SEC Filing - Immersion Corporation

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Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

[ X ]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

[ ]	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 000-27969

IMMERSION

CORPORATION

(Exact name of registrant as specified in its charter)


		Delaware				94-3180138
		(State or other jurisdiction of				(I.R.S. Employer Identification No.)
		incorporation or organization)

30 Rio Robles, San Jose, California 95134

(Address of principal executive offices)(Zip Code)

(408) 467-1900

(Registrant’s telephone number, including area code)

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 [ X ] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [ X ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 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 [ X ]

Number of shares of common stock outstanding at April 26, 2013: 27,897,649.

IMMERSION CORPORATION

INDEX


		Page
PART I
FINANCIAL INFORMATION
Item 1.	Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012	3

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2013 and 2012	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012	5

	Unaudited Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30

Item 4.	Controls and Procedures	31

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	34

Item 6.	Exhibits	48

SIGNATURES		48

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IMMERSION CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	March 31,			December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	30,223		$	4,558
Short-term investments		33,994			38,988
Accounts and other receivables (net of allowances for doubtful accounts of: $150 and $134, respectively)		3,342			1,878
Inventories		76			141
Deferred income taxes		165			165
Prepaid expenses and other current assets		523			706

Total current assets		68,323			46,436
Property and equipment, net		1,193			1,281
Intangibles and other assets, net		16,271			15,725

Total assets	$	85,787		$	63,442

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,599		$	338
Accrued compensation		1,756			2,502
Other current liabilities		3,246			1,022
Deferred revenue and customer advances		19,139			3,934

Total current liabilities		25,740			7,796
Long-term deferred revenue		9,581			10,221
Deferred income tax liabilities		165			165
Other long-term liabilities		598			619

Total liabilities		36,084			18,801
Contingencies (Note 12)
Stockholders’ equity:
Common stock and additional paid-in capital — $0.001 par value; 100,000,000 shares authorized; 32,761,512 and 32,278,330 shares issued, respectively; 27,778,768 and 27,295,586 shares outstanding, respectively		189,634			186,822
Accumulated other comprehensive income		106			109
Accumulated deficit		(109,468	)		(111,721	)
Treasury stock at cost: 4,982,744 shares		(30,569	)		(30,569	)

Total stockholders’ equity		49,703			44,641

Total liabilities and stockholders’ equity	$	85,787		$	63,442

See accompanying Notes to Condensed Consolidated Financial Statements.

IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended
	March 31
	2013			2012
Revenues:
Royalty and license	$	13,649		$	9,085
Product sales		19			272
Development contracts and other		192			334

Total revenues		13,860			9,691

Costs and expenses:
Cost of revenues (exclusive of amortization, abandonment, and impairment of intangibles shown separately below)		148			315
Sales and marketing		2,247			1,746
Research and development		2,573			2,194
General and administrative		6,138			4,771
Amortization, abandonment, and impairment of intangibles		494			341

Total costs and expenses		11,600			9,367

Operating income		2,260			324
Interest and other income		10			10

Income before provison for income taxes		2,270			334
Provision for income taxes		(17	)		(553	)

Net income (loss)	$	2,253		$	(219	)

Basic net income (loss) per share	$	0.08		$	(0.01	)

Shares used in calculating basic net income (loss) per share		27,424			27,941

Diluted net income (loss) per share	$	0.08		$	(0.01	)

Shares used in calculating diluted net income (loss) per share		28,294			27,941

Other comprehensive loss
Change in unrealized gains (losses) on short-term investments		(3	)		(19	)

Total other comprehensive loss		(3	)		(19	)

Total comprehensive income (loss)	$	2,250		$	(238	)

See accompanying Notes to Condensed Consolidated Financial Statements.

IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (unaudited)


	Three Months Ended
	March 31,
	2013			2012

Net income (loss)	$	2,253		$	(219	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment		164			166
Amortization, abandonment, and impairment of intangibles		494			341
Stock-based compensation		1,037			720
Allowance (recovery) for doubtful accounts		16			0
Changes in operating assets and liabilities:
Accounts and other receivables		(1,480	)		(1,475	)
Inventories		65			(108	)
Prepaid expenses and other current assets		183			56
Other assets		(13	)		(20	)
Accounts payable		1,113			1,303
Accrued compensation and other current liabilities		1,280			(415	)
Deferred revenue and customer advances		14,565			1,097
Other long-term liabilities		(21	)		343

Net cash provided by operating activities		19,656			1,789

Cash flows provided by (used in) used in investing activities:
Purchases of available-for-sale investments		(9,996	)		(14,979	)
Proceeds from maturities of available-for-sale investments		15,000			15,000
Additions to intangibles		(694	)		(596	)
Purchases of property and equipment		(76	)		(828	)

Net cash provided by (used in) investing activities		4,234			(1,403	)

Cash flows provided by financing activities:
Issuance of common stock under employee stock purchase plan		72			51
Exercise of stock options		1,703			852

Net cash provided by financing activities		1,775			903

Net increase in cash and cash equivalents		25,665			1,289
Cash and cash equivalents:
Beginning of the period		4,558			7,298

End of the period	$	30,223		$	8,587

Supplemental disclosure of cash flow information:
Cash paid for taxes	$	14		$	6

Supplemental disclosure of non-cash operating, investing, and financing activities:
Amounts accrued for property and equipment, and intangibles	$	788		$	644

Release of Restricted Stock Units and Awards under company stock plan	$	1,491		$	780

See accompanying Notes to Condensed Consolidated Financial Statements.

IMMERSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Immersion Corporation (the “Company”) was incorporated in 1993 in California and reincorporated in Delaware in 1999. It is an intellectual property (“IP”) and technology licensing company that creates, designs, develops, and licenses patented haptic innovations and technologies that allow people to use their sense of touch more fully when operating a wide variety of digital devices.

Principles of Consolidation and Basis of Presentation

The condensed consolidated financial statements include the accounts of Immersion Corporation and its wholly-owned subsidiaries: Immersion Canada Inc.; Immersion International, LLC; Immersion Medical, Inc.; Immersion Japan K.K.; Immersion Ltd.; Immersion Software Ireland Ltd.; and Haptify, Inc. 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 (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, 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 GAAP. These condensed consolidated financial statements 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 fiscal year ended December 31, 2012. 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 interim period ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year.

Revenue Recognition

The Company recognizes revenues in accordance with applicable accounting standards, including Accounting Standards Codification (“ASC”) 605-10-S99, “Revenue Recognition” (“ASC 605-10-S99”); ASC 605-25, “Multiple Element Arrangements” (“ASC 605-25”); and ASC 985-605, “Software-Revenue Recognition” (“ASC 985-605”). The Company derives its revenues from three principal sources: royalty and license fees, product sales, and development contracts. As described below, management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of revenue for any period based on the judgments and estimates made by management. Specifically, in connection with each transaction, the Company must evaluate whether: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectibility is probable. The Company applies these criteria as discussed below.

•

Persuasive evidence of an arrangement exists. For a license arrangement, the Company requires a written contract, signed by both the customer and the Company. For a stand-alone product sale, the Company requires a purchase order or other form of written agreement with the customer.

•

Delivery has occurred. The Company delivers software and product to customers physically and also delivers software electronically. For physical deliveries not related to software, the transfer terms typically include transfer of title and risk of loss at the Company’s shipping location. For electronic deliveries, delivery occurs when the Company provides the customer access codes or “keys” that allow the customer to take immediate possession of the software.

•

The fee is fixed or determinable. The Company’s arrangement fee is based on the use of standard payment terms which are those that are generally extended to the majority of customers. For transactions involving extended payment terms, the Company deems these fees not to be fixed or determinable for revenue recognition purposes and revenue is deferred until the fees become due and payable.

•

Collectibility is probable. To recognize revenue, the Company must judge collectibility of the arrangement fees, which is done on a customer-by-customer basis pursuant to the credit review policy. The Company typically sells to customers with whom there is a history of successful collection. For new customers, the Company evaluates the customer’s financial condition and ability to pay. If it is determined that collectibility is not probable based upon the credit review process or the customer’s payment history, revenue is recognized when payment is received.

Royalty and license revenue — The Company licenses its patents and software to customers in a variety of industries such as mobility, gaming, automotive, and medical devices. A majority of these are variable fee arrangements where the royalties earned by the Company are based on unit or sales volumes of the respective licensees. The Company also enters into fixed license fee arrangements. The terms of the royalty agreements generally require licensees to give notification of royalties due to the Company within 30 – 45 days of the end of the quarter during which their related sales occur. As the Company is unable to estimate the licensees’ sales in any given quarter to determine the royalties due to it, the Company recognizes royalty revenues based on royalties reported by licensees and when all revenue recognition criteria are met. The Company recognizes fixed license fee revenue for licenses to IP and software when earned under the terms of the agreements, which is generally recognized on a straight-line basis over the expected term of the license. Certain royalties are based upon customer shipments or revenues and could be subject to change and may result in out of period adjustments.

Development contracts and other revenue — Development contracts and other revenue are comprised of engineering services (engineering services and/or development contracts), and in limited cases, post contract customer support (“PCS”). Engineering services revenues are recognized under the proportional performance accounting method based on physical completion of the work to be performed or completed performance method. A provision for losses on contracts is made, if necessary, in the period in which the loss becomes probable and can be reasonably estimated. Revisions in estimates are reflected in the period in which the conditions become known. To date, such losses have not been significant. Revenue from PCS is typically recognized over the period of the ongoing obligation, which is generally consistent with the contractual term.

Multiple element arrangements — The Company enters into multiple element arrangements in which customers purchase time-based non-exclusive licenses that cannot be resold to others, which include a combination of software and/or IP licenses, engineering services, and in limited cases PCS. For arrangements that are software based and include software and engineering services, the services are generally not essential to the functionality of the software, and customers may purchase engineering services to facilitate the adoption of the Company’s technology, but they may also decide to use their own resources or appoint other engineering service organizations to perform these services. For arrangements that are in substance subscription arrangements, the entire arrangement fee is recognized ratably over the contract term, subject to any limitations related to extended payment terms. For arrangements involving upfront fees for services and royalties earned by the Company based on unit or sales volumes of the respective licensees, and the services are performed ratably over the arrangement or front-end loaded; the upfront fees are recognized ratably over contract term and royalties based on unit or sales volume are recognized when they become fixed and determinable. As the Company is unable to estimate the licensees’ sales in any given quarter to determine the royalties due to it, the Company recognizes per unit or sales volume driven royalty revenues based on royalties reported by licensees and when all revenue recognition criteria are met.

Product sales — The Company recognizes revenue from the sale of products and the license of associated software, if any, and expenses all related costs of products sold, once delivery has occurred and

customer acceptance, if required, has been achieved. The Company typically grants to customers a warranty that guarantees the products will substantially conform to the Company’s current specifications for generally three to twelve months from the delivery date pursuant to the terms of the arrangement. Historically, warranty-related costs have not been significant.

Comprehensive Loss

Comprehensive loss includes net loss as well as other items of comprehensive income or loss. The Company’s other comprehensive loss consists of foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities, net of tax. The changes in accumulated other comprehensive income (loss) are as below.


