by  2,595,751  shares.

14


A summary of the Company's equity incentive plan is as follows (in thousands):

 
 
June 30, 2019
Common stock shares available for grant
 
3,642

Stock options outstanding
 
2,035

RSAs outstanding
 
80

RSUs outstanding
 
753


Time-Based Stock Options

The following summarizes activities for the time-based stock options for the six months ended June 30, 2019 (in thousands except for weighted average exercise per share and weighted average remaining contractual life data):

 
 
Number of Shares
Underlying Stock Options
 
Weighted Average
Exercise Price
Per Share
 
Weighted Average
Remaining Contractual Life
(Years)
 
Aggregate
Intrinsic Value
Outstanding as of December 31, 2018
 
1,862

 
$
9.44

 
2.85
 
$
751

Granted
 
369

 
$
9.13

 
 
 
 
Exercised
 
(62
)
 
$
6.01

 
 
 
 
Cancelled or expired
 
(406
)
 
$
10.02

 
 
 
 
Outstanding as of June 30, 2019
 
1,763

 
$
9.36

 
2.10
 
$
88

Vested and expected to vest at June 30, 2019
 
1,763

 
$
9.36

 
2.10
 
$
88

Exercisable at June 30, 2019
 
1,324

 
$
9.46

 
0.68
 
$
29


Aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the exercise price of the Company’s common stock for the options that were in-the-money.

Market Condition-Based Stock Options

In 2014, the Company began to grant market condition-based stock options. These options will vest if the closing price of the Company stock exceeds a certain level for a number of trading days within a specified time frame or the options will be cancelled before the expiration of the options. As of June 30, 2019 and December 31, 2018, the Company had 272,081 market condition-based stock options outstanding. There were no market condition-based options activities during the six months ended June 30, 2019 .


15

Restricted Stock Units

The following summarizes RSU activities for the six months ended June 30, 2019 (in thousands except for weighted average exercise per share and weighted average remaining contractual life data):

 
 
Number of Restricted Stock Units
 
Weighted Average Grant Date Fair Value
 
Weighted Average Remaining Service
(Years)
 
Aggregate
Intrinsic Value
Outstanding as of December 31, 2018
 
1,091

 
$
10.97

 
0.67
 
$
9,773

Granted
 
586

 
$
9.06

 

 


Released
 
(698
)
 
$
11.38

 

 


Forfeited
 
(226
)
 
$
9.73

 

 


Outstanding at June 30, 2019
 
753

 
$
9.48

 
1.57
 
$
5,729


Summary of Restricted Stock Awards

The following summarizes RSA activities for the six months ended June 30, 2019 (in thousands except for weighted average exercise per share and weighted average remaining contractual life data):

 
 
Number of Restricted Stock Awards
 
Weighted Average Grant Date Fair Value
 
Weighted Average Remaining Recognition Period
(Years)
Outstanding as of December 31, 2018
 
55

 
$
13.02

 
0.46
Granted
 
88

 
$
7.51

 
 
Released
 
(63
)
 
$
12.63

 
 
Forfeited
 
—

 
$
—

 
 
Outstanding at June 30, 2019
 
80

 
$
7.27

 
0.96

Employee Stock Purchase Plan

Under the Company's 1999 Employee Stock Purchase Plan ("ESPP"), eligible employees may purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000  shares in a six months offering period or purchase stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period. A total of 1.0 million  shares of common stock has been reserved for issuance under the ESPP. During the six months ended June 30, 2019 , 13,479 shares were purchased under the ESPP. As of June 30, 2019 , 261,699 shares were available for future purchase under the ESPP.


16

Stock-based Compensation Expense

The following table summarizes stock-based compensation expenses recognized for the three and six months ended June 30, 2019 and 2018 (in thousands):

 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Stock options
 
$
122

 
$
356

 
$
316

 
$
674

RSUs and RSAs
 
938

 
2,149

 
2,826

 
3,028

Employee stock purchase plan
 
21

 
25

 
42

 
50

Total
 
$
1,081

 
$
2,530

 
$
3,184

 
$
3,752

 
 
 
 
 
 
 
 
 
Sales and marketing
 
$
173

 
$
366

 
$
493

 
$
299

Research and development
 
190

 
564

 
820

 
820

General and administrative
 
718

 
1,600

 
1,871

 
2,633

Total
 
$
1,081

 
$
2,530

 
$
3,184

 
$
3,752


As of June 30, 2019 , there was $7.9 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options, RSAs and RSUs. This cost will be recognized over an estimated weighted-average period of approximately 2.72 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

8. STOCKHOLDERS’ EQUITY

Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income for the three and six months ended June 30, 2019 are as follows (in thousands):

 
 
Unrealized Gains & Losses on Available for Sale Securities
 
Foreign Currency Items
 
Total
Balance as March 31, 2019
 
$
—

 
$
122

 
$
122

Amounts reclassified from accumulated other comprehensive income
 
16

 
—

 
16

Net current period other comprehensive income
 
16

 
—

 
16

Balance as of June 30, 2019
 
$
16

 
$
122

 
$
138


 
 
Unrealized Gains & Losses on Available for Sale Securities
 
Foreign Currency Items
 
Total
Balance as December 31, 2018
 
$
(6
)
 
$
122

 
$
116

Amounts reclassified from accumulated other comprehensive income
 
22

 
—

 
22

Net current period other comprehensive income
 
22

 
—

 
22

Balance as of June 30, 2019
 
$
16

 
$
122

 
$
138



17

Stock Repurchase Program
On November 1, 2007, the Company announced its Board of Directors (the "Board") authorized the repurchase of up to $50.0 million of the Company’s common stock (the “Stock Repurchase Program”). In addition, on October 22, 2014, the Board authorized another $30.0 million under the Stock Repurchase Program. The Company may repurchase its common stock for cash in the open market in accordance with applicable securities laws. The timing and amount of any stock repurchase will depend on share price, corporate and regulatory requirements, economic and market conditions, and other factors. The stock repurchase authorization has no expiration date, does not require the Company to repurchase a specific number of shares, and may be modified, suspended, or discontinued at any time.
There were no stock repurchases during the three and six months ended June 30, 2019 and 2018 . As of June 30, 2019 , the Stock Repurchase Program remains available with approximately $33.4 million of the Company's common stock that may yet be purchased under this program.

9. INCOME TAXES

Income tax provisions consisted of the following (in thousands):

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Income (loss) before benefit (provision) for income taxes
(8,623
)
 
(7,920
)
 
(19,524
)
 
62,416

Benefit (provision) for income taxes
3

 
162

 
(112
)
 
(291
)
Effective tax rate
—
%
 
2.0
%
 
(0.6
)%
 
0.5
%

The benefit for income tax for the three months ended June 30, 2019 and provision for income tax for the six months ended June 30, 2019 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate. For the three and six months ended June 30, 2019, the Company used a year-to-date approach to calculate the effective tax rate. The Company continues to carry a full valuation allowance on its federal deferred tax assets. As a result, no benefit for losses generated from the Company's U.S. territory was included in the calculation of the year-to-date effective tax rate, which was the main reason for the difference between the statutory tax rate and actual effective tax rate. The benefit for income tax for the three months ended June 30, 2018 and provision for income tax for the six months ended June 30, 2018 resulted primarily from estimated foreign taxes included in the calculation of the annual effective tax rate.

On July 27, 2015, a U.S. Tax Court opinion (Altera Corporation et. al v. Commissioner) concerning the treatment of stock-based compensation expense in an intercompany cost sharing arrangement was issued. In its opinion, the U.S. Tax Court accepted Altera's position of excluding stock-based compensation from its intercompany cost sharing arrangement. On February 19, 2016, the IRS appealed the ruling to the U.S. Court of Appeals for the Ninth Circuit (the "Ninth Circuit"). On July 24, 2018, the Ninth Circuit reversed the 2015 decision of the U.S. Tax Court that had found certain Treasury regulations related to stock-based compensation to be invalid. On August 7, 2018, the Ninth Circuit withdrew its July 24, 2018 opinion to allow a reconstituted panel to confer on the decision. This reconstituted panel reconsidered the validity of the cost sharing regulations at issue. The regulations at issue require related entities to share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as “qualified cost-sharing arrangements” and to avoid potential IRS adjustment. On June 7, 2019, the reconstituted panel of the Ninth Circuit upheld the 2018 decision of the Ninth Circuit, concluding stock-based compensation must be included in intercompany cost sharing agreements for the agreements to be classified as “qualified cost-sharing arrangements”. Although the Company believes stock-based compensation is not required to be included in its pool of shared costs under its intercompany cost sharing arrangement, the Company has concluded that it is not more likely than not that Altera will prevail with their appeal of the Ninth Court’s ruling. As such, the Company has made corresponding provisions The Company will continue to monitor ongoing developments and potential impacts to its consolidated financial statements.

The Company concluded that it is has not met the threshold requirements of the BEAT. Although the measurement period has closed, further technical guidance related to the Tax Act, including final regulations on a broad range of topics, is expected to be issued. In accordance with ASC 740, Income Taxes ("ASC 740"), the Company will recognize any effects of the guidance in the period that such guidance is issued.

As of June 30, 2019 , the Company had unrecognized tax benefits under ASC 740 Income Taxes of approximately $5.2 million and applicable interest of $22,000 . The total amount of unrecognized tax benefits that would affect the Company’s

18

effective tax rate, if recognized, is $95,000 . The Company’s policy is to account for interest and penalties related to uncertain tax positions as a component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months.

As of June 30, 2019 , the Company had net deferred income tax assets of $337,000 consisting primarily of foreign net operating loss carryforwards, and deferred income tax liabilities of $30,000 . Because the Company had net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state, and foreign taxing authorities may examine the Company’s tax returns for all years from 1998 through the current period.

The Company maintains a valuation allowance of $24.5 million against certain of its deferred tax assets, including all federal, state, and certain foreign deferred tax assets as a result of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and uncertainty regarding near term projected results. In the event that the Company determines the deferred tax assets are realizable based on its assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made. The valuation allowance does not impact the Company’s ability to utilize the underlying net operating loss carryforwards.

10. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method, includes stock options, RSUs, RSAs and ESPP.

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per share (in thousands, except per share amounts):

 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(8,620
)
 
$
(7,758
)
 
$
(19,636
)
 
$
62,125

Denominator:
 
 
 
 
 
 
 
 
Weighted-average common stock outstanding, basic
 
31,578

 
30,527

 
31,335

 
30,116

  Dilutive effect of potential common shares:
 
 
 
 
 
 
 
 
  Stock options, RSUs, RSA and ESPP
 
—

 
—

 
—

 
958

Total shares, diluted
 
31,578

 
30,527

 
31,335

 
31,074

Basic net income (loss) per share
 
$
(0.27
)
 
$
(0.25
)
 
$
(0.63
)
 
$
2.06

Diluted net income (loss) per share
 
$
(0.27
)
 
$
(0.25
)
 
$
(0.63
)
 
$
2.00


The Company includes the underlying market condition-based stock options in the calculation of diluted earnings per share if the performance condition has been satisfied as of the end of the reporting period and excludes such options if the performance condition has not been met.

For the six months ended June 30, 2018, standard stock options to purchase approximately 371,000 shares of common stock, with exercise prices greater than the average fair market value of the Company’s stock of $11.81 per share, were not included in the calculation because the effect would have been anti-dilutive.

As of June 30, 2019 and 2018 , the Company had securities outstanding that could potentially dilute basic earnings per share in the future, but these were excluded from the computation of diluted net loss per share for the three and six months ended June 30, 2019 and the three months ended June 30, 2018 , since their effect would have been anti-dilutive. These outstanding securities consisted of the following (in thousands):


19

 
 
June 30
 
 
2019
 
2018
Stock options
 
2,035
 
2,311

RSUs
 
753

 
1,205

RSAs
 
80

 
32


11. LEASES

The Company leases all of its office spaces and has various operating leases that expire through 2024. On January 1, 2019 (the "Adoption Date"), the Company adopted ASC 842 Leases, using the alternative modified transition method to apply the standard and measure leases existed at, or entered into after the Adoption Date. Upon adoption of ASC 842, the Company recognized operating lease liabilities of $4.9 million , which represents the present value of the remaining lease payments of outstanding leases as of the Adoption Date using an estimated incremental borrowing rate of  3.25% . The Company did not enter into any new leases in the six months ended June 30, 2019. The Company also recognized ROU assets of $4.0 million which represent the Company's right to use an underlying asset for the lease term. In conjunction with the adoption of ASC 842, the Company elected the following practical expedients: (i) combining lease and non-lease components, (ii) leases with an initial term of 12 months or less are not recorded in the condensed consolidated balance sheets, and the associated lease payments are recognized in the condensed consolidated statements of operations on a straight-line basis over the lease term, and (iii) applying discount rates to operating leases using a portfolio approach.

There was no cumulative-effect adjustment recognized on the beginning retained earnings as a result of the adoption. The comparative periods presented in this Form 10-Q reflect the former lease accounting guidance.

Below is a summary of our ROU assets and lease liabilities as of the Adoption Date and June 30, 2019 , respectively (in thousands):

 
Balance Sheets Classification
 
June 30, 2019
 
January 1, 2019
Assets
 
 
 
 
 
Operating lease assets
Other assets
 
$
3,628

 
$
4,048

Liabilities
 
 
 
 
 
  Operating lease liabilities - current
Other current liabilities
 
1,170

 
1,157

  Operating lease liabilities - long-term
Other long-term liabilities
 
3,207

 
3,693

Total lease liabilities
 
 
$
4,377

 
$
4,850


The table below provides supplemental information related to operating leases during the six months ended as of June 30, 2019 (in thousands except for lease term):

Cash paid within operating cash flow
 
$
579

Weighted average lease terms (in years)
 
3.84

 
Operating lease ROU assets and liabilities commencing after the Adoption Date are recognized at commencement date based on the present value of lease payments over the lease term. Under ASC 842, all operating lease expenses are recognized on a straight-line basis over the lease term. During the three and six months ended June 30, 2019 , and 2018, the Company's operating lease expenses are as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Operating lease costs
 
$
275

 
$
290

 
$
555

 
$
608


As of December 31, 2018, the Company had $764,000 in deferred rent which represented unamortized lease incentives on its outstanding leases and was recorded as a reduction to the ROU assets recognized at the Adoption Date.

20


Minimum future lease payment obligations as of June 30, 2019 are as follows (in thousands):

For the Years Ending December 31,
 
 
2019
 
$
615

2020
 
1,215

2021
 
1,197

2022
 
1,172

2023
 
456

Thereafter
 
24

Total
 
$
4,679


12. CONTINGENCIES

From time to time, the Company receives claims from third parties asserting that the Company’s technologies, or those of its licensees, infringe on the other parties’ IP rights. Management believes that these claims are without merit. Additionally, periodically, the Company is involved in routine legal matters and contractual disputes incidental to its normal operations. In management’s opinion, the resolution of such matters will not have a material adverse effect on the Company’s consolidated financial condition, results of operations, or liquidity.

In the normal course of business, the Company provides indemnification of varying scope to customers, most commonly to licensees in connection with licensing arrangements that include our IP, although these provisions can cover additional matters. Historically, costs related to these guarantees have not been significant, and the Company is unable to estimate the maximum potential impact of these guarantees on its future results of operations.

As discussed in Part II, Item 1 (Legal Proceedings), on April 28, 2017, the Company and Immersion Software Ireland Limited (collectively, “Immersion”) received a letter from Samsung Electronics Co. (“Samsung”) requesting that the Company reimburse Samsung with respect to withholding tax and penalties imposed on Samsung by the Korean tax authorities following an investigation where the tax authority determined that Samsung failed to withhold taxes on Samsung’s royalty payments to Immersion Software Ireland from 2012 to 2016.  On July 12, 2017, Immersion filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes and penalties. On October 18, 2018, the Korea Tax Tribunal held a hearing and on November 19, 2018, the Korea Tax Tribunal issued its ruling in which it decided not to accept the Company's arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on Samsung. We filed an appeal with the Korea Administrative Court on February 15, 2019. The first hearing occurred on June 27, 2019. Immersion anticipates that a second hearing will be scheduled for the end of August 2019.

On September 29, 2017, Samsung filed an arbitration demand with the International Chamber of Commerce against Immersion demanding that the Company reimburse Samsung for the imposed tax and penalties that Samsung paid to the Korean tax authorities. On March 27, 2019, the Company received the final award. The award ordered Immersion to pay Samsung KRW 7,841,324,165 (approximately $6.9 million ), which Immersion paid on April 22, 2019, denied Samsung’s claim for interest from and after May 2, 2017; and ordered Immersion to pay Samsung’s cost of the arbitration in the amount of approximately $871,454 .

The Company believes that there are valid defenses to all of the claims from the Korean tax authorities. The Company intends to vigorously defend against the claims from the Korean tax authorities. As the Company believes that the likelihood of a material charge resulting from the appeal with the Korean Administrative Court is remote, the $6.9 million was recorded as a deposit included in Other assets on the Company's condensed consolidated balance sheet as of March 31, 2019. The Company expects to be reimbursed by Samsung to the extent the Company prevails in the appeal with the Korea Administrative Court.

On October 16, 2017, the Company received a letter from LG Electronics Inc. (“LGE”) requesting that the Company reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland from 2012 to 2014.  On November 3, 2017, the Company filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes. The Korea Tax Tribunal hearing took place on March 5, 2019. On March 19, 2019, the Korea Tax Tribunal issued its ruling in which it decided not to accept Immersion’s arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on LGE. We filed an appeal with the Korea Administrative Court on June 10, 2019. The first hearing is scheduled for October 15, 2019.

21


The Company believes that there are valid defenses to the claims raised by the Korean tax authorities and that LGE’s claims are without merit.  The Company intends to vigorously defend itself against these claims and as a result, has concluded that the likelihood of a material charge resulting from the claim from LGE to be remote.

On July 31, 2019, the Company entered into a settlement and license agreement with Motorola Mobility LLC and Motorola Mobility Holdings LLC (collectively, “Motorola”), pursuant to which the parties agreed to request that all claims and counterclaims in Civil Action No. 1:17-cv-01081-RGA be dismissed with prejudice and agreed to withdraw or terminate related IPR proceedings. See Legal Proceedings in Part II, Item 1 of this Annual Report for more information related to this settlement and license agreement.


22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements involve risks and uncertainties. Forward-looking statements are identified by words such as “anticipates,” “believes,” “expects,” “intends,” “may,” “will,” “places,” and other similar expressions. However, these words are not the only way we identify forward-looking statements. In addition, any statements, which refer to expectations, projections, or other characterizations of future events, or circumstances, are forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those set forth below in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors, those described elsewhere in this report, and those described in our other reports filed with the SEC. The following Management's Discussion and Analysis of Financial Conditions and Results of Operations should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2018. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report, and we undertake no obligation to update these forward-looking statements after the filing of this report. You are urged to review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed with the SEC that attempt to advise you of the risks and factors that may affect our business.

OVERVIEW

The Company believes we are a premier licensing company focused on the creation, design, development, and licensing of innovative haptic technologies that allow people to use their sense of touch more fully as they engage with products and experience the digital world around them. We believe we are a leading experts in haptics and our focus on innovation allows us to deliver world-class intellectual property ("IP") and technology that enables the creation of products that delight end users. Our technologies are designed to facilitate the creation of high-quality haptic experiences, enable their widespread distribution, and ensure that their playback is optimized. Our primary business is currently in the mobility, gaming, and automotive markets, but we believe our technology is broadly applicable and see opportunities in evolving new markets, including entertainment, social content, virtual and augmented reality, wearables, as well as residential, commercial, and industrial Internet of Things ("IoT"). In recent years, we have seen a trend towards broad market adoption of haptic technology, and we estimate our technology is now in more than 3 billion devices worldwide. As other companies follow our leadership in recognizing how important tactile feedback can be in people's digital lives, we expect the opportunity to license our IP and technologies will continue to expand.

We have adopted a business model under which we provide advanced tactile software, related tools and technical assistance designed to help integrate our patented technology into our customers’ products or enhance the functionality of our patented technology, and offer licenses to our patented technology to our customers. Our licenses enable our customers to deploy haptically-enabled devices, content and other offerings, which they typically sell under their own brand names. We and our wholly owned subsidiaries hold more than 3,800 issued or pending patents worldwide as of June 30, 2019 . Our patents cover a wide range of digital technologies and include many of the ways in which touch-related technology can be incorporated into and between hardware products and components, systems software, application software, and digital content. We believe that our IP is relevant to many of the most important and cutting-edge ways in which haptic technology is and can be deployed, including in connection with mobile interfaces and user interactions, in association with pressure and other sensing technologies, as part of video and interactive content offerings, as related to virtual and augmented reality experiences, and in connection with advanced actuation technologies and techniques.

We were incorporated in 1993 in California and reincorporated in Delaware in 1999.

CRITICAL ACCOUNTING POLICES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, stock-based compensation, leases, short-term investments, patents and intangible assets, income taxes, contingencies, and litigation. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the

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results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.

Our critical accounting policies and estimates are important to the portrayal of our financial condition and results of operations, and require us to make judgments and estimates about matters that are inherently uncertain. With the exception of our adoption of ASC 842 Leases, there have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 27, 2019, that have had a material impact on our condensed consolidated financial statements and related notes. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018, for a complete discussion of our other critical accounting policies and estimates.

RESULTS OF OPERATIONS FOR THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

OVERVIEW

Total revenues for the three months ended June 30, 2019 was $8.7 million , an increase of $2.6 million , or 42% , compared to $6.1 million for the three months ended June 30, 2018 primarily driven by a $2.4 million increase in fixed fee license revenue and a $0.3 million , or 7% , increase in per-unit royalty revenue. Total revenues for the six months ended June 30, 2019 was $13.9 million , a decrease of $77.7 million , or 85% , compared to $91.6 million for the six months ended June 30, 2018 . The decrease was primarily driven by the $71.6 million decrease in fixed fee license revenue and the $6.0 million decrease in per-unit royalty revenue.

Net loss for the three months ended June 30, 2019 was $8.6 million , an increase of $0.9 million , or 11% , as compared to a net loss of $7.8 million for the three months ended June 30, 2018 . This increase was mainly attributable to a $3.5 million increase in costs and expenses partially offset by a $2.6 million increase in total revenues. Net loss for the six months ended June 30, 2019 was $19.6 million as compared to a net income of $62.1 million for the six months ended June 30, 2018 . The increase in net loss was mainly attributable to a $77.7 million decrease in total revenues and a $4.8 million increase in costs and expenses.

REVENUES

The following table sets forth a summary of our revenues for the three months ended June 30, 2019 and 2018 (in thousands except for percentages):

 
Three Months Ended
June 30,
 
 
 
2019
 
2018
 
Change
 
% Change
Revenues:
 
 
 
 
 
 
 
Fixed fee license revenue
$
4,254

 
$
1,881

 
$
2,373

 
126
 %
Per-unit royalty revenue
4,414

 
4,111

 
303

 
7
 %
Total royalty and license revenue
8,668

 
5,992

 
2,676

 
45
 %
Development, services, and other
75

 
152

 
(77
)
 
(51
)%
Total revenues
$
8,743

 
$
6,144

 
$
2,599

 
42
 %

 
Six Months Ended
June 30,
 
 
 
2019
 
2018
 
Change
 
% Change
Revenues:
 
 
 
 
 
 
 
Fixed fee license revenue
$
5,994

 
$
77,637

 
$
(71,643
)
 
(92
)%
Per-unit royalty revenue
7,721

 
13,690

 
(5,969
)
 
(44
)%
Total royalty and license revenue
$
13,715

 
91,327

 
(77,612
)
 
(85
)%
Development, services, and other
150

 
233

 
(83
)
 
(36
)%
Total revenues
$
13,865

 
$
91,560

 
$
(77,695
)
 
(85
)%


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Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Royalty and license revenue — Royalty and license revenue is comprised of per unit royalties earned based on usage or net sales by licensees and fixed payment license fees charged for our IP and software. Total royalty and license revenue for three months ended June 30, 2019 increased $2.7 million , or 45% , from $6.0 million for the three months ended June 30, 2018 to $8.7 million for the three months ended June 30, 2019 .

Per-unit royalty revenue increased by $0.3 million , or 7% , from $4.1 million for the three months ended June 30, 2018 to $4.4 million for the three months ended June 30, 2019 primarily caused by a $1.0 million increase in royalties obtained from our mobility licenses ("mobility royalties") partially offset by a $0.5 million decrease in royalties obtained from our gaming licenses ("gaming royalties"), and a $0.2 million decrease in royalties obtained from our automotive licenses ("automotive royalties") and royalties obtained from our medical licenses ("medical royalties"). The $1.0 million increase in mobility royalties was due mainly to per-unit royalty agreements entered into during the three months ended June 30, 2019 and partially offset by the impact of lower shipments estimated for other mobility licensees. The $0.5 million decrease in gaming royalties and $0.1 million decrease in automotive and medical royalties was caused by lower shipment volumes estimated for our gaming, automotive and medical licensees.

Fixed fee license revenue increased $2.4 million , or 126% , from $1.9 million for the three months ended June 30, 2018 to $4.3 million for the three months ended June 30, 2019 . This increase was primarily related a $2.0 million increase in gaming license revenue and a $0.9 million increase in mobility license revenue. These increases in license revenue were partially offset by a $0.5 million decrease in automotive license revenue.

We expect royalty and license revenue to continue to be the major components of our future revenue. Under Revenue Recognition Accounting standards section ASC 606, our fixed fee license revenue could fluctuate depending upon the timing of execution of new fixed license fee arrangements. We also anticipate that our royalty revenue will fluctuate relative to our customer's unit shipments. We historically experienced seasonally higher royalty revenue from our gaming and mobility customers due to the reporting of holiday sales in the first calendar quarter compared to other calendar quarters. Due to the elimination of the one-quarter lag in reporting royalty income upon adoption of ASC 606, we now expect to experience this seasonal impact in the fourth calendar quarter. We anticipate a continued reduction in royalty and license revenue in the future from our medical customers as a percentage of our consolidated royalty and license revenue, as this line of business is a less significant portion of our market focus

Development, services and other revenue — Development, services, and other revenue for the three months ended June 30, 2019 decreased by $77,000 , or 51% , from $152,000 for the three months ended June 30, 2018 to $75,000 for the three months ended June 30, 2019 .

Geographically, revenues generated in Asia, North America, and Europe for the three months ended June 30, 2019 represented 58% , 37% , and 5% , respectively, of our total revenue as compared to 56% , 27% , and 17% , respectively, for the three months ended June 30, 2018 . The increase in revenue attributable to Asia as a percentage of total revenue was primarily driven by increased revenues from mobility customers, partially offset by decreased revenues from automotive customers in Asia. The increase in revenue attributable to North America as a percentage of total revenue was primarily driven by higher revenues from gaming customers partially offset by lower revenue from mobility customers in the region. The decrease in revenue attributable to Europe as a percentage of total revenue was primarily caused by lower revenues from gaming customers in the region.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Royalty and license revenue — Total royalty and license revenue for the six months ended June 30, 2019 decreased by $77.7 million , or 85% , from $91.3 million for the six months ended June 30, 2018 to $13.7 million for the six months ended June 30, 2019 .

Per-unit royalty revenue decreased by $6.0 million , or 44% , from $13.7 million for the six months ended June 30, 2018 to $7.7 million for the six months ended June 30, 2019 . This decrease in per-unit royalty revenue was primarily caused by a $5.2 million decrease in automotive royalties and a $1.2 million decrease in gaming royalties and was partially offset by a $0.4 million increase in mobility royalties. The decrease in automotive royalties was mainly due to the impact of certain per-unit royalty agreements entered into during the first quarter of 2018 that contained a minimum royalty provision for which we recognized the whole set of minimum royalties as revenue at the inception of such agreements. The decrease in gaming royalties was due to lower shipments experienced by our licensees. The increase in mobility royalties was primarily due to

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revenue from per-unit royalty agreements entered into during the six months ended June 30, 2019 partially offset by the impact of lower shipment volumes reported by other mobility licensees.

Fixed fee license revenue decreased $ 71.6 million , or 92% , from $77.6 million six months ended June 30, 2018 to $6.0 million for six months ended June 30, 2019 . The decrease was primarily related to a certain material fixed fee license agreements entered into with a mobility customer during the first quarter of 2018.

Development, services and other revenue — Development, services, and other revenue for six months ended June 30, 2019 decreased by $83,000 , or 36% , from $233,000 for the six months ended June 30, 2018 to $150,000 for the six months ended June 30, 2019 .