	Three Months Ended March 31, 2013

	Unrealized Gains
	and Losses on			Foreign
	Available-for Sale			Currency
	Securities			Items		Total
	(In thousands)

Beginning balance	$	8		$	101	$	109
Other comprehensive income (loss) before reclassifications		(3	)		0		(3	)
Amounts reclassified from accumulated other comprehensive income (loss)		0			0		0

Net current period other comprehensive income (loss)		(3	)		0		(3	)

Ending Balance	$	5		$	101	$	106

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board ratified Accounting Standards Update (“ASU”) 2013-02 “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Comprehensive Income” (“ASU 2013-02). ASU 2013-02 requires entities to disclose additional information about items reclassified out of accumulated other comprehensive income (“AOCI”) including AOCI balances by component and significant items reclassified out of AOCI. This ASU is effective for reporting periods beginning after December 15, 2012, and is being applied prospectively. These amendments will change the manner in which the Company presents comprehensive income by reporting these additional disclosure items in the condensed consolidated statements of operations and comprehensive loss or footnotes when they occur.

2. FAIR VALUE MEASUREMENTS

Cash Equivalents and Short-term Investments

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

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.

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

The types of 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 most U.S. treasury securities and most investment-grade corporate commercial paper.

The types of 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.

Financial instruments measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012 are classified based on the valuation technique in the table below:


	March 31, 2013
	Fair value measurements using
	Quoted Prices in		Significant		Significant
	Active Markets		Other		Unobservable
	for Identical		Observable		Inputs
	Assets		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Assets:
U.S. Treasury securities	$	0	$	33,994	$	0	$	33,994
Money market accounts		8,047		0		0		8,047

Total assets at fair value	$	8,047	$	33,994	$	0	$	42,041

The above table excludes $22.2 million of cash held in banks.


	December 31, 2012
	Fair value measurements using
	Quoted Prices in		Significant		Significant
	Active Markets		Other		Unobservable
	for Identical		Observable		Inputs
	Assets		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Assets:
U.S. Treasury securities	$	0	$	38,988	$	0	$	38,988
Money market accounts		52		0		0		52

Total assets at fair value	$	52	$	38,988	$	0	$	39,040

The above table excludes $4.5 million of cash held in banks.

Short-term Investments


	March 31, 2013

	Amortized Cost	Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
	(In thousands)
U.S. Treasury securities	$ 33,990	$	4	$	0	$ 33,994

Total	$ 33,990	$	4	$	0	$ 33,994


	December 31, 2012

	Amortized Cost	Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
	(In thousands)
U.S. Treasury securities	$ 38,980	$	8	$	0	$ 38,988

Total	$ 38,980	$	8	$	0	$ 38,988

The contractual maturities of the Company’s available-for-sale securities on March 31, 2013 and December 31, 2012 were all due within one year.

3. ACCOUNTS AND OTHER RECEIVABLES


	March 31,		December 31,
	2013		2012
	(In thousands)

Trade accounts receivable	$	2,844	$	1,528
Receivables from vendors and other		498		350

Accounts and other receivables	$	3,342	$	1,878

4. INVENTORIES


	March 31,		December 31,
	2013		2012
	(In thousands)

Raw materials and subassemblies	$	69	$	138
Finished goods		7		3


Inventories	$	76	$	141

5. PROPERTY AND EQUIPMENT


	March 31,			December 31,
	2013			2012
	(In thousands)

Computer equipment and purchased software	$	3,779		$	3,748
Machinery and equipment		654			654
Furniture and fixtures		575			546
Leasehold improvements		899			884


Total		5,907			5,832
Less accumulated depreciation		(4,714	)		(4,551	)

Property and equipment, net	$	1,193		$	1,281

6. INTANGIBLES AND OTHER ASSETS


	March 31,			December 31,
	2013			2012
	(In thousands)

Patents and trademarks	$	27,057		$	26,206
Other assets		192			192


Gross intangibles and other assets		27,249			26,398
Accumulated amortization of patents and trademarks		(10,978	)		(10,673	)

Intangibles and other assets, net	$	16,271		$	15,725

The Company amortizes its intangible assets related to patents and trademarks, over their estimated useful lives, generally 10 years from the date of issuance of the patents and trademarks. Amortization of intangibles excluding abandonments or impairments was as follows:


		Three Months Ended
	March 31,
	2013		2012
	(In thousands)
Amortization of Intangibles - excluding abandonments or impairments	$	298	$	242

The table below includes estimated remaining annual amortization expense for issued patents and trademarks as of March 31, 2013.



	Estimated Amortization Expense
	(In thousands)
Remainder of 2013	$	885
2014		1,075
2015		968
2016		882
2017		756
Thereafter		2,102

Total	$	6,668

Patents in process included in patents and trademarks were as follows:



	March 31,		December 31,
	2013		2012
	(In thousands)
Patents in process	$	9,411	$	9,270

Upon issuance, in process patents will be amortized over their estimated useful lives, generally 10 years.

7. COMPONENTS OF OTHER CURRENT LIABILITIES AND DEFERRED REVENUE AND CUSTOMER ADVANCES


	March 31,		December 31,
	2013		2012
	(In thousands)

Accrued legal	$	2,603	$	410
Income taxes payable		11		30
Other current liabilities		632		582

Total other current liabilities	$	3,246	$	1,022


Deferred revenue	$	19,139	$	3,920
Customer advances		0		14

Total deferred revenue and customer advances	$	19,139	$	3,934

8. LONG-TERM DEFERRED REVENUE

Long-term deferred revenue consisted of the following:



	March 31,		December 31,
	2013		2012
	(In thousands)
Deferred revenue for Sony Computer Entertainment	$	8,887	$	9,636
Other deferred revenue		694		585

Long-term deferred revenue	$	9,581	$	10,221

9. 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 talented employees, consultants, officers, and directors and to align stockholder and employee interests. The Company may grant options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares, performance units, and other stock-based or cash-based awards to employees, officers, directors, and consultants. Under these programs, 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 4 years and expire from 5 to 10 years from the date of grant. Restricted stock generally vests 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.



	March 31,
	2013
Common stock shares available for grant		2,037,130
Common stock options outstanding		3,738,174
Restricted stock awards outstanding		44,000
Restricted stock units outstanding		794,165

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (“ESPP”). Under the 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 stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six-month 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 1,000,000 shares of common stock have been reserved for issuance under the ESPP. As of March 31, 2013, 498,522 shares had been purchased since the inception of the ESPP in 1999. Under ASC 718-10, the ESPP is considered a compensatory plan and the Company is required to recognize compensation cost related to the fair value of the award purchased under the ESPP. Shares purchased under the ESPP for the three months ended March 31, 2013 are listed below. Shares purchased under the ESPP for the three months ended March 31, 2012 are 10,656. The intrinsic value listed below is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.


	Three Months
	Ended
	March 31,
	2013

Shares purchased under ESPP		16,003
Average price of shares purchased under ESPP	$	4.51
Intrinsic value of shares purchased under ESPP	$	36,727

Summary of Stock Options

The following table sets forth the summary of option activity under the Company’s stock option plans for the three months ended March 31, 2013 and year ended December 31, 2012:


	Three Months			Year
	Ended			Ended
	March 31,			December 31,
	2013			2012

Beginning outstanding balance		3,155,631			3,267,838
Granted		877,500			425,150
Exercised		(273,957	)		(231,403	)
Forfeited and cancelled		(21,000	)		(305,954	)


Ending outstanding balance		3,738,174			3,155,631


Aggregate intrinsic value of options exercised	$	872,353		$	443,000
Weighted average fair value of options granted		5.31			3.35

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

Information regarding stock options outstanding at March 31, 2013 and December 31, 2012 is summarized below:


					Weighted
			Weighted		Average		Aggregate
			Average		Remaining		Intrinsic
	Number of		Exercise		Contractual		Value
	Shares		Price		Life (years)		(In millions)
December 31, 2012
Options outstanding		3,155,631	$	6.65		5.24	$	3.5
Options vested and expected to vest using estimated forfeiture rates		3,019,979		6.67		5.17		3.4
Options exercisable		2,329,987		6.91		4.69		2.5

March 31, 2013
Options outstanding		3,738,174	$	7.33		5.59	$	17.2
Options vested and expected to vest using estimated forfeiture rates		3,445,934		7.24		5.49		16.2
Options exercisable		2,123,986		6.90		4.71		11.0

Summary of Restricted Stock Units

RSU activity for the three months ended March 31, 2013 and year ended December 31, 2012 was as follows:


	Three Months			Year
	Ended			Ended
	March 31,			December 31,
	2013			2012
Beginning outstanding balance		708,651			407,765
Awarded		290,150			555,911
Released		(193,222	)		(203,519	)
Forfeited		(11,414	)		(51,506	)

Ending outstanding balance		794,165			708,651


Weighted average grant date fair value of RSUs granted	$	7.02		$	6.64
Total fair value of RSUs released		1,491,038			1,128,000
Total fair value of RSUs remaining unvested		9,323,497			4,868,000

Information regarding RSUs outstanding at March 31, 2013 and December 31, 2012 is summarized below:


		Weighted
		Average		Aggregate
		Remaining		Intrinsic		Fair
	Number of	Contractual		Value		Value
	Shares	Life (years)		(In millions)		(In millions)
December 31, 2012
RSUs outstanding	708,651		1.09	$	4.9	$	4.9
RSUs vested and expected to vest using estimated forfeiture rates	588,170		1.05		4.0

March 31, 2013
RSUs outstanding	794,165		1.59	$	9.3	$	9.3
RSUs vested and expected to vest using estimated forfeiture rates	638,628		1.38		7.5

Summary of Restricted Stock Awards

Restricted stock award activity for the three months ended March 31, 2013 and year ended December 31, 2012 was as follows:


	Three Months		Year
	Ended		Ended
	March 31,		December 31,
	2013		2012

Beginning outstanding balance		44,000		18,000
Awarded		0		57,750
Released		0		(31,750	)
Forfeited		0		0

Ending outstanding balance		44,000		44,000


Weighted average grant date fair value of restricted stock awarded	$	0.00	$	5.70
Total fair value of restricted stock awards released		0		171,000

Stock Plan Assumptions

The assumptions used to value option grants under the Company’s Stock Plans were as follows:


	Three Months Ended
	March 31,
Options	2013			2012
Expected life (in years)		4.7			4.5
Volatility		69	%		71	%
Interest rate		0.8	%		0.8	%
Dividend yield		N/	A		N/	A

Employee Stock Purchase Plan	2013			2012
Expected life (in years)		0.5			0.5
Volatility		66	%		72	%
Interest rate		0.1	%		0.1	%
Dividend yield		N/	A		N/	A

Compensation Costs

Total stock-based compensation recognized in the condensed consolidated statements of operations and comprehensive income (loss) is as follows:


	Three Months Ended
	March 31,
	2013		2012
	(In thousands)
Statement of Operations Classifications
Sales and marketing	$	163	$	115
Research and development		314		209
General and administrative		560		396

Total	$	1,037	$	720

As of March 31, 2013, there was $8.9 million related to stock options, restricted stock awards, and RSUs of unrecognized compensation cost, adjusted for estimated forfeitures, granted to the Company’s employees and directors. This cost will be recognized over an estimated weighted-average period of approximately 3.65 years for options, 2.31 years for RSUs, and 0.17 years for restricted stock awards. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Stock Repurchase Program

On November 1, 2007, the Company announced its Board of Directors authorized the repurchase of up to $50 million of the Company’s common stock. The Company may repurchase its stock for cash in the open market in accordance with applicable securities laws. The timing of 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. During the three months ended March 31, 2013 and 2012, there were no stock repurchases under this program, but the program currently remains available.

10. INCOME TAXES

Income tax provisions from continuing operations consisted of the following:


	Three Months Ended
	March 31,
	2013			2012
	(In thousands)

Income before provision for income taxes	$	2,270		$	334
Provision for income taxes		(17	)		(553	)
Effective tax rate		0.7	%		165.6	%

The effective tax rates differ from the statutory rate primarily due to the valuation allowance, foreign withholding taxes, and unrecognized tax benefits. The income tax provision for the three months ended March 31, 2013 is primarily as a result of estimated state taxes. The income tax provision for the three months ended March 31, 2012 is primarily as a result of foreign withholding tax expense.

As of March 31, 2013, the Company had unrecognized tax benefits under ASC 740 “Income Taxes” of approximately $685,000, including interest of $58,000. The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate, if recognized, was $257,000. There were no material changes in the amount of unrecognized tax benefits during the three months ended March 31, 2013. The Company expects to release reserves and record a tax benefit due to the expiration of the statute of limitations during the next nine months. The Company’s policy is to account for interest and penalties related to uncertain tax positions as a component of income tax provision.

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 for its entire deferred tax assets at March 31, 2013 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. The Company expects to have better visibility into its near term projected results in the second half of the current year. 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.

11. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using the weighted average number of common shares outstanding for the period, excluding unvested restricted stock and RSUs. Diluted net income (loss) per share is based upon the weighted average common shares outstanding for the period plus dilutive potential shares including unvested restricted stock, RSUs, and stock options using the treasury stock method. 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
	March 31,
	2013		2012


Numerator:

Net income (loss) used in computing basic and diluted net income (loss) per share	$	2,253	$	(219	)


Denominator:
Shares used in computation of basic net income (loss) per share (weighted average common shares outstanding)		27,424		27,941
Dilutive potential common shares:
Restricted Stock and RSUs		303		0
Stock options		567		0

Shares used in computation of diluted net income (loss) per share		28,294		27,941


Basic net income (loss) per share	$	0.08	$	(0.01	)


Diluted net income (loss) per share	$	0.08	$	(0.01	)

For the three months ended March 31, 2013, options to purchase approximately 1.4 million shares of common stock, with exercise prices greater than the average fair market value of the Company’s stock of $7.84 per share were not included in the calculation because the effect would have been anti-dilutive.

As of March 31, 2012, 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 months ended March 31, 2012, since their effect would have been anti-dilutive. These outstanding securities consisted of the following:


	March 31,
	2012


Outstanding stock options		2,972,892
Unvested restricted stock awards		0
Unvested RSUs		749,904

12. CONTINGENCIES

In re Immersion Corporation Securities Litigation

In September and October 2009, various putative shareholder class action and derivative complaints were filed in federal and state court against the Company and certain current and former Immersion directors and officers.

On September 2, 2009, a securities class action complaint was filed in the United States District Court for the Northern District of California against the Company and certain of its current and former directors and officers. Over the following five weeks, four additional class action complaints were filed. (One of these four actions was later voluntarily dismissed.) The securities class action complaints name the Company and certain current and former Immersion directors and officers as defendants and allege violations of federal securities laws based on the Company’s issuance of allegedly misleading financial statements. The various complaints assert claims covering the period from May 2007 through July 2009 and seek compensatory damages allegedly sustained by the purported class members.

On December 21, 2009, these class actions were consolidated by the court as In Re Immersion Corporation Securities Litigation. On the same day, the court appointed a lead plaintiff and lead plaintiff’s counsel. Following the Company’s restatement of its financial statements, lead plaintiff filed a consolidated complaint on April 9, 2010. Defendants moved to dismiss the action on June 15, 2010 and that motion was granted with leave to amend on March 11, 2011. Lead plaintiff filed an amended complaint on April 29, 2011. Defendants moved to dismiss the amended complaint on July 1, 2011. On December 16, 2011, the motion to dismiss was granted with prejudice and on December 19, 2011, judgment was entered in favor of defendants. On January 13, 2012, the plaintiffs filed a notice of appeal to the Ninth Circuit Court of Appeals. In May 2012, plaintiff filed his opening appeals brief. On July13, 2012, the Company filed its response brief. On September 4, 2012, plaintiff filed his reply.

In re Immersion Corporation Derivative Litigation

On September 15, 2009, a putative shareholder derivative complaint was filed in the United States District Court for the Northern District of California, purportedly on behalf of the Company and naming certain of its current and former directors and officers as individual defendants. Thereafter, two additional putative derivative complaints were filed in the same court.

The derivative complaints arise from the same or similar alleged facts as the federal securities actions and seek to bring state law causes of action on behalf of the Company against the individual defendants for breaches of fiduciary duty, gross negligence, abuse of control, gross mismanagement, breach of contract, waste of corporate assets, unjust enrichment, as well as for violations of federal securities laws. The federal derivative complaints seek compensatory damages, corporate governance changes, unspecified equitable and injunctive relief, the imposition of a constructive trust, and restitution. On November 17, 2009, the court consolidated these actions as In re Immersion Corporation Derivative Litigation and appointed lead counsel. On May 3, 2010, the court issued an order staying the action, and that stay was lifted following dismissal of the securities class action in December 2011. On October 31, 2012, plaintiffs filed a statement with the Court indicating that in light of the settlement of the related Kasmer v. Richardson action, they intended to voluntarily dismiss their action with prejudice once the time to appeal the Kasmer settlement approval order had expired. The parties jointly moved to dismiss the action on January 2, 2013, and the Court dismissed the action with prejudice on January 4, 2013.

The Company cannot predict the ultimate outcome of the above-mentioned federal and state actions, and it is unable to estimate any potential liability it may incur.

Other 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 condensed consolidated financial condition, results of operations, or liquidity.

In the normal course of business, the Company provides indemnifications of varying scope to customers against claims of IP infringement made by third parties arising from the use of the Company’s IP, technology, or products. 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.

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,” 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. 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

We are a premier IP and technology licensing company focused on the creation, design, development, and licensing of patented haptic innovations and technologies that allow people to use their sense of touch more fully when operating a wide variety of digital devices. Our mission is to transform user experiences through groundbreaking innovations and technologies designed to provide unique and customizable touch feedback effects, excite the senses in games, videos and music, restore mechanical feel by providing intuitive and unmistakable confirmation, improve safety by overcoming distractions, and expand usability when audio and visual feedback are ineffective or inefficient. While we believe that our innovations are broadly applicable, we are currently focusing our marketing and business development activities on the following target markets: mobile communications and consumer electronics, automotive, gaming, commercial and industrial, and medical. We manage these market areas under one operating and reportable segment.

In our target markets, we license our software and IP to manufacturers for use in products sold under their own brand names. We and our wholly-owned subsidiaries hold more than 1,300 issued or pending patents in the U.S. and other countries, covering a wide range of digital technologies, including many of the ways in which touch-related technology can be incorporated into and between hardware products, systems software, application software and digital content.

CRITICAL ACCOUNTING POLICIES 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 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, 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 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.

We believe the following are our most critical accounting policies as they require our significant judgments and estimates in the preparation of our condensed consolidated financial statements:

Revenue Recognition

We recognize revenues in accordance with applicable accounting standards, including Accounting Standards Codification (“ASC”) 605-10-S99, “Revenue Recognition” (“ASC 605-10-S99”); ASC 605-25, “Multiple Element Arrangements” (“ASC 605-25”); and ASC 985-605, “Software-Revenue Recognition” (“ASC 985-605”). We derive our revenues from three principal sources: royalty and license fees, product sales, and development contracts. As described below, management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period based on the judgments and estimates made by our management. Specifically, in connection with each transaction, we must evaluate whether: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectibility is probable. We apply these criteria as discussed below.

•

Persuasive evidence of an arrangement exists. For a license arrangement, we require a written contract, signed by both the customer and us. For a stand-alone product sale, we require a purchase order or other form of written agreement with the customer.

•

Delivery has occurred. We deliver software and product to our customers physically and also deliver software electronically. For physical deliveries not related to software, our transfer terms typically include transfer of title and risk of loss at our shipping location. For electronic deliveries, delivery occurs when we provide the customer access codes or “keys” that allow the customer to take immediate possession of the software.

•

The fee is fixed or determinable. Our arrangement fee is based on the use of standard payment terms which are those that are generally extended to the majority of customers. For

transactions involving extended payment terms, we deem these fees not to be fixed or determinable for revenue recognition purposes and revenue is deferred until the fees become due and payable.

•

Collectibility is probable. To recognize revenue, we must judge collectibility of the arrangement fees, which we do on a customer-by-customer basis pursuant to our credit review policy. We typically sell to customers with whom we have a history of successful collection. For new customers, we evaluate the customer’s financial condition and ability to pay. If we determine that collectibility is not probable based upon our credit review process or the customer’s payment history, we recognize revenue when payment is received.

Royalty and license revenue — We license our patents and software to customers in a variety of industries such as mobility, gaming, automotive, and medical devices. A majority of these are variable fee arrangements where the royalties earned by us are based on unit or sales volumes of the respective licensees. We also enter into fixed license fee arrangements. The terms of the royalty agreements generally require licensees to give notification of royalties due to us within 30 – 45 days of the end of the quarter during which their related sales occur. As we are unable to estimate the licensees’ sales in any given quarter to determine the royalties due to us, we recognize royalty revenues based on royalties reported by licensees and when all revenue recognition criteria are met. We recognize fixed license fee revenue for licenses to our IP and software when earned under the terms of the agreements, which is generally recognized on a straight-line basis over the expected term of the license. Certain royalties are based upon customer shipments or revenues and could be subject to change and may result in out of period adjustments.

Multiple element arrangements — We enter into multiple element arrangements in which customers purchase time-based non-exclusive licenses that cannot be resold to others, which include a combination of software and/or IP licenses, engineering services, and in limited cases PCS. For arrangements that are software based and include software and engineering services, the services are generally not essential to the functionality of the software, and customers may purchase engineering services to facilitate the adoption of our technology, but they may also decide to use their own resources or appoint other engineering service organizations to perform these services. For arrangements that are in substance subscription arrangements, the entire arrangement fee is recognized ratably over the contract term, subject to any limitations related to extended payment terms. For arrangements involving upfront fees for services and royalties earned by us based on unit or sales volumes of the respective licensees, and the services are performed ratably over the arrangement or front-end loaded; the upfront fees are recognized ratably over contract term and royalties based on unit or sales volume are recognized when they become fixed and determinable. As we are unable to estimate the licensees’ sales in any given quarter to determine the royalties due to us, we recognizes per unit or sales volume driven royalty revenues based on royalties reported by licensees and when all revenue recognition criteria are met.

Product sales — We recognize revenue from the sale of products and the license of associated software, if any, and expense all related costs of products sold, once delivery has occurred and customer acceptance, if required, has been achieved. We typically grant our customers a warranty which guarantees that our products will substantially conform to our current specifications for generally three to twelve months from the delivery date pursuant to the terms of the arrangement. Historically, warranty-related costs have not been significant.

Stock-based Compensation — Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

Valuation and amortization method — We use the Black-Scholes-Merton option pricing model (“Black-Scholes model”), single-option approach to determine the fair value of stock options and Employee Stock Purchase Plan (“ESPP”) shares. All share-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. Stock-based compensation expense recognized at fair value includes the impact of estimated forfeitures. We estimate future forfeitures at the date of grant and revise the estimates if necessary, in subsequent periods if actual forfeitures differ from these estimates. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include actual and projected employee stock option exercise behaviors that impact the expected term, our expected stock price volatility over the term of the awards, risk-free interest rate, and expected dividends.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods, or if we decide to use a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating results.