Geographically, revenues generated in Asia, North America, and Europe for the six months ended June 30, 2019 represented 54% , 38% , and 8% , respectively, of our total revenue as compared to 7% , 84% , and 9% , respectively, for the six months ended June 30, 2018 . The increase in revenue from Asia as a percentage of total revenue was primarily driven by increased revenues from mobility customers and partially offset by a decrease in revenues from automotive customers in the region. The decrease in revenue attributable to North America as a percentage of total revenue was primarily caused by lower revenues from mobility customers and partially offset by increased revenue from gaming and automotive customers in the region.

OPERATING EXPENSES

The following tables set forth a summary of our operating expenses for the three and six months ended June 30, 2019 and 2018 (in thousands):

 
Three Months Ended
June 30,
 
 
 
 
 
2019
 
2018
 
Change
 
% Change
Sales and marketing
$
1,579

 
$
1,570

 
$
9

 
1
 %
% of total revenue
18
%
 
26
%
 
 
 
 
Research and development
$
1,831

 
$
2,222

 
$
(391
)
 
(18
)%
% of total revenue
21
%
 
36
%
 
 
 
 
General and administrative
$
14,448

 
$
10,553

 
$
3,895

 
37
 %
% of total revenue
165
%
 
172
%
 
 
 
 

 
Six Months Ended
June 30,
 
 
 
 
 
2019
 
2018
 
Change
 
% Change
Sales and marketing
$
3,188

 
$
2,790

 
$
398

 
14
 %
% of total revenue
23
%
 
3
%
 
 
 
 
Research and development
$
4,133

 
$
5,042

 
$
(909
)
 
(18
)%
% of total revenue
30
%
 
6
%
 
 
 
 
General and administrative
$
27,143

 
$
21,789

 
$
5,354

 
25
 %
% of total revenue
196
%
 
24
%
 
 
 
 

Sales and Marketing — Our sales and marketing expenses are primarily comprised of employee compensation and benefits, sales commissions, advertising, trade shows, collateral marketing materials, market development funds, travel, and allocation of facilities costs. Sales and marketing expenses increased $9,000 , or 1% , for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 , primarily attributable to nominal increase in advertising and marketing costs. Sales and marketing expenses increase d $0.4 million , or 14% , for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 primarily attributable to a $0.3 million increase in compensation, benefits, and other personnel related costs as a result of higher headcount and an increase in stock-based compensation expense and a $0.2 million increase in advertising and marketing expense in the six months ended June 30, 2019 as compared to the same period in 2018. These expense increases were partially offset by a $0.2 million decrease in outside services costs.

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Research and Development — Our research and development expenses are comprised of employee compensation and benefits, consulting fees, tooling and supplies, and an allocation of facilities costs. Research and development expenses decreased $0.4 million , or 18% , for the three months ended June 30, 2019 compared to three months ended June 30, 2018 . This decrease was primarily due to a $0.5 million decrease in compensation, benefits and other personnel related costs driven by reduced headcount and a decrease in stock-based compensation expense in the three months ended June 30, 2019 as compared to the same period in 2018. This decrease was partially offset by a $0.1 million increase in outside services. Research and development expenses decrease d $0.9 million , or 18% , for the six months ended June 30, 2019 compared to six months ended June 30, 2018 primarily due to an $0.8 million decrease in compensation, benefits and other personnel related costs attributable to lower salaries and benefits as a result of reduced headcount and the impact of 2018 employee retention programs and a $0.1 million decrease in facilities costs in the six months ended June 30, 2019 compared to the same period in 2018. These expense decreases were partially offset by a $0.1 million increase in outside services costs.

We believe that continued investment in research and development is critical to our future success, and we expect to continue making targeted investments in areas of research and technology development to support future growth in key markets.

General and Administrative — Our general and administrative expenses consist of employee compensation and benefits; legal and professional fees; external legal costs for patents; office supplies; travel; and allocation of facilities costs. General and administrative expenses increase d $3.9 million , or 37% , for three months ended June 30, 2019 compared to the three months ended June 30, 2018 due to a $3.6 million increase in legal expenses as we continue to invest in, protect, and for the defense of our extensive IP portfolio and a $0.9 million increase in consulting and professional services fees in the three months ended June 30, 2019 compared to the same period in 2018, These increases were partially offset by a $0.8 million decrease in employee compensation benefits, and other personnel related costs.

General and administrative expenses increase d $5.4 million , or 25% , for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily caused by a $4.8 million increase in legal expenses and a $1.4 million increase in consulting and professional services fees in the six months ended June 30, 2019 as compared to the same period in 2018. These increases were partially offset by a $1.2 million decrease in employee compensation, benefits and other personnel related costs largely attributable to a decrease in stock-based compensation expense.

We expect our general and administrative expenses to decrease in the future as we complete certain outstanding litigation matters and achieve targeted reductions in consulting and professional services.

INTEREST AND OTHER INCOME

Interest and Other Income — Interest and other income consists of interest income from cash equivalents and short-term investments, interest on notes receivable, translation exchange rate gains and other income. Interest and other income was $0.5 million during the three months ended June 30, 2019 compared to $0.4 million for three months ended June 30, 2018 primarily driven by a $0.1 million increase in foreign currency exchange gains in the three months ended June 30, 2019 compared to the same period in 2018. Interest and other income was $1.1 million during the six months ended June 30, 2019 compared to $0.6 million for the six months ended June 30, 2018 due to a $0.4 million increase in investment income earned and $0.2 million increase in foreign currency exchange gains.

BENEFIT (PROVISION) FOR INCOME TAXES

The following table sets forth a summary of our benefit (provision) for income taxes for the three and six months ended June 30, 2019 and 2018 (in thousands except for percentages):

 
 
Three Months Ended
June 30,
 
 
 
 
2019
 
2018
 
Change
 
% Change
Loss before benefit for income taxes
 
$
(8,623
)
 
$
(7,920
)
 
 
 
 
Benefit for income taxes
 
3

 
162

 
$
(159
)
 
(98
)%
Effective tax rate
 
—
%
 
2.0
%
 
 
 
 

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Six Months Ended
June 30,
 
 
 
 
2019
 
2018
 
Change
 
% Change
Income (loss) before benefit (provision) for income taxes
 
$
(19,524
)
 
$
62,416

 
 
 
 
Provision for income taxes
 
(112
)
 
(291
)
 
$
179

 
(62
)%
Effective tax rate
 
(0.6
)%
 
0.5
%
 
 
 
 

The benefit for income tax for the three months ended June 30, 2019 and provision for income tax for the six months ended June 30, 2019 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate. For the three and six months ended June 30, 2019, we used a year-to-date approach to calculate the effective tax rate. We continue to carry a full valuation allowance on our federal deferred tax assets. As a result, no benefit for losses generated from our U.S. territory was included in the calculation of the year-to-date effective tax rate, which was the main reason for the difference between the statutory tax rate and actual effective tax rate. The benefit for income tax for the three months ended June 30, 2018 and provision for income tax for the six months ended June 30, 2018 resulted primarily from estimated foreign taxes included in the calculation of the annual effective tax rate.

The year-over-year change in benefit for income taxes resulted primarily from the change in mix of income (loss) from continuing operations across various tax jurisdictions, including the United States.

On December 22, 2017, the Tax Act was passed into law. Among other changes, the Tax Act introduced the Base Erosion and Anti-Abuse Tax (the “BEAT”), which creates a new tax on certain related-party payments. We concluded that we have not met the threshold requirements of the BEAT. Although the measurement period has closed, further technical guidance related to the Tax Act, including final regulations on a broad range of topics, is expected to be issued. In accordance with ASC 740, we will recognize any effects of the guidance in the period that such guidance is issued.

We continue to maintain a valuation allowance of $24.5 million against certain of our deferred tax assets, including all federal, state, and certain foreign deferred tax assets as a result of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and uncertainty regarding near term projected results. In the event that we determine the deferred tax assets are realizable based on an assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made. The valuation allowance does not impact our ability to utilize the underlying net operating loss carryforwards.

We also maintain liabilities for uncertain tax positions. As of June 30, 2019 , we had unrecognized tax benefits under ASC 740 of approximately $5.2 million and applicable interest of $22,000. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $95,000.

LIQUIDITY AND CAPITAL RESOURCES

Our cash, cash equivalents, and short-term investments consist primarily of money market funds and treasury bills and government agency securities. All of our short-term investments are classified as available-for-sale. The securities are stated at market value, with unrealized gains and losses reported as a component of accumulated other comprehensive income within stockholders’ equity.

On June 30, 2019 , our cash, cash equivalents, and short-term investments totaled $101.6 million , a decrease of $23.3 million from $124.9 million on December 31, 2018 .

 
 
Six Months Ended
June 30,
 
 
2019
 
2018
Net cash provided by (used in) operating activities
 
$
(23,915
)
 
$
81,961

Net cash provided by (used in) investing activities
 
$
5,061

 
$
1,776

Net cash provided by financing activities
 
$
480

 
$
8,078



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Cash provided by (used in) operating activities

Net cash used in operating activities was $23.9 million during the six months ended June 30, 2019 compared to $82.0 million cash provided by operating activities during the six months ended June 30, 2018 primarily due to $81.8 million decrease from $62.1 million net income for the six months ended June 30, 2018 to $19.6 million net loss for the six months ended June30, 2019, $26.0 million decrease in deferred revenue, $7.1 million increase in other assets, $3.7 million increase in accounts and other receivables and $1.1 million decrease in accrued compensation. These cash flow decreases were partially offset by $7.1 million increase in accounts payable due mainly to the timing of payments, $4.0 million increase in other long-term liabilities, $1.8 million decrease in prepaid expenses and other current assets and $1.6 million increase in other current liabilities. The decreases in deferred revenue and other assets primarily reflected the effect of the adoption of ASC 606 on January 1, 2018.

Cash provided by investing activities

Net cash provided by investing activities during the six months ended June 30, 2019 was $5.1 million compared to $1.8 million cash provided by investing activities during the six months ended June 30, 2018 . Net cash provided by investing activities during the current period consisted of purchases of short-term investments of $8.9 million partially offset by maturities of short-term investments of $14.0 million .

Cash provided by financing activities

Net cash provided by financing activities during the six months ended June 30, 2019 was $0.5 million , a decrease of $7.6 million compared to $8.1 million cash provided by financing activities during the six months ended June 30, 2018 . Net cash provided by financing activities during the six months ended June 30, 2019 consisted of $0.5 million in proceeds from stock options exercises and stock purchases under our employee stock purchase plan.

Nine percent or $9.1 million of our total cash, cash equivalents, and short-term investments of $101.6 million on June 30, 2019, was held by our foreign subsidiaries and subject to repatriation tax effects. Our intent is to permanently reinvest all of our earnings from foreign operations, and current plans do not anticipate that we will need funds generated from foreign operations to fund our domestic operations.

We may continue to invest in, protect, and defend our extensive IP portfolio, which is expected to result in the continued use of cash during periods of active litigation.

At June 30, 2019, there was $33.4 million remaining under our previously-approved share repurchase program.
We anticipate that capital expenditures for property and equipment for the year ending December 31, 2019 will be less than $1 million.

We believe that our cash, cash equivalents, and short-term investments will be sufficient to meet our working capital needs for at least the next twelve months.

Cash from operations could also be affected by various risks and uncertainties, including but not limited to the risks detailed in Part II, Item 1A Risk Factors.

SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
We presented our contractual obligations in our Annual Report on Form 10-K for the year ended December 31, 2018 . Our principal commitments as of June 30, 2019 consisted of obligations under operating leases. There have been no material changes in those obligations during the three and six months ended June 30, 2019 .
As of June 30, 2019 , we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $5.2 million and applicable interest of $22,000 . The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $95,000 .

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 and Note 11 to the condensed consolidated financial statements for information regarding the effect of new accounting pronouncements on our financial statements, in particular the impact of the adoption of ASC 842 Leases.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. Changes in these factors may cause fluctuations in our earnings and cash flows. We evaluate and manage the exposure to these market risks as follows:

Cash Equivalents and Short-term Investments — We had cash equivalents and short-term investments of $60.2 million as of June 30, 2019 , which are subject to interest rate fluctuations. An increase in interest rates could adversely affect the market value of our cash equivalents and short-term investments. A hypothetical 100 basis point increase in interest rates would result in a decrease of approximately $47,000 in the fair value of our cash equivalents and short-term investments as of June 30, 2019 .

We limit our exposure to interest rate and credit risk by establishing and monitoring clear policies and guidelines for our cash equivalents and short-term investment portfolios. The primary objective of our policies is to preserve principal while at the same time maximizing yields, without significantly increasing risk. Our policy’s guidelines also limit exposure to loss by limiting the sums we can invest in any individual security and restricting investments to securities that meet certain defined credit ratings. We do not use derivative financial instruments in our investment portfolio to manage interest rate risk.

Foreign Currency Exchange Rates — A substantial majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, we do incur certain operating costs for our foreign operations in other currencies, but these operations are limited in scope and thus we are not materially exposed to foreign currency fluctuations. Additionally, we have some reliance on international revenues that are subject to the risks of fluctuations in currency exchange rates. Because a substantial majority of our international revenues, as well as expenses, are typically denominated in U.S. dollars, a strengthening of the U.S. dollar could cause our licenses to become relatively more expensive to customers in a particular country, leading to a reduction in sales or profitability in that country. We have no foreign exchange contracts, option contracts, or other foreign currency hedging arrangements and we do not expect to have such arrangements in the foreseeable future.


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ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Based on their evaluation as of June 30, 2019 , our management with the participation of our Chief Executive Officer and Interim Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective to ensure that the information required to be disclosed by us in this quarterly report on Form 10-Q was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes to internal controls over financial reporting that occurred during the quarter ended  June 30, 2019  that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

Our management, including our Chief Executive Officer and Interim Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any within Immersion, have been detected.


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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Immersion Corporation vs. Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. (C.A. No. 17-cv-572, 18-cv-55)

On August 3, 2017, we filed a complaint against Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. (collectively, “Samsung”) in the U.S. District Court for the Eastern District of Texas alleging that certain Samsung touchscreen phones, including those phones that Samsung had not commenced commercially producing, distributing and selling before January 1, 2016 (the “Accused Phones”), infringe certain of our patents that cover haptic feedback systems and methods. In the complaint, we sought to stop Samsung from further infringement as well as the recovery of damages. The complaints asserted
infringement by the Accused Phones of the following patents:

U.S. Patent No 6,429,846 (the ’846 patent): “Haptic Feedback for Touchpads and Other Touch Controls”

U.S. Patent No 7,969,288 (the ’288 patent): “Force Feedback System Including Multi-Tasking Graphical Host Environment and Interface Device”

U.S. Patent No 9,323,332 (the ’332 patent): “Force Feedback System Including Multi-Tasking Graphical Host Environment”

U.S. Patent No 7,982,720 (the ’720 patent): “Haptic Feedback for Touchpads and Other Touch Controls”

U.S. Patent No 8,031,181 (the ’181 patent): “Haptic Feedback for Touchpads and Other Touch Controls”

Samsung filed a response to the Complaint on October 24, 2017.

On December 15, 2017, the Court issued a Docket Control Order setting the claim construction hearing for August 15, 2018 and the first day of jury selection for February 4, 2019. On March 5, 2018, the Court issued an order resetting the first day of jury selection for February 19, 2019.

On March 8, 2018, we filed a complaint against Samsung in the U.S. District Court for the Eastern District of Texas alleging that the Accused Phones infringe U.S. Patent No 8,619,051, entitled “Haptic Feedback System with Stored Effects,” which covers haptic feedback systems and methods.  In the complaint, we sought to stop Samsung from further infringement as well as the recovery of damages.

Samsung filed a response to the Complaint on April 20, 2018. On April 27, 2018, Samsung filed a motion to consolidate this case with the previously-filed case that we filed on August 3, 2017. On May 11, 2018, we filed an opposition to the motion to consolidate.  On June 8, 2018, the Court granted Samsung’s motion to consolidate this case with the previously-filed case. On July 10, 2018, the Court entered a new scheduling order for the consolidated cases, setting the claim construction hearing for October 9, 2018, and the first day of jury selection for May 6, 2019. On July 24, 2018, we filed an amended complaint in the consolidated cases. On September 4, 2018, the Court moved the first day of jury selection to May 13, 2019. On October 15, 2018, the Court issued its Claim Construction Memorandum and Order. The parties filed motions for summary judgment and to exclude certain expert testimony. The Court ruled on those motions during a pretrial conference held April 22 and 23, 2019 and moved the first day of jury selection, previously scheduled for May 13, 2019 to May 9, 2019. On May 8, 2019, the Court granted the parties’ joint motion for continuance and issued an order continuing the first day of jury selection to May 20, 2019.

On May 12, 2019, the parties entered into a settlement and license agreement. Pursuant to that agreement, on May 15, 2019, the parties filed a joint motion to dismiss the consolidated cases with prejudice. On May 16, 2019, the Court granted the motion and ordered that all claims and counterclaims in consolidated cases 2:17-cv-00572-JRG and 2:17-cv-00055-JRG be dismissed with prejudice, and that each party shall bear its own costs, expenses, and attorneys’ fees.

Samsung Petitions for Inter Partes Review (USPTO)

On August 6, 2018, Samsung filed in the USPTO two petitions for IPR of the ’846 patent (Case Nos. IPR2018-01467 and IPR2018-01468). In each of the IPR petitions, Samsung asserts that certain claims of the ’846 patent are invalid over alleged prior art patents and publications. Immersion filed Patent Owner’s Preliminary Responses in IPR2018-01467 and in

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IPR2018-01468 on November 21, 2018. On February 20, 2019, the USPTO entered Decisions Granting Institution in Case Nos. IPR2018-01467 and IPR2018-01468, both concerning the ’846 patent. The USPTO also issued Scheduling Orders in both cases. On May 22, 2019, pursuant to the parties’ settlement and license agreement, the parties filed a joint motion to terminate the IPR proceedings. On June 18, 2019, the USPTO granted the motion as to Samsung only and vacated the Scheduling Orders that had been entered earlier.

On August 6, 2018, Samsung filed in the USPTO two petitions for IPR of the ’720 patent (Case Nos. IPR2018-01469 and IPR2018-01470). In each of the IPR petitions, Samsung asserts that certain claims of the ’720 patent are invalid over alleged prior art patents and publications. Immersion filed Patent Owner’s Preliminary Responses in both IPR2018-01469 and IPR2018-01470 on December 10, 2018. On March 7, 2019, the USPTO entered Decisions Granting Institution in Case Nos. IPR2018-01469 and IPR2018-01470, both concerning the ’720 patent. The USPTO also issued Scheduling Orders in both cases. On May 22, 2019, pursuant to the parties’ settlement and license agreement, the parties filed a joint motion to terminate the IPR proceedings. On June 18, 2019, the USPTO granted the motion as to Samsung only and vacated the Scheduling Orders that had been entered earlier.

On August 6, 2018, Samsung filed in the USPTO a petition for IPR of the ’288 patent (Case No. IPR2018-01499). In the IPR petition, Samsung asserts that certain claims of the ’288 patent are invalid over alleged prior art patents and publications. Immersion filed a Patent Owner’s Preliminary Response on December 11, 2018. On March 6, 2019, the USPTO entered a Decision Granting Institution in Case No. IPR2018-01499 concerning the ’288 patent. The USPTO also issued a Scheduling Order. On May 22, 2019, pursuant to the parties’ settlement and license agreement, the parties filed a joint motion to terminate the IPR proceedings. On June 18, 2019, the USPTO granted the motion as to Samsung only and vacated the Scheduling Order that had been entered earlier.

On August 6, 2018, Samsung filed in the USPTO two petitions for IPR of the ’181 patent (Case Nos. IPR2018-01500 and IPR2018-01501). In each of the IPR petitions, Samsung asserts that certain claims of the ’181 patent are invalid over alleged prior art patents and publications. Immersion filed Patent Owner’s Preliminary Responses in both IPR2018-01500 and IPR2018-01501 on January 5, 2019.On April 2, 2019, the USPTO entered Decisions Granting Institution in Case Nos. IPR2018-01500 and IPR2018-01501, both concerning the ’181 patent. The USPTO also issued Scheduling Orders in both cases. On May 22, 2019, pursuant to the parties’ settlement and license agreement, the parties filed a joint motion to terminate the IPR proceedings. On June 18, 2019, the USPTO granted the motion as to Samsung only and vacated the Scheduling Orders that had been entered earlier.

On August 6, 2018, Samsung filed in the USPTO a petition for IPR of the ’332 patent (Case No. IPR2018-01502). In the IPR petition, Samsung asserts that certain claims of the ’332 patent are invalid over alleged prior art patents and publications. Immersion filed a Patent Owner’s Preliminary Response on January 5, 2019. On March 29, 2019, the USPTO entered a Decision Granting Institution in Case No. IPR2018-01502 concerning the ’332 patent. The USPTO also issued a Scheduling Order. On May 22, 2019, pursuant to the parties’ settlement and license agreement, the parties filed a joint motion to terminate the IPR proceedings. On June 18, 2019, the USPTO granted the motion as to Samsung only and vacated the Scheduling Order that had been entered earlier.

On March 12, 2019, Samsung filed in the USPTO a petition for IPR of the ’051 patent (Case No. IPR2019-00704). In the IPR petition, Samsung asserts that the claims of the ’051 patent are invalid over alleged prior art patents and publications. On May 23, 2019, pursuant to the parties’ settlement and license agreement, the parties filed a joint motion to terminate the IPR proceedings. On May 30, 2019, the USPTO granted the motion, dismissed Samsung’s petition, and terminated the IPR proceeding.

Immersion Corporation vs. Motorola Mobility LLC and Motorola Mobility Holdings LLC

On August 3, 2017, we filed a complaint against Motorola Mobility LLC and Motorola Mobility Holdings LLC (collectively, “Motorola”) in the U.S. District Court for the District of Delaware alleging that certain Motorola touchscreen phones, including the Moto G4, Moto G4 Play, Moto G4 Plus, Moto G5, Moto G5 Plus, Moto Z, Moto Z Force and Moto Z Play (the “Motorola Accused Phones”), infringe certain of our patents that cover haptic feedback systems and methods. In the complaint, we are seeking to stop Motorola from further infringement as well as the recovery of damages. The complaint asserts infringement by the Motorola Accused Phones of the following patents:

U.S. Patent No 6,429,846: “Haptic Feedback for Touchpads and Other Touch Controls”

U.S. Patent No 7,969,288: “Force Feedback System Including Multi-Tasking Graphical Host Environment and Interface Device”

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U.S. Patent No 9,323,332: “Force Feedback System Including Multi-Tasking Graphical Host Environment”

U.S. Patent No 7,982,720: “Haptic Feedback for Touchpads and Other Touch Controls”

U.S. Patent No 8,031,181: “Haptic Feedback for Touchpads and Other Touch Controls”

On September 25, 2017, Motorola filed its Answer to the Complaint.

On December 5, 2017, the Court issued a Scheduling Order setting the claim construction hearing for September 12, 2018, and the trial date for September 23, 2019. On November 18, 2018, the Court issued an oral order changing the trial date to October 7, 2019.

On February 5, 2018, the Court entered an order setting a mediation conference for August 7, 2018. The mediation conference was rescheduled to October 8, 2018 at the request of the parties. The mediation conference was conducted on October 8, 2018 as rescheduled, but did not result in a settlement. On October 25, 2018, the Court issued its Claim Construction Memorandum and Order.

Opening expert reports were served on February 8, 2019. Rebuttal expert reports were served on March 11, 2019. Reply expert reports were served on April 1, 2019. Expert depositions concluded on April 24, 2019. The parties filed motions for summary judgment and to exclude expert testimony on April 25, 2019.

On April 9, 2019, Motorola filed a motion to stay the litigation pending resolution of the inter partes review proceedings (described below) instituted by the USPTO involving the patents asserted in the Motorola litigation. On April 23, 2019, the Company filed an opposition to that motion. Motorola filed its reply in support of its motion on April 30, 2019. The Court heard Motorola’s motion on May 15, 2019 and suggested that the trial date should be continued to February 10, 2020 and that, if Motorola’s motions to join its inter partes review petitions with Samsung’s petitions were granted, the trial date would be vacated pending final written decisions in the IPR proceedings. The Court entered an order to that effect on June 5, 2019.

On July 31, 2019, the parties entered into a settlement and license agreement, pursuant to which the parties agreed to request that all claims and counterclaims in Civil Action No. 1:17-cv-01081-RGA be dismissed with prejudice, and that each party shall bear its own costs, expenses, and attorneys’ fees. The parties expect to file a joint motion to that effect shortly.

Motorola Petitions for Inter Partes Review (USPTO)

On March 20, 2019, Motorola filed in the USPTO two petitions for IPR of the ’846 patent (Case Nos. IPR2019-00847 and IPR2019-00848). The Motorola petitions are based on Samsung’s petitions in corresponding IPR proceedings (Case Nos. IPR2018-01467 and IPR2018-01468) on the ’846 patent. With the petitions, Motorola moved to join its IPR proceedings with Samsung’s corresponding IPR proceedings. Immersion filed an opposition to Motorola’s joinder motions on April 20, 2019. Immersion filed Patent Owner’s Preliminary Responses in IPR2019-00847 and IPR2019-00848 on June 28, 2019, and the last day for the USPTO to decide whether to institute Motorola’s IPRs of the ’846 patent is September 28, 2019. On July 31, 2019, the parties entered into a settlement and license agreement, in which the parties agreed to withdraw or terminate the IPRs and any associated motion for joinder with Samsung’s corresponding IPR proceedings. The parties expect to file requests to that effect shortly.

On March 22, 2019, Motorola filed in the USPTO two petitions for IPR of the ’720 patent (Case Nos. IPR2019-00868 and IPR2019-00869). The Motorola petitions are based on Samsung’s petitions in corresponding IPR proceedings (Case Nos. IPR2018-01469 and IPR2018-01470) on the ’720 patent. With the petitions, Motorola moved to join its IPR proceedings with Samsung’s corresponding IPR proceedings. Immersion filed an opposition to Motorola’s joinder motions on April 22, 2019. Immersion filed Patent Owner’s Preliminary Responses in IPR2019-00868 and IPR2019-00869 on July 9, 2019 and June 28, 2019, respectively, and the last day for the USPTO to decide whether to institute Motorola’s IPRs of the ’720 patent is October 9, 2019 and September 28, 2019, respectively. On July 31, 2019, the parties entered into a settlement and license agreement, in which the parties agreed to withdraw or terminate the IPRs and any associated motion for joinder with Samsung’s corresponding IPR proceedings. The parties expect to file requests to that effect shortly.

On March 22, 2019, Motorola filed in the USPTO a petition for IPR of the ’288 patent (Case No. IPR2019-00870). The Motorola petition is based on Samsung’s petition in corresponding IPR proceeding (Case No. IPR2018-01499) on the ’288 patent. With the petition, Motorola moved to join its IPR proceeding with Samsung’s corresponding IPR proceeding. Immersion filed an opposition to Motorola’s joinder motion on April 22, 2019. Immersion filed Patent Owner’s Preliminary Response in

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IPR2019-00870 on July 9, 2019, and the last day for the USPTO to decide whether to institute Motorola’s IPR of the ’288 patent is October 9, 2019. On July 31, 2019, the parties entered into a settlement and license agreement, in which the parties agreed to withdraw or terminate the IPRs and any associated motion for joinder with Samsung’s corresponding IPR proceedings. The parties expect to file requests to that effect shortly.

On April 4, 2019, Motorola filed in the USPTO two petitions for IPR of the ’181 patent (Case Nos. IPR2019-00920 and IPR2019-00921). The Motorola petitions are based on Samsung’s petitions in corresponding IPR proceedings (Case Nos. IPR2018-01500 and IPR2018-01501) on the ’181 patent. With the petitions, Motorola moved to join its IPR proceedings with Samsung’s corresponding IPR proceedings. Immersion filed an opposition to Motorola’s joinder motions on May 3, 2019. Immersion may file Patent Owner’s Preliminary Responses in IPR2019-00920 and IPR2019-00921 on July 18, 2019, and the last day for the USPTO to decide whether to institute Motorola’s IPRs of the ’181 patent is October 18, 2019. On July 31, 2019, the parties entered into a settlement and license agreement, in which the parties agreed to withdraw or terminate the IPRs and any associated motion for joinder with Samsung’s corresponding IPR proceedings. The parties expect to file requests to that effect shortly.