The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in our option grants and ESPP shares. Existing valuation models, including the Black-Scholes model, may not provide reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination, or forfeiture of those stock-based payments in the future. Certain stock-based payments, such as employee stock options, may expire and be worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements. There currently is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values.

See Note 9 to the condensed consolidated financial statements for further information regarding stock-based compensation.

Accounting for Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and are reversed at such time that realization is believed to be more likely than not.

Our judgments, assumptions, and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities. Although we believe our judgments, assumptions, and estimates are reasonable, changes in tax laws or our interpretation of tax laws and any future tax audits could significantly impact the amounts provided for income taxes in our condensed consolidated financial statements.

Our assumptions, judgments, and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income, such as income from operations

or capital gains income. Actual operating results and the underlying amount and category of income in future years could render inaccurate our current assumptions, judgments, and estimates of recoverable net deferred tax assets. Any of the assumptions, judgments, and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations. See Note 10 to the condensed consolidated financial statements for further information concerning income taxes.

Short-term Investments

Our short-term investments consist primarily of U.S. treasury bills and government agency securities purchased with an original or remaining maturity of greater than 90 days on the date of purchase. We classify all debt securities with readily determinable market values as “available-for-sale”. Even though the stated maturity dates of these debt securities may be one year or more beyond the balance sheet date, we have classified all debt securities as short-term investments as they are available for current operations and reasonably expected to be realized in cash or sold within one year. These investments are carried at fair market value, and using the specific identification method, any unrealized gains and losses considered to be temporary in nature are reported as a separate component of other comprehensive income (loss) within stockholders’ equity.

For debt securities in an unrealized loss position, we are required to assess whether (i) we have the intent to sell the debt security or (ii) it is more likely than not that we will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an other-than-temporary impairment on the security must be recognized in earnings equal to the entire difference between its fair value and amortized cost basis.

For debt securities in an unrealized loss position which are deemed to be other-than-temporary where neither of the criteria in the paragraph above are present, the difference between the security’s then-current amortized cost basis and fair value is separated into (i) the amount of the impairment related to the credit loss (i.e., the credit loss component) and (ii) the amount of the impairment related to all other factors (i.e., the non-credit loss component). The credit loss component is recognized in earnings. The non-credit loss component is recognized in accumulated other comprehensive loss. The credit loss component is the excess of the amortized cost of the security over the best estimate of the present value of the cash flows expected to be collected from the debt security. The non-credit component is the residual amount of the other-than-temporary impairment.

When calculating the present value of expected cash flows to determine the credit loss component of the other-than-temporary impairment, we estimate the amount and timing of projected cash flows on a security-by-security basis. These calculations reflect our expectations of the performance of the underlying collateral and of the issuer to meet payment obligations as applicable. The expected cash flows are discounted using the effective interest rate of the security prior to any impairment. The amortized cost basis of a debt security is adjusted for credit losses recorded to earnings. The difference between the cash flows expected to be collected and the new cost basis is accreted to investment income over the remaining expected life of the security.

Further information about short-term investments may be found in Note 2 to the condensed consolidated financial statements.

Patents and Intangible Assets

We have acquired patents and other intangible assets. In addition, we capitalize the external legal, filing, and continuation or annuity fees associated with patents and trademarks. We assess the recoverability of our intangible assets, and we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets that affect our condensed consolidated financial statements. If these estimates or related assumptions change in the future, we may be required to record impairment charges for these assets. We amortize our intangible assets related to patents and trademarks, once they are issued, over their estimated useful lives, generally 10 years. Future changes in the estimated useful life could affect the amount of future period amortization expense that we will incur. During the three months ended March 31, 2013, we capitalized costs associated with patents and trademarks of $1.0 million. Our total amortization expense (exclusive of abandonments or impairments of $196,000) for the same period was $298,000.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

The following discussion and analysis includes our results of operations for the three months ended March 31, 2013 and 2012.

Overview

Royalty and license revenue increased by 50%, and our total revenue increased by 43% for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The increase in royalty and license revenue was primarily due to increased mobility revenue.

Our net income was $2.3 million during the three months ended March 31, 2013 as compared to a net loss of $219,000 for the three months ended March 31, 2012. The increase in net income was primarily due to increased gross profit of $4.3 million resulting primarily from additional royalty and license revenue partially offset by higher operating expenses which include an increase in general and administrative expenses, mainly due to increased litigation expenses of approximately $1.6 million.

In 2013, we expect royalty and license revenue to be the major component of our total revenues as our technology continues to be included in more of our licensees’ products and as we continue to implement our patent licensing program relating to Basic Haptics. IP litigation may cause us to expend significant financial resources in the future and have an adverse effect on the results of our operations. Additionally, our success could be limited by various factors, including global economic conditions, the timely release of our new products and our licensees’ products, continued market acceptance of our products and technology, and the introduction of new products by existing or new competitors. For a further discussion of these and other risk factors, see Part II, Item 1A – “Risk Factors.”


	March 31,				Change			% Change
REVENUES	2013		2012

	(In thousands)

Three months ended:

Royalty and license	$	13,649	$	9,085	$	4,564			50 %
Product sales		19		272		(253	)		(93)%
Development contracts and other		192		334		(142	)		(43)%

Total Revenues	$	13,860	$	9,691	$	4,169			43 %

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Royalty and license revenue — Royalty and license revenue is comprised of royalties earned on sales by our licensees and license fees charged for our software and IP portfolio. The increase in royalty and license revenue for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 was primarily due to increases in royalty and license revenue from our mobility and medical licensees partially offset by decreases from our gaming licensees.

Royalty and license revenue from mobility customers increased by 138% primarily due to increased mobility revenue from a new multi-year license agreement entered into with Samsung in March 2013. In addition, the increase in royalty and license revenue for mobility customers was due to additional volume of new handsets and other devices sold primarily by Korean and Japanese licensees, and was partially offset by decreased license revenues from our European market. We anticipate that the mobility line of business will continue to be an important line of business as mobile device manufacturers continue to recognize the value of our IP and technology and as we expand our presence in China, Korea, and Japan. We typically experience seasonally higher revenue from our mobility customers due to the reporting of holiday sales in the first calendar quarter.

Royalty and license revenue from medical customers increased by 40% primarily due to additional royalty revenue from increased royalties reported by our licensees.

Royalty and license revenue from gaming customers decreased by 27% mainly due to a decrease in units shipped by certain licensees. This decrease was primarily due to the current softness in the console gaming market mainly as reflected in lower new third-party product sales during the fourth calendar quarter holiday season. Our gaming royalty revenue is seasonal, with holiday sales primarily reported during our first calendar quarter. Revenue from gaming customers can also fluctuate based upon consumer gaming preferences and the timing of introductions of new gaming console systems.

We expect royalty and license revenue to be the major component of our future revenue as our technology continues to be included in more products and as we continue our efforts to monetize our IP.

Product sales — Product sales are currently comprised primarily of actuators, design kits, and integrated circuits. The decrease in product sales primarily reflects a reduction in medical product sales specifically related to our Virtual IV simulator product. In December of 2012 we entered into a royalty generating licensing agreement with our Virtual IV customer in accordance with which we no longer produce the Virtual IV system. As a result of this agreement, and as a result of a continuing focus on licensing our software and patents, we expect product sales will not be a significant portion of our revenue in the future.

Development contracts and other revenue — Development contracts and other revenue is comprised of revenue from commercial contracts, primarily engineering services for customers. Development contracts and other revenue decreased mainly due to a decrease in one time contract engineering services revenue from certain mobility customers partially offset by an increase in revenue from ongoing engineering services from certain mobility customers. We continue to focus our engineering resources on development efforts that leverage our existing sales and channel distribution capabilities. Accordingly, we do not expect development contract revenue to be a significant part of total revenues in the future.

We categorize our geographic information into four major regions: North America, Europe, Far East, and Rest of the World. In the three months ended March 31, 2013, revenue generated in North America, Europe, Far East, and Rest of the World represented 29%, 2%, 69%, and 0% of total revenue, respectively, compared to 48%, 13%, 39%, and 0% of total revenue, respectively, for the three months ended March 31, 2012. The shift in revenues among regions was mainly due to an increase in royalty and license revenue in the Far East offset by a decrease in royalty and license revenue in North America and Europe. The increase in royalty and license revenue from the Far East was mainly due to increased license and royalty revenue from our mobility licensees in Korea and Japan, including increased revenue recognized under the new agreement entered into with Samsung. The decrease in royalty and license revenue in North America was primarily due to a decrease in royalty and license revenue from our gaming licensees partially offset by an increase in royalty and license revenue from our medical licensees. The decrease in royalty and license revenue in Europe was mainly due to a decrease in royalty and license revenue from our mobility licensees.


	March 31,						Change			% Change
COST OF REVENUES	2013			2012
	(Dollars in thousands)
Three months ended:

Cost of revenues	$	148		$	315		$	(167	)		(53)%
% of total revenues		1	%		3	%		(2	)%

Cost of Revenues — Our cost of revenues consists primarily of labor related costs for development contracts and other; as well as direct materials, contract manufacturing, and other overhead costs for product sales. It excludes amortization and abandonment or impairment of intangibles. Lower product sales was the major contributor to the overall reduction in cost of revenues for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. Specifically, the decrease in cost of revenues for 2013 as compared to 2012 was primarily due to decreased direct material costs, contract manufacturing costs, and related costs of $114,000, decreased obsolescence expense of $39,000, and decreased warranty and repair expense of $20,000. As previously discussed, we entered into a royalty generating licensing agreement with our Virtual IV customer and we will no longer produce the Virtual IV system. As a result of this agreement, and as a result of a continuing focus on licensing our software and patents, we expect cost of revenue will continue to be significantly reduced in 2013 compared to 2012.


	March 31,						Change			% Change
OPERATING EXPENSES	2013			2012
	(Dollars in thousands)

Three months ended:

Sales and marketing	$	2,247		$	1,746		$	501			29%
% of total revenue		16	%		18	%		(2	)%

Research and development	$	2,573		$	2,194		$	379			17%
% of total revenue		19	%		23	%		(4	)%

General and administrative	$	6,138		$	4,771		$	1,367			29%
% of total revenue		44	%		49	%		(5	)%

Amortization and abandonment or impairment of intangibles	$	494		$	341		$	153			45%
% of total revenue		4	%		4	%		0	%

Sales and Marketing — Our sales and marketing expenses are comprised primarily of employee compensation and benefits, sales commissions, advertising, trade shows, collateral marketing materials, market development funds, travel, and an allocation of facilities costs. The increase in sales and marketing

expense for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 was primarily due to increased compensation, benefits, and other related costs of $305,000, mainly due to increased sales and marketing headcount; increased marketing, advertising, and public relations costs of $95,000 and increased consulting expenses of $41,000, both due to current marketing initiatives; and increased travel of $55,000 mainly due to increased headcount. We expect that sales and marketing expenses will continue to be significant as we continue to invest in sales and marketing to further our focus on building greater market acceptance for our touch technologies.

Research and Development — Our research and development expenses are comprised primarily of employee compensation and benefits, consulting fees, tooling and supplies, and an allocation of facilities costs. The increase in research and development expenses for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 was primarily due to increased compensation, benefits, and other related costs of $293,000 mainly due to increased headcount and related expense, increased consulting expense of $63,000, and increased lab and prototyping costs of $30,000. We believe that continued significant investment in research and development is critical to our future success, and we expect to make significant increased investments in areas of research and technology development to support future growth.