On April 4, 2019, Motorola filed in the USPTO a petition for IPR of the ’332 patent (Case No. IPR2019-00922). The Motorola petition is based on Samsung’s petition in corresponding IPR proceeding (Case No. IPR2018-01502) on the ’332 patent. With the petition, Motorola moved to join its IPR proceeding with Samsung’s corresponding IPR proceeding. Immersion filed an opposition to Motorola’s joinder motion on May 3, 2019. Immersion filed a Patent Owner’s Preliminary Response in IPR2019-00922 on July 9, 2019, and the last day for the USPTO to decide whether to institute Motorola’s IPRs of the ’332 patent is October 9, 2019. On July 31, 2019, the parties entered into a settlement and license agreement, in which the parties agreed to withdraw or terminate the IPRs and any associated motion for joinder with Samsung’s corresponding IPR proceedings. The parties expect to file requests to that effect shortly.

Samsung Electronics Co. v. Immersion Corporation and Immersion Software Ireland Limited

On April 28, 2017, we received a letter from Samsung requesting that we reimburse Samsung with respect to withholding tax and penalties imposed on Samsung by the Korean tax authorities following an investigation where the tax authority determined that Samsung failed to withhold taxes on Samsung’s royalty payments to Immersion Software Ireland from 2012 to 2016.  On July 12, 2017, we filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes and penalties. On October 18, 2018, the Korea Tax Tribunal held a hearing and on November 19, 2018, the Korea Tax Tribunal issued its ruling in which it decided not to accept Immersion’s arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on Samsung. We filed an appeal with the Korea Administrative Court on February 15, 2019. The first hearing was scheduled for June 27, 2019.

On September 29, 2017, Samsung filed an arbitration demand with the International Chamber of Commerce against us demanding that we reimburse Samsung for the imposed tax and penalties that Samsung paid to the Korean tax authorities.  Samsung is requesting that we pay Samsung the amount of KRW 7,841,324,165 (approximately $6.9 million) plus interest from and after May 2, 2017, plus the cost of the arbitration including legal fees. We deny liability, and asked the International Chamber of Commerce to postpone the arbitration until the tax appeal is resolved. The arbitration panel conducted an initial status conference on February 7, 2018. The International Chamber of Commerce denied our motion to postpone the arbitration, and on March 2, 2018, issued a Procedural Order setting the hearing date for July 23, 2018. We filed our Statement of Defense and Counterclaim on April 16, 2018. A short discovery phase followed, and each side produced documents in May. Samsung filed its Reply to our Statement of Defense on June 11, 2018, and we filed our Reply on June 25, 2018. The evidentiary hearing took place in Hawaii July 23-24, 2018. The parties submitted supplemental legal authorities on August 8, 2018, and submitted cost submissions on October 15, 2018. On August 15, 2018, the Secretariat of the International Court of Arbitration of the International Chamber of Commerce extended the time for rendering the final award until October 31, 2018. On October 31, 2018, the Secretariat of the International Court of Arbitration of the International Chamber of Commerce again extended the time for rendering the final award until November 30, 2018. On November 8, 2018, the Secretariat of the International Court of Arbitration of the International Chamber of Commerce again extended the time for rendering the final award until December 31, 2018. On December 6, 2018, the Secretariat of the International Court of Arbitration of the International Chamber of Commerce again extended the time for rendering the final award until January 31, 2019. On January 8, 2019, the Secretariat of the International Court of Arbitration of the International Chamber of Commerce informed us that it had received on that day a draft award submitted by the arbitration tribunal, and that it would scrutinize the draft at one of its next sessions. On January 31, 2019, the International Chamber of Commerce reported to the parties that it had approved the draft award submitted by the arbitral tribunal, and would notify the award to the parties once the arbitral tribunal has considered the Court’s comments, finalized the award and signed it. Also on January 31, 2019, the Secretariat of the International Chamber of Commerce again extended the time for rendering the final award until February 28, 2019. On March 27, 2019, we received the final award. The award ordered Immersion to pay Samsung KRW 7,841,324,165 (approximately $6.9 million), which we paid on April 22, 2019,

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denied Samsung’s claim for interest from and after May 2, 2017; and ordered Immersion to pay Samsung’s cost of the arbitration in the amount of approximately $871,454.

The Company believes that there are valid defenses to all of the claims from the Korean tax authorities. The Company intends to vigorously defend against the claims from the Korean tax authorities. The Company expects to be reimbursed by Samsung to the extent the Company prevails in the appeal with the Korea Administrative Court.

Immersion Corporation vs. Samsung (China) Investment Co., Ltd., Huizhou Samsung Electronics Co., Ltd and Fujian Province Min Xin Household Electrical Appliances Technology Service Co., Ltd. (Fuzhou Intellectual Property Court - Case: Min 01 Min Chu No. 342 (2018))

On March 8, 2018, we filed a complaint against Samsung (China) Investment Co., Ltd. (“Samsung China”), Huizhou Samsung Electronics Co., Ltd. (“Samsung Huizhou”) (together with Samsung China, “Samsung”), and Fujian Province Min Xin Household Electrical Appliances Technology Service Co., Ltd. in the Fuzhou Intermediate Court in Fuzhou, China alleging that certain Samsung touchscreen phones, including the Galaxy S8, S8+, and Note8, infringe three Immersion Chinese patents. The three patents at issue, covering haptic feedback systems and methods in electronic devices, are Chinese Patent No. ZL02821854.X, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”; Chinese Patent No. ZL201210005785.2, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”; and Chinese Patent No. ZL201310253562.2, entitled “Method and Apparatus for Providing Tactile Feedback Sensations.”  Immersion’s complaint seeks to stop defendants from using patented methods during manufacturing; to stop defendants from manufacturing, offering to sell, selling, or jointly selling infringing products; as well as the recovery of damages.  The Fuzhou Intellectual Property Court accepted the case on March 8, 2018.  Samsung China filed a jurisdictional objection on April 10, 2018 in which it asked the court to move the case to Beijing IP court. Samsung Huizhou filed a jurisdictional objection on April 10, 2018 in which it asked the court to move the case to Guangzhou IP court. On May 8, 2018, the court rejected both jurisdictional objections. Samsung Huizhou and Samsung China appealed and the pretrial conference originally scheduled for June 14-15, 2018 was postponed pending a ruling from the Fujian High Court. On September 20, 2018 the Fujian High Court rejected the jurisdictional objection appeals. Samsung China and Samsung Huizhou filed Petitions for Invalidation on April 16, 2018 with the Chinese Patent Office (“SIPO”) for all three patents. Samsung China and Samsung Huizhou supplemented their petitions in May, and we responded on June 1, 2018. A hearing on the petition for Chinese Patent No. ZL02821854.X occurred on July 18, 2018. Hearings on the petitions for Chinese Patent No. ZL201210005785.2 and Chinese Patent No. ZL201310253562.2 occurred on September 28, 2018. Trial was originally scheduled for November 12, and 14, 2018; the Fuzhou Intellectual Property Court granted Immersion's request to postpone trial but did not set revised dates. The Company and Samsung each submitted evidence for use at trial on or before October 26, 2018. The Patent Reexamination Board of SIPO issued invalidation decisions against Chinese Patent No. ZL02821854.X on November 21, 2018, against Chinese Patent No. ZL201310253562.2 on November 14, 2018, and against Chinese Patent No. ZL201210005785.2 on November 15, 2018, declaring all three Chinese patents invalid. The Company filed an application to withdraw its complaint from the Fuzhou Intermediate Court on December 10, 2018, and received the ruling that allows Immersion to withdraw the case from the Fuzhou Intermediate Court on December 29, 2018. The Company pre-registered the appeals against the invalidation decisions with the Beijing IP Court on February 14, 2019. On April 28, 2019, the Company filed the appeal against the invalidation decisions with the Beijing IP court. On June 6, 2019, SIPO responded to the Company’s filing of the appeal with its counterarguments to the arguments set forth in our appeal filing.

Immersion Corporation vs. Samsung Electronics GmbH

On February 25, 2019, we filed a patent infringement lawsuit against Samsung Electronics GmbH in Mannheim District Court in Germany alleging that certain Samsung touchscreen phones infringe German Patent 602008058897.1 (EP Patent 2463752), a counterpart of U.S. Patent No. 8,619,051, “Haptic Feedback System with Stored Effects,” which patent is being asserted against Samsung Electronics America, Inc. and Samsung Electronics Co., Ltd. and was previously asserted against Apple, Inc. In the complaint, we are seeking injunctive relief, a claim for accounting, declaratory judgment on liability for damages and additional remedies such as destruction and costs.

By order dated March 11, 2019, the Mannheim District Court scheduled a hearing on the merits for December 3, 2019. With such order, the court also ordered Samsung Electronics GmbH to announce a counsel of record and to file an answer to the complaint within 8 weeks of receiving service of such order. Samsung requested a four week extension of the deadline to file their answer which was granted by the Court on April 30, 2019. On May 12, 2019, the parties entered into a settlement and license agreement. Pursuant to that agreement, on May14, 2019, Immersion filed to withdraw its action against Samsung. By order dated May 24, 2019, the Mannheim District Court confirmed that the action was withdrawn.


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We cannot predict the ultimate outcome of the above-mentioned actions, and we are unable to estimate any potential liability we may incur. Please also refer to our disclosures in Contingencies, Note 12 to the condensed consolidated financial statements.



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ITEM 1A. RISK FACTORS

As previously discussed, our actual results could differ materially from our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to those discussed below. These and many other factors described in this report could adversely affect our operations, performance and financial condition.

Company Risks

If we are unable to enter into new and renewed licensing arrangements with our existing licensees and with additional third parties for our touch-enabling technologies, our royalty and license revenue may not grow and could decline.

Our revenue growth is largely dependent on our ability to enter into new and renew existing licensing arrangements. Our failure to enter into new or renewed licensing arrangements will cause our operating results to suffer. We also face numerous risks in obtaining new or renewed licenses on terms consistent with our business objectives and in maintaining, expanding, and supporting our relationships with our current licensees. These risks include:

• difficulties in persuading device manufacturers to take a license or renew a license to our intellectual property without the expenditure of significant resources;

• difficulties in persuading existing customers that they still need a license to the portfolio as individual patents expire or become limited in scope, declared unenforceable or invalidated;

• reluctance of device manufacturers to take a license or renew a license to our intellectual property because other larger device manufacturers are not licensed;

• difficulties in entering into or renewing gaming licenses if video game console makers choose not to license third parties to make peripherals for their new consoles, if video game console makers no longer require peripherals to play video games, if video game console makers no longer utilize technology in the peripherals that are covered by our patents or if the overall market for video game consoles deteriorates substantially;

• the competition we may face from third parties, including the internal design teams of existing and potential licensees;

• difficulties in achieving and maintaining consumer and market demand or acceptance for our products;

• difficulties in persuading third parties to work with us, to rely on us for critical technology, and to disclose to us proprietary product development and other strategies;

• difficulties in persuading existing licensees who compensate us for including our software in certain of their touch-enabled products to also license and compensate us for our patents that cover other touch-enabled products of theirs that do not include our software;

• challenges in demonstrating the compelling value of our technologies and challenges associated with customers’ ability to easily implement our technologies; and

• inability of current or prospective licensees to ship certain devices if they are involved in IP infringement claims by third parties that ultimately prevent them from shipping products or that impose substantial royalties on their products.

Further, with the adoption of Accounting Standard Codification ("ASC") 606, Revenue from Contracts with Customers , ("ASC 606"), effective January 1, 2018, we recognize a substantial portion of revenue from our fixed license fee contracts up front, with the remainder recognized over time, which relates to our future performance obligations to be transferred during the contract term. Previously, our fixed license fee revenue was typically recognized ratably over time in accordance with revenue recognition guidance under ASC 605, Revenue Recognition ("ASC 605"). This change in accounting policy provides less predictability in our revenue when compared to historical periods.

A limited number of customers account for a significant portion of our revenue, and the loss of major customers could harm our operating results.

Three customers accounted for 22%, 14% and 13% of our total revenues for the six months ended June 30, 2019 , as compared to the six months ended June 30, 2018 where one customer accounted for more than 10% of our total revenues.

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In addition, we cannot be certain that other customers that have accounted for significant revenue in past periods, individually or as a group, will continue to generate similar revenue in any future period.

If we fail to renew or lose a major customer or group of customers, or if a customer decides that our intellectual property is no longer relevant and stops paying us royalties, our revenue could decline if we are unable to replace the lost revenue with revenue from other sources. In addition, if potential customers or customers with expiring agreements view the loss of one of our major customers as an indicator of the value of our software and/or the strength of our intellectual property, they may choose not to take or renew a license which could adversely affect our operating results.

From time to time, stockholders have attempted and may continue to attempt to influence us, which could adversely affect our operations, financial condition and the value of our common stock.
Our stockholders have and may from time-to-time seek to acquire a controlling stake in our company, engage in proxy solicitations, or otherwise attempt to effect changes at our company. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases, or sales of assets or the entire company. Responding to proxy contests and other actions by stockholders can be costly and time-consuming, and could disrupt our operations and divert the attention of our board of directors and senior management from the pursuit of our business strategies. These actions could adversely affect our operations, financial condition and the value of our common stock.

Our current or any future litigation, arbitration and administrative proceedings to enforce or defend our intellectual property rights and to defend our licensing practices are expensive, disruptive and time consuming, and will continue to be, until resolved, and regardless of whether we are ultimately successful, could adversely affect our business.

We have been in the past and are currently a party to various legal proceedings with companies that have significantly greater financial resources than us to enforce or defend our intellectual property rights and to defend our licensing practices. For example, we had previously initiated patent infringement litigation against Samsung and Motorola. While we settled such litigation, we may enforce or defend our intellectual property rights and defend our licensing practices in the future. Due to the inherent uncertainties of litigation and administrative proceedings, we cannot accurately predict how these proceedings will ultimately be resolved. We anticipate that currently pending or any future legal proceedings will continue to be costly, given the significant resources available to our current adverse parties, and that future legal proceedings will result in additional legal expenses, resulting in the decrease of cash available for other parts of our business, and there can be no assurance that we will be successful or be able to recover the costs we incur in connection with the legal proceedings. Although protecting our intellectual property is a fundamental part of our business, at times, our legal proceedings have diverted, and could continue to divert, the efforts and attention of some of our key management and personnel away from our licensing transactions and other aspects of our business. As a result, until such time as it is resolved or concluded, litigation, arbitration and administrative proceedings could cause our technology to be perceived as less valuable in the marketplace, which could reduce our sales and adversely affect our business. Further, any unfavorable outcome could adversely affect our business. For additional background on our litigation, please see Part I, Item 3, “Legal Proceedings.”

If we fail to protect and enforce our IP rights or if we fail to continuously develop or acquire successful innovations and obtain patents on these innovations, our ability to license our technologies and generate revenues would be impaired.

Our business depends on generating revenues by licensing our IP rights and by customers selling products that incorporate our technologies. We rely on our significant patent portfolio to protect our proprietary rights. If we are not able to protect and enforce those rights, our ability to obtain future licenses or maintain current licenses and royalty revenue could be impaired. In addition, if a court or patent office were to limit the scope, declare unenforceable, or invalidate any of our patents, current licensees may refuse to make royalty payments, or they may choose to challenge one or more of our patents. It is also 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;

• effective patent protection may not be available in every country, particularly in Asia, where we or our licensees do business; and

• any litigation we are or may be involved in may be unsuccessful or may result in one or more of the patents asserted becoming limited in scope, declared unenforceable or invalidated.


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In addition, our patents will continue to expire according to their terms which may have an adverse effect on our business. Our failure to continuously develop or acquire successful innovations and obtain patents on those innovations could significantly harm our business, financial condition, results of operations or cash flows. In addition, we also rely on licenses, confidentiality agreements, other contractual 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; and

• policing unauthorized use of our patented technologies, trademarks, and other proprietary rights would be difficult, expensive, and time-consuming, within and particularly outside of the United States.

We have in the past initiated legal proceedings to protect our intellectual property and may need to continue to do so in the future. We may need to initiate legal proceedings in the future. Any legal or administrative proceeding initiated by us to protect or enforce our IP rights has, and may in the future result in substantial legal expenses and risk, could lead to counterclaims and adverse rulings affecting our patents, and may divert our management’s time and attention away from our other business operations, which could significantly harm our business.

Potential patent and litigation reform legislation, potential United States Patent and Trademark Office ("USPTO") and international patent rule changes, potential legislation affecting mechanisms for patent enforcement and available remedies, and potential changes to the intellectual property rights policies of worldwide standards bodies, as well as rulings in legal proceedings may affect our investments in research and development and our strategies for patent prosecution, licensing and enforcement and could have a material adverse effect on our licensing business as well as our business as a whole.    
 
Potential changes to certain U.S. and international patent laws, rules and regulations may occur in the future, some or all of which may affect our research and development investments, patent prosecution costs, the scope of future patent coverage we secure, remedies that we may be entitled to in patent litigation, and attorneys’ fees or other remedies that could be sought against us, and may require us to reevaluate and modify our research and development activities and patent prosecution, licensing and enforcement strategies.

Similarly, legislation designed to reduce the jurisdiction and remedial authority of the United States International Trade Commission (the “USITC”) has periodically been introduced in Congress. Any potential changes in the law, the IP rights policies of standards bodies or other developments that reduce the number of forums available or the type of relief available in such forums (such as injunctive relief), restrict permissible licensing practices (such as our ability to license on a worldwide portfolio basis) or that otherwise cause us to seek alternative forums (such as arbitration or state court), would make it more difficult for us to enforce our patents, whether in adversarial proceedings or in negotiations.  Because we have historically depended on the availability of certain forms of legal process to enforce our patents and obtain fair and adequate compensation for our investments in research and development and the unauthorized use of our intellectual property, developments that undermine our ability to do so could have a negative impact on future licensing efforts. 

Rulings in our legal proceedings as well as those of third parties may affect our strategies for patent prosecution, licensing and enforcement.  For example, in recent years, the USITC and U.S. courts, including the U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit, have taken some actions that have been viewed as unfavorable to patentees. Decisions that occur in U.S. or in international forums may change the law applicable to various patent law issues, such as, for example, patentability, validity, patent exhaustion, patent misuse, remedies, permissible licensing practices, claim construction, and damages, in ways that are detrimental to the abilities of patentees to enforce patents and obtain damages awards.

We continue to monitor and evaluate our strategies for prosecution, licensing and enforcement with regard to these developments; however, any resulting change in such strategies may have a material adverse effect on our business and financial condition.

If companies choose to implement haptics without our software or a license to our patents, we could have to expend significant resources to enforce or defend our intellectual property rights and to defend our licensing practices which may have a negative impact on our financial results.

As a small company, we may not have the resources to reach every company who is introducing or planning to introduce haptics into the market. In addition, as a small company, we have limited engineering resources that may make it difficult to support every type of haptic implementation with our software offerings or to introduce new technologies in a timely manner. In the instances where a potential customer is not using our software but implements unlicensed haptic capability, we may need

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to seek to enforce our intellectual property. If the customer is unwilling to enter into a license agreement, we may elect to pursue litigation which would harm our relationship with the potential customer and could harm our relationships with other licensees or our ability to gain new customers, who may postpone licensing decisions pending the outcome of the litigation or dispute, or who may, as a result of such litigation, choose not to adopt our technologies. In addition, these legal proceedings could be very expensive and could have a negative impact on our financial results.

We also license our software and/or patents to semiconductor manufacturers who incorporate our technologies into their integrated circuits for use in certain electronic devices. While our relationships with these semiconductor manufacturers increase our distribution channels by leveraging their sales channels, this could introduce confusion into our licensing model which has traditionally been focused on licensing the OEM. In the event that the semiconductor manufacturers do not recognize the need to license our technologies or in the event we do not correctly structure our licensing programs to avoid patent exhaustion or implied licenses, we could negatively impact our business and financial results.

We had an accumulated deficit of $118.2 million as of June 30, 2019 and may not return to consistent profitability in the future.

As of June 30, 2019 we had an accumulated deficit of $118.2 million . We need to generate significant ongoing revenues to return to consistent profitability. We will continue to incur expenses as we:

• increase our sales and marketing efforts;

• engage in research and develop our technologies;

• protect and enforce our IP; and

• incur costs related to litigation.

If our revenues grow more slowly than we anticipate or if our operating expenses exceed our expectations, we may not return to profitability.

We might be unable to retain or recruit necessary personnel, which could slow the development and deployment of our technologies.

Our technologies are complex, and we rely upon the continued service of our existing personnel to support licensees, enhance existing technologies, and develop new technologies. Accordingly, our ability to develop and deploy our technologies and to sustain our revenue growth depends upon the continued service of our management and other key personnel, many of whom would be difficult to replace. Furthermore, we believe that there are a limited number of engineering and technical personnel that are experienced in haptics. Management and other key employees may voluntarily terminate their employment with us at any time without notice. The loss of management or key personnel could delay product development cycles or otherwise harm our business.

We have experienced turnover in our senior management. For example, our Chief Executive Officer recently joined us in January 2019, our General Counsel joined us on June 10, 2019, and our interim Chief Financial Officer joined us on July 30, 2019. This lack of management continuity and turnover amongst our employees, which we have experienced recently, could result in operational and administrative inefficiencies and added costs, which could adversely impact our results of operations, stock price and customer relationships, and could make recruiting for future management positions more difficult. We believe that our future success will also depend largely on our ability to attract, integrate, and retain sales, support, marketing, and research and development personnel.   We must successfully integrate any new senior management and other new personnel within our organization in order to achieve our operating objectives, and changes in other key positions may temporarily affect our financial performance and results of operations as new employees become familiar with our business. Additionally, competition for such personnel is intense, and we may not be successful in attracting, integrating, and retaining such personnel. Given the protracted nature of, if, how, and when we collect royalties on new contracts, it may be difficult to craft compensation plans that will attract and retain the level of salesmanship needed to secure these contracts. Additionally, our compensation packages need to be competitive in the Silicon Valley where the stock component of compensation is an important factor that candidates and employees consider. Some of our executive officers and key employees hold stock options with exercise prices that may be above the current market price of our common stock or that are largely vested. Each of these factors may impair our ability to retain the services of our executive officers and key employees.


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We may incur greater tax liability than we have provided for if we do not achieve increased tax benefits as a result of our 2015 corporate reorganization and may incur additional tax liability due to certain indemnification agreements with certain licensees, which could adversely affect our financial condition and operating results.

We completed a reorganization of our corporate organization in 2015. The purpose of this reorganization was to more closely align our corporate structure with the international nature of our business activities. This corporate reorganization activity is anticipated to allow us to reduce our overall effective tax rate through changes in how we develop and use our intellectual property and the structure of our international sales operations, including by entering into transfer-pricing arrangements that establish transfer prices for our intercompany transactions.

There can be no assurance that the taxing authorities of the jurisdictions in which we operate or to which we are otherwise deemed to have sufficient tax nexus will not challenge the restructuring or the tax position that we take.

Any benefits to our tax rate will also depend on our ability to operate our business in a manner consistent with the reorganization of our corporate organization and applicable tax provisions, as well as on our achieving our forecasted revenue growth rates. If the intended tax treatment is not accepted by the applicable taxing authorities, changes in tax law negatively impact the structure (for sample, changes currently anticipated arising from the agreement recently reached by the Competent Authorities of Ireland and Malta), or we do not operate our business consistent with the intended reorganization and applicable tax provisions, we may fail to achieve the financial efficiencies that we anticipate as a result of the reorganization and our future operating results and financial condition may be negatively impacted. In addition, future changes to U.S. or non-U.S. tax laws, including legislation to reform U.S. or other countries' taxation of international business activities, could negatively impact the anticipated tax benefits of the reorganization.

Additionally, from time to time, we enter into license agreements with our licensees pursuant to which we may agree to indemnify a customer for certain taxes imposed on the customer by an applicable tax authority and related expense. We have received requests from certain licensees requesting that we reimburse them for certain tax liabilities. For example, on April 28, 2017, we received a letter from Samsung requesting that we reimburse Samsung with respect to withholding tax and penalties imposed on Samsung by the Korean tax authorities as a result of its determination that withholding taxes should have been withheld from certain payments made from Samsung to Immersion Software Limited, a request that was arbitrated by a panel of the International Chamber of Commerce. On March 27, 2019, the panel issued a final award. The award ordered us to pay Samsung KRW 7,841,324,165 (approximately $6.8 million), which we paid on April 22, 2019, denied Samsung’s claim for interest from and after May 2, 2017; and ordered us to pay Samsung’s cost of the arbitration in the amount of approximately $871,454.

In addition, on October 16, 2017, we received a letter from LG Electronics Inc. (“LGE”) requesting that we reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland from 2012 to 2014. On November 3, 2017, we filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes. The Korea Tax Tribunal hearing took place on March 5, 2019. On March 19, 2019, the Korea Tax Tribunal issued its ruling in which it decided not to accept Immersion’s arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on LGE. We filed an appeal with the Korea Administrative Court on June 10, 2019. The first hearing is scheduled for October 15, 2019.

In the event that it is determined that we are obligated to further indemnify Samsung and/or LGE for such withholding taxes imposed by the Korean tax authorities, receive further requests for reimbursement of tax liabilities from other licensees, we would incur significant expenses.

The terms in our agreements may be construed by our licensees in a manner that is inconsistent with the rights that we have granted to other licensees or in a manner that may require us to incur substantial costs to resolve conflicts over license terms.

We have entered into, and we expect to continue to enter into, agreements pursuant to which our licensees are granted rights to our technology and our IP. These rights may be granted in certain fields of use, or with respect to certain market sectors or product categories, and may include exclusive rights or sublicensing rights. We refer to the license terms and restrictions in our agreements, including, but not limited to, field of use definitions, market sector, and product category definitions, collectively as “License Provisions.”

Due to the continuing evolution of market sectors, product categories, and business models, and to the compromises inherent in the drafting and negotiation of License Provisions, our licensees may interpret License Provisions in their

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agreements in a way that is different from our interpretation of such License Provisions, or in a way that is in conflict with the rights that we have granted to other licensees. Such interpretations by our licensees may lead to claims that we have granted rights to one licensee that are inconsistent with the rights that we have granted to another licensee or that create a dispute as to which products are covered by the license and subject to a royalty payment. Many of our customers report royalties to us based on their shipments or their revenues and their interpretation and allocation of contracted royalty rates. It is possible that the originally reported royalties could differ materially from those determined by either a customer self-reported correction or from an audit we have performed. These interpretations may also cause disagreements arising during customer audits, may lead to claims or litigation, and may have an adverse effect on the results of our operations. Further, although our agreements generally give us the right to audit books and records of our licensees, audits can be expensive, time consuming, and may not be cost justified based on our understanding of our licensees’ businesses. Pursuant to our license compliance program, we audit certain licensees to review the accuracy of the information contained in their royalty reports in an effort to decrease the risk of our not receiving royalty revenues to which we are entitled, but we cannot give assurances that such audits will be effective.

In addition, after we enter into an agreement, it is possible that markets and/or products, or legal and/or regulatory environments, will evolve in an unexpected manner. As a result, in any agreement, we may have granted rights that will preclude or restrict our exploitation of new opportunities that arise after the execution of the agreement.

Our international operations subject us to additional risks and costs.

We currently have sales personnel in Japan, Korea, and China. International revenues accounted for approximately 54% of our total revenues in the three months ended June 30, 2019 . International operations are subject to a number of difficulties, risks, and special costs, including:

• compliance with multiple, conflicting and changing governmental laws and regulations;

• laws and business practices favoring local competitors;

• foreign exchange and currency risks;

• changing import and export restrictions, duties, tariffs, quotas and other barriers;

• difficulties staffing and managing foreign operations;

• difficulties and expense in establishing and enforcing IP rights internationally;

• business risks, including fluctuations in demand for our technologies and products and the cost and effort to conduct international operations and travel abroad to promote international distribution and overall global economic conditions;

• multiple conflicting and changing tax laws and regulations;

• political and economic instability; and

• the possibility of an outbreak of hostilities or unrest in markets where major customers are located, including Korea.

Our international operations could also increase our exposure to international laws and regulations, which are subject to change. If we cannot comply with foreign laws and regulations, which are often complex and subject to variation, differing or inconsistent government interpretation, and unexpected changes, we could incur unexpected costs and potential litigation. For example, the governments of foreign countries might attempt to regulate our products or levy sales or other taxes relating to our activities. In addition, foreign countries may impose tariffs, duties, price controls, or other restrictions on foreign currencies or trade barriers, any of which could make it more difficult for us to conduct our business internationally. Our international operations could also increase our exposure to complex international tax rules and regulations. Changes in, or interpretations of, tax rules and regulations may adversely affect our income tax provision. In addition, our operations outside the United States may be affected by changes in trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment, including the U.S. Foreign Corrupt Practices Act and local laws prohibiting corrupt payments by our employees, vendors, or agents.


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We may not be able to continue to derive significant revenues from makers of peripherals for popular video gaming platforms.

A significant portion of our gaming royalty revenues comes from third-party peripheral makers who make licensed gaming products designed for use with popular video game console systems from Microsoft, Sony, and Nintendo. Video game console systems are closed, proprietary systems, and video game console system makers typically impose certain requirements or restrictions on third-party peripheral makers who wish to make peripherals that will be compatible with a particular video game console system. If third-party peripheral makers cannot or are not allowed to satisfy these requirements or restrictions, our gaming royalty revenues could be significantly reduced. Furthermore, should a significant video game console maker choose to omit touch-enabling capabilities from its console systems or somehow restrict or impede the ability of third parties to make touch-enabling peripherals, it could lead our gaming licensees to stop making products with touch-enabling capabilities, thereby significantly reducing our gaming royalty revenues. Also, if the video game industry changes such that mobile or other platforms increase in popularity at the expense of traditional video game consoles, our gaming royalty revenues could be substantially reduced if we are unable to enter into replacement arrangements enabling us to license our software or IP in connection with gaming on such mobile or other platforms. Although we have a significant software and IP position with respect to VR peripherals and systems, the market may not become large enough to generate material revenues. Finally, as some of our litigated patents have expired related to video game peripherals, our gaming royalty revenues will likely decline until we are successful in proving the relevance of our IP for this market.

Because we have a fixed payment license with Microsoft, our royalty revenue from licensing in the gaming market and other consumer markets has previously declined and may further do so if Microsoft increases its volume of sales of touch-enabled products at the expense of our other licensees.

Under the terms of our present agreement with Microsoft, Microsoft receives a royalty-free, perpetual, irrevocable license (including sublicense rights) to our worldwide portfolio of patents. This license permits Microsoft to make, use, and sell hardware, software, and services, excluding specified products, covered by our patents. We will not receive any further revenues or royalties from Microsoft under our current agreement with Microsoft, including with respect to Microsoft’s Xbox One gaming product or any other haptic-related product. Microsoft has a significant share of the market for touch-enabled console gaming computer peripherals and is pursuing other consumer markets such as mobile devices, tablets, personal computers, and VR and AR. Microsoft has significantly greater financial, sales, and marketing resources, as well as greater name recognition and a larger customer base than some of our other licensees. In the event that Microsoft increases its share of these markets, our royalty revenue from other licensees in these market segments may decline.

Automobiles incorporating our touch-enabling technologies are subject to lengthy product development periods, making it difficult to predict when and whether we will receive royalties for these product types.

The product development process for automobiles is very lengthy, sometimes longer than four years. We may not earn royalty revenue on our automotive device technologies unless and until products featuring our technologies are shipped to customers, which may not occur until several years after we enter into an agreement with a manufacturer or a supplier to a manufacturer. Throughout the product development process, we face the risk that a manufacturer or supplier may delay the incorporation of, or choose not to incorporate, our technologies into its products, making it difficult for us to predict the royalties we may receive, if any. After the product launches, our royalties still depend on market acceptance of the vehicle, or the option packages if our technology is an option (for example, a navigation unit), which is likely to be determined by many factors beyond our control.

We have little or no control or influence on our licensees’ design, manufacturing, quality control, promotion, distribution, or pricing of their products incorporating our touch-enabling technologies, upon which we generate royalty revenue.

A key part of our business strategy is to license our software and IP to companies that manufacture and sell products incorporating our touch-enabling technologies. Substantially all of our total revenues were royalty and license revenues for the first and second quarters in 2018 and 2019. We do not control or influence the design, manufacture, quality control, promotion, distribution or pricing of products that are manufactured and sold by our licensees, nor can we control consolidation within an industry which could either reduce the number of licensable products available or reduce royalty rates for the combined licensees. In addition, we generally do not have commitments from our licensees that they will continue to use our technologies in current or future products. As a result, products incorporating our technologies may not be brought to market, achieve commercial acceptance or otherwise generate meaningful royalty revenue for us. For us to generate royalty and license revenue, licensees that pay us per-unit royalties must manufacture and distribute products incorporating our touch-enabling technologies in a timely fashion and generate consumer demand through marketing and other promotional activities. If our licensees’

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products fail to achieve commercial success, or if their products are recalled because of quality control problems or if they do not timely ship products incorporating our touch-enabling technologies or fail to achieve strong sales, our revenues will not grow and could decline.

Our business may suffer if third parties assert that we violate their IP rights.

Third parties have previously claimed and may in the future claim that we or our customers are infringing upon their IP rights. Even if we believe that such claims are without merit or that we are not responsible for them under the indemnification or other terms of our customer license agreements, they can be time-consuming and costly to defend against and may divert management’s attention and resources away from our business. Furthermore, third parties making such claims may be able to obtain injunctive or other equitable relief that could block our ability to further develop or commercialize some or all of our software technologies or services in the United States and abroad. Claims of IP infringement also might require us to enter into costly settlement or license agreements or pay costly damage awards. Even if we have an agreement that provides for a third party to indemnify us against such costs, the indemnifying party may be unable or unwilling to perform its contractual obligations.

We license some technologies from third parties. We must rely upon the owners of these technologies for information on the origin and ownership of the technologies. As a result, our exposure to infringement claims may increase. We generally obtain representations as to the origin and ownership of acquired or licensed technologies 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. If we cannot or do not license the infringed IP at all or on reasonable terms, or substitute similar technology from another source, our business, financial position, results of operations or cash flows could suffer.

Our business and operations could suffer in the event of security breaches.

Attempts by others to gain unauthorized access to our information technology systems, computer malware and cyber attacks have become more prevalent and sophisticated. These threats and attempts, which might be related to industrial or other espionage, include covertly introducing malware such as viruses, worms and other malicious software programs to our computers and networks and impersonating authorized users, among others. These threats are constantly evolving, making it increasingly difficult to successfully defend against them or implement adequate protective measures. We might be unaware of an incident or its magnitude and effects. These attacks may create system disruptions or cause shutdowns, theft, unauthorized use or publication of our intellectual property and/or confidential business information, which could harm our competitive position and reputation, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect our business. To the extent that any future security breach results in inappropriate disclosure of our customers' confidential information, we may incur liability.

In addition, our business involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation, regulatory inquiries or actions, and possible liability. Our security measures or those of third parties involved in the storage or transfer of data may be breached as a result of third-party action, employee error, malfeasance or otherwise, during data transfers, and could result in someone obtaining unauthorized access to our data or our customers’ data. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data or our customers’ data. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our customers may authorize third party technology providers, to access their customer data. Because we do not control the transmissions between our customers and third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the complete integrity or security of such transmissions or processing. Any security breach or perceived security breach could result in a loss of confidence in the security of our service, damage our reputation, lead to legal liability and negatively impact our future sales.

If we are unable to develop open source compliant products, our ability to license our technologies and generate revenues would be impaired.

We have seen, and believe that we will continue to see, an increase in customers requesting that we develop products that will operate in an “open source” environment. Developing open source compliant products without imperiling the IP rights upon which our licensing business depends may prove difficult under certain circumstances, thereby placing us at a competitive disadvantage for new product designs. Some of our proprietary technologies incorporate open source software that may be subject to open source licenses. These open source licenses may require that source code subject to the license be released or

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made available to the public. Such open source licenses may mandate that software developed based on source code that is subject to the open source license, or combined in specific ways with such open source software, become subject to the open source license. We take steps to ensure that proprietary software we do not wish to disclose is not combined with, or does not incorporate, open source software in ways that would require such proprietary software to be subject to an open source license. However, few courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. We often take steps to disclose source code for which disclosure is required under an open source license, but it is possible that we have made or will make mistakes in doing so, which could negatively impact our brand or our adoption in the community, or could expose us to additional liability. In addition, we rely on multiple software programmers to design our proprietary products and technologies. Although we take steps to ensure that our programmers (both internal and outsourced) do not include open source software in products and technologies we intend to keep proprietary, we cannot be certain that open source software is not incorporated into products and technologies we intend to keep proprietary. In the event that portions of our proprietary technology are determined to be subject to an open source license, or are intentionally released under an open source license, we could be required to publicly release the relevant portions of our source code, which could reduce or eliminate our ability to commercialize our products and technologies. As a result, our revenues may not grow and could decline.

Our business depends in part on access to third-party platforms and technologies, and if the access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies change, our business and operating results could be adversely affected.

Many of our current and future software technologies are designed for use with third-party platforms and technologies. Our business relies on our access to these platforms and technologies of third parties, which can be withdrawn, denied or not be available on terms acceptable to us.

Our access to third-party platforms and technologies may require paying royalties or other amounts, which lowers our margins, or may otherwise be on terms that are not acceptable to us. In addition, the third-party platforms or technologies used to interact with our software technologies can be delayed in production or can change in ways that negatively impact the operation of our software.

If we are unable to access third-party platforms or technologies, or if our access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies are delayed or change, our business and operating results could be adversely affected.

The uncertain economic and political environment could reduce our revenues and could have an adverse effect on our financial condition and results of operations.

The current global economic conditions and political climate could materially hurt our business in a number of ways, including longer sales and renewal cycles, exchange rate volatility, delays in adoption of our products or technologies or those of our customers, increased risk of competition, higher taxes and tariffs on goods incorporating out technologies, higher overhead costs as a percentage of revenue, delays in signing or failing to sign customer agreements or signing customer agreements with reduced royalty rates. In addition, our customers, potential customers, and business partners would likely face similar challenges, which could materially and adversely affect the level of business they conduct with us or the sales volume of products that include our technology.

Our technologies are complex and may contain undetected errors, which could harm our reputation and future sales.

Any failure to provide high quality and reliable technologies, whether caused by our own failure or failures of our suppliers or customers, could damage our reputation and reduce demand for our technologies. Our technologies have in the past contained, and may in the future contain, undetected errors or defects. These errors or defects may increase as our technologies are introduced into new devices, markets and applications, including the automotive market, or as new versions are released. Some errors in our technologies may only be discovered after a customer’s product incorporating our technologies has been shipped to customers. Undiscovered vulnerabilities in our technologies or products could expose our customers to hackers or other unscrupulous third parties who develop and deploy viruses, worms and other malicious software programs that could attached our products or technologies. Any errors or defects discovered in our technologies after commercial release could result in product recalls, loss of revenue, loss of customers, and increased service and warranty costs, any of which could adversely affect our business.


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Catastrophic events, such as natural disasters, war, and acts of terrorism could disrupt the business of our customers, which could harm our business and results of operations.

The production processes and operations of our customers are susceptible to the occurrence of catastrophic events, such as natural disasters, war, and acts of terrorism, all of which are outside of our control. Any such events could cause a serious business disruption to our customers’ ability to manufacture, distribute and sell products incorporating our touch-enabling technologies, which may adversely affect our business and results of operation.

If our facilities were to experience catastrophic loss, our operations would be seriously harmed.

Our facilities could be subject to a catastrophic loss such as fire, flood, earthquake, power outage, or terrorist activity. A substantial portion of our research and development activities, our corporate headquarters, and other critical business operations are located near major earthquake faults in San Jose, California, an area with a history of seismic events. An earthquake at or near our facilities could disrupt our operations and result in large expenses to repair and replace the facility. While we believe that we maintain insurance sufficient to cover most long-term potential losses at our facilities, our existing insurance may not be adequate for all possible losses including losses due to earthquakes.

If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business and our stock price.

We have in the past had material weaknesses in our internal control over financial reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Any failure on our part to remedy identified material weaknesses, or any additional delays or errors in our financial reporting controls or procedures, could cause our financial reporting to be unreliable and could have a material adverse effect on our business, results of operations, or financial condition and could have a substantial adverse impact on the trading price of our common stock.

We do not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected.

The nature of some of our products may also subject us to export control regulation by the U.S. Department of State and the Department of Commerce. Violations of these regulations can result in monetary penalties and denial of export privileges.

Our sales to customers or sales by our customers to their end customers in some areas outside the United States could be subject to government export regulations or restrictions that prohibit us or our licensees from selling to customers in some countries or that require us or our licensees to obtain licenses or approvals to export such products internationally. Delays or denial of the grant of any required license or approval, or changes to the regulations, could make it difficult or impossible to make sales to foreign customers in some countries and could adversely affect our revenue. In addition, we could be subject to fines and penalties for violation of these export regulations if we were found in violation. Such violation could result in penalties, including prohibiting us from exporting our products to one or more countries, and could materially and adversely affect our business.

Investment Risks

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 of our control and any of which could cause the price of our common stock to decline.
These factors include:

• the establishment or loss of licensing relationships;


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• the timing and recognition of payments under fixed and/or up-front fee license agreements, as well as other multi-element arrangements;

• seasonality in the demand for our technologies or products or our licensees’ products;

• the timing of our expenses, including costs related to litigation, stock-based awards, acquisitions of technologies, or businesses;

• developments in and costs of pursuing or settling any pending litigation;

• the timing of introductions and market acceptance of new technologies and products and product enhancements by us, our licensees, our competitors, or their competitors;

• the timing of work performed under development agreements; and

• errors in our licensees’ royalty reports, and corrections and true-ups to royalty payments and royalty rates from prior periods.

Changes in financial accounting standards or policies may affect our reported financial condition or results of operations and, in certain cases, could cause a decline and/or fluctuations in the price of our common stock.

From time to time, financial and accounting standard setters such as the Financial Accounting Standards Board ("FASB") and the SEC change certain guidance governing the form and content of registrants’ external financial statements, or update their previous interpretations with regard to the application of certain General Accepted Accounting Principles ("GAAP"). Such change in GAAP or their interpretation can have a significant effect on our reported financial condition and/or results of operations. If applicable to us, we would be required to apply a new or revised guidance, which may result in retrospective adjustments to our financial statements, and change the way we account for certain transaction than under the existing guidance. Changes in GAAP and reporting standards could substantially change our reporting practices in a number of areas, including revenue recognition and recording of assets and liabilities, and consequently affect our reported financial condition or results of operations.

For example, on January 1, 2018, we adopted revenue standard ASC 606. The adoption has affected our revenue recognition model for both fixed fee license revenue and per-unit royalty revenue derived from our new and existing contracts with licensees. Under ASC 606, if a fixed fee license agreement contains both performance obligations to transfer rights to our patent portfolio as it exists when the contract is executed as well as rights to our patent portfolio as it evolves throughout the contract term, we are required to allocate the fixed fee between the two performance obligations which could result in the recognition of a substantial majority of the fixed fee as revenue upon the execution of the license agreement. Prior to the adoption, as a historical practice applied by many licensing companies, we recognized fixed license fees ratably over the contract term. In addition, our previous accounting practice was to recognize revenue from per-unit royalty agreements in the period in which the related royalty report was received from our licensees, generally one quarter in arrears from the period in which the underlying sales occurred (i.e. on a "quarter-lag"). Under ASC 606, we are required to record per-unit royalty revenue in the same period in which the licensee’s underlying sales occur. As we generally do not receive the per-unit licensee royalty reports for sales during a given quarter within the time frame that allows us to adequately review the reports and include the actual amounts in our quarterly results for such quarter, we accrue the related revenue based on estimates of our licensees’ underlying sales, subject to certain contractual terms on our ability to estimate such amounts. As a result of accruing per-unit royalty revenue for the quarter based on estimates, adjustments will be required in the following quarter to true up revenue to the actual amounts reported by its licensees. Such changes have significantly affected our reported financial condition and/or results of operations, causing the amount of revenue we recognize to vary dramatically from quarter to quarter, and even year to year, depending on the timing of entry into license agreements and whether such agreements have fixed-fee or per-unit royalty terms. In addition, these changes to our reporting practices and the resulting fluctuations in our reported revenue could cause a decline and/or fluctuations in the price of our common stock.

Our business is subject to changing regulations regarding corporate governance and other compliance areas that will increase both our costs and the risk of noncompliance.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, and the rules and regulations of The NASDAQ Stock Market and other regulations that may be enacted from time-to-time. The requirements of these and other rules and regulations have increased and we expect will continue to increase our legal,

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accounting and financial compliance costs, will make some activities more difficult, time-consuming and costly, and may also place undue strain on our personnel, systems and resources.

Our stock price may fluctuate regardless of our performance.

The stock market has experienced extreme volatility that often has been unrelated or disproportionate to the performance of particular companies. These market fluctuations may cause our stock price to decline regardless of our performance. The market price of our common stock has been, and in the future could be, significantly affected by factors such as: actual or anticipated fluctuations in operating results; announcements of technical innovations; announcements regarding litigation in which we are involved; the acquisition or loss of customers; changes by game console manufacturers to not include touch-enabling capabilities in their products; new products or new contracts; sales or the perception in the market of possible sales of large number of shares of our common stock by insiders or others; stock repurchase activity; changes in securities analysts’ recommendations; personnel changes; changing circumstances regarding competitors or their customers; governmental regulatory action or inaction; developments with respect to patents or proprietary rights; inclusion in or exclusion from various stock indices; increased tariffs and international trade disputes; and general market conditions. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has been initiated against that company.

Our stock repurchase program could affect our stock price and add volatility.

Any repurchases pursuant to our stock repurchase program could affect our stock price and add volatility. There can be no assurance that any repurchases will continue to be made under the program, nor is there any assurance that a sufficient number of shares of our common stock will be repurchased to satisfy the market’s expectations. Furthermore, there can be no assurance that any repurchases conducted under the plan will be made at the best possible price. The existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, we are permitted to and could discontinue our stock repurchase program at any time and any such discontinuation could cause the market price of our stock to decline.

Provisions in our charter documents and Delaware law could prevent or delay a change in control, which could reduce the market price of our common stock.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our board of directors or management, including the following:

• our board of directors is classified into three classes of directors with staggered three-year terms which will be phased out over time through 2020;

• only our chairperson of the board of directors, a majority of our board of directors or 10% or greater stockholders are authorized to call a special meeting of stockholders;

• our stockholders can only take action at a meeting of stockholders and not by written consent;

• vacancies on our board of directors can be filled only by our board of directors and not by our stockholders;

• our restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; and

• advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.

In addition, certain provisions of Delaware law may discourage, delay, or prevent someone from acquiring or merging with us. These provisions could limit the price that investors might be willing to pay in the future for shares.


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ITEM 6. EXHIBITS
The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Form 10-Q.

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EXHIBIT INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit
Number
 
Exhibit Description
 
Incorporated by Reference
 
Filed
Herewith
 
 
Form
 
File No.
 
Exhibit  
 
Filing Date
 

 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
X
101.INS
 
XBRL Report Instance Document
 
 
 
 
 
 
 
 
 
X
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
 
 
 
X
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document
 
 
 
 
 
 
 
 
 
X
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
 
 
 
X
101.LAB
 
XBRL Taxonomy Label Linkbase Document
 
 
 
 
 
 
 
 
 
X
101.PRE
 
XBRL Presentation Linkbase Document
 
 
 
 
 
 
 
 
 
X

*
This certification is deemed not filed for purposes of section 18 of the Exchange Act, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act, as amended, or the Exchange Act, as amended.
†
Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10).



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
IMMERSION CORPORATION
 
 
 
 
 
 
Date:
August 14, 2019
By:
   /s/ LEN WOOD
 
 
 
  Len Wood
 
 
 
  Interim Chief Financial Officer








52

EXHIBIT 10.1
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED, AND THE EXCLUDED TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS [***]
SETTLEMENT AND LICENSE AGREEMENT
This Settlement and License Agreement (this “ Agreement ”), by and between Immersion Software Ireland Limited (“ Immersion Ireland ”), an Irish company and a wholly owned subsidiary of Immersion Corporation, Immersion Corporation, a Delaware corporation (“ Immersion Corporation ,” individually and collectively with Immersion Ireland, “ Immersion ”), and Samsung Electronics Co., Ltd., a South Korean corporation with principal offices located at 416 Maetan-3dong, Yeongtong-gu, Suwon-si, Gyeonggi-do, 443-742 Korea for itself and on behalf of its Affiliates (collectively “ Samsung ”), is entered into as of the date of the last signature hereto (the “ Effective Date ”).
WHEREAS , Immersion Ireland develops and markets software for implementing and controlling haptic feedback in hardware devices, and is the exclusive licensor of certain patents and patent applications relating to haptic feedback technology; and

WHEREAS , Immersion has initiated patent infringement litigation in multiple jurisdictions against Samsung accusing Samsung mobile devices of infringement and Samsung had denied such infringement and continues to assert that it does not infringe any Immersion patents; nevertheless Samsung would like to obtain a license with respect to Immersion software as well as patents in order to end litigation.

NOW THEREFORE , in consideration of the promises, mutual covenants, and agreements contained herein, the parties agree as set forth in the attached terms and conditions and exhibits, which are hereby incorporated by reference and made part of this Agreement.
Accepted by:

IMMERSION IRELAND      SAMSUNG


By:     /s/ Liam Granger         By:     /s/ Jong Hong    
Name:    Liam Grainger        Name:     Jong Hong    
Title:    Director        Title:     Vice President    
Date:     May 12, 2019         Date:     May 10, 2019    

IMMERSION CORPORATION     


By:     /s/ Ramzi Haidamus         
Name:    Ramzi Haidamus        
Title:    President and CEO        
Date:     May 12, 2019         
Address for Notice:         Address for Notice:    

Immersion Confidential          1

Immersion Ireland c/o Immersion Corp.            Samsung Electronics Co., Ltd.
50 Rio Robles            416 Maetan-3dong
San Jose, California 95134            Yeongtong-gu, Suwon-si
ATTN: Legal Department            Gyeonggi-do, 443-742 Korea
                ATTN: IP Center

Immersion Confidential          2

TERMS AND CONDITIONS
1.
DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings:
1.1     “ 2013 Agreement ” means that certain Amended and Restated License Agreement effective as of January 1, 2013, as amended, by and between Immersion Ireland and Immersion Corporation, on the one hand, and Samsung, on the other hand.
1.2     “ Affiliate ” means, with respect to a party, any corporation or other entity that is directly or indirectly controlling, controlled by or under common control with such party. For purposes of this definition, “control” means the direct or indirect beneficial ownership of more than fifty percent (50%) of the stock or equity of such entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority). An Affiliate shall be deemed an Affiliate only so long as the above ownership or control exists. For purposes of this Agreement, Immersion Ireland and Immersion Corporation are Affiliates of one another.
1.3     “ Agreement ” shall have the meaning set forth in the introductory paragraph of this Agreement.
1.4     “ Appcessories ” means hardware products that, with the assistance of an end-user software application incorporated in a mobile phone, can be controlled or otherwise used by an end user through such end-user software application incorporated in such mobile phone.
1.5     “ [***] ” means any field of use relating to [***] products or services, including [***].
1.6     “ Change of Control ” shall have the meaning set forth in Section 13.1.
1.7     “ China Patent Infringement Suit ” means the patent infringement litigation filed by Immersion Corporation against Samsung or its Affiliates in China with respect to Chinese Patent Nos. ZL02821854.X, ZL201210005785.2, and ZL201310253562.2.
1.8     “ China Petitions for Invalidation ” means the Petitions for Invalidation filed by Samsung or its Affiliates with the Chinese Patent Office, with respect to Chinese patents owned by Immersion or its Affiliates, including with respect to Chinese Patent Nos. ZL02821854.X, ZL201210005785.2, and ZL201310253562.2.
1.9     “ Current Litigation ” means any and all suits and legal proceedings worldwide between Immersion and Samsung, including: (a) the U.S. Patent Infringement Suit; (b) the China Patent Infringement Suit; (c) the Germany Patent Infringement Suit; (d) the IPRs; and (e) the China Petitions for Invalidation.
1.10     “ Documentation ” means the user guides for installation and use of the Immersion TouchSense Software that Immersion makes generally available.
1.11     “ Effective Date ” shall have the meaning set forth in the introductory paragraph of this Agreement.
1.12     “ [***] ” shall have the meaning set forth in Section 5.2.
1.13     “ Evaluation Software ” means any software (in object code form or source code form) and/or hardware provided by or on behalf of Immersion Ireland to Samsung during or prior to the Term that is either: (1) indicated by or on behalf of Immersion Ireland at or after time of delivery that such software/hardware is for internal evaluation (or is, in the case of software, identified as an alpha or beta version), is otherwise software/hardware not indicated in writing at or after delivery as an “official release” of such software/hardware; (2) software/hardware that, under all of the circumstances, could reasonably be considered by Immersion Ireland to be software/hardware intended solely for internal evaluation by Samsung; or (3) any other software that is not Immersion TouchSense Software pursuant to the terms and conditions of this Agreement. For the avoidance of doubt, Immersion TouchSense Software shall not include any Evaluation Software.
1.14     “ [***] ” means, unless agreed otherwise in writing between the parties via an amendment to this Agreement, any field of use relating to products, services or content designed, sold or marketed for primary use: (a) in the [***]; (b) in the [***]; (c) in the [***]; and/or (d) in the [***].

Immersion Confidential          3

1.15     “ Foundry Products ” means Mobile Devices which are: (a) designed by or for a third party without substantial input from Samsung or its Affiliates, and manufactured, reproduced, sold, leased, licensed, distributed or otherwise transferred by or from Samsung or its Affiliates to that third party (or to customers of, or as directed by, that third party) for sale or distribution by that third party with that third party's brand; or (b) designed, manufactured, reproduced, sold, leased, licensed, distributed or otherwise transferred through or by Samsung or its Affiliates for or on behalf of a third party for the primary purpose of attempting to make such products licensed or immune from suit with respect to any Immersion TouchSense Software or any Immersion Patent; provided, however, that Mobile Devices designed and manufactured pursuant to the request by carriers shall not constitute Foundry Products so long as such Mobile Devices are branded (or co-branded) with Samsung’s brand.
1.16     “ [***] ” means the market principally for consumer [***] for use in conjunction with [***]. [***] does not include the use of [***] on [***], where the primary use of such [***].
1.17     “ Germany Patent Infringement Suit ” means the patent infringement litigation filed by Immersion Corporation against Samsung or its Affiliates in Germany with respect to German Patent 602008058897.1 (EP Patent 2463752).
1.18     “ Immersion ” shall have the meaning set forth in the introductory paragraph of this Agreement.
1.19     “ Immersion Corporation ” shall have the meaning set forth in the introductory paragraph of this Agreement.
1.20     “ Immersion Ireland ” shall have the meaning set forth in the introductory paragraph of this Agreement.
1.21     “ Immersion Patents ” means the patents and patent applications owned by Immersion and/or its Affiliates at any time during the Term, along with any continuations, continuations-in-part, divisionals, international counterparts, reissues and reexaminations thereof. For the sake of clarity, the term “Immersion Patents” includes Patents-In-Suit but does not include: (a) patents or patent applications owned by entities that acquire Immersion Corporation or any of its Affiliates prior to such acquisition, and (b) [***] (as defined below). " [***] " means patent applications or patents, in each case, along with any continuations, continuations-in-part, divisions, international counterparts, reissues and reexaminations thereof, that a third party (i.e., a person or entity that is not an employee or contractor of Immersion) [***] Immersion or any of its Affiliates [***] in the ordinary course of Immersion’s business, provided that any subject matter or material element [***] is not related to [***].
1.22     “ Immersion Preexisting Technology ” means Intellectual Property Rights developed, acquired or otherwise owned by Immersion or its Affiliates prior to the Effective Date.
1.23     “ Immersion Release ” shall have the meaning set forth in Section 2.3(a).
1.24     “ Immersion Releasing Entities ” shall have the meaning set forth in Section 2.3(a).
1.25     “ Immersion Solely Developed Technology ” means Intellectual Property Rights developed, acquired or otherwise obtained by Immersion independently of Samsung on and after the Effective Date.
1.26     “ Immersion TouchSense Software ” means collectively, the Immersion software made generally available by Immersion for use by licensed software developers to create and implement haptic effects into Licensed Devices, the Documentation, and any other software, tools, SDKs, application programming interfaces and/or hardware materials delivered by Immersion to, or on behalf of, Samsung in connection with this Agreement, as well as any software that is based on Immersion software.
1.27     “ Immersion Trademarks ” shall have the meaning set forth in Section 3.2.
1.28     “ Imposed Tax ” shall have the meaning set forth in Section 10.2.
1.29     “ [***] ” shall have the meaning set forth in Section 5.2.
1.30     “ Intellectual Property Rights ” means any intellectual property rights (or similar rights) including copyrights, patent rights, trade secret rights, trademark rights, trade name rights and any other intellectual property rights (or similar rights).