General and Administrative — Our general and administrative expenses are comprised primarily of employee compensation and benefits, legal and professional fees, office supplies, travel, and an allocation of facilities costs. The increase in general and administrative expenses for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 was primarily due to increased legal, professional, and license fee expenses of $1.0 million along with increased compensation, benefits, and other related costs of $332,000. The increased legal and professional expenses were primarily due to increased litigation expenses of $1.6 million relating to ongoing and completed litigation, partially offset by decreased other professional fees and consulting expense of $372,000 and decreased patent related legal costs of $232,000. The increased compensation, benefits, and other related costs were mainly due to increased headcount. We will continue to incur costs related to litigation, which will cause our general and administrative expenses to be significant as we continue to assert our IP and contractual rights and defend any lawsuits brought against us, but we expect legal expenses to be reduced in 2013 due to litigation settlements in 2012 and the anticipated impact of a change in legal strategy related to our current litigation.

Amortization, Abandonment, and Impairment of Intangibles — Our amortization, abandonment, and impairment of intangibles is comprised primarily of patent amortization and other intangible amortization along with write off of abandoned and expired patents. Amortization, abandonment, and impairment of intangibles increased for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 mainly due to increased write off of abandoned and expired patents as well as increased amortization due to the increased number of patents.


	March 31,						Change		% Change
PROVISION FOR TAXES	2013			2012
	(Dollars in thousands)
Three months ended:

Provision for income taxes	$	(17	)	$	(553	)	$	536		97%
Income from continuing operations before income taxes	$	2,270		$	334
Effective tax rate		0.7	%		165.6	%

Provision for Income Taxes — The income tax provision decreased for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to decreased foreign withholding tax expense.

We maintained a valuation allowance for our entire deferred tax assets at March 31, 2013 and March 31, 2012 as a result of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and limited visibility into our near term projected results. The process of evaluating the need to continue with a valuation allowance for deferred tax assets is highly subjective and requires significant judgment at many points during the analysis. In the three months of fiscal 2013, we entered into a multi-year revenue arrangement with one of our key customers that contributed to our profitability in the first quarter and has provided us better visibility to our projected results for fiscal 2013. However, at this time, there is still a significant amount of uncertainty with respect to our projected results primarily due to variability in per unit royalty revenues which are difficult to predict. If our current projected income levels for the second half of this fiscal year materialize, we expect to be in a position to release a substantial portion of the valuation allowance for deferred tax assets during the fourth quarter of this fiscal year. In the event that we determine the deferred tax assets are realizable, an adjustment to the valuation allowance will 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. We expect to release reserves and record a tax benefit due to the expiration of the applicable statute of limitations during the next nine months. As of March 31, 2013, the total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $257,000.

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 (loss), within stockholders’ equity.

On March 31, 2013, our cash, cash equivalents, and short-term investments totaled $64.2 million, an increase of $20.7 million from $43.5 million on December 31, 2012.

Cash provided by operating activities

Net cash provided by operating activities during the three months ended March 31, 2013 was $19.7 million, an increase of $17.9 million from the $1.8 million provided by operating activities during the three months ended March 31, 2012. Cash provided by operating activities during 2013 was primarily the result of our net income of $2.3 million, an increase of $14.6 million due to a change in deferred revenue and customer advances primarily due to additional deferred revenue mainly due to new agreements and projects with customers, an increase of $1.3 million due to a change in accrued compensation and other current liabilities mainly from the timing of payments to vendors, an increase of $1.1 million due to a change in accounts payable mainly from the timing of payments to vendors, and an increase of $183,000 primarily due to a change in prepaid expenses and other current assets. The amount of cash provided by operating activities during 2013 as compared to our net income was also affected by noncash charges and credits of $1.7 million, including $1.0 million of noncash stock-based compensation, $494,000 in amortization, abandonment, and impairment of intangibles, and $164,000 in depreciation and amortization. These increases were partially offset by a decrease of $1.5 million due to a change in accounts and other receivables mainly due to the timing of customer billings.

Cash provided by (used in) investing activities

Net cash provided by investing activities during the three months ended March 31, 2013 was $4.2 million, compared to the $1.4 million used in investing activities during the three months ended March 31, 2012. Net cash provided by investing activities during the current period consisted of maturities of short-term investments of $15.0 million. This was partially offset by purchases of short-term investments of $10.0 million and additions to intangibles of $694,000 primarily due to capitalization of external patent filing and application costs.

Cash provided by financing activities

Net cash provided by financing activities during the three months ended March 31, 2013 was $1.8 million compared to the $903,000 provided during the three months ended March 31, 2012, an increased source of cash of $872,000. Cash provided by financing activities during the three months ended March 31, 2013 was due to the exercise of stock options and the issuance of common stock under the ESPP.

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. We will continue to protect and defend our extensive IP portfolio, which is expected to result in the continued use of cash. Our board of directors has approved repurchases of our shares of common stock under the previously authorized Stock Repurchase Program which has $19.4 million remaining. We anticipate that capital expenditures for property and equipment for the year ended December 31, 2013 will be less than $500,000. We anticipate that capitalization of external patent filings and application costs for the year ended December 31, 2013 will be approximately $3.5 million. Additionally, if we acquire businesses, patents, or products, our cash or capital requirements could increase substantially. In the event of such an acquisition, or should any unanticipated circumstances arise that significantly increase our capital requirements, we may elect to raise additional capital through debt or equity financing. Any of these events could result in substantial dilution to our stockholders. There is no assurance that such additional capital will be available on terms acceptable to us, if at all.

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, 2012. Our principal commitments as of March 31, 2013 consist of obligations under operating leases and non-cancellable unconditional purchase obligations. There have been no material changes in those obligations during the three months ended March 31, 2013.

As of March 31, 2013, we had a liability for unrecognized tax benefits totaling $685,000 including interest of $58,000, of which approximately $257,000 could be payable in cash. We expect to release reserves and record a tax benefit due to the expiration of the statute of limitations during the next nine months.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 to the condensed consolidated financial statements for information regarding the effect of new accounting pronouncements on our financial statements.

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 $42.0 million as of March 31, 2013, 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 $86,000 in the fair value of our cash equivalents and short-term investments as of March 31, 2013.

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 and export sales that are subject to the risks of fluctuations in currency exchange rates. Because a substantial majority of our international and export revenues, as well as expenses, are typically denominated in U.S. dollars, a strengthening of the U.S. dollar could cause our products 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.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Based on their evaluation as of March 31, 2013, our management with the participation of our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) 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 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 March 31, 2013 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 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.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In re Immersion Corporation Securities Litigation

In September and October 2009, various putative shareholder class action and derivative complaints were filed in federal and state court against us and certain current and former Immersion directors and officers.

On September 2, 2009, a securities class action complaint was filed in the United States District Court for the Northern District of California against us and certain of our current and former directors and officers. Over the following five weeks, four additional class action complaints were filed. (One of these four actions was later voluntarily dismissed.) The securities class action complaints name us and certain current and former Immersion directors and officers as defendants and allege violations of federal securities laws based on our issuance of allegedly misleading financial statements. The various complaints assert claims covering the period from May 2007 through July 2009 and seek compensatory damages allegedly sustained by the purported class members.

On December 21, 2009, these class actions were consolidated by the court as In Re Immersion Corporation Securities Litigation. On the same day, the court appointed a lead plaintiff and lead plaintiff’s counsel. Following our restatement of financial statements, lead plaintiff filed a consolidated complaint on April 9, 2010. Defendants moved to dismiss the action on June 15, 2010 and that motion was granted with leave to amend on March 11, 2011. Lead plaintiff filed an amended complaint on April 29, 2011. Defendants moved to dismiss the amended complaint on July 1, 2011. On December 16, 2011, the motion to dismiss was granted with prejudice and on December 19, 2011, judgment was entered in favor of defendants. On January 13, 2012, the plaintiffs filed a notice of appeal to the Ninth Circuit Court of Appeals. In May 2012, plaintiff filed his opening appeals brief. On July 13, 2012, we filed our response brief. On September 4, 2012, plaintiff filed his reply.

In re Immersion Corporation Derivative Litigation

On September 15, 2009, a putative shareholder derivative complaint was filed in the United States District Court for the Northern District of California, purportedly on behalf of us and naming certain of our current and former directors and officers as individual defendants. Thereafter, two additional putative derivative complaints were filed in the same court.

The derivative complaints arise from the same or similar alleged facts as the federal securities actions and seek to bring state law causes of action on behalf of us against the individual defendants for breaches of fiduciary duty, gross negligence, abuse of control, gross mismanagement, breach of contract, waste of corporate assets, unjust enrichment, as well as for violations of federal securities laws. The federal derivative complaints seek compensatory damages, corporate governance changes, unspecified equitable and injunctive relief, the imposition of a constructive trust, and restitution. On November 17, 2009, the court consolidated these actions as In re Immersion Corporation Derivative Litigation and appointed lead counsel. On May 3, 2010, the court issued an order staying the action, and that stay was lifted following dismissal of the securities class action in December 2011. On October 31, 2012, plaintiffs filed a statement with the Court indicating that in light of the settlement of the related Kasmer v. Richardson action, they intended to voluntarily dismiss their action with prejudice once the time to appeal the Kasmer settlement approval order had expired. The parties jointly moved to dismiss the action on January 2, 2013, and the Court dismissed the action with prejudice on January 4, 2013.

Immersion Corporation vs. Motorola Mobility, Inc., Motorola Mobility Holdings, Inc., HTC Corporation, HTC America Holding, Inc., HTC America, Inc., HTC (B.V.I.) Corporation, Exedea, Inc., Brightstar Corporation, and Brightpoint, Inc.

On February 7, 2012, we filed a complaint against Motorola with the U.S. International Trade Commission (the “ITC”) alleging that certain Motorola mobile electronic devices, including smartphones and cellular phones, infringe six of our patents that cover various uses of haptic effects in connection with touchscreens (the “ITC Complaint”). The ITC Complaint requests that the ITC institute an immediate investigation into Motorola’s unlicensed importation, sale for importation and/or sale after importation of mobile electronic devices, including smartphones and cellular phones, using haptic effects covered by our patents. The ITC Complaint further requests an exclusion order barring the importation, sale for importation and sale after importation of products that infringe our patents and cease and desist orders directing Motorola to cease importing, marketing, advertising, demonstrating, warehousing, distributing, selling, offering to sell and/or using mobile electronic devices incorporating haptic effects that infringe one or more of our patents. We amended the ITC Complaint on March 2, 2012 to add the following parties: HTC Corporation, HTC America Holding, Inc., HTC America, Inc., HTC (B.V.I.) Corporation, Exedea, Inc., Brightstar Corporation and Brightpoint, Inc. We subsequently withdrew HTC America Holding, Inc., HTC (B.V.I.) Corporation, Exedea, Brightstar, and Brightpoint from the ITC Complaint. The ITC instituted an investigation against Motorola Mobility, Inc., Motorola Mobility Holdings, Inc., HTC Corporation, and HTC America, Inc. on April 2, 2012.

On February 7, 2012, we filed a complaint against Motorola in the U.S. District Court for the District of Delaware (the “Motorola Delaware Complaint”) alleging that certain of Motorola’s mobile electronic devices, including smartphones and cellular phones, infringe six of our patents that cover various uses of haptic effects. The Motorola Delaware Complaint covers the same patents as the ITC Complaint. The Motorola Delaware Complaint seeks damages and injunctive relief. The parties stipulated to stay the case pending the completion of the ITC investigation.