Immersion Confidential          4

1.31     “ IP Claim ” shall have the meaning set forth in Section 10.
1.32     “ IPRs ” means all petitions for inter partes review that Samsung or its Affiliates filed in the United States Patent and Trademark Office prior to the Effective Date relating to the Immersion U.S. patents-in-suit in the U.S. Patent Infringement Suit, including: Case Nos. IPR2018-01467, IPR2018-01468, IPR2018-01469, IPR2018-01470, IPR2018-01499, IPR2018-01500, IPR2018-01501, IPR2018-01502, and IPR2019-00704.
1.33     “ Licensed Device ” means, each and collectively, [***]. Licensed Device shall in no event include: (a) any products primary use of which is dedicated to an [***]; (b) any Foundry Products; or (c) [***].
1.34     “ Linux Modules ” means software that enables Immersion TouchSense Software to operate on a Linux-based operating system.
1.35     “ Mobile Device ” means: (i) any electronic mobile device having telecommunication or computing functionality including without limitation a mobile phone (including a mobile phone that can be used in conjunction with Appcessories); (ii) any Appcessories that are attached to a mobile phone or other mobile device including with a flip cover, screen protector, carrying case, or power cord; (iii) laptop, notebook, netbook, MP3 player, camera, tablet computer (including a convertible notebook), desktop PC, and (iv) Wearables.
1.36     “ Patents-in-Suit ” means all patents owned by Immersion or its Affiliates that are or were subject of the Current Ligation.
1.37     “ [***] ” shall have the meaning set forth in Section 5.2(b).
1.38     “ [***] ” means any field of use relating to products or services designed for use in: [***] and/or [***]. [***] does not include the use of [***], where the primary use of [***] is not in the [***].
1.39     “ [***] ” means any field of use relating to: [***] of, or delivery of [***], including any field of use relating to [***]; and/or [***]. [***] does not include the use of [***], where the primary use of [***] is not in [***].
1.40     “ [***] ” shall have the meaning set forth in Section 5.2(a).
1.41     “ [***] ” shall have the meaning set forth in Section 5.1.
1.42     “ Samsung ” shall have the meaning set forth in the introductory paragraph of this Agreement.
1.43     “ Samsung Competitor ” means any of the following: [***], and their respective affiliates and such other entities as may be agreed upon by the Parties from time to time. Such definition is for purposes of this Agreement only, and does not constitute an admission that any given company is or is not a competitor of Samsung with regard to a defined market.
1.44     “ Samsung Preexisting Technology ” means Intellectual Property Rights developed, acquired or otherwise owned by Samsung prior to the Effective Date.
1.45     “ Samsung Release ” shall have the meaning set forth in Section 2.3(b).
1.46     “ Samsung Releasing Entities ” shall have the meaning set forth in Section 2.3(b).
1.47     “ [***] ” shall mean: (1) a Licensed Device marketed and sold by Samsung or its Affiliates as a smartphone as of Effective Date, including, but not limited to, any mobile phone having all of the following features or functionality: (i) cellular communication, (ii) touchscreen interface, (iii) internet access, and (iv) an operating system capable of running downloaded applications (" Smartphone "); and (2) any future natural evolutions thereof having substantially similar functionality and features as a Smartphone described in (1) above. The term “[***]” shall not include Wearables, tablets, and/or feature phones (provided that, if (i) a mobile phone that is marketed and sold by Samsung or its Affiliates as a smartphone as of the Effective Date and (ii) any future natural evolutions thereof having substantially similar functionality and features as such smartphone is marketed and sold as a feature phone after the Effective Date, then such device shall be deemed a Smartphone and, thus, shall be deemed a [***]).

Immersion Confidential          5

1.48     “ Samsung Solely Developed Technology ” means Intellectual Property Rights developed, acquired or otherwise obtained by Samsung independently of Immersion on and after the Effective Date.
1.49     “ Source Code ” shall have the meaning set forth in Section 2.4(b).
1.50     “ Tax Document ” shall have the meaning set forth in Section 5.6.
1.51     “ Term ” shall have the meaning set forth in Section 12.1.
1.52     “ Update ” means a future version of Immersion TouchSense Software that satisfies all of the following: (i) Immersion Corporation makes such future version generally available to its customers on a when and if available basis; (ii) does not include new major feature or functionality additions to the then-currently shipping Immersion TouchSense Software being updated; and (iii) such future version is marketed and licensed by Immersion under the same Immersion TouchSense Software product name as the version of the Immersion TouchSense Software product being updated.
1.53     “ Upgrade ” means a future version of Immersion TouchSense Software that satisfies all of the following: (i) Immersion Corporation makes such future version generally available to its customers on a when and if available basis; (ii) includes new major feature or functionality additions to the then-currently shipping Immersion TouchSense Software being upgraded; and (iii) such future version is marketed and licensed by Immersion under the same Immersion TouchSense Software product name as the version of the Immersion TouchSense Software product being upgraded.
1.54     “ U.S. Patent Infringement Suit ” means the patent infringement litigation filed by Immersion Corporation against Samsung in the United States District Court for the Eastern District of Texas with respect to U.S. Patent Nos. 6,429,846, 7,969,288, 9,323,332, 7,982,720, 8,031,181, and 8,619,051.
1.55     “ [***] ” shall mean game controllers primarily used in the [***] that provide feel or touch sensations by imparting one or more forces (e.g., vibration, damping, vector, deformable, or electro-static), and that are used in a [***].
1.56     “ [***] ” shall mean a [***] of a [***] image or environment that can be [***] by a person.
1.57     “ Wearables ” means computerized watches, bracelets, anklets, armbands, shoes, helmets, headphones, earphones, ear-sets, glasses, gloves and, in each case, substantially similar types of wearable devices.
1.58     “ Withholding Claim ” shall have the meaning set forth in Section 10.2.
2.
GRANT OF LICENSES AND STANDSTILL .
2.1      Patent License . Subject to Samsung’s compliance with the payment terms set forth in Section 5, Immersion Ireland, on behalf of itself, its Affiliates, and their successors and assigns, hereby grants to Samsung and its Affiliates and their respective customers a royalty-bearing, worldwide, non-exclusive, non-sublicenseable, non-transferable (except as permitted in this Agreement), and non-assignable (except as permitted in this Agreement) license during the Term, under the Immersion Patents, to make, have made, use, sell, offer for sale, export, import and/or otherwise exploit Licensed Devices. Such license exhausts each of the Immersion Patents as to the Licensed Devices sold or otherwise distributed during the Term, subject to Samsung’s compliance with the payment terms set forth in Section 5. If Samsung desires to include [***] within the scope of the license grant included in this Section 2.1, then the parties may, in good faith, discuss the terms and conditions (including the royalty rate) applicable to [***] and, if the parties so agree, then the parties shall amend this Agreement to reflect such terms and conditions.
2.2      Standstill . In consideration of and subject to receipt by Immersion of the [***], Immersion, on behalf of itself and its Affiliates, agrees not to bring any patent infringement claim solely during the time period between [***] against Samsung and its Affiliates and their respective customers with respect to one or more Immersion Patents on account of the making, having made, using, selling, leasing, offering for sale, importing and/or otherwise disposing of [***] while reserving the right to retroactively assert such Immersion Patents against [***] after [***]. Notwithstanding anything to the contrary in this Agreement, nothing in this Section 2.2 shall: (a) prevent Immersion or its Affiliates from seeking any remedy (including damages for the making, having made, using, selling, leasing, offering for sale, importing and/or otherwise disposing of any [***] during time period between [***], to the same extent as if Immersion or its Affiliates sought such remedy during such period of time) from Samsung and its Affiliates and their respective

Immersion Confidential          6

customers, or any other entity or person, after such period of time; or (b) prevent Immersion from seeking any remedy for a breach by Samsung or its Affiliates of this Agreement. The rights granted in this Section 2.2 are personal to Samsung and its Affiliates and shall not apply to any [***] of a third party that acquires Samsung or its Affiliates after the Effective Date. However, after any expiration or termination of the standstill covenant hereunder, the parties shall, in good faith, discuss the terms and conditions (including the royalty rate) applicable to [***] and, if the parties so agree, then the parties shall amend this Agreement to reflect such terms and conditions.
2.3      Release of Claims .
(a) Release by Immersion . Subject to Immersion Ireland’s receipt of the [***], effective upon the Effective Date, Immersion Ireland, on behalf of itself, its Affiliates, and their successors and assigns (“ Immersion Releasing Entities ”), hereby irrevocably and forever releases and discharges Samsung and its Affiliates (with its agents, attorneys, and employees), its respective directors, officers, managers, vendors, suppliers, manufacturers, developers, distributors, contractors, customers and end-users from any and all claims, demands, losses, costs, damages, debts, liabilities, obligations and causes of action, which the Immersion Releasing Entities have made or could have made at any time before the Effective Date, [***] (the “ Immersion Release ”). Notwithstanding anything to the contrary in this Section 2.3(a) the Immersion Release shall not affect any of Immersion’s rights with respect to any products (including Licensed Device units) sold or otherwise distributed on or after the Effective Date, subject to the licenses granted under this Agreement.  For illustration purposes, the Immersion Release shall not apply to Licensed Device units manufactured, used, imported, exported, sold or offer for sale by Samsung or its Affiliates after the Effective Date, subject to the licenses granted under this Agreement. 
(b) Release by Samsung . Effective upon the Effective Date, Samsung, on behalf of itself, its Affiliates, and their successors and assigns (“ Samsung Releasing Entities ”), hereby fully, finally, irrevocably, and forever releases and discharges Immersion and its Affiliates (with its agents, attorneys, and employees), its respective directors, officers, managers, vendors, suppliers, manufacturers, developers, distributors, contractors, customers and end-users from any and all claims, demands, losses, costs, damages, debts, liabilities, obligations and causes of action, [***]. The releases set forth in this Section 2.3(b) shall be collectively referred to as the “ Samsung Release. ” Samsung, on behalf of itself, its Affiliates, and their successors and assigns, agrees not to challenge or dispute the validity or enforceability of any of the Immersion Patents in any judicial or administrative proceeding, including but not limited to proceedings before the United States Patent and Trademark Office during the Term. Notwithstanding anything in this Agreement, Samsung shall retain all rights to contest the infringement, validity, and/or enforceability of any of the Immersion Patents, and all other defenses in law or equity, in the event any Immersion Patent is asserted against Samsung or its Affiliates, or their respective customers. Samsung does not concede or admit the infringement, validity, or enforceability of any of the Immersion Patents and this Agreement shall not be used to evidence or argue that any product or act of Samsung infringes any of the Immersion Patents.
2.4      Licensed Software .
(a) Object Code License . Subject to Samsung’s compliance with the terms and conditions of this Agreement, Immersion Ireland grants to Samsung a royalty-bearing, worldwide, non-exclusive, non-sublicenseable (except for subsection (iii) below), non-transferable, and non-assignable license during the Term: (i) to copy and use and access the Immersion TouchSense Software (in object code form) and incorporate and install such copy into Licensed Devices; (ii) distribute, sell, offer to sell, import, and export such copy of the Immersion TouchSense Software, directly or indirectly through distributors, resellers and/or agents, solely as incorporated in a Licensed Device, to an end-user customer for use by such end-user customer; and (iii) to sublicense the rights granted in (i) to third parties solely for the purpose of exercising Samsung’s rights under (i) above. With respect to Intellectual Property Rights, the foregoing license includes the right, only under Immersion Intellectual Property Rights covering inventions embodied in the unmodified Immersion TouchSense Software, for Samsung to undertake the acts set forth in (i) and (ii) above solely with respect to the Immersion TouchSense Software as incorporated in a Licensed Device.
(b) Source Code License . Subject to Samsung’s compliance with the terms and conditions of this Agreement, Immersion Ireland hereby grants to Samsung the royalty-bearing, worldwide, non-exclusive, non-sublicenseable (except as expressly permitted herein), non-transferable, and non-assignable license during the Term, to internally store, view and modify the elements/modules of the Immersion TouchSense Software provided by

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Immersion to Samsung in source code form (the “ Source Code ”) solely as necessary to incorporate the Immersion TouchSense Software into Licensed Devices in accordance with this Agreement. For the avoidance of doubt, the foregoing license does not include any right or license for Samsung to transmit, display, perform or distribute to any third party, any of the Source Code. With respect to patents, the foregoing license includes the right, only under Immersion Patents covering inventions embodied in the unmodified Source Code, for Samsung to undertake the acts set forth in this Section 2.4(b) solely as necessary to incorporate the Immersion TouchSense Software into Licensed TouchSense Devices in accordance with this Agreement.
(c) Evaluation Software License . Subject to Samsung’s compliance with the terms and conditions of this Agreement, Immersion Ireland hereby grants to Samsung a restricted, non-exclusive, personal, nontransferable, nonsublicensable, royalty-free, revocable right to use, during the Term and in accordance with the documentation provided by or on behalf of Immersion Ireland, any Evaluation Software, solely in a non-production capacity for Samsung’s own internal testing and evaluation of the Evaluation Software. Except as set forth in this Section 2.4(c), no other right or license of any kind is granted by Immersion Ireland to Samsung hereunder with respect to the Evaluation Software.
2.5      Restrictions, Conditions and Obligations .
(a) Notwithstanding anything to the contrary herein, a party to this Agreement shall not have the right to enter into any legally binding obligations on behalf of the other parties to this Agreement.
(b) Samsung shall not distribute the Immersion TouchSense Software: (i) on a stand-alone basis or with any products other than as part of a Licensed Device distributed in accordance with this Agreement; or (ii) to any entity whom Samsung knows or should reasonably conclude will use the Immersion TouchSense Software primarily for purposes of benchmarking or similar testing, or for reverse engineering or disassembling.
(c) Except as expressly provided in this Agreement, no right to sublicense the rights granted to Samsung in this Agreement is granted by Immersion to Samsung.
(d) Immersion reserves all rights not expressly granted to Samsung in this Agreement. No implied licenses are granted to Samsung under or in connection with this Agreement.
(e) Samsung shall store the Source Code on secure servers controlled by Samsung and located at its principal address identified in the preamble above. Samsung acknowledges that the Source Code constitutes the trade secrets of Immersion. Further, Samsung agrees to control and safeguard all Source Code using similar security measures and safeguards as Samsung uses for its own similar source code but in any event shall observe procedures and controls including at a minimum the following (for the avoidance of doubt, the obligations contained in this Section 2.5(e), and all other obligations of Samsung relating to the Source Code, shall apply with respect to all enhancements, improvements, derivative works and other modifications made to any Source Code):
i.     The Source Code shall be accessible only by those Samsung employees with a manifest “need to know” directly related to the purpose of this Agreement.
ii.     Samsung agrees to notify Immersion promptly if a breach of security occurs that compromises the confidentiality of the Source Code and to take actions appropriate in the circumstances to rectify such breach.
(f) Notwithstanding Section 2.4(c), Samsung shall not, without the prior written consent of Immersion Ireland: (a) copy all or any portion of any Evaluation Software; provided, however, that Samsung may make a reasonable number of copies solely for the purposes set forth in Section 2.4(c); (b) decompile, disassemble or otherwise reverse engineer any Evaluation Software, or determine or attempt to determine any source code, algorithms, methods or techniques embodied in any Evaluation Software or any portion thereof; (c) distribute, disclose, market, rent, lease, assign, sublicense, pledge or otherwise transfer any Evaluation Software, in whole or in part, to any third party; or (d) use any Evaluation Software for production or other commercial purposes of any kind whatsoever. For purposes of this Agreement, Samsung shall control and safeguard Evaluation Software to the same extent as Samsung is obligated to control and safeguard Source Code pursuant to Section 2.5(e). As between Immersion and Samsung, Immersion retains all right, title and interest, including all patent rights, copyrights, trademarks and trade secrets, in and to the

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Evaluation Software and any portion thereof, and any copy or modification of any of the foregoing. Samsung shall have only those rights in or to the Evaluation Software granted to it pursuant to this Agreement. The terms and conditions applicable to Immersion TouchSense Software in Section 7 (Protection) shall also apply to the Evaluation Software. The Evaluation Software is provided “as is” and Immersion Ireland disclaims all warranties and representations, whether express or implied, relating to the Evaluation Software.”
(g) Immersion Technology Integration Meetings. Members of each party’s development and engineering teams may meet at least once per calendar year to discuss Immersion’s latest technology offerings and potential integration of such technology offerings into Samsung’s products and services.
2.6      Affiliates of Samsung . Notwithstanding anything to the contrary in this Agreement, if any of Samsung’s Affiliates wish to exercise any rights granted to Samsung’s Affiliates pursuant to this Agreement, each such Affiliate must first agree to be bound by the same obligations, limitations and restrictions imposed on Samsung under this Agreement. Samsung shall cause each of such Affiliates to comply with the terms and conditions of this Agreement and shall be responsible for the acts or omissions of its Affiliates as if such acts and omissions had been the acts and omissions of Samsung hereunder.
2.7      Dismissal/Termination of Current Litigation .
(a) Dismissal of District Court Claims . [***], the parties shall request dismissal with prejudice of Immersion’s causes of action for infringement of the U.S. patents owned by Immersion or its Affiliates that are the subject of the U.S. Patent Infringement Suit and Samsung’s counterclaims relating to such patents. Each party shall bear its own attorneys’ fees and costs relating to such dismissal.
(b) Termination of IPRs . [***], the parties shall jointly seek to terminate the IPRs (and keep this Agreement confidential) in United States Patent and Trademark Office by submitting a joint request to terminate each IPR. Such termination shall be without prejudice, and Samsung retains all rights available under law to challenge any of the Immersion Patents in the event of termination of this Agreement, subsequent disputes between or among the parties to this Agreement involving the Immersion Patents, or material breach of this Agreement by Immersion.
(c) China Litigation . Samsung shall take no action, directly or indirectly, to oppose any appeal filed by Immersion to a China Petition for Invalidation.
(d) Dismissal of Germany Litigation . [***], Immersion shall withdraw Immersion’s action for infringement of the German Patents owned by Immersion or its Affiliates that are the subject of the Germany Patent Infringement Suit (infringement action 2 O 21/19 District Court Mannheim). Each party shall bear its own attorneys’ fees and costs relating to such withdrawals.
2.8     If there is any breach of Section 9.2(d) by Immersion and/or otherwise it is found that Immersion Ireland does not have the full power and authority to grant the licenses, release and rights under this Agreement, to the extent that Immersion Ireland does not have such power and authority, Immersion Corporation, on behalf of itself and its Affiliates grant the licenses, release and rights under this Agreement without further consideration.
3.
MARKETING; ATTRIBUTION.
3.1      Press Release . Immersion may issue a press release substantially in the form attached as Exhibit A . Neither party shall issue any other press release regarding its relationship with the other party pursuant to this Agreement without the consent of the other party, which shall not be unreasonably withheld or delayed.
3.2      Trademark License . Immersion Ireland hereby grants to Samsung a non-exclusive, limited license to use, and Samsung may use, Immersion trademarks (“ Immersion Trademarks ”) in connection with the [***]. Samsung agrees not to affix any Immersion Trademarks to products other than the [***]. Nothing in this Agreement imposes any obligation on Samsung or its Affiliates to mark any product with the number(s) of any of the Immersion Patents.
3.3      Quality . Samsung acknowledges that all use of the Immersion Trademarks will inure to the benefit of Immersion. Samsung shall not register Immersion Trademarks or a confusingly similar trademark in any jurisdiction and will not adopt any trademark which is confusingly similar to any trademark of Immersion or which includes a

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prominent portion of any trademark of Immersion. All use by Samsung of the Immersion Trademarks will be subject to Immersion’s then-current quality control requirements and trademark guidelines.
3.4      Acknowledgment . Samsung acknowledges that Immersion is the sole and exclusive owner of the Immersion Trademarks. Samsung agrees that Samsung will do nothing inconsistent with such ownership either during the Term or afterwards. Samsung agrees that use of the Immersion Trademarks by Samsung shall inure to the benefit of and be on behalf of Immersion. Samsung acknowledges its utilization of the Immersion Trademarks will not create any right, title, or interest in the Immersion Trademarks in Samsung.
4. DELIVERY AND IMPLEMENTATION OF LICENSED SOFTWARE.
4.1      Porting of Licensed Software. Immersion and Samsung may agree to port the Immersion TouchSense Software to Licensed TouchSense Devices selected by Samsung, and to otherwise integrate the Immersion TouchSense Software into such Licensed TouchSense Devices.
4.2      Upgrades, Updates and Error Corrections .
(a) Updates/Upgrades . Immersion shall provide Samsung with Updates and/or replacement versions that Immersion develops to any part of the Immersion TouchSense Software ported under Section 4.1, at no additional charge to Samsung. Samsung and Immersion may agree to cooperate to port Upgrades to Licensed TouchSense Device models selected by Samsung.
(b) Error Corrections . In the event that Samsung notifies Immersion, in accordance with Immersion’s then-current standard bug notification process, about a material noncompliance of the Immersion TouchSense Software with Immersion’s then-current specifications for the Immersion TouchSense Software, Immersion will use commercially reasonable efforts to understand and correct such noncompliance. Immersion will acknowledge Samsung’s notification of noncompliance promptly after Immersion's receipt of such notification. Within three (3) business days following its acknowledgement of proper notification, Immersion will provide a status report confirming Immersion’s ability or inability to reproduce the reported noncompliance. Should Immersion be able to reproduce the noncompliance, within five (5) business days following its acknowledgement of proper notification, Immersion will provide Samsung with a plan and timetable for resolution of the noncompliance. Should Immersion not be able to reproduce the noncompliance, the parties will schedule a teleconference to discuss how to proceed with resolution of the noncompliance. At Immersion’s request, Samsung shall provide an Immersion engineering team with access to Samsung’s software and/or hardware development tools and development environment (including applicable user interface, operating system and other source code involving calls to, or use of, the Immersion TouchSense Software), at Samsung’s facilities, and shall cooperate with Immersion to reproduce, understand and correct such noncompliance. In the event that Immersion is unable to correct any such noncompliance that is preventing commercial shipment of a Licensed TouchSense Device, at Samsung’s request, Immersion shall provide a Samsung engineering team with access to Immersion’s software and/or hardware development tools and development environment (including applicable Immersion TouchSense Software source code), at Immersion’s facilities, and shall cooperate with Samsung to reproduce, understand and correct such noncompliance. The parties shall repeat the above process until the Immersion TouchSense Software complies with the then-current specifications agreed between the parties or until Samsung has reasonably rejected the delivered Immersion TouchSense Software five (5) times. In such a case, the parties shall make good faith efforts to amicably resolve the noncompliance. If the parties are unable to reach a resolution after ninety (90) days of good faith negotiations, the matter shall be resolved in accordance with the arbitration procedures set forth in Section 13.3.
5. FINANCIAL TERMS.
5.1      [***] . In consideration for the Immersion Release, Samsung shall pay Immersion Ireland [***], which shall be due within thirty (30) days after receiving from Immersion both an original signed invoice and Tax Document.
5.2      Royalties . In consideration of the licenses and rights granted herein and subject to Sections 5.6 and 10.2, Samsung shall pay to Immersion Ireland royalties in accordance with this Section 5.2. With respect to each calendar quarter during the Term [***], Samsung, in its sole decision, may either: (a) pay [***] in accordance with Section 5.2(a), or (b) pay [***] set forth in Section 5.2(b). If Samsung does not provide notice of its election prior to the beginning of a calendar quarter during the Term [***], Samsung shall pay [***] for the calendar quarter in accordance

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with [***]. If Samsung elects to pay [***] set forth in Section 5.2(b) for such calendar quarter, Samsung shall provide Immersion with written notice indicating such election prior to the beginning of such calendar quarter during the Term and pay [***] set forth in Section 5.2(b). [***], Samsung shall pay [***], [***]which payment shall be due within thirty (30) days after receiving both an original signed invoice and Tax Document. For the [***], Samsung, in its sole decision, may either: (a) pay [***], which payment shall be due within thirty (30) days after receiving both an original signed invoice and Tax Document (if reasonably requested by Samsung), or (b) pay [***] in accordance with Section 5.2(b). Samsung is free to determine its own prices for the [***]. If Samsung elects to pay [***] set forth in Section 5.2(b) for [***], Samsung shall provide Immersion with written notice indicating such election prior to [***] and pay [***] set forth in Section 5.2(b). All royalty payments and/or fees (including, but not limited to, [***] and any [***]) made under this Agreement shall be non-refundable and non-creditable; provided that nothing in this sentence shall affect Immersion’s obligations under Section 5.6 and Section 10.2. No employee or representative of Immersion has any authority to dictate or in any way inhibit Samsung’s pricing discretion with respect to the [***].
(a) [***] . If, with respect to a calendar quarter [***] during the Term, Samsung opts to pay [***] in accordance with this Section 5.2(a), then Samsung shall pay Immersion Ireland a fee of [***] , which payment shall be due after the end of such calendar quarter and within thirty (30) days after receiving both an original signed invoice and Tax Document (if reasonably requested by Samsung). Immersion may send the original signed invoice after the end of such calendar quarter.
(b) [***] . If Samsung opts to pay royalties in the form of [***] for worldwide sales and other distributions by Samsung or its Affiliates of [***] in a given calendar quarter [***], or in [***] during the Term in accordance with this Section 5.2(b), then Samsung shall pay to [***] for each [***] sold or otherwise distributed worldwide by or on behalf of Samsung or its Affiliates for the calendar quarter or [***]an amount equal to [***].
5.3      Royalties Set for Convenience of the Parties . The parties acknowledge and agree that the [***] due hereunder may or may not represent an aggregate consideration of the relative values, scope, applicability, and expiration dates of the Immersion Patents and Immersion TouchSense Software that are licensed to Samsung pursuant to this Agreement. Further, the parties acknowledge and agree that [***] hereunder reflect the significant non-monetary consideration received by Immersion under this Agreement, including but not limited to the press release, the software licenses contained herein, as well as the uncertainty inherent in any litigation relating to Samsung’s products. The method of calculating the amount of [***] hereunder were chosen by the parties for their convenience, and nothing shall be construed or referenced to indicate evaluation of Immersion Patents in connection with Licensed Devices by either party. Such method avoids the difficulty and expense of implementing a complex matrix of multiple rates, and shall have no effect on the scope of the licenses and releases granted pursuant to this Agreement. Given the worldwide scope of this Agreement, the impracticality of monitoring by Samsung of the movement of [***] through international markets, that different [***] may be covered by different portions of the Licensed Patents, and that some Licensed Patents may expire during the Term, the parties agree that calculating payment based on worldwide sales and other distributions of the [***] at the rates set forth in this Agreement is agreeable. In no event is the payment of any royalty a concession or admission by Samsung and/or its Affiliates that any of the Immersion Patents is or is not valid or enforceable, or that any Samsung device or product is covered by or practices any claim of any of the Immersion Patents. Further, nothing in amounts payable or paid under this Agreement shall be used to evidence or argue that a license to Samsung or its Affiliates under any of the Immersion Patents is necessary or required, or that such amounts reflect a valuation by Samsung or its Affiliates of this license and/or the Immersion Patents. Entry into this Agreement is not an admission or concession by Samsung or its Affiliates that they require a license to the Immersion Patents for any Samsung product or activity.
5.4      Reports .
(a) Reports . If, with respect to a calendar quarter during the Term, Samsung opts to pay [***] set forth in Section 5.2(b), on or before the thirtieth (30th) day following the end of the calendar quarter, Samsung will provide Immersion with a written binding report by email to royalty@immersion.com (or such other email address as Immersion may provide from time to time), in a form reasonably specified by Immersion, detailing the number of individual units of [***] sold or otherwise distributed by or on behalf of Samsung or its Affiliates during such calendar quarter, and a calculation of [***] with respect thereto.
5.5      Payments .

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(a) [***] . Samsung will pay [***] in accordance with Section 5.1. Samsung will pay the [***] in accordance with Section 5.2.
(b) [***] . If, with respect to a calendar quarter during the Term [***], Samsung opts to pay [***], then the [***] shall be due after the end of the calendar quarter and within thirty (30) days after receiving both an original signed invoice and Tax Document (if reasonably requested by Samsung). Immersion may send the original signed invoice after the end of such calendar quarter. If, with respect the [***] of the Term, Samsung opts to pay the [***], the [***] shall be due after the end of the Term and within thirty (30) days after receiving both an original signed invoice and Tax Document. Immersion Ireland shall provide all invoices under this Agreement by email to [***] (or such other email address as Samsung may provide from time to time).
(c) [***] . If, with respect to a calendar quarter during the Term [***], Samsung has opted to pay royalties in the form of [***] in accordance with Section 5.2(b), then Samsung will pay the applicable [***] accruing in such calendar quarter, following a report by Samsung under Section 5.4 and within thirty (30) days after receiving both an original signed invoice and Tax Document (if reasonably requested by Samsung). If, with respect to [***] of the Term, Samsung has opted to pay royalties in the form of [***] in accordance with Section 5.2(b), then Samsung will pay the applicable [***] accruing in the [***], following a report by Samsung under Section 5.4 and within thirty (30) days after receiving both an original signed invoice and Tax Document. Immersion Ireland shall provide all invoices under this Agreement by email to [***] (or such other email address as Samsung may provide from time to time). Samsung’s payment of a [***] shall not be used to argue that Samsung has a preference or practice for payment of royalties [***].
(d) Interest, Wire Transfer . All sums not paid when due shall accrue interest daily until paid in full at the lesser of: (a) 1.5% per month; and (b) the highest rate permissible by law. In the event Samsung fails in any way to pay or perform hereunder, Immersion may offset or setoff any payment or performance due by Samsung under this Agreement against payment and/or performance due by Immersion or its Affiliates under this Agreement or any other agreement or obligation between Samsung (or any of its Affiliates) and Immersion (or any of its Affiliates). All payments due hereunder shall be paid in U.S. funds by wire transfer in accordance with the instructions below (or such other instructions as may be designated in writing by Immersion from time to time) and, notwithstanding any other provision of this Agreement to the contrary, no amounts shall be deemed paid until actually received at the bank account designated by Immersion and freely withdrawable without obligation to the same extent as cash:
For Account of Immersion Software Ireland Limited
[***]
5.6      Taxes and Duties . Subject to Section 10.2, each party shall be responsible for its own taxes, fees, levies or other charges, which may arise in connection with this Agreement. If a governmental authority, including a Korean tax authority imposes and withholds any taxes on payments to be made by Samsung to Immersion Ireland hereunder, Samsung shall have the right to withhold and deduct such taxes from payments to be made by Samsung; provided that if Immersion appeals such imposition and prevails in such appeal, then Samsung shall deliver to Immersion the amounts refunded by the Korean tax authorities. Samsung shall provide Immersion Ireland with any certificate or other documentation that Samsung receives from a government authority as proof of payment of such withheld taxes. For clarity, if, after the Effective Date, there is any Withholding Claim by a Korean tax authority under Section 10.2 whereby the Korean tax authorities assert that withholding tax should have been withheld from payments made to Immersion Ireland pursuant to this Agreement, then Samsung shall have the right to withhold and deduct such taxes from any payments to be made by Samsung under Section 5 at the time of such Withholding Claim and thereafter, and such deduction or withholding shall not be regarded a breach of this Agreement by Samsung. For further clarity, the parties agree that there is no Withholding Claim by any Korean tax authority that exists as of the Effective Date. Upon execution of the Agreement, Immersion Ireland shall provide to Samsung appropriate tax forms (including the form as attached in Exhibit B, "Tax Application" ) and other documentation for Samsung to submit to the applicable authorities (" Tax Document ").
5.7      Audits . Immersion shall have the right, no more than once each calendar year during the Term, to have an independent auditor examine, reproduce, and audit the relevant books, records, and accounts of Samsung in order to verify amounts payable by Samsung pursuant to Section 5.2(b), with respect to calendar quarters for which Samsung has opted to pay [***] pursuant to Section 5.2(b). Samsung will promptly remit any undisputed underpayment to Immersion upon Samsung’s receipt of notice from Immersion. Immersion will pay the costs of any audit of Samsung;

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provided, that if such audit reveals any underpayment of royalties in an amount greater than [***] due under Section 5.2(b) for any year, then Samsung shall promptly remit an amount equal to the underpayment and interest thereon at 1.5% per month (measured from the date each underreported payment obligation became due and owing), and Samsung shall pay the reasonable costs of each such audit. Any audit shall be preceded by at least fifteen (15) days’ advance written notice and shall be performed during normal business hours by the auditor.
6. RESERVATION OF RIGHTS.
6.1      Ownership of Preexisting Intellectual Property, Solely Developed Technology, and the Immersion TouchSense Software . Immersion shall retain sole ownership and control of all Immersion Preexisting Technology, the Immersion TouchSense Software (including all Upgrades, Updates, error corrections, replacement versions, and ports delivered to Samsung pursuant to this Agreement) and all Immersion Solely Developed Technology. Samsung shall retain sole ownership and control of all Samsung Preexisting Technology and all Samsung Solely Developed Technology. Except to the extent otherwise required by any applicable laws, no implied rights or licenses are granted pursuant to this Agreement.
6.2      Jointly-Created Intellectual Property . The parties acknowledge that, in the future, the parties may enter into agreements pursuant to which joint development projects may be undertaken.  While neither party shall have any obligations unless and until such an agreement has been duly executed by the parties, the parties currently acknowledge that (a) such agreement will contain, among other things, appropriate ownership, licensing (under each party’s background and foreground intellectual property rights) and financial terms in connection with any joint development projects and other matters, and (b) to the extent that the parties collaborate on and jointly develop any Intellectual Property Rights in the course of performance under the terms of such agreements, such Intellectual Property Rights will be jointly owned by the parties, and each party shall be free to exploit such jointly-owned Intellectual Property Rights in such ways as described in such an agreement without the need to pay any royalties or other amounts to the other party (all without limiting the rights and obligations of the parties with respect to any Intellectual Property Rights separately owned or controlled by the other party), and (c) the parties will address any other rights or licenses applicable thereto. The parties acknowledge that if such an agreement is pursued, such agreement will be separately negotiated and terms mutually agreed upon by both parties.
7. PROTECTION. Samsung acknowledges that the Immersion TouchSense Software (and any specifications, schematics, drawings, or other documentation related thereto) contains trade secrets of Immersion and agrees that it shall not, and shall cause its employees, agents, and/or contractors not to: (a) reverse engineer or disassemble the Immersion TouchSense Software or otherwise attempt to discover the internal workings or design of the Immersion TouchSense Software; or (b) develop methods to enable unauthorized parties to use the Immersion TouchSense Software (or any specifications, schematics, drawings, or other documentation related thereto), except to the extent that the foregoing prohibitions violate applicable local law and provided that Samsung notifies Immersion in writing ninety (90) days prior to any proposed action in contravention of such prohibitions. Further, Samsung shall not modify, create any derivative works of, duplicate, disclose, or otherwise use the Immersion TouchSense Software except as expressly permitted hereunder and shall protect the Immersion TouchSense Software with at least the same degree of care with which it protects its own similar confidential information (but in no event less than reasonable care). Samsung acknowledges and agrees that unauthorized modification, derivative work, duplication, disclosure, or other use of the Immersion TouchSense Software may cause Immersion serious financial loss. Accordingly, in the event of any unauthorized modification, derivative work, duplication, disclosure, or other use of the Immersion TouchSense Software, Samsung agrees that Immersion shall have the right to seek injunctive or other equitable relief. In this regard, Immersion recognizes and accepts that Samsung has employed and may continue to employ various software of its own creation and/or developed with or based on Google technology (including the Android operating system), and that such software is not an unauthorized modification, derivative work, duplication, disclosure, or improper use of the Immersion TouchSense Software.
8. NO WARRANTIES . EXCEPT AS EXPRESSLY SET FORTH IN SECTION 9, TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW, NEITHER PARTY MAKES ANY PROMISES, REPRESENTATIONS, OR WARRANTIES, EITHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, WITH RESPECT TO THE IMMERSION TOUCHSENSE SOFTWARE OR THE LICENSED DEVICES HEREUNDER, INCLUDING THEIR CONDITION, THEIR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION, OR THE EXISTENCE

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OF ANY LATENT OR PATENT DEFECTS, AND IMMERSION SPECIFICALLY EXCLUDES ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT, AND ANY IMPLIED WARRANTIES ARISING FROM USAGE OF TRADE, COURSE OF DEALING, OR COURSE OF PERFORMANCE.
9. REPRESENTATIONS AND WARRANTIES .
9.1      Mutual .
(a) As of the date of execution of this Agreement, each of Immersion and Samsung represents and warrants that it is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing.
(b) During the Term, each of Immersion and Samsung warrants that it shall comply, in all material respects, with all applicable laws, regulations, orders or judgments of any court order or other agency of government.
(c) As of the date of execution of this Agreement, each of Immersion and Samsung represents and warrants that it has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party.
(d) As of the date of execution of this Agreement, each of Immersion and Samsung represents and warrants that: (i) it has the power to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver; (ii) it has the power to perform its obligations under this Agreement and has taken all necessary action to authorize such execution, delivery and performance; (iii) no consent of any third party is required for it to enter into or perform this Agreement; (iv) such execution, delivery and performance do not violate or conflict, in each case, in any material manner, with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets.
9.2      Immersion . Immersion warrants as follows:
(a) At the time of delivery of any Immersion TouchSense Software, Immersion Ireland warrants that such Immersion TouchSense Software will comply in all material respects with Immersion’s published specifications therefor. Samsung’s sole remedy with respect to breach of this warrant is set forth in Section 4.2(b).
(b) The Immersion TouchSense Software, as delivered by Immersion Ireland, does not contain any known virus or any other contaminant, including codes, commands or instructions that, in each case, may alter, delete, erase, damage, disable, disrupt or otherwise interfere, in each case, in a manner not intended by Samsung or set forth in the applicable Immersion specifications of the Immersion TouchSense Software, with the use of the Immersion TouchSense Software, or any other software, data or information.
(c) Immersion Ireland warrants that, except for the Linux Modules and except as otherwise disclosed by Immersion to Samsung prior to delivery to Samsung, Immersion Ireland shall not incorporate any Open Source Software into the Immersion TouchSense Software without Samsung’s prior consent.
(d) Immersion represents and warrants that Immersion Ireland has the full power and authority to grant releases, licenses, and rights under this Agreement to Samsung and its Affiliates.
10. INDEMNITY.
10.1      IP Claims . Immersion Ireland agrees to (1) indemnify, hold harmless and defend Samsung against any claim, legal action, or administrative procedure filed against Samsung by a third party alleging that [***] (an “ IP Claim ”), and (2) pay all damages and costs, including reasonable attorneys’ fees, finally awarded by a court of competent jurisdiction with respect to such IP Claim awarded against Samsung in a final judgment or settlement approved in advance and in writing by Immersion Ireland; provided that Samsung: (a) notifies Immersion Ireland in writing within thirty (30) days of commencement of such IP Claim, (b) grants Immersion Ireland sole control of the defense and settlement of the IP Claim, and (c) provides Immersion Ireland with all timely assistance, information and authority required for the defense and settlement of the IP Claim. To avoid or settle any IP Claim, Immersion Ireland, at its sole

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option and expense, may: (i) obtain for Samsung the right to continue to use the Immersion TouchSense Software as contemplated herein, (ii) modify the Immersion TouchSense Software so that it becomes non-infringing, but without materially altering its functionality, (iii) replace the Immersion TouchSense Software with functionally equivalent non infringing technology, or, if options (i), (ii) and (iii) above cannot be accomplished despite Immersion Ireland’s commercially reasonable efforts, then Immersion Ireland may terminate the software licenses contained in this Agreement. Notwithstanding the foregoing, Immersion Ireland assumes no liability for IP Claims to the extent arising from or based on (i) the combination of the Immersion TouchSense Software with other products not provided by Immersion Ireland where such claim would not have arisen from the use of the Immersion TouchSense Software standing alone; except where such combination is necessary for the intended use of the Immersion TouchSense Software, (ii) any modification of the Immersion TouchSense Software not made by or under the authority of Immersion Ireland, where such infringement would not have occurred but for such modifications, or (iii) use of any version of the Immersion TouchSense Software other than the current version of the Immersion TouchSense Software, if the infringement would not have occurred but for use of such non-current version. Samsung’s sole and exclusive remedy with respect to any IP Claim shall be for Immersion Ireland to perform its obligations under this Section 10.
10.2      Immersion Ireland . Immersion acknowledges and confirms that, (i) based on its own investigation of all tax laws, treaties and other regulations applicable to this transaction, it has concluded any payment under this Agreement should not be subject to taxes under Section 5.6, (ii) it has decided not to pay any withholding taxes under Section 5.6 and (iii) it has asked Samsung to wire any payment under this Agreement without deducting such taxes under Section 5.6. As of the Effective Date, Samsung agrees that no Withholding Claim exists with respect to amounts payable under this Agreement. In the event that the Korean tax authorities indicate that such Korean tax authorities intend to review the payments made by Samsung to Immersion Ireland hereunder to determine whether any withholding tax on payments made to Immersion Ireland pursuant to this Agreement is required under applicable Korean law or international treaty to be withheld by Samsung, Samsung shall immediately inform Immersion Ireland and Immersion Corporation in writing regarding such inquiries. Immersion Ireland and Immersion Corporation shall cooperate with Samsung on behalf of Immersion Ireland or Immersion Corporation in connection with such inquiry, and Samsung shall respond to such Korean tax authorities. However, in the event that, after the Effective Date, the Korean tax authorities assert that withholding tax should have been withheld from payments made to Immersion Ireland pursuant to this Agreement and impose such withholding tax thereafter, or if the Korean tax authorities legally requires Samsung to withhold withholding tax from payments made to Immersion Ireland pursuant to this Agreement (a “ Withholding Claim ”), Immersion Ireland or Immersion Corporation shall either (i) pay such withholding tax (including taxes due, penalty, interest, etc. imposed by such Korean tax authority) (collectively, the “ Imposed Tax ”) by the due date imposed by such Korean tax authority directly to such Korean tax authority, or (ii) pay Samsung the amount equal to the Imposed Tax to comply with such Withholding Claim by Samsung as an obligatory tax payer on behalf of Immersion Ireland or Immersion Corporation by the due date imposed by such Korean tax authority. If Immersion does not comply with the previous sentence, then Samsung may pay the Imposed Tax and Immersion shall reimburse the amount equal to the Imposed Tax with any accrued interest therewith (same interest rate as in Section 5.5(d)), immediately but no later than thirty (30) days after Samsung pays the Imposed Tax. If Immersion does not comply with the previous sentence, then Samsung may deduct such amount of Imposed Tax any accrued interest therewith (same interest rate as in Section 5.5(d)) from any payment under Section 5 during the Term. Immersion may appeal any Withholding Claim through all applicable administrative and judicial sources of appeal and Samsung shall cooperate with Immersion Ireland and Immersion Corporation in connection with such appeal. If Immersion prevails in such appeal, Samsung shall deliver to Immersion the amounts refunded by the Korean tax authorities. For the purpose of clarity, Immersion shall indemnify, hold harmless, and defend Samsung against any claim, legal action, or administrative procedure in connection with any withholding tax issues. Samsung shall provide all necessary assistance to Immersion to enable Immersion to obtain a credit for any Imposed Taxes paid by Immersion (or any amounts withheld by Samsung, including any Imposed Taxes withheld by Samsung) if permitted/available under applicable law.
11. LIMITATION OF LIABILITY. IN NO EVENT WILL IMMERSION BE LIABLE FOR ANY LOSS OF USE, LOSS OF PROFIT, INTERRUPTION OF BUSINESS, OR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOST PROFITS), REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY, OR OTHERWISE, EVEN IF IMMERSION HAS BEEN ADVISED, OR SHOULD HAVE BEEN AWARE, OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT FOR [***] AND A BREACH OF THE

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CONFIDENTIALITY PROVISIONS SET FORTH HEREIN, IN NO EVENT WILL IMMERSION’S LIABILITY UNDER THIS AGREEMENT, WHETHER IN CONTRACT, TORT, OR ANY OTHER THEORY OF LIABILITY, EXCEED [***]. The parties acknowledge that the limitations of liability in this Section 11 and in the other provisions of this Agreement and the allocation of risk herein are an essential element of the bargain between the parties, without which Immersion Ireland would not have entered into this Agreement. Immersion Ireland’s pricing reflects this allocation of risk and the limitation of liability specified herein.
12. TERM AND TERMINATION.
12.1      Term . This Agreement shall commence as of the Effective Date and continue until the five-year anniversary of the Effective Date (“ Initial Term ” At Samsung’s option, all the licenses and rights granted under this Agreement (and all applicable terms and conditions relating thereto) shall continue for an additional 5-year period (“ Renewal Term ,” and together with the Initial Term, the “ Term ”) so long as Samsung provides Immersion with written notice of its intent to renew such licenses and rights not later than 180 days in advance of the end of the Initial Term.
12.2      Termination for Cause . Either party may terminate this Agreement by written notice if the other party materially breaches the terms of this Agreement and fails to cure such breach within sixty (60) days of receipt of written notice thereof by such other party.
12.3      Effect of Termination . Notwithstanding anything to the contrary in this Agreement, upon the expiration or termination of this Agreement for any reason: (a) Samsung shall immediately cease, using all Immersion Trademarks, and holding itself out as a reseller or distributor of the Immersion TouchSense Software and shall promptly return or destroy, as directed by Immersion, all copies of the Immersion TouchSense Software (and confidential information) and provide Immersion Ireland with a written certification of such destruction signed by an officer of Samsung; and (b) all rights and licenses granted by Immersion hereunder shall immediately cease. The defined terms in this Agreement and the rights and obligations contained in the following sections shall survive any expiration or termination of this Agreement: Section 1, Section 2.3, Section 2.4, Section 2.6, Section 3.4, Section 5.1 through Section 5.7, in each case, with respect to amounts due or payable during the Term, Section 6, Section 7, Section 8, Section 10, Section 11, Section 12, and Section 13. For clarity, licenses granted to Samsung and its Affiliates with respect to any Licensed Devices made, having been made, used, sold, offered for sale, exported and/or imported during the period for which Samsung has completed its payment under Section 5 shall be effective and survive any expiration or termination of this Agreement.
13. MISCELLANEOUS.
13.1      Succession and Assignment . Either party may not assign this Agreement without the prior written consent of the other party, provided however that this Agreement may be assigned either to an Affiliate of the assigning party, or to a corporate successor in interest in the case of a merger or acquisition or in connection with a sale of substantially all of a party’s assets, in each case, without the prior approval of the other party. Further, a party may assign this Agreement, in whole or in part, without consent from the other party to any successor or assignee of its business relating the this Agreement by way of internal reorganization, including but not limited to, as a result of and based on the consummation of a transaction (or an integrated series of transactions) involving a spin-off or reorganization of such business by means of (a) a distribution of shares of such business to such Party’s then existing shareholders, (b) an initial public offering of voting securities of any such business, (c) an internal reorganization that does not involve any third party, or (d) a combination of the immediately preceding clauses (a), (b) and (c) above, provided that such successor or assignee must agree as part of such assignment to be bound by all terms and conditions of this Agreement to the extent that the assigning party would have been required to perform under this Agreement. Any attempt to assign this Agreement, or any license granted herein, in violation of the provisions of this Section 13.1 shall be void. Immersion shall ensure that any third party to whom Immersion or any of its Affiliates assigns this Agreement (or sells the Intellectual Property Rights related to this Agreement) shall fully assume all the obligations and responsibilities under this Agreement of Immersion, including continuing to grant the licenses to Samsung under this Agreement. In case of a Change of Control of Immersion to a Samsung Competitor, Immersion shall ensure that Samsung may continue to use the Source Code to enable Samsung to exercise its license granted under this Agreement and Immersion shall provide all reasonable assistance and reasonable support to enable Samsung to exercise such license. “ Change of Control ” shall be deemed to have occurred in the event that (i) a Samsung Competitor acquires ownership, directly or indirectly, of more than fifty percent (50%) of the voting shares of Immersion Ireland, or otherwise the possession, directly or indirectly, of the power to direct or cause the directions of the management and policies of Immersion Ireland (whether by reason of

Immersion Confidential          16

acquisition, merger, reorganization, operation of law or otherwise); or (ii) all, or substantially all, of Immersion Ireland’s assets are acquired (whether by reason of acquisition, merger, reorganization, operation of law or otherwise) by, or combined by merger with, any other third party.
13.2      Third Party Beneficiary . Notwithstanding anything to the contrary in this Agreement, Immersion Corporation shall fulfill any of Immersion Ireland’s obligations pursuant to this Agreement should Immersion Ireland fail to meet any of its assumed obligations. Immersion Ireland and Immersion Corporation shall be jointly and severally liable for any breach of this Agreement by Immersion Ireland or Immersion Corporation or failure to perform any obligations of Immersion Ireland or Immersion Corporation under or in relation to this Agreement. Further, Immersion Corporation reserves the right to fully enforce in its own name, at law and in equity, any and all rights of Immersion Ireland under this Agreement should Immersion Ireland fail to assert such rights.
13.3      Governing Law . The validity of this Agreement, the construction and enforcement of its terms, and the interpretation of the rights and duties of the parties shall be governed by the laws of the state of New York, U.S.A., excluding its choice of law principles. The parties shall in good faith attempt to resolve any dispute arising out of or related to this Agreement promptly by negotiations between executives who have authority to settle such controversy. If such dispute has not been resolved by negotiation within ninety (90) days, the parties shall endeavor to settle such dispute by binding arbitration in Maui, Hawaii, conducted expeditiously in accordance with the Rules of Arbitration of the International Chamber of Commerce, or equivalent thereof if agreed between the parties; provided, however, that if one party has requested the other to participate in negotiation and the other has failed to participate, the requesting party may initiate arbitration before the expiration of the above period. The award of the arbitration shall be made pursuant to a written opinion stating the legal basis and factual findings underlying the opinion and shall be final and binding upon the parties.
13.4      Confidential Information .
(a) Immersion Disclosures . Samsung agrees to treat as confidential, and not to use for any other purpose other than permitted by Immersion, any information designated as confidential information by Immersion, and provided to Samsung by Immersion during the course of this Agreement which is either marked as confidential or proprietary or summarized and identified in writing as confidential or proprietary within thirty (30) days after disclosure, and further agrees not to disclose such confidential information to third parties.
(b) Samsung Disclosures . Immersion agrees to treat as confidential, and not to use for any other purpose other than permitted by Samsung, any information designated as confidential information by Samsung, and provided to Immersion by Samsung during the course of this Agreement which is either marked as confidential or proprietary or summarized and identified in writing as confidential or proprietary within thirty (30) days after disclosure, and further agrees not to disclose such confidential information to third parties.
(c) Exceptions . The foregoing obligations of confidentiality do not apply to information which (i) was previously known to the recipient without a duty of confidentiality, (ii) is rightfully received from a third party by the recipient without a duty of confidentiality, or (iii) becomes publicly known or publicly available without breach of this Agreement, (iv) was communicated by such disclosing party to an unaffiliated third party on an unrestricted basis; or (v) is independently developed without use of disclosing party’s Confidential Information. In the event either party receives a subpoena or other legal process requiring the disclosure of confidential information previously disclosed by the other, the party receiving such subpoena or legal process shall promptly notify the other party in order to permit such party to seek to prevent or limit disclosure of its confidential information. Provided such notice is timely given, required disclosure of confidential information pursuant to subpoena or other legal process shall not constitute a breach of this Agreement. Each party may, in the course of conducting such party’s business, disclose confidential information received from the other party to the recipient party’s professional business advisors such as accountants and attorneys or as otherwise required to comply with the law.
13.5      Confidentiality of Agreement . Notwithstanding anything in this Agreement to the contrary, neither party shall disclose the information within the body of this Agreement, as well as the exhibits, to any third parties other than: (a) to the extent approved in writing in advance by the other party; (b) to the extent legally compelled, provided, however, that prior to any such compelled disclosure, such party shall give the other party reasonable advance notice and shall cooperate with such other party in protecting against any such disclosure and/or obtaining a protective order

Immersion Confidential          17

narrowing the scope of such disclosure; (c) as required by the applicable securities laws, including requirements to file a copy of this Agreement (redacted to the extent reasonably permitted by applicable law) or to disclose information regarding the provisions hereof or performance hereunder to applicable regulatory authorities, provided that such party shall give the other party reasonable advance notice of such disclosure; (d) in confidence, to legal counsel and accountants; (e) in confidence, in connection with a bona-fide proposed merger, acquisition or similar transaction; (f) in confidence, to banks and financing sources and their advisors for a reasonable business purpose; (g) in confidence, to a carrier customer of Samsung or its Affiliates for a reasonable business purpose and to the extent that Samsung or its Affiliates are legally obligated to provide indemnification to such carrier customer in connection with Licensed Devices (provided, that Samsung or its Affiliates may only disclose terms and conditions that are relevant to the indemnification issue); or (h)as reasonably necessary in connection with the enforcement of this Agreement.
13.6      No Agency . Neither party is the agent, partner, or joint venturer with respect to the other party. Neither party is authorized to act as the agent, partner, or joint venturer of the other party hereunder in any respect.
13.7      No Waiver . No delay or omission by either party hereto to exercise any right or power occurring upon any noncompliance or default by the other party with respect to any of the terms of this Agreement shall impair any such right or power or be construed to be a waiver thereof. A waiver by either of the parties hereto of any of the covenants, conditions, or agreements to be performed by the other shall not be construed to be a waiver of any succeeding breach thereof or of any covenant, condition, or agreement herein contained. Unless stated otherwise, all remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available to either party at law, in equity, or otherwise.
13.8      Notices . All notices sent under this Agreement shall be deemed effective when received and made in writing by either (a) registered mail, (b) certified mail, return receipt requested, or (c) DHL, Federal Express, UPS, or other reliable overnight courier service, and, except as otherwise revised by written notice provided in conformance with this Section 13.8, shall be sent to the address and attention set forth on the cover page hereof.
13.9      General . The paragraph headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or extent of such section or in any way affect this Agreement. Where the singular is used in this Agreement, the same shall be construed as meaning the plural where the context so admits or requires and the converse shall hold as applicable. Whenever used in this Agreement, unless otherwise specified, the terms “includes,” “including,” “e.g.,” “for example,” “such as” and other similar terms are deemed to include the term “without limitation” immediately thereafter. Each party acknowledges that it has had the opportunity to review this Agreement with legal counsel of its choice, and there will be no presumption that ambiguities will be construed or interpreted against the drafter, and no presumptions made or inferences drawn because of the inclusion of a term not contained in a prior draft or the deletion of a term contained in a prior draft. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal, or unenforceable, the validity, legality, or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and the invalid, illegal, or unenforceable provision shall be changed and interpreted so as to best accomplish the objectives of the provision within the limits of applicable law. This Agreement constitutes the entire agreement between Immersion and Samsung with respect to the matters contained herein and supersedes all prior oral or written representations, proposals, quotations, understandings, and agreements (including the 2013 License Agreement). Unless otherwise separately agreed to in writing by Immersion, any additional or different terms, whether contained in Samsung’s purchase order, acknowledgement form, or any other communication of Samsung, are unacceptable to Immersion, are expressly rejected, and shall not become part of this Agreement. Any amendment to this Agreement must be in writing and signed by authorized representatives of both parties hereto. This Agreement may be executed simultaneously in two or more counterparts (including via PDF or facsimile), each of which will be considered an original, but all of which together will constitute one and the same instrument. This Agreement is in the English language only, which language shall be controlling in all respects, and all versions of this Agreement in any other language shall be for accommodation only and shall not be binding on the parties. All communications and notices made or given pursuant to this Agreement shall be in English.
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Immersion Confidential          18

 
EXHIBIT A

[PRESS RELEASE]