On March 2, 2012, we filed a complaint against HTC Corporation, HTC America Holding, Inc., HTC America, Inc., HTC (B.V.I.) Corporation, Exedea, Inc., Brightstar Corporation and Brightpoint, Inc. (collectively, “HTC”) in the U.S. District Court for the District of Delaware (the “HTC Delaware Complaint”) alleging that certain of HTC’s mobile electronic devices, including smartphones and cellular phones, infringe six of our patents that cover various uses of haptic effects. The HTC Delaware Complaint covers the same patents as the ITC Complaint. The HTC Delaware Complaint seeks damages and injunctive relief. The parties have stipulated to stay the case pending the completion of the ITC investigation.

The ITC Complaint, Motorola Delaware Complaint and HTC Delaware Complaint assert infringement of the following patents:

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

U.S. Patent No 7,592,999: “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”

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”

U.S. Patent No 8,059,105: “Haptic Feedback for Touchpads and Other Touch Controls”

Motorola and HTC asserted that the patents are not infringed, invalid, and unenforceable.

On November 21, 2012, we entered into a confidential settlement agreement with Motorola. On January 15, 2013, the Administrative Law Judge issued an Initial Determination terminating the ITC investigation as to Motorola. On March 15, 2013, we dismissed the Motorola Delaware Complaint.

On March 12, 2013, we filed motions to suspend the procedural schedule and to terminate the ITC investigation against HTC. The Administrative Law Judge issued an order granting the motion to suspend the procedural schedule on March 19, 2013 and issued an Initial Determination terminating the ITC investigation as to HTC on March 27, 2013. The decision became final on April 26, 2013.

We requested that the U.S. District Court for the District of Delaware re-open the case against HTC filed in that Court, and the case was reopened on May 1, 2013. We filed an amended complaint on May 3, 2013.

In the United States Patent Office, HTC has filed requests for ex-parte reexamination of three of Immersion’s patents: U.S. Patent No. 7,969,288 (the ’288 patent), U.S. Patent No. 7,592,999 (the ’999 patent), and U.S. Patent No. 7,982,720 (the ’720 patent). Reexamination of the ’288 patent was requested on July 30, 2012. The Patent Office granted the request on October 24, 2012. Reexamination of the ’999 patent was requested on September 6, 2012. The Patent Office granted the request on November 26, 2012. Reexamination of the ’720 patent was requested on September 10, 2012. The Patent Office granted the request on November 28, 2012. On March 19, 2013 the Patent Office issued a non-final office action regarding the reexamination of the ’999 patent, rejecting claims 1-3, 6, 8-11, and 13-16. On April 2, 2013 the Patent Office issued a non-final office action regarding the reexamination of the ’720 patent, rejecting claims 1-4, 10-13, 15-17, 19, 22, 23, 29, 30, and 33. The Patent Office has not yet issued any office actions in the reexamination of the ’288 patent.

We cannot predict the ultimate outcome of the above-mentioned federal and state actions, and we are unable to estimate any potential liability we may incur.

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-party manufacturers for our touch-enabling technologies, our royalty revenue may not grow and could decline.

Our revenue growth is largely dependent on our ability to enter into new and renewed licensing arrangements. Our failure to enter into new or renewed licensing arrangements will cause our operating results to suffer. We 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:

•

the competition we may face from third parties and/or the internal design teams of existing and potential licensees;

•

difficulties in persuading product manufacturers 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 of our software technologies incorporated in certain of their products to additionally license our patents that may cover products that do not include our software technologies;

•

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

•

difficulties in persuading existing and potential licensees to bear the additional costs necessary to incorporate our technologies into their products;

•

difficulties in obtaining new licensees for yet-to-be commercialized technology because their suppliers may not be ready to meet stringent quality and parts availability requirements;

•

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

•

reluctance of content developers, mobile device manufacturers, and service providers to sign license agreements without a critical mass of other such inter-dependent supporters of the mobile device industry also having a license, or without enough similar devices in the market that incorporate our technologies; and

•

inability of current or prospective licensees to ship certain mobile 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.

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

Samsung Electronics Co., Ltd. accounted for approximately 51% of our total revenues for the three months ended March 31, 2013 and accounted for approximately 20% of our total revenues for the three months ended March 31, 2012. One other customer accounted for approximately 11% of our total revenues for the three months ended March 31, 2012. We cannot be certain that customers that have accounted for significant revenue in past periods, individually or as a group, will continue to generate revenue in any future period. If we fail to renew or lose a major customer or group of customers, our revenue could decline if we are unable to replace the lost revenue with revenue from other sources.

Future revenue is difficult to predict, and our failure to predict revenue accurately may cause our results to be below our expectations or those of investors and result in our stock price declining.

Our lengthy and costly license negotiation cycle and any IP litigation that we may engage in make our future revenue difficult to predict because we may not be successful in entering into or renewing licenses with our customers on our estimated timelines, and we may be reliant on litigation timelines, which are difficult to control, with unpredictable results.

While some of our license agreements provide for fixed royalty payments, many of our license agreements provide for per-unit royalties, and may also be subject to adjustments based on volume. The sales volume and prices of our licensees’ products in any given period can be difficult to predict.

In addition, a portion of our revenue comes from development and support services provided to our licensees, or may be part of a contractual arrangement involving multiple elements. Depending upon the nature of the services or elements, all or a portion of the revenue may be recognized ratably over time or may be deferred in part or in whole.

All of these factors make it difficult to predict future revenue and may result in our revenue being below our previously announced guidance or analysts’ estimates, which would likely cause our stock price to decline.

We are currently involved in litigation and administrative proceedings involving some of our key patents; any invalidation or limitation of the scope of our key patents could significantly harm our business.

As more fully described under “Legal Proceedings,” we are currently involved in litigation involving some of our patents. The defendant in this litigation has challenged the validity, scope, enforceability and ownership of our patents. In addition, reexamination requests have been filed in the U.S. Patent and Trademark Office (“PTO”) with respect to patent claims at issue in our litigation. Under a reexamination proceeding and upon completion of the proceeding, the PTO may leave a patent in its present form, narrow the scope of the patent or cancel some or all of the claims of the patent. If some or all of the claims of the patents that are subject to reexamination are canceled, our business may be significantly harmed.

We cannot predict the outcome of the litigation or reexaminations. If there is an adverse ruling in any legal or administrative proceeding relating to the infringement, validity, enforceability or ownership of any of our patents, or if a court or an administrative body such as the PTO limits the scope of the claims of any of our patents, we could be prevented from enforcing or earning future revenues from those patents, and the likelihood that customers will take new licenses and that current licensees will continue to agree to pay under their existing licenses could be significantly reduced. The resulting reduction in license fees and royalties could significantly harm our business, consolidated financial position, results of operations or cash flows, or the trading price of our common stock.

Furthermore, regardless of the merits of any claim, the continued maintenance of these legal and administrative proceedings may result in substantial legal expenses and diverts our management’s time and attention away from our other business operations, which could significantly harm our business. The time to resolution and complexity of our litigation, its significance to our business, the propensity for delay in patent litigation, and the potential that we may lose particular motions as well as the overall litigation all could cause significant volatility in our stock price and materially adversely affect our business and consolidated financial position, results of operations and cash flows.

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 under 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 licensee business models, and to the compromises inherent in the drafting and negotiation of License Provisions, our licensees may, at some time during the term of their agreements with us, interpret License Provisions in their 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. 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 likelihood that we will not receive the royalty revenues to which we are entitled under the terms of our license agreements, 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.

Competing technologies may harm our business.

One of our biggest sources of competition is derived from decisions made by internal design groups at our original equipment manufacturer (“OEM”) customers and potential OEM customers. We expect that these internal design groups will continue to make choices regarding whether to implement haptics or not, whether to use our solutions or other standard haptic capability (e.g., haptic capability offered by the Android operating system), or even whether to develop their own haptic solutions. In instances where the design team elects not to use our solutions but implements unlicensed haptic capability, we intend to seek to enforce our IP. If the OEM is unwilling to enter into a license agreement, we may elect to pursue litigation which would harm our relationship with the OEM 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.

In our OEM agreements, we typically grant licenses to our patent portfolio for one or more specified fields of use. Depending on the specific terms of our agreement with an OEM, the OEM’s internal design group may be able to develop technology that is less expensive to implement or that enables products with

higher performance or additional features than our own technology and products. Many of these internal design groups have substantially greater resources, greater financial strength and lower cost structures than we do. They also have the inherent advantage of access to internal corporate strategies, technology roadmaps and technical information. As a result, they may be able to bring alternative solutions to market more easily and quickly.

In addition to licensing OEMs directly, our business also includes licensing to semiconductor manufacturers who incorporate certain of our less advanced technologies into their integrated circuits for use in certain electronic devices. While our relationships with these semiconductor manufacturers increases our distribution channels by leveraging their sales channels, it is possible that OEMs may elect to implement haptics using less advanced integrated circuit solutions rather than the higher-end solutions we offer directly, which may negatively impact our financial results.

Winning business is often subject to a competitive selection process that can be lengthy and requires us to incur significant expense, and we may not be selected.

In many cases, we must win competitive selection processes, known as “design wins,” before our haptic technologies are included in our customers’ products. These selection processes can be lengthy and can require us to incur significant design and development expenditures. We may not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures. Because we typically focus on only a few customers in a given product area, the loss of a design win can sometimes result in our failure to have haptics added to new generation products in that area. This can result in lost sales and could hurt our position in future competitive selection processes to the extent we are not be perceived as being a technology leader.

After winning a product design for one of our customers, we may still experience delays in generating revenue as a result of lengthy customer development and design cycles. In addition, a change, delay or cancellation of a customer’s plans could significantly adversely affect our financial results, as we may have incurred significant expense and generated no revenue. Finally, even if a design is introduced, if our customers fail to successfully market and sell their products, it could materially adversely affect our business, financial condition, and results of operations.

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 come 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 gaming 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 IP in connection with gaming on such mobile or other platforms.

Automobiles and medical devices 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 and medical devices is very lengthy, sometimes longer than four years. We may not earn royalty revenue on our automotive/medical 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, the option packages if our technology is an option (for example, a navigation unit), or medical device, 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 IP to companies that manufacture and sell products incorporating our touch-enabling technologies. Sales of those products generate royalty and license revenue for us. For the three months ended March 31, 2013 and 2012, 98% and 94%, respectively, of our total revenues were royalty and license revenues. 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’ products fail to achieve commercial success or if products are recalled because of quality control problems or if our licensees do not ship products incorporating our touch-enabling technologies in a timely fashion or fail to achieve strong sales, our revenues will not grow and could decline.

We had an accumulated deficit of $109 million as of March 31, 2013, have a history of losses, and may not achieve or maintain profitability in the future.

Since 1997, we have incurred losses in all but seven quarters. As of March 31, 2013, we had an accumulated deficit of $109 million. We need to generate significant ongoing revenue to achieve and maintain consistent profitability. We anticipate that we will continue to incur expenses as we:

• continue to engage in research and develop our technologies;

• increase our sales and marketing efforts;

• attempt to expand the market for touch-enabled technologies and products;

• protect and enforce our IP;

• pursue strategic relationships;

• incur costs related to pending and anticipated litigation; and

• acquire IP or other assets from third-parties.

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

We have limited engineering, customer service, technical support, quality assurance and operations resources to design and fulfill favorable software technology delivery schedules and to provide support of our different technology areas. Software and services may not be delivered in a timely way, with sufficient levels of quality, or at all, which may reduce our revenue.

We deploy our limited engineering, customer service, technical support, quality assurance, and operations resources on a variety of different projects and programs intended to provide sufficient levels of quality necessary for channels and customers. Our success in various markets may depend on timely deliveries and overall levels of sustained quality and customer service. Our failure to provide favorable software technology and program deliverables and quality and customer service levels, or provide them at all, may disrupt channels and customers, harm our brand, and reduce our revenues.

Our business depends in part on access to third-party platforms or technologies, and if the access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies change without notice to us, 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 or technologies. Our business in these categories relies on our access to the platforms or technologies of third parties, which can be withdrawn, denied or not be available on terms acceptable to us.

Our access to third-party platforms or technologies may require paying a royalty, which lowers our product 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 without prior notice to us, which can result lost sales or lower margins.

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 without notice to us, our business and operating results could be adversely affected.

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. 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 and tablets. 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.

The market for certain touch-enabling technologies and touch-enabled products is at an early stage and if market demand does not develop, we may not achieve or sustain revenue growth.

The market for certain of our touch-enabling technologies and certain of our licensees’ touch-enabled products is at an early stage. If we and our licensees are unable to develop demand for our touch-enabling technologies and products, we may not achieve or sustain revenue growth. We cannot accurately predict the growth of the markets for these technologies and products, the timing of product introductions, or the timing or likelihood of these products achieving widespread commercial adoption.

We expect that we will need to pursue extensive and expensive marketing and sales efforts to educate prospective licensees, component customers, and end users about the uses and benefits of our technologies and to persuade software developers and content producers to create products that utilize our technologies. Negative product reviews or publicity about our company, our technologies, our licensees’ products, haptic features, or haptic technology in general could have a negative impact on market adoption, our revenue, and/or our ability to license our technologies in the future.

If we fail to protect and enforce our IP rights, 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:

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our pending patent applications may not result in the issuance of patents;

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our patents may not be broad enough to protect our proprietary rights; and

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

In addition, our patents will continue to expire according to their terms. 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.

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:

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laws and contractual restrictions may not be sufficient to prevent misappropriation of our technologies or deter others from developing similar technologies; and

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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.

Any legal or administrative proceeding initiated by us to protect or enforce our IP rights may result in substantial legal expenses and may divert our management’s time and attention away from our other business operations, which could significantly harm our business.

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, 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 U.S. 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 under the agreement.

We license some technologies from third parties. We must rely upon the owners of the 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.

Recent changes to U.S. patent laws and proposed changes to the rules of the U.S. PTO may adversely impact our business.

Our business relies in part on the uniform and historically consistent application of U.S. patent laws and regulations. There are numerous recent changes to the patent laws and proposed changes to the rules of the PTO, which may have a significant impact on our ability to protect our technology and enforce our IP rights. For example, on September 16, 2011, President Obama signed the Leahy-Smith America Invents Act, which codifies significant changes to the U.S. patent laws, including, among other things, changing from a “first to invent” to a “first inventor to file” system, limiting where a patentee may file a patent suit, requiring the apportionment of patent damages, replacing interference proceedings with derivation actions and creating a post-grant opposition process to challenge patents after they have been issued. The effects of these changes on our patent portfolio and business have yet to be determined, as the PTO must still implement regulations relating to these changes and the courts have yet to address the new provisions. In addition, in recent years, the courts have interpreted U.S. patent laws and regulations differently, and in particular the U.S. Supreme Court has decided a number of patent cases and continues to actively review more patent cases than it has in the past. Some of these changes or potential changes may not be advantageous for us, and may make it more difficult to obtain adequate patent protection or to enforce our patents against parties using them without a license or payment of royalties. These changes or potential changes could increase the costs and uncertainties surrounding the prosecution of our patent applications and the enforcement or defense of our patent rights, and could have a deleterious effect on our licensing program and, therefore, the royalties we can collect.

If we fail to develop new or enhanced technologies for new applications and platforms, we may not be able to create a market for our technologies or our technologies may become obsolete, and our ability to grow and our results of operations might be harmed.

We derive a significant portion of our revenues from licenses and royalties from a relatively small number of key technologies. We devote significant engineering resources to develop new technologies to address the evolving needs of our customers. To remain competitive, we must introduce new technologies in a timely manner and the market must adopt them. Our initiatives to develop new and enhanced technologies and to commercialize these technologies for new applications and new platforms may not be successful or timely. Any new or enhanced technologies may not be favorably received by our licensees or consumers and could damage our reputation or our brand. Expanding our technologies could also require significant additional expenses and strain our management, financial, and operational resources.

Moreover, technology products generally have relatively short product life cycles and our current technologies may become obsolete in the future. Our ability to achieve revenue growth also depends on our continuing ability to improve and reduce the cost of our technologies, to improve their ease of integration in both hardware and software, and to introduce these technologies to the marketplace in a timely manner. If our development efforts are not successful or are significantly delayed, companies may not incorporate our technologies into their products and our revenues may not grow and could decline.

The higher cost of products incorporating our touch-enabling technologies may inhibit or prevent their widespread adoption.

Mobile devices, tablets, touchscreens, personal computer and console gaming peripherals, and automotive and industrial controls incorporating our touch-enabling technologies can be more expensive than similar competitive products that are not touch-enabled. Although many OEMs have licensed our technologies, there is generally no commitment on their part to use our technologies in their devices. The greater expense of development and production of products containing our touch-enabling technologies, together with the higher price to the end customer, may be a significant barrier to their widespread adoption and sale.

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. As a result, our revenues may not grow and could decline.

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

The current global economic conditions could materially hurt our business in a number of ways, including longer sales and renewal cycles, delays in adoption of our products or technologies, increased risk of competition, 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 are facing 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 international expansion efforts subject us to additional risks and costs.

We currently have sales personnel in Japan, Korea, Taiwan, China, and Switzerland and we intend to expand our international activities. International operations are subject to a number of difficulties and special costs, including:

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

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laws and business practices favoring local competitors;

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foreign exchange and currency risks;

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

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difficulties staffing and managing foreign operations;

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difficulties and expense in enforcing IP rights;

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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;

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multiple conflicting tax laws and regulations;

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political and economic instability; and

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an outbreak of hostilities in markets where major customers are located, including Korea.

Our international operations could also increase our exposure to international laws and regulations. If we cannot comply with foreign laws and regulations, which are often complex and subject to variation 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. 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 U.S. may be affected by changes in trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment, including the Foreign Corrupt Practices Act and local laws prohibiting corrupt payments by our employees, vendors, or agents.

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 upon short notice. The loss of management or key personnel could delay product development cycles or otherwise harm our business.

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. 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 design contracts, it may be difficult to craft compensation plans that will attract and retain the level of salesmanship needed to secure these contracts. Additionally, some of our executive officers and key employees hold stock options with exercise prices 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.

Our current litigation is 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. Due to the inherent uncertainties of litigation, we cannot accurately predict how these cases will ultimately be resolved. We anticipate that currently pending litigation will continue to be costly and that future litigation or investigations will result in additional legal expenses, and there can be no assurance that we will be successful or be able to recover the costs we incur in connection with litigation or investigations. We expense litigation and investigatory costs as incurred, and only accrue for costs that have been incurred but not paid to the vendor as of the financial statement date. Litigation and investigations have diverted, and could continue to divert, the efforts and attention of some of our key management and personnel. As a result, until such time as it is resolved or concluded, litigation and investigations could adversely affect our business. Further, any unfavorable outcome could adversely affect our business. For additional background on this and our other litigation, please see Note 12 to the condensed consolidated financial statements in Part I, Item 1- “Financial Information”.

As our business grows, such growth may place a significant strain on our management and operations and, as a result, our business may suffer.

We plan to continue expanding our business, and any significant growth could place a significant strain on our management systems, infrastructure and other resources. We will need to continue to invest the necessary capital to upgrade and improve our operational, financial and management reporting systems. If our management fails to manage our growth effectively, we could experience increased costs, declines in product quality, and/or customer satisfaction, which could harm our business.

Product liability claims could be time-consuming and costly to defend and could expose us to loss.

Our products or our licensees’ products may have flaws or other defects that may lead to personal or other injury claims. If products that we or our licensees sell cause personal injury, property damage,

financial loss, or other injury to our or our licensees’ customers, the customers or our licensees may seek damages or other recovery from us. In addition, even though we have transitioned from the medical products line of business, we could face product liability claims for products that we have sold or that our successors have sold or may sell in the future. Defending any claims against us, regardless of merit, would be time-consuming, expensive to defend, and distracting to management, and could result in damages and injure our reputation, the reputation of our technology, services, or products, or the reputation of our licensees or their products. This damage could limit the market for our and our licensees’ products and harm our results of operations. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results and financial condition could be adversely affected.

In the past, manufacturers of peripheral products including certain gaming products such as joysticks, wheels, or gamepads, have been subject to claims alleging that use of their products has caused or contributed to various types of repetitive stress injuries, including carpal tunnel syndrome. While we have not experienced any product liability claims to date, we could face such claims in the future, which could harm our business and reputation. Although our license agreements typically contain provisions designed to limit our exposure to product liability claims, existing or future laws or unfavorable judicial decisions could limit or invalidate the provisions.

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 OEM 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. Some errors in our technologies may only be discovered after a customer’s product incorporating our technologies has been shipped to customers. 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.

Our customers may have difficulties obtaining the components necessary to manufacture haptic-based products, which could harm our business and results of operations.

In order to manufacture haptic-based products, our customers require components such as actuators and amplifiers. The inability of suppliers to deliver adequate supplies of these components could disrupt our customers’ production processes which would harm our business and results of operations. In addition, certain of our newer products require new types of components that we expect will be developed and sold by our ecosystem partners. Failure of our ecosystem partners to bring these products to market in a timely and quality fashion at attractive prices may negatively affect our ability to secure customers for these newer products which could harm our business and results of operations. Component suppliers to customers could also be affected by natural disasters and other similar events.

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.

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, 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 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:

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the establishment or loss of licensing relationships;

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

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

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

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developments in and costs of pursuing any pending litigation;

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

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the timing of work performed under development agreements; and

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corrections and true-ups to royalty payments and royalty rates from prior periods.

Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported results of operations.

A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.

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, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules and regulations of The NASDAQ Stock Market. The requirements of these rules and regulations have increased and we expect will continue to increase our legal, 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.

Additionally, the SEC has promulgated final rules in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act, regarding disclosure of the use of certain minerals, known as conflict minerals, that are mined from the Democratic Republic of the Congo and adjoining countries. The metals covered by the rules include tin, tantalum, tungsten, and gold. The rules require us to conduct a reasonable country of origin inquiry to determine if we know or have reason to believe any of the minerals used in the production process may have originated from the Democratic Republic of the Congo or an adjoining country. If we are not able to determine the minerals did not originate from a covered country, we would be required to perform supply chain due diligence on members of our supply chain. These new requirements may also reduce the number of suppliers who provide conflict free metals, and may affect our, our customers’ or our manufactures’ ability to obtain products in sufficient quantities or at competitive prices. Compliance costs and the unavailability of raw materials could have a material adverse effect on our results of operations.

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; 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; developments with respect to patents or proprietary rights; inclusion in or exclusion from various stock indices; 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 actually 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;

•

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.

We may engage in acquisitions that could dilute stockholders’ interests, divert management attention, or cause integration problems.

As part of our business strategy, we have in the past and may in the future, acquire businesses or IP that we feel could complement our business, enhance our technical capabilities, or increase our IP portfolio. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.