Immersion Confidential          19


EXHIBIT B

TAX DOCUMENT


Immersion Confidential          20
DocuSign Envelope ID: 7A0D17BC-D7F3-4C80-841E-58D6A83D6C84 CONFIDENTIAL CONSULTING AGREEMENT This Confidential Consulting Agreement (the “Agreement”) is executed as of the date shown on the signature page (the “Effective Date”), by and between FLG Partners, LLC, a California limited liability company (“FLG”), and the entity identified on the signature page (“Client”). RECITALS WHEREAS, FLG is in the business of providing certain financial services; WHEREAS, Client wishes to retain FLG to provide and FLG wishes to provide such services to Client on the terms set forth herein; NOW, THEREFORE, in consideration of the mutual covenants set forth herein, the parties hereto agree as follows: 1. Services. (1.5%) per month. FLG shall be entitled to recover all costs and expenses (including, without limitation, attorneys’ fees) incurred A. Commencing on the Effective Date, FLG will perform those by it in collecting any amounts overdue under this Agreement. services (the “Services”) described in one or more exhibits attached hereto. Such services shall be performed by the member D. Client hereby agrees to pay FLG a deposit as set forth on Exhibit or members of FLG identified in Exhibit A (collectively, the “FLG A (the “Deposit”) to be held in its entirety as security for Client’s Member”). future payment obligations to FLG under this Agreement. Upon termination of this Agreement, all amounts then owing to FLG B. Client acknowledges and agrees that FLG’s success in performing under this Agreement shall be charged against the Deposit and the the Services hereunder will depend upon the participation, balance thereof, if any, shall be refunded to Client. cooperation and support of Client’s most senior management. E. Within ten (10) days of Client’s receipt of an expense report from C. Notwithstanding anything in Exhibit A or elsewhere in this FLG’s personnel performing Services hereunder, Client shall Agreement to the contrary, neither FLG nor any of its members immediately reimburse FLG personnel directly for reasonable shall serve as an employee, an appointed officer, or an elected travel and out-of-pocket business expenses detailed in such director of Client. Consistent with the preceding: (i) Client shall expense report. Any required air travel, overnight accommodation not appoint FLG Member as a corporate officer in Client’s and resulting per diem expenses shall be consistent with Client’s corporate minutes; (ii) Client shall not elect FLG Member to its travel & expense policies for Client’s employed executive staff. board of directors or equivalent governing body; and (iii) the FLG Member shall have no authority to sign any documents on behalf 3. Relationship of the Parties. of Client, including, but not limited to, federal or state securities filings, tax filings, or representations and warranties on behalf of A. FLG’s relationship with Client will be that of an independent Client except as pursuant to a specific resolution(s) of Client’s contractor and nothing in this Agreement shall be construed to board of directors or equivalent governing body granting such create a partnership, joint venture, or employer-employee authority to FLG Member as a non-employee consultant to Client. relationship. FLG is not the agent of Client and is not authorized to make any presentation, contract, or commitment on behalf of D. The Services provided by FLG and FLG Member hereunder shall Client unless specifically requested or authorized to do so by Client not constitute an audit, attestation, review, compilation, or any in writing. FLG agrees that all taxes payable as a result of other type of financial statement reporting engagement (historical compensation payable to FLG hereunder shall be FLG’s sole or prospective) that is subject to the rules of the California Board liability. FLG shall defend, indemnify and hold harmless Client, of Accountancy, the AICPA, or other similar state or national Client’s officers, directors, employees and agents, and the licensing or professional bodies. Client agrees that any such administrators of Client’s benefit plans from and against any services, if required, will be performed separately by its claims, liabilities or expenses relating to such taxes or independent public accountants or other qualified consultants. compensation. E. During the term of this Agreement, Client shall not hire or retain 4. Term and Termination. the FLG Member as an employee, consultant or independent contractor except pursuant to this Agreement. A. The term of this Agreement shall be for the period set forth in Exhibit A. 2. Compensation; Payment; Deposit; Expenses. B. Either party may terminate this Agreement upon thirty (30) A. As compensation for Services rendered by FLG hereunder, Client calendar days advance written notice to the other party. shall pay FLG the amounts set forth in Exhibit A for Services performed by FLG hereunder (the “Fees”). The Fees shall be net C. Either party may terminate this Agreement immediately upon a of any and all taxes, withholdings, duties, customs, social material breach of this Agreement by the other party and a failure contributions or other reductions imposed by any and all by the other party to cure such breach within ten (10) days of authorities which are required to be withheld or collected by Client written notice thereof by the non-breaching party to the breaching or FLG, including ad valorem, sales, gross receipts or similar taxes, party. but excluding US income taxes based upon FLG’s or FLG D. FLG shall have the right to terminate this Agreement immediately Member’s net taxable income. without advance written notice (i) if Client is engaged in, or B. As additional compensation to FLG, Client will pay FLG the requests that FLG or the FLG Member undertake or ignore any incentive bonus or warrants or options, if any, set forth in Exhibit illegal or unethical activity, or (ii) upon the death or disability of A. the FLG Member. C. Client shall pay FLG all amounts owed to FLG under this E. This Agreement shall be deemed terminated if during any six Agreement upon Client’s receipt of invoice, with no purchase order month period no billable hours occur, with the termination date required. Any invoices more than thirty (30) days overdue will effective on the date of the last billable hour therein. accrue a late payment fee at the rate of one and 50/100 percent Initial: Client _____ FLG _____ Page 1 of 5 190311 FLG-Immersion Confidential Consulting Agreement.docx

 
DocuSign Envelope ID: 7A0D17BC-D7F3-4C80-841E-58D6A83D6C84 CONFIDENTIAL CONSULTING AGREEMENT F. If at any time during the one (1) year period following termination AGGREGATE CUMULATIVE LIABILITY HEREUNDER, of this Agreement Client shall hire or retain the FLG Member as WHETHER IN CONTRACT, TORT, NEGLIGENCE, an employee, consultant or independent contractor, AND in so MISREPRESENTATION, STRICT LIABILITY OR doing induce, compel or cause FLG Member to leave FLG as a OTHERWISE, SHALL NOT EXCEED AN AMOUNT EQUAL precondition to commencing or continuing employment or TO THE LAST TWO (2) MONTHS OF FEES PAYABLE BY consultancy with Client, Client shall immediately pay to FLG in CLIENT UNDER PARAGRAPH 2(A) OF THIS AGREEMENT. readily available funds a recruiting fee equal to the annualized CLIENT ACKNOWLEDGES THAT THE COMPENSATION amount of Fees payable hereunder, which shall equal either (i) 260 PAID BY IT UNDER THIS AGREEMENT REFLECTS THE multiplied by the daily rate, if this Agreement provides for Fees ALLOCATION OF RISK SET FORTH IN THIS AGREEMENT payable by daily rate, or (ii) 2,100 multiplied by the hourly rate, if AND THAT FLG WOULD NOT ENTER INTO THIS this Agreement provides for Fees payable by hourly rate, AGREEMENT WITHOUT THESE LIMITATIONS ON ITS multiplied by thirty percent (30%). LIABILITY. THIS PARAGRAPH SHALL NOT APPLY TO EITHER PARTY WITH RESPECT TO A BREACH OF ITS 5. Disclosures CONFIDENTIALITY OBLIGATIONS. A. IRS Circular 230. To ensure compliance with requirements A. As a condition for recovery of any amount by Client against FLG, imposed by the IRS effective June 20, 2005, FLG hereby informs Client shall give FLG written notice of the alleged basis for Client that any tax advice offered during the course of providing, liability within ninety (90) days of discovering the circumstances or arising out of, the Services rendered pursuant to this Agreement, giving rise thereto, in order that FLG will have the opportunity to unless expressly stated otherwise, is not intended or written to be investigate in a timely manner and, where possible, correct or used, and cannot be used, for the purpose of: (i) avoiding tax- rectify the alleged basis for liability; provided that the failure of related penalties under the Internal Revenue Code, or (ii) Client to give such notice will only affect the rights of Client to the promoting, marketing or recommending to another party any tax- extent that FLG is actually prejudiced by such failure. related matter(s) said tax advice address(es). Notwithstanding anything herein to the contrary, Client must assert B. Attorney-Client Privilege. Privileged communication disclosed to any claim against FLG by the sooner of: (i) ninety (90) days after FLG or FLG Member may waive the privilege through no fault of discovery; (ii) ninety (90) days after the termination of this FLG. FLG strongly recommends that Client consult with legal Agreement; (iii) ninety (90) days after the last date on which the counsel before disclosing privileged information to FLG or FLG Services were performed; or, (iv) sixty (60) days after completion Member. Pursuant to Paragraph 6, neither FLG nor FLG Member of a financial or accounting audit for the period(s) to which a claim will be responsible for damages caused through Client’s waiver of pertains. privilege, whether deliberate or inadvertent, by disclosing such 7. Indemnification. information to FLG or FLG Member. A. FLG and FLG Member acting in relation to any of the affairs of 6. DISCLAIMERS AND LIMITATION OF LIABILITY. Client shall, to the fullest extent permitted by law, as now or EXCEPT AS EXPRESSLY SET FORTH HEREIN, ALL hereafter in effect, be indemnified and held harmless, and such SERVICES TO BE PROVIDED BY FLG AND FLG MEMBER right to indemnification shall continue to apply to FLG and FLG (FOR PURPOSES OF THIS PARAGRAPH 6, COLLECTIVELY Member following the term of this Agreement out of the assets and “FLG”) HEREUNDER ARE PROVIDED “AS IS” WITHOUT profits of the Client from and against all actions, costs, charges, ANY WARRANTY WHATSOEVER. CLIENT RECOGNIZES losses, damages, liabilities and expenses which FLG or FLG THAT THE “AS IS” CLAUSE OF THIS AGREEMENT IS AN Member, or FLG’s or FLG Member’s heirs, executors or IMPORTANT PART OF THE BASIS OF THIS AGREEMENT, administrators, shall or may incur or sustain by or by reason for WITHOUT WHICH FLG WOULD NOT HAVE AGREED TO any act done, concurred in or omitted in or about the execution of ENTER INTO THIS AGREEMENT. FLG EXPRESSLY FLG’s or FLG Member’s duty or services performed on behalf of DISCLAIMS ALL OTHER WARRANTIES, TERMS OR Client; and Client shall advance the reasonable attorney’s fees, CONDITIONS, WHETHER EXPRESS, IMPLIED, OR costs and expenses incurred by FLG or FLG’s Member in STATUTORY, REGARDING THE PROFESSIONAL connection with litigation related to the foregoing on the same SERVICES, INCLUDING ANY, WARRANTIES OF basis as such advancement would be available to the Client’s MERCHANTABILITY, TITLE, FITNESS FOR A officers and directors, PROVIDED THAT Client shall not be PARTICULAR PURPOSE AND INFRINGEMENT. NO obligated to make payments to or on behalf of any person (i) in REPRESENTATION OR OTHER AFFIRMATION OF FACT connection with services provided by such person outside the REGARDING THE SERVICES PROVIDED HEREUNDER scope of Services contemplated by this Agreement, and not SHALL BE DEEMED A WARRANTY FOR ANY PURPOSE OR authorized or consented to by Client’s CEO or Board of Directors, GIVE RISE TO ANY LIABILITY OF FLG WHATSOEVER. or (ii) in respect of any (a) gross negligence or willful misconduct of such person, or (b) negligence of such person, but only to the IN NO EVENT SHALL FLG BE LIABLE FOR ANY extent that FLG’s errors and omissions liability insurance would INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL, cover such person for such negligence without regard to Client’s PUNITIVE OR CONSEQUENTIAL DAMAGES, UNDER ANY obligation to indemnify FLG hereunder. CIRCUMSTANCES, INCLUDING, BUT NOT LIMITED TO: LOST PROFITS; REVENUE OR SAVINGS; WAIVER BY B. FLG and FLG Member shall have no liability to Client relating to CLIENT, WHETHER INADVERTENT OR INTENTIONAL, OF the performance of its duties under this agreement except in the CLIENT’S ATTORNEY-CLIENT PRIVILEGE THROUGH event of FLG’s or FLG Member’s gross negligence or willful CLIENT’S DISCLOSURE OF LEGALLY PRIVILEGED misconduct. INFORMATION TO FLG; OR THE LOSS, THEFT, C. FLG and FLG Member agree to waive any claim or right of action TRANSMISSION OR USE, AUTHORIZED OR OTHERWISE, FLG or FLG Member might have whether individually or by or in OF ANY DATA, EVEN IF CLIENT OR FLG HAVE BEEN the right of Client, against any director, secretary and other officers ADVISED OF, KNEW, OR SHOULD HAVE KNOWN, OF THE of Client and the liquidator or trustees (if any) acting in relation to POSSIBILITY THEREOF. NOTWITHSTANDING ANYTHING any of the affairs of Client and every one of them on account of IN THIS AGREEMENT TO THE CONTRARY, FLG’S any action taken by such director, officer, liquidator or trustee or Initial: Client _____ FLG _____ Page 2 of 5 190311 FLG-Immersion Confidential Consulting Agreement.docx

 
DocuSign Envelope ID: 7A0D17BC-D7F3-4C80-841E-58D6A83D6C84 CONFIDENTIAL CONSULTING AGREEMENT the failure of such director, officer, liquidator or trustee to take any B. This Agreement will be governed by and construed in accordance action in the performance of his duties with or for Client; with the laws of California without giving effect to any choice of PROVIDED THAT such waiver shall not extend to any matter in law principles that would require the application of the laws of a respect of any gross negligence or willful misconduct which may different jurisdiction. attach to any such persons. C. Any claim, dispute, or controversy of whatever nature arising out 8. Representations and Warranties. of or relating to this Agreement (including any other agreement(s) contemplated hereunder), including, without limitation, any action A. Each party represents and warrants to the other that it is authorized or claim based on tort, contract, or statute (including any claims of to enter into this Agreement and can fulfill all of its obligations breach or violation of statutory or common law protections from hereunder. discrimination, harassment and hostile working environment), or B. FLG and FLG Member warrant that they shall perform the Services concerning the interpretation, effect, termination, validity, diligently, with due care, and in accordance with prevailing performance and/or breach of this Agreement (“Claim”), shall be industry standards for comparable engagements and the resolved by final and binding arbitration before a single arbitrator requirements of this Agreement. FLG and FLG Member warrant (“Arbitrator”) selected from and administered by the San Francisco that FLG Member has sufficient professional experience to office of JAMS (the “Administrator”) in accordance with its then perform the Services in a timely and competent manner. existing commercial arbitration rules and procedures. The arbitration shall be held in San Francisco, California. The C. Each party represents and warrants that it has and will maintain a Arbitrator shall, within fifteen (15) calendar days after the policy or policies of insurance with reputable insurance companies conclusion of the Arbitration hearing, issue a written award and providing the members, officers and directors, as the case may be, statement of decision describing the essential findings and of itself with coverage for losses from wrongful acts. FLG conclusions on which the award is based, including the calculation covenants that it has an error and omissions insurance policy in of any damages awarded. The Arbitrator also shall be authorized place in the form provided to Client prior to or contemporaneously to grant any temporary, preliminary or permanent equitable with the date of execution of this Agreement and will continue to remedy or relief he or she deems just and equitable and within the maintain such policy or equivalent policy provided that such policy scope of this Agreement, including, without limitation, an or equivalent policy shall be available at commercially reasonable injunction or order for specific performance. Each party shall bear rates. its own attorneys’ fees, costs, and disbursements arising out of the arbitration, and shall pay an equal share of the fees and costs of the 9. Work Product License. The parties do not anticipate that FLG or FLG Administrator and the Arbitrator; provided, however, the Member will create any intellectual property for Client in performing Arbitrator shall be authorized to determine whether a party is the the Services pursuant to this Agreement. However, FLG and FLG prevailing party, and if so, to award to that prevailing party Member grant to Client a world-wide, perpetual, exclusive, royalty- reimbursement for its reasonable attorneys’ fees, costs and free, irrevocable license to use and create derivative works from all disbursements, and/or the fees and costs of the Administrator and tangible and electronic documents, spreadsheets, and financial models the Arbitrator. The Arbitrator's award may be enforced in any court (collectively, “Work Product”) produced or authored by FLG Member of competent jurisdiction. Notwithstanding the foregoing, nothing in the course of performing the Services pursuant to this Agreement. in this Paragraph 10(C) will restrict either party from applying to Any patent rights arising out of the Services will be assigned to and any court of competent jurisdiction for injunctive relief. owned by Client and not FLG or FLG Member. All other rights, including, but not limited to, the residual memory of any methods, D. Neither party may assign its rights or delegate its obligations discoveries, developments, improvements, know-how, ideas, insights, hereunder, either in whole or in part, whether by operation of law analytical concepts and skills directly inherent to, or reasonably or otherwise, without the prior written consent of the other party; required for, the competent execution of FLG Member’s profession as provided, however, that FLG may assign its rights and delegate its a chief financial officer are reserved in their entirety by FLG and FLG obligations hereunder to any affiliate of FLG. The rights and Member. liabilities of the parties under this Agreement will bind and inure to the benefit of the parties’ respective successors and permitted 10. Miscellaneous. assigns. A. Any notice required or permitted to be given by either party hereto E. If any provision of this Agreement, or the application thereof, shall under this Agreement shall be in writing and shall be personally for any reason and to any extent be invalid or unenforceable, the delivered or sent by a reputable courier mail service (e.g., Federal remainder of this Agreement and application of such provision to Express) or by facsimile confirmed by reputable courier mail other persons or circumstances shall be interpreted so as best to service, to the other party as set forth in this Paragraph 10(A). reasonably effect the intent of the parties. The parties further agree Notices will be deemed effective two (2) days after deposit with a to replace such void or unenforceable provision of this Agreement reputable courier service or upon confirmation of receipt by the with a valid and enforceable provision that will achieve, to the recipient from such courier service or the same day if sent by extent possible, the economic, business and other purposes of the facsimile and confirmed as set forth above. void or unenforceable provision. If to FLG: F. This Agreement, the Exhibits, and any executed Non-Disclosure Jeffrey S. Kuhn Agreements specified herein and thus incorporated by reference FLG Partners, LLC constitute the entire understanding and agreement of the parties P.O. Box 556 with respect to the subject matter hereof and thereof and supersede 7 East Road all prior and contemporaneous agreements or understandings, Ross, CA 94957-0556 express or implied, written or oral, between the parties with respect Tel: 415-454-5506 hereto. The express terms hereof control and supersede any course Fax: 415-456-1191 of performance or usage of the trade inconsistent with any of the E-mail: jeff@flgpartners.com terms hereof. If to Client: the address, telephone numbers and email address G. Any term or provision of this Agreement may be amended, and the shown below Client’s signature on the signature page. observance of any term of this Agreement may be waived, only by Initial: Client _____ FLG _____ Page 3 of 5 190311 FLG-Immersion Confidential Consulting Agreement.docx

 
DocuSign Envelope ID: 7A0D17BC-D7F3-4C80-841E-58D6A83D6C84 CONFIDENTIAL CONSULTING AGREEMENT a writing signed by the parties. The waiver by a party of any breach then the non-performing, hindered or delayed party shall be hereof for default in payment of any amount due hereunder or excused for such non-performance, hindrance or delay, as default in the performance hereof shall not be deemed to constitute applicable, of those obligations affected by the Force Majeure a waiver of any other default or succeeding breach or default. Event for as long as such Force Majeure Event continues and such party continues to use its best efforts to recommence performance H. Subject to Client’s approval, which shall not be unreasonably whenever and to whatever extent possible without delay, including withheld, upon completion of the engagement hereunder FLG may through the use of alternate sources, workaround plans or other place customary “tombstone” advertisements using Client’s logo means. and name in publications of FLG’s choice at its own expense, and/or cite the engagement in similar fashion on FLG’s website. K. This Agreement may be executed in any number of counterparts and by the parties on separate counterparts, each of which when I. If Client discloses FLG Member’s name on Client’s website (such executed and delivered shall constitute an original, but all the as in an executive biography, for example), press releases, SEC counterparts together constitute one and the same instrument. filings and other public documents and media, then Client shall include in the description of FLG Member a sentence substantially L. This Agreement may be executed by facsimile signatures the same as “[FLG Member] is also a partner at FLG Partners, a (including electronic versions of this document in Adobe Acrobat leading CFO services firm in Silicon Valley.” Portable Document Format form which contain scanned or secure, digitally signed signatures) by any party hereto and such signatures J. If and to the extent that a party’s performance of any of its shall be deemed binding for all purposes hereof, without delivery obligations pursuant to this Agreement is prevented, hindered or of an original signature being thereafter required. delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions or M. Survivability. The following Paragraphs shall survive the revolutions, or any other similar cause beyond the reasonable termination of this Agreement: 6 (“Disclaimers and Limitation of control of such party (each, a “Force Majeure Event”), and such Liability”); 7 (“Indemnification”); 8 (“Representations and non-performance, hindrance or delay could not have been Warranties”); 9 (“Work Product License”); and 10 prevented by reasonable precautions of the non-performing party, (“Miscellaneous”). IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. CLIENT: FLG: Immersion Corporation, FLG Partners, LLC, a Delaware corporation. a California limited liability company. By: Amie Peters By: Jeffrey S. Kuhn Signed: Signed: Title: General Counsel Title: Administrative Partner Address: 50 Rio Robles Effective Date: March 11, 2019 San Jose, CA 95134 Tel: 408-467-1900 Fax: 408-467-1901 Email: apeters@immersion.com REMAINDER OF THIS PAGE LEFT BLANK Initial: Client _____ FLG _____ Page 4 of 5 190311 FLG-Immersion Confidential Consulting Agreement.docx

 
DocuSign Envelope ID: 7A0D17BC-D7F3-4C80-841E-58D6A83D6C84 CONFIDENTIAL CONSULTING AGREEMENT EXHIBIT A 1. Description of Services: Financial advisory services. 2. FLG Member: Bern Whitney. 3. Fees: $450 per hour, subject to any hourly maximums that Client may establish from time to time. 4. Additional Compensation: None. 5. Deposit: $10,000. 6. Term: Indefinite, and terminable pursuant to Paragraph 4 of the Agreement. 7. Non-Disclosure Agreement: FLG-Client Mutual Non-Disclosure Agreement dated March 4, 2019 (the “NDA”). REMAINDER OF THIS PAGE LEFT BLANK Initial: Client _____ FLG _____ Page 5 of 5 190311 FLG-Immersion Confidential Consulting Agreement.docx

 
Certificate Of Completion Envelope Id: 7A0D17BCD7F34C80841E58D6A83D6C84 Status: Completed Subject: Please DocuSign: 190311 FLG-Immersion Confidential Consulting Agreement.pdf Source Envelope: Document Pages: 5 Signatures: 2 Envelope Originator: Certificate Pages: 5 Initials: 8 Jeffrey S. Kuhn AutoNav: Enabled PO Box 556 EnvelopeId Stamping: Enabled Ross, CA 94957 Time Zone: (UTC-08:00) Pacific Time (US & Canada) jeff@flgpartners.com IP Address: 73.222.41.32 Record Tracking Status: Original Holder: Jeffrey S. Kuhn Location: DocuSign 3/11/2019 4:30:11 PM jeff@flgpartners.com Signer Events Signature Timestamp Jeffrey S. Kuhn Sent: 3/11/2019 4:32:04 PM jeff@flgpartners.com Viewed: 3/11/2019 4:32:12 PM Administrative Partner Signed: 3/11/2019 4:32:21 PM FLG Partners Signature Adoption: Uploaded Signature Image Security Level: Email, Account Authentication (None) Using IP Address: 73.222.41.32 Electronic Record and Signature Disclosure: Not Offered via DocuSign Anne Peters Sent: 3/11/2019 4:32:22 PM apeters@immersion.com Viewed: 3/11/2019 4:33:48 PM SVP, IP Licensing and Legal Affairs Signed: 3/11/2019 4:34:13 PM Security Level: Email, Account Authentication (None) Signature Adoption: Drawn on Device Using IP Address: 12.220.159.101 Electronic Record and Signature Disclosure: Accepted: 3/4/2019 3:02:55 PM ID: 153a7a45-7a32-431f-8230-c3d4daf15ed2 In Person Signer Events Signature Timestamp Editor Delivery Events Status Timestamp Agent Delivery Events Status Timestamp Intermediary Delivery Events Status Timestamp Certified Delivery Events Status Timestamp Carbon Copy Events Status Timestamp Bern Whitney Sent: 3/11/2019 4:34:14 PM bern@flgpartners.com Security Level: Email, Account Authentication (None) Electronic Record and Signature Disclosure: Accepted: 10/14/2016 9:55:03 AM ID: 2f9542e8-a999-4e73-a193-0b00819d6330

 
Carbon Copy Events Status Timestamp Wendy Whitworth Sent: 3/11/2019 4:34:14 PM wendy@flgpartners.com Security Level: Email, Account Authentication (None) Electronic Record and Signature Disclosure: Not Offered via DocuSign Notary Events Signature Timestamp Envelope Summary Events Status Timestamps Envelope Sent Hashed/Encrypted 3/11/2019 4:34:14 PM Certified Delivered Security Checked 3/11/2019 4:34:14 PM Signing Complete Security Checked 3/11/2019 4:34:14 PM Completed Security Checked 3/11/2019 4:34:14 PM Payment Events Status Timestamps Electronic Record and Signature Disclosure

 
Electronic Record and Signature Disclosure created on: 2/1/2016 2:35:46 PM Parties agreed to: Anne Peters, Bern Whitney CONSUMER DISCLOSURE From time to time, FLG Partners (we, us or Company) may be required by law to provide to you certain written notices or disclosures. Described below are the terms and conditions for providing to you such notices and disclosures electronically through the DocuSign, Inc. (DocuSign) electronic signing system. Please read the information below carefully and thoroughly, and if you can access this information electronically to your satisfaction and agree to these terms and conditions, please confirm your agreement by clicking the ‘I agree’ button at the bottom of this document. Getting paper copies At any time, you may request from us a paper copy of any record provided or made available electronically to you by us. You will have the ability to download and print documents we send to you through the DocuSign system during and immediately after signing session and, if you elect to create a DocuSign signer account, you may access them for a limited period of time (usually 30 days) after such documents are first sent to you. After such time, if you wish for us to send you paper copies of any such documents from our office to you, you will be charged a $0.00 per-page fee. You may request delivery of such paper copies from us by following the procedure described below. Withdrawing your consent If you decide to receive notices and disclosures from us electronically, you may at any time change your mind and tell us that thereafter you want to receive required notices and disclosures only in paper format. How you must inform us of your decision to receive future notices and disclosure in paper format and withdraw your consent to receive notices and disclosures electronically is described below. Consequences of changing your mind If you elect to receive required notices and disclosures only in paper format, it will slow the speed at which we can complete certain steps in transactions with you and delivering services to you because we will need first to send the required notices or disclosures to you in paper format, and then wait until we receive back from you your acknowledgment of your receipt of such paper notices or disclosures. To indicate to us that you are changing your mind, you must withdraw your consent using the DocuSign ‘Withdraw Consent’ form on the signing page of a DocuSign envelope instead of signing it. This will indicate to us that you have withdrawn your consent to receive required notices and disclosures electronically from us and you will no longer be able to use the DocuSign system to receive required notices and consents electronically from us or to sign electronically documents from us. All notices and disclosures will be sent to you electronically Unless you tell us otherwise in accordance with the procedures described herein, we will provide electronically to you through the DocuSign system all required notices, disclosures, authorizations, acknowledgements, and other documents that are required to be provided or made available to you during the course of our relationship with you. To reduce the chance of you inadvertently not receiving any notice or disclosure, we prefer to provide all of the required notices and disclosures to you by the same method and to the same address that you have given us. Thus, you can receive all the disclosures and notices electronically or in paper format through the paper mail delivery system. If you do not agree with this process, please let us know as described below. Please also see the paragraph immediately above that describes the consequences of your electing not to receive delivery of the notices and disclosures

 
electronically from us. How to contact FLG Partners: You may contact us to let us know of your changes as to how we may contact you electronically, to request paper copies of certain information from us, and to withdraw your prior consent to receive notices and disclosures electronically as follows: To contact us by email send messages to: jeff@flgpartners.com To advise FLG Partners of your new e-mail address To let us know of a change in your e-mail address where we should send notices and disclosures electronically to you, you must send an email message to us at jeff@flgpartners.com and in the body of such request you must state: your previous e-mail address, your new e-mail address. We do not require any other information from you to change your email address.. In addition, you must notify DocuSign, Inc. to arrange for your new email address to be reflected in your DocuSign account by following the process for changing e-mail in the DocuSign system. To request paper copies from FLG Partners To request delivery from us of paper copies of the notices and disclosures previously provided by us to you electronically, you must send us an e-mail to jeff@flgpartners.com and in the body of such request you must state your e-mail address, full name, US Postal address, and telephone number. We will bill you for any fees at that time, if any. To withdraw your consent with FLG Partners To inform us that you no longer want to receive future notices and disclosures in electronic format you may: i. decline to sign a document from within your DocuSign session, and on the subsequent page, select the check-box indicating you wish to withdraw your consent, or you may; ii. send us an e-mail to jeff@flgpartners.com and in the body of such request you must state your e-mail, full name, US Postal Address, and telephone number. We do not need any other information from you to withdraw consent.. The consequences of your withdrawing consent for online documents will be that transactions may take a longer time to process.. Required hardware and software Operating Systems: Windows® 2000, Windows® XP, Windows Vista®; Mac OS® X Browsers: Final release versions of Internet Explorer® 6.0 or above (Windows only); Mozilla Firefox 2.0 or above (Windows and Mac); Safari™ 3.0 or above (Mac only) PDF Reader: Acrobat® or similar software may be required to view and print PDF files Screen Resolution: 800 x 600 minimum Enabled Security Settings: Allow per session cookies ** These minimum requirements are subject to change. If these requirements change, you will be asked to re-accept the disclosure. Pre-release (e.g. beta) versions of operating systems and browsers are not supported. Acknowledging your access and consent to receive materials electronically

 
To confirm to us that you can access this information electronically, which will be similar to other electronic notices and disclosures that we will provide to you, please verify that you were able to read this electronic disclosure and that you also were able to print on paper or electronically save this page for your future reference and access or that you were able to e-mail this disclosure and consent to an address where you will be able to print on paper or save it for your future reference and access. Further, if you consent to receiving notices and disclosures exclusively in electronic format on the terms and conditions described above, please let us know by clicking the ‘I agree’ button below. By checking the ‘I agree’ box, I confirm that: • I can access and read this Electronic CONSENT TO ELECTRONIC RECEIPT OF ELECTRONIC CONSUMER DISCLOSURES document; and • I can print on paper the disclosure or save or send the disclosure to a place where I can print it, for future reference and access; and • Until or unless I notify FLG Partners as described above, I consent to receive from exclusively through electronic means all notices, disclosures, authorizations, acknowledgements, and other documents that are required to be provided or made available to me by FLG Partners during the course of my relationship with you.

 
DocuSign Envelope ID: A97DC3E0-F037-4D6E-87E9-93A8F4CCA6F2 FIRST AMENDMENT TO CONFIDENTIAL CONSULTING AGREEMENT This first amendment (the “First Amendment”) to the Confidential Consulting Agreement dated March 11, 2019 (the “Agreement”) by and between the parties hereto, is executed as of the date shown on the signature page (the “Effective Date”), by and between FLG Partners, LLC, a California limited liability company (“FLG”), and Immersion Corporation (“Client”). RECITALS WHEREAS, FLG is in the business of providing certain financial services; and WHEREAS, Client wishes to retain FLG to provide and FLG wishes to provide such services to Client on the terms set forth herein; and WHEREAS, FLG has been continuously retained by Client since March 11, 2019; and WHEREAS, the parties hereto wish to modify the FLG Member in the Agreement; NOW, THEREFORE, in consideration of the mutual covenants set forth herein, the parties hereto agree as follows: 1. FLG Member. Cal R. Hoagland, following a managed transition from Bern Whitney. 2. Miscellaneous. All other terms and conditions of the Agreement remain unchanged. This First Amendment shall be incorporated in the Agreement as Exhibit B. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the Effective Date. CLIENT: FLG: Immersion Corporation, FLG Partners, LLC, a Delaware corporation. a California limited liability company. By: Amie Peters By: Jeffrey S. Kuhn Signed: Signed: Title: General Counsel Title: Managing Partner Address: 50 Rio Robles Effective Date: May 9, 2019. San Jose, CA 95134 Tel: 408-467-1900 Fax: 408-467-1901 Email: apeters@immersion.com Page 1 of 1 190509 FLG-Immersion Amendment to Consulting Agreement.doc

 
Certificate Of Completion Envelope Id: A97DC3E0F0374D6E87E993A8F4CCA6F2 Status: Completed Subject: Please DocuSign: 190509 FLG-Immersion Amendment to Consulting Agreement.pdf Source Envelope: Document Pages: 1 Signatures: 2 Envelope Originator: Certificate Pages: 5 Initials: 0 Jeffrey S. Kuhn AutoNav: Enabled PO Box 556 EnvelopeId Stamping: Enabled Ross, CA 94957 Time Zone: (UTC-08:00) Pacific Time (US & Canada) jeff@flgpartners.com IP Address: 73.222.41.32 Record Tracking Status: Original Holder: Jeffrey S. Kuhn Location: DocuSign 5/9/2019 3:33:23 PM jeff@flgpartners.com Signer Events Signature Timestamp Jeffrey S. Kuhn Sent: 5/9/2019 3:35:19 PM jeff@flgpartners.com Viewed: 5/9/2019 3:35:27 PM Administrative Partner Signed: 5/9/2019 3:35:32 PM FLG Partners Signature Adoption: Uploaded Signature Image Security Level: Email, Account Authentication (None) Using IP Address: 73.222.41.32 Electronic Record and Signature Disclosure: Not Offered via DocuSign Amie Peters Sent: 5/9/2019 3:35:33 PM apeters@immersion.com Viewed: 5/10/2019 10:37:52 AM SVP, IP Licensing and Legal Affairs Signed: 5/10/2019 10:38:09 AM Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 12.220.159.101 Electronic Record and Signature Disclosure: Accepted: 3/4/2019 3:02:55 PM ID: 153a7a45-7a32-431f-8230-c3d4daf15ed2 In Person Signer Events Signature Timestamp Editor Delivery Events Status Timestamp Agent Delivery Events Status Timestamp Intermediary Delivery Events Status Timestamp Certified Delivery Events Status Timestamp Carbon Copy Events Status Timestamp Cal Hoagland Sent: 5/10/2019 10:38:10 AM cal@flgpartners.com Security Level: Email, Account Authentication (None) Electronic Record and Signature Disclosure: Not Offered via DocuSign Witness Events Signature Timestamp

 
Notary Events Signature Timestamp Envelope Summary Events Status Timestamps Envelope Sent Hashed/Encrypted 5/10/2019 10:38:10 AM Certified Delivered Security Checked 5/10/2019 10:38:10 AM Signing Complete Security Checked 5/10/2019 10:38:10 AM Completed Security Checked 5/10/2019 10:38:10 AM Payment Events Status Timestamps Electronic Record and Signature Disclosure

 
Electronic Record and Signature Disclosure created on: 2/1/2016 2:35:46 PM Parties agreed to: Amie Peters CONSUMER DISCLOSURE From time to time, FLG Partners (we, us or Company) may be required by law to provide to you certain written notices or disclosures. Described below are the terms and conditions for providing to you such notices and disclosures electronically through the DocuSign, Inc. (DocuSign) electronic signing system. Please read the information below carefully and thoroughly, and if you can access this information electronically to your satisfaction and agree to these terms and conditions, please confirm your agreement by clicking the ‘I agree’ button at the bottom of this document. Getting paper copies At any time, you may request from us a paper copy of any record provided or made available electronically to you by us. You will have the ability to download and print documents we send to you through the DocuSign system during and immediately after signing session and, if you elect to create a DocuSign signer account, you may access them for a limited period of time (usually 30 days) after such documents are first sent to you. After such time, if you wish for us to send you paper copies of any such documents from our office to you, you will be charged a $0.00 per-page fee. You may request delivery of such paper copies from us by following the procedure described below. Withdrawing your consent If you decide to receive notices and disclosures from us electronically, you may at any time change your mind and tell us that thereafter you want to receive required notices and disclosures only in paper format. How you must inform us of your decision to receive future notices and disclosure in paper format and withdraw your consent to receive notices and disclosures electronically is described below. Consequences of changing your mind If you elect to receive required notices and disclosures only in paper format, it will slow the speed at which we can complete certain steps in transactions with you and delivering services to you because we will need first to send the required notices or disclosures to you in paper format, and then wait until we receive back from you your acknowledgment of your receipt of such paper notices or disclosures. To indicate to us that you are changing your mind, you must withdraw your consent using the DocuSign ‘Withdraw Consent’ form on the signing page of a DocuSign envelope instead of signing it. This will indicate to us that you have withdrawn your consent to receive required notices and disclosures electronically from us and you will no longer be able to use the DocuSign system to receive required notices and consents electronically from us or to sign electronically documents from us. All notices and disclosures will be sent to you electronically Unless you tell us otherwise in accordance with the procedures described herein, we will provide electronically to you through the DocuSign system all required notices, disclosures, authorizations, acknowledgements, and other documents that are required to be provided or made available to you during the course of our relationship with you. To reduce the chance of you inadvertently not receiving any notice or disclosure, we prefer to provide all of the required notices and disclosures to you by the same method and to the same address that you have given us. Thus, you can receive all the disclosures and notices electronically or in paper format through the paper mail delivery system. If you do not agree with this process, please let us know as described below. Please also see the paragraph immediately above that describes the consequences of your electing not to receive delivery of the notices and disclosures

 
electronically from us. How to contact FLG Partners: You may contact us to let us know of your changes as to how we may contact you electronically, to request paper copies of certain information from us, and to withdraw your prior consent to receive notices and disclosures electronically as follows: To contact us by email send messages to: jeff@flgpartners.com To advise FLG Partners of your new e-mail address To let us know of a change in your e-mail address where we should send notices and disclosures electronically to you, you must send an email message to us at jeff@flgpartners.com and in the body of such request you must state: your previous e-mail address, your new e-mail address. We do not require any other information from you to change your email address.. In addition, you must notify DocuSign, Inc. to arrange for your new email address to be reflected in your DocuSign account by following the process for changing e-mail in the DocuSign system. To request paper copies from FLG Partners To request delivery from us of paper copies of the notices and disclosures previously provided by us to you electronically, you must send us an e-mail to jeff@flgpartners.com and in the body of such request you must state your e-mail address, full name, US Postal address, and telephone number. We will bill you for any fees at that time, if any. To withdraw your consent with FLG Partners To inform us that you no longer want to receive future notices and disclosures in electronic format you may: i. decline to sign a document from within your DocuSign session, and on the subsequent page, select the check-box indicating you wish to withdraw your consent, or you may; ii. send us an e-mail to jeff@flgpartners.com and in the body of such request you must state your e-mail, full name, US Postal Address, and telephone number. We do not need any other information from you to withdraw consent.. The consequences of your withdrawing consent for online documents will be that transactions may take a longer time to process.. Required hardware and software Operating Systems: Windows® 2000, Windows® XP, Windows Vista®; Mac OS® X Browsers: Final release versions of Internet Explorer® 6.0 or above (Windows only); Mozilla Firefox 2.0 or above (Windows and Mac); Safari™ 3.0 or above (Mac only) PDF Reader: Acrobat® or similar software may be required to view and print PDF files Screen Resolution: 800 x 600 minimum Enabled Security Settings: Allow per session cookies ** These minimum requirements are subject to change. If these requirements change, you will be asked to re-accept the disclosure. Pre-release (e.g. beta) versions of operating systems and browsers are not supported. Acknowledging your access and consent to receive materials electronically

 
To confirm to us that you can access this information electronically, which will be similar to other electronic notices and disclosures that we will provide to you, please verify that you were able to read this electronic disclosure and that you also were able to print on paper or electronically save this page for your future reference and access or that you were able to e-mail this disclosure and consent to an address where you will be able to print on paper or save it for your future reference and access. Further, if you consent to receiving notices and disclosures exclusively in electronic format on the terms and conditions described above, please let us know by clicking the ‘I agree’ button below. By checking the ‘I agree’ box, I confirm that: • I can access and read this Electronic CONSENT TO ELECTRONIC RECEIPT OF ELECTRONIC CONSUMER DISCLOSURES document; and • I can print on paper the disclosure or save or send the disclosure to a place where I can print it, for future reference and access; and • Until or unless I notify FLG Partners as described above, I consent to receive from exclusively through electronic means all notices, disclosures, authorizations, acknowledgements, and other documents that are required to be provided or made available to me by FLG Partners during the course of my relationship with you.

 
April 29, 2019 Mike Okada RE: Employment with Immersion Corporation Dear Mike: Immersion Corporation (the “Company” or “Immersion”) is pleased to present an offer to you, for the position of General Counsel and SVP, IP Licensing and Legal Affairs, on the terms set forth in this agreement, effective upon your acceptance by execution of a counterpart copy of this letter where indicated below. Reporting Duties and Responsibilities. In this position, you will be reporting to Ramzi Haidamus, CEO. Salary and Benefits. Your annual base salary of $375,000.00, is payable in accordance with the Company’s customary payroll practice, which is bi-weekly. For payment purposes, the bi-weekly amount is $14,423.08. This offer is for a full time, salaried, exempt position. Our Company’s focal reviews are normally conducted in January at which time your performance will be evaluated. You will also receive the Company’s standard employee benefits package. A copy of our current benefits package is enclosed. Please note that the Company's benefit package is subject to change at any time. In addition, you will be eligible for a bonus in accordance with the Company’s Executive Incentive Plan of up to 50% of your salary. Restricted Stock Units. Effective upon board approval, Immersion will grant you 77,800 Restricted Stock Units (RSUs). The Restricted Stock Units will vest over a three-year period. Assuming your continued employment by Immersion, one-third of the shares will vest on each of the first, second and third anniversaries of your start date, as per the terms and conditions of the applicable plan. Stock Options. Effective upon board approval, the Company will grant you an option to purchase 164,000 shares of the Company’s Common Stock pursuant to the Company’s stock option plan and standard stock option agreement. All options will have an exercise price that will be equal to the fair market value of the Company’s Common Stock on the 10th business day in the month following the month of your start date. The options will become exercisable over a four-year exercise schedule with 25% of the shares vesting at the end of your first twelve months of service, and with an additional 2.083% vesting per month thereafter, at the close of each month during which you remain employed with the Company. Change of Control Benefits. Subject to the approval of the Compensation Committee of the Board, the Company will enter into the Retention and Ownership Change Event Agreement.

 
Background Investigation. This offer is contingent upon a satisfactory background investigation. This agreement may be revoked in the event the results of the investigation do not meet Immersion’s requirements. Confidential Information. As an employee of the Company, you will have access to certain Company confidential information and you may during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interest of the Company, you will need to sign the Company’s standard “Employee Inventions and Confidentiality Agreement” as a condition of your employment. A copy of the agreement is attached for your review. We wish to impress upon you that we do not wish you to bring with you any confidential or proprietary material of any former employer or to violate any other obligation to your former employers. At-Will Employment. While we look forward to a long and profitable relationship, should you decide to accept our offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either of us for any reason at any time. Any statements or representations to the contrary (and indeed, any statements contradicting any provision in this letter) should be regarded by you as ineffective. Further, your participation in any stock option or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Authorization to Work. The Immigration Reform and Control Act of 1986 requires you, within three business days of hire, to present documentation demonstrating that you have authorization to work in the United States. Acceptable documentation is shown on the form titled List of Acceptable Documents. Please bring the appropriate documentation to the new employee orientation on your first day of employment. If you have questions about this requirement, which applies to U.S. citizens and non-U.S. citizens alike, please contact our Human Resources department. Term of Offer. This offer will expire at the close of business on May 3, 2019. Upon acceptance of this offer, please sign the enclosed copy of this letter in the space indicated and return it to me. Your signed acceptance below will become our binding agreement with respect to the subject matter of this letter, superseding in their entirety all other or prior agreements by you with the Company as to the specific subjects of this letter, and will be binding upon and inure to the benefit of our respective successors and assigns, and heirs, administrators and executors, will be governed by California law, and may only be amended in writing signed by you and the Company. We are excited and pleased to have you join the Immersion team in this exciting role and we look forward to a mutually beneficial working relationship. Sincerely, /s/ Janice Passarello Janice Passarello Vice President, Human Resources

 
Agreed and Accepted I agree to and accept employment with Immersion Corporation on the terms and conditions set forth in this agreement. /s/ Mike Okada May 6, 2019 Mike Okada Date Anticipated Start Date: June 10, 2019

 

RETENTION AND OWNERSHIP
CHANGE EVENT AGREEMENT
This Retention and Ownership Change Event Agreement (“Agreement”) is made effective as of the last date set forth below by and between Immersion Corporation (the “Company”) and Michael Okada (“Executive”).
RECITALS
In order to make available compensation pursuant to this Agreement that will not be subject to taxation under Section 409A (as defined below), Executive and the Board of Directors of the Company (the “Board”) have determined that it is in the best interests of the Company and Executive to enter into this Retention and Ownership Change Event Agreement. The Company intends that income provided to Executive pursuant to this Agreement will not be subject to taxation under Section 409A, and the provisions of this Agreement shall be interpreted and construed in favor of satisfying any applicable requirements of Section 409A. However, the Company does not guarantee any particular tax effect for income provided to Executive pursuant to this Agreement. In any event, except for the Company’s responsibility to withhold applicable income and employment taxes from compensation paid or provided to Executive, the Company shall not be responsible for the payment of any applicable taxes on compensation paid or provided to Executive pursuant to this Agreement.
     The Board has determined that it is in the best interests of the Company to assure that the Company will have the continued dedication and service of the Executive, notwithstanding the possibility or occurrence of a Change in Control (as defined below) of the Company.
AGREEMENT
In recognition thereof, the parties now agree as follows:
1. Definitions . For purposes of this Agreement:
(a)      “Change in Control” means the occurrence of any of the following:
(i)      any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) becomes the “beneficial owner” (as defined in Rule 13d‑3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total combined voting power of the Company’s then‑outstanding securities entitled to vote generally in the election of the Company’s Board of Directors; provided, however, that the following acquisitions shall not constitute a Change in Control: (1) an acquisition by any such person who on the effective date of such transaction is the beneficial owner of more than fifty percent (50%) of such voting power, (2) any acquisition directly from the Company, including, without limitation, a public offering of securities, (3) any acquisition by the Company, (4) any acquisition by a trustee or other fiduciary under an employee benefit plan of the Company or (5) any acquisition by an entity owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the voting securities of the Company; or

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(ii)      an Ownership Change Event or series of related Ownership Change Events (collectively, a “Transaction”) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding securities entitled to vote generally in the election of Directors or, in the case of an Ownership Change Event described in Section 1(c)(iii), the entity to which the assets of the Company were transferred (the “Transferee”), as the case may be; or
(iii)      a liquidation or dissolution of the Company;
provided, however, that a Change in Control shall be deemed not to include a transaction described in subsections (i) or (ii) of this Section 1(a) in which a majority of the members of the Board of Directors of the continuing, surviving or successor entity, or parent thereof, immediately after such transaction is comprised of incumbent members. Notwithstanding the foregoing, to the extent that any amount that constitutes deferred compensation subject to and not exempted from the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), would become payable under this Agreement by reason of a Change in Control, such amount shall become payable only if the event constituting a Change in Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A.
(b)      “Good Reason” means any of the following conditions, which condition(s) remain(s) in effect thirty (30) days after written notice to the Board or the Company’s Chief Executive Officer from Executive of such condition(s):
(i)      a material decrease in Executive’s base salary, other than a material decrease that applies generally to other executives of the Company at Executive’s level;
(ii)      a material, adverse change in the Executive’s title, authority, responsibilities, or duties; or
(iii)      the relocation of the Executive’s work place for the Company to a location that is more than forty (40) miles distant from Executive’s present work location for the Company;
provided, that such written notice must be given within thirty (30) days following the first occurrence of any of the good reason conditions set forth in this subsection (b) and the Executive’s resignation must occur within six (6) months following the first occurrence of the good reason condition.
(c)      “Ownership Change Event” means the occurrence of any of the following with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders 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; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the Company).

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(d)      a termination for “Cause” means Executive’s termination based upon (1) Executive’s theft, dishonesty, misconduct, breach of fiduciary duty, or falsification of any Company documents or records; (2) Executive’s material failure to abide by the Company’s code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct); (3) Executive’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of the Company (including, without limitation, Executive’s improper use or disclosure of the Company’s confidential or proprietary information); (4) any intentional act by the Executive that has a material detrimental effect on the Company’s reputation or business; (5) Executive’s repeated failure or inability to perform any reasonable assigned duties after written notice from the Company of, and a reasonable opportunity to cure, such failure or inability; (6) Executive’s conviction (including any plea of guilty or nolo contendere) for any criminal act that impairs Executive’s ability to perform his duties for the Company.
(e)      “Separation from Service” shall have the meaning determined by Treasury Regulations issued pursuant to Section 409A.
2.      Termination Without Cause or Resignation for Good Reason . In the event that the Company or its successor terminates Executive’s employment without Cause or Executive resigns for Good Reason and Executive is not entitled to receive the severance pay and benefits described in Section 3 below, Executive will be entitled to receive the following payment and benefits, provided that prior to the sixtieth (60th) day following the date of such termination Executive has signed a general release of known and unknown claims in a form satisfactory to the Company, and the period for revocation has lapsed without the general release having been revoked:
(a)      payment in a lump sum on the sixtieth (60th) day following Executive’s termination of employment of an amount equal to six (6) months’ base salary at Executive’s final base salary rate, subject to applicable withholding; and
(b)      commencing on the sixtieth (60th) day following Executive’s termination of employment, payment of the premiums (including reimbursement to Executive of any such premiums paid by Executive during such sixty (60) day period) necessary to continue Executive’s and dependents group health insurance coverage under COBRA until the earlier of (i) six (6) months following Executive’s termination date, or (ii) the date on which Executive first becomes eligible to obtain other group health insurance coverage. Thereafter, Executive may elect to purchase continued group health insurance coverage at his own expense in accordance with COBRA. Notwithstanding the foregoing, payment of such premiums shall not commence unless and until Executive has incurred a Separation from Service.
In the event that a Change in Control constituting a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A (a “Section 409A Change in Control Event”) occurs on or before the ninetieth (90th) day following a date on which Executive experiences a termination of employment in connection with which Executive is entitled to receive the payment provided by Section 2(a), Executive will be entitled to receive the following additional payment and benefits:

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(a)      payment on the sixtieth (60th) day following the Section 409A Change in Control Event of an amount equal to six (6) months’ base salary at Executive’s final base salary rate, subject to applicable withholding; and
(b)      commencing with the seventh (7th) month following Executive’s termination of employment, payment of the premiums necessary to continue Executive’s and dependents group health insurance coverage under COBRA until the earlier of (i) twelve (12) months following Executive’s termination date, or (ii) the date on which Executive first becomes eligible to obtain other group health insurance coverage. Thereafter, Executive may elect to purchase continued group health insurance coverage at his own expense in accordance with COBRA. Notwithstanding the foregoing, payment of such premiums shall not commence unless and until Executive has incurred a Separation from Service.
3.      Termination Without Cause or Resignation for Good Reason Due to a Change in Control . In the event that, within one (1) year following a Change in Control, the Company or its successor terminates Executive’s employment without Cause or Executive resigns for Good Reason, Executive will be entitled to receive the following payment and benefits, provided that prior to the sixtieth (60th) day following the date of such termination Executive has signed a general release of known and unknown claims claims in a form satisfactory to the Company, and the period for revocation has lapsed without the general release having been revoked:
(a)      payment in a lump sum on the sixtieth (60th) day following Executive’s termination of employment of an amount equal to twelve (12) months’ base salary at Executive’s final base salary rate, subject to applicable withholding;
(b)      commencing on the sixtieth (60th) day following Executive’s termination of employment, payment of the premiums (including reimbursement to Executive of any such premiums paid by Executive during such sixty (60) day period) necessary to continue Executive’s and dependents group health insurance coverage under COBRA until the earlier of (i) twelve (12) months following Executive’s termination date, or (ii) the date on which Executive first becomes eligible to obtain other group health insurance coverage. Thereafter, Executive may elect to purchase continued group health insurance coverage at his own expense in accordance with COBRA. Notwithstanding the foregoing, payment of such premiums shall not commence unless and until Executive has incurred a Separation from Service; and
(a) Immediate vesting in one-hundred percent (100%) of his then unvested Company equity awards.
4.      Voluntary Termination . In the event that Executive resigns from his employment with the Company at any time (other than a resignation for Good Reason during the period covered by Section 2 or Section 3), or in the event that Executive’s employment terminates at any time as a result of his death or disability (meaning Executive is unable to perform his duties for any consecutive six (6) month period, with or without reasonable accommodation, as a result of a physical and/or mental impairment), Executive will be entitled to no compensation or benefits from the Company other than those earned through the date of Executive’s termination. Executive agrees that if he resigns from his employment with the Company, he will provide the Company with 20 calendar   days’ written notice of such resignation. The Company may, in its

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sole discretion, elect to waive all or any part of such notice period and accept the Executive’s resignation at an earlier date.
5.      Termination for Cause . If Executive’s employment is terminated by the Company at any time for Cause as defined above in paragraph 1, Executive will be entitled to no compensation or benefits from the Company other than those earned through the date of his termination for Cause.
6.      Compliance With Section 409A.
(a)      Notwithstanding anything set forth herein to the contrary, no amount payable pursuant to Section 2 or Section 3 of the Agreement which constitutes a “deferral of compensation” within the meaning of Treasury Regulations promulgated pursuant to Section 409A (the “Section 409A Regulations”) shall be paid unless and until Executive has incurred a Separation from Service. Furthermore, to the extent that Executive is a “specified employee” of the Company as of the date of Executive’s Separation from Service,and to the extent required by the Section 409A Regulations, no amount that constitutes a deferral of compensation which is payable on account of the Employee’s Separation from Service shall be paid to Executive before the date (the “Delayed Payment Date”) which is the first day of the seventh month after the date of Executive’s Separation from Service or, if earlier, the date of Executive’s death following such Separation from Service. All such amounts that would, but for this paragraph, become payable prior to the Delayed Payment Date will be accumulated and paid on the Delayed Payment Date. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A, the provision will be read in such a manner so that all payments hereunder comply with Section 409A. Payments pursuant to this section are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Section 409A Regulations.
(b)      The parties intend that the payments and benefits provided to Executive pursuant to this Agreement be paid in compliance with Section 409A so that no excise tax is incurred under Section 409A. To the extent permitted by Section 409A and the Section 409A Regulations, the parties agree to modify this Agreement, the timing (but not the amount(s)) of the payments or benefits provided herein, or both, to the extent necessary to comply with Section 409A.
7.      At-Will Employment . Notwithstanding anything contained in this Agreement, the parties acknowledge and agree that Executive’s employment with the Company is and shall continue to be “at-will.”
8.      Dispute Resolution . In the event of any dispute or claim between the parties, including any claims relating to or arising out of this Agreement or the termination of Executive’s employment with the Company for any reason, Executive and the Company agree that all such disputes shall be fully resolved by binding arbitration conducted by the American Arbitration Association (“AAA”) in Santa Clara County, under the AAA’s National Rules for the Resolution of Employment Disputes then in effect, which are available online at the AAA’s website at www.adr.org. Executive and the Company each acknowledge and agree that they are waiving their respective rights to have any such disputes or claims tried by a judge or jury.

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9.      Notices . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when received if mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to the Executive at the home address which the Executive most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Chief Executive Officer.
10.      Successors .
(a)      Company’s Successors . Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or purchase of all or substantially all of the Company’s business and/or assets) shall assume the Company’s obligations under this Agreement in writing and agree expressly to perform the Company’s obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.
(b)      Executive’s Successors . Without the written consent of the Company, the Executive shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
11.      Termination . This Agreement shall terminate in the event that Executive is no longer part of the executive team of the Company as determined by the Board of Directors and does not terminate service for Good Reason.
12.      Miscellaneous Provisions .
(a)      No Duty to Mitigate . The Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source.
(b)      Modification/Waiver . No provision of this Agreement may be amended, modified, waived or discharged unless the amendment, modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c)      Integration . This Agreement constitutes the entire agreement and understanding between the parties regarding Executive’s retention and severance benefits, and it supersedes all prior or contemporaneous agreements, whether written or oral, regarding that subject matter, including the Original Agreement.

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(d)      Choice of Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.
(e)      Severability . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(f)      Employment Taxes . All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes.
(g)      Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

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THE PARTIES SIGNING BELOW HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND AND AGREE TO EACH AND EVERY PROVISION CONTAINED HEREIN.

Dated: May 6, 2019          /s/ Michael Okada    
Michael Okada

Immersion Corporation


Dated: May 6, 2019         By: /s/ Ramzi Haidamus    
Its: Chief Executive Officer    































    

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Exhibit 31.1
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Ramzi Haidamus, certify that:
I have reviewed this quarterly report on Form 10-Q of Immersion Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2019
 
 
/s/   RAMZI HAIDAMUS
 
Ramzi Haidamus
 
Chief Executive Officer
 




Exhibit 31.2
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Len Wood, certify that:
I have reviewed this quarterly report on Form 10-Q of Immersion Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2019
 
 
/s/ LEN WOOD
 
Len Wood
 
Interim Chief Financial Officer
 




Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Immersion Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ramzi Haidamus, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 
 
/s/   RAMZI HAIDAMUS
 
Ramzi Haidamus
 
Chief Executive Officer
 
August 14, 2019
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.





Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Immersion Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Len Wood, Interim Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
 
 
/s/ LEN WOOD
 
Len Wood
 
Interim Chief Financial Officer
 
August 14, 2019
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.