If we consummate acquisitions through the issuance of our securities, our stockholders could suffer significant dilution. Acquisitions could also create risks for us, including:

•

unanticipated costs associated with the acquisitions;

•

use of substantial portions of our available cash to consummate the acquisitions;

•

diversion of management’s attention from other business concerns;

•

difficulties in assimilation of acquired personnel or operations;

•

failure to realize the anticipated benefits of acquired IP or other assets;

•

charges associated with amortization of acquired assets or potential charges for write-down of assets associated with unsuccessful acquisitions;

•

potential IP infringement claims related to newly-acquired product lines or technologies; and

•

potential costs associated with failed acquisition efforts.

Any acquisitions, even if successfully completed, might not generate significant additional revenue or provide any benefit to our business.

ITEM 6. EXHIBITS

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

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.

Date: May 7, 2013


IMMERSION CORPORATION

By		/s/ Paul Norris
		Paul Norris
Chief Financial Officer and Principal Accounting Officer

EXHIBIT INDEX


Exhibit Number		Description

10.1#		Amended and Restated License Agreement by and between Immersion Software Ireland Limited, Immersion Corporation, and Samsung Electronics Co., Ltd. Entered into as of January 1, 2013.

31.1		Certification of Victor Viegas, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Paul Norris, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Victor Viegas, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Paul Norris, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Report Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Document

101.CAL**		XBRL Taxonomy Calculation Linkbase Document

101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		XBRL Taxonomy Label Linkbase Document

101.PRE**		XBRL Presentation Linkbase Document

# Certain portions of this exhibit have been omitted and have been filed separately with the SEC pursuant to a request for confidential treatment under Rule 24b-2 as promulgated under the Exchange Act.

* This certification is deemed not filed for purposes of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

EX-10.1

Exhibit 10.1

NOTE: THIS DOCUMENT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. PORTIONS OF THIS DOCUMENT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED HAVE BEEN REDACTED AND ARE MARKED HEREIN BY “[***]”. SUCH REDACTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO THE CONFIDENTIAL TREATMENT REQUEST.

AMENDED AND RESTATED LICENSE AGREEMENT

This Amended and Restated 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,” 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 January 1, 2013 (the “Effective Date”).

WHEREAS, Immersion Corporation and Samsung entered into that certain Amended and Restated License Agreement [***] as amended [***] (the “[***]”); and

WHEREAS, Immersion Ireland and Samsung desire to amend and restate the [***] to include additional software licenses and patent licenses, in each case, subject to, the terms and conditions of this Agreement.

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 Grainger	By:	/s/ Hyungmoon No

Name:	Liam Grainger	Name:	Hyungmoon No

Title:	Director	Title:	Vice President

Date:	3-6-2013	Date:	7^th Mar. 2013

IMMERSION CORPORATION


By:		/s/ Victor Viegas

Name:		Victor Viegas

Title:		President and CEO

Date:		3-6-2013


Address for Notice:		Address for Notice:

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

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TERMS AND CONDITIONS

1.	DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings:

1.1 “[***]” shall have the meaning set forth in the recitals of this Agreement.

1.2 “[***] Sold Units” shall mean the units of Licensed Devices sold by Samsung during [***].

1.3 “[***]” shall have the meaning set forth in Section 13.4(a).

1.4 “[***]” shall have the meaning set forth in Section 13.4(b).

1.5 “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” shall mean 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.

1.6 “Agreement” shall have the meaning set forth in the introductory paragraph of this Agreement.

1.7 “Application” shall have the meaning set forth in Section 11.3.

1.8 “[***]” means any field of use relating to [***] products or services, including, without limitation, [***] and [***] simulators, unless agreed otherwise between the parties via an amendment to this Agreement.

1.9 “Basic Haptic Functionality” means haptic or vibrotactile functionality implemented or otherwise incorporated in a Mobile Device that satisfies all of the following: (a) incorporates no actuator (or similar device), except a [***] in each case, that is capable of being activated only in an [***] manner (i.e., such actuator can be activated [***]; (b) does not include any electrical circuit that may be used to control or condition the [***] to the actuator contained in such Mobile Device, or that may otherwise [***] are applied to such actuator; and (c) does not incorporate or otherwise utilize any Licensed Software. Notwithstanding the foregoing, for the purpose of this Agreement, the haptic or vibrotactile functionality related to the [***] and the [***] during the Term shall be included as Basic Haptic Functionality.

1.10 “Change of Control” shall have the meaning set forth in Section 14.1.

1.11 “Current Haptic Application” shall mean a software application (or function) (other than, for the avoidance of doubt, any Licensed Software or other Immersion software product) currently incorporated and utilized in a Samsung Branded Mobile Device that is commercially available to end users as of the Effective Date where such software application utilizes haptic or vibrotactile functionality. For the purpose of clarity, any derivative or enhancement of a Current Haptic Application shall be deemed a Current Haptic Application. In no event shall [***] constitute a Current Haptic Application. Notwithstanding the foregoing, for the purposes of this Agreement, [***] shall be included as Current Haptic Applications.

1.12 “Effective Date” shall have the meaning set forth in the introductory paragraph of this Agreement.

1.13 “[***]” means, unless agreed otherwise in writing between the parties via an amendment to this Agreement, any [***] relating to products, services or content designed, sold or marketed for use: (a) in the [***]; (b) in the [***]; (c) in the [***]; and/or (d) in the [***].

1.14 “Existing Claims” shall have the meaning set forth in Section 2.2.

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1.15 “Field of Use” means Mobile Devices. The “Field of Use” [***] products or services that are designed, sold, or marketed for use [***].

1.16 “[***] Payment” shall mean the [***] of [***] due to Immersion Ireland pursuant to Section 5.1.

1.17 [***]

1.18 “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 from Samsung or its Affiliates to that third party (or to customers of, or as directed by, that third party); 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 Licensed 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.

1.19 “[***]” means the market principally for [***] or [***] for use in conjunction with [***] or similar [***] purposes.

1.20 “[***]” means a software application capable of providing haptic or vibrotactile feedback to an end user of a device in connection with [***].

1.21 “[***]” means a software [***] application capable of adding haptic or vibrotactile feedback to [***].

1.22 “Haptic SDK” means Immersion Corporation’s Haptic SDK tool designed to create haptic software applications for use in Mobile Devices.

1.23 “[***]” means a software application that provides haptic or vibrotactile feedback to an end user in connection with such end user’s use of [***] a Mobile Device.

1.24 “HD Integrator” shall have the meaning set forth in Exhibit A.

1.25 “Immersion” shall have the meaning set forth in the introductory paragraph of this Agreement.

1.26 “Immersion Corporation” shall have the meaning set forth in the introductory paragraph of this Agreement.

1.27 “Immersion Integrator Software” shall mean, collectively, the following: (a) Integrator; (b) HD Integrator; and (c) all Upgrades, Updates, error corrections or replacement versions of any of the foregoing.

1.28 “Immersion Ireland” shall have the meaning set forth in the introductory paragraph of this Agreement.

1.29 “Immersion Patents” means the patents owned or controlled by Immersion or its Affiliates during the Term, along with any continuations, continuations-in-part, divisions, international counterparts, reissues and reexaminations thereof. For the sake of clarity, Immersion Patents does not include: (a) patents owned by entities that may acquire Immersion or its Affiliates, and (b) patents controlled by Immersion or its Affiliates that require the payment of a fee in connection with any sublicense of such patents to any third party other than Immersion’s employees or subcontractors who are obligated to assign such patents to Immersion or its Affiliates in consideration of such fee.

1.30 “Immersion Preexisting Technology” means Intellectual Property Rights developed, acquired or otherwise owned by Immersion or its Affiliates prior to the Effective Date.

1.31 “Immersion Solely Developed Technology” means Intellectual Property Rights developed, acquired or otherwise obtained by Immersion independently of Samsung on and after the Effective Date.

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1.32 “Immersion TouchSense Player Software” shall mean, collectively, the following: (a) TS3000; (b) TS4000; (c) TS5000; and (d) all Upgrades, Updates, error corrections or replacement versions of any of the foregoing.

1.33 “Immersion TouchSense/Integrator Solutions” shall mean, collectively, the Immersion TouchSense Player Software and the Immersion Integrator Software.

1.34 “Immersion Trademarks” shall have the meaning set forth in Section 3.3.

1.35 “Imposed Tax” shall have the meaning set forth in Section 11.2.

1.36 “Intellectual Property Rights” shall mean any intellectual property rights (or similar rights) including, but not limited to, copyrights, patent rights, trade secret rights, trademark rights, trade name rights and any other intellectual property rights (or similar rights).

1.37 “Integration and Porting Services Fee” shall have the meaning set forth in Section 5.2.

1.38 “Integrator” shall have the meaning set forth in Exhibit A.

1.39 “IP Claim” shall have the meaning set forth in Section 11.

1.40 “Licensed Basic Haptic Device” means a Samsung Branded Mobile Device that constitutes a Mobile Device With Basic Haptic Functionality.

1.41 “Licensed Device” shall mean, collectively, Licensed Basic Haptic Devices and Licensed TouchSense Devices. Licensed Device shall in no event include any products or services: (a) [***]; or (b) any Foundry Products.

1.42 “Licensed Software” shall mean, collectively, the Immersion TouchSense/Integrator Solutions and the Haptic SDK.

1.43 “Licensed TouchSense Device” shall mean a Samsung Branded Mobile Device that incorporates Licensed Software in compliance with the terms and conditions of this Agreement.

1.44 “Linux Modules” shall mean software that enables Licensed Software to operate on a Linux-based operating system.

1.45 “Mobile Device” means any electronic mobile devices having telecommunication or computing functionality including without limitation a mobile phone, laptop, notebook, netbook, MP3, camera, or tablet computer (including a convertible notebook).

1.46 “Mobile Device With Basic Haptic Functionality” means any Mobile Device that contains no haptic or vibrotactile functionality except for Basic Haptic Functionality.

1.47 “Open Source Software” shall mean any software which is subject to or meeting the criteria of the license terms and conditions listed as at any time during the term of this Agreement, as and to the extent applicable, at http://www.opensource.org/docs/definition.php (or successor URL) and including, without limitation, licenses currently listed at http://opensource.org/licenses/ (or successor URL), or which is subject to any similar license terms.

1.48 “Piezoactuator” shall mean an actuator containing materials that have the ability to generate potential mechanical strain in response to an applied electric potential.

1.49 “Prior Basic Haptic Units” shall have the meaning set forth in Section 2.2.

1.50 “[***]” shall have the meaning set forth in Section 13.4(c).

1.51 “[***]” means any field of use relating to products or services designed for use in: (a) [***]; (b) simulation of or for [***]; and/or (c) simulation for development and testing of [***].

[***] Confidential Treatment Requested

1.52 “[***]” means any field of use relating to: (a) the treatment of, or delivery of [***], including any field of use relating to [***]; and/or (b) [***] of physical or other characteristics of [***].

1.53 “Releasing Entities” shall have the meaning set forth in Section 2.2.

1.54 “Samsung” shall have the meaning set forth in the introductory paragraph of this Agreement.

1.55 “Samsung Branded Mobile Device” means a Mobile Device within the Field of Use that is marketed and sold under Samsung’s brand to end users of such products.

1.56 “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.

1.57 “Samsung Preexisting Technology” means Intellectual Property Rights developed, acquired or otherwise owned by Samsung prior to the Effective Date.

1.58 “Samsung Solely Developed Technology” means Intellectual Property Rights developed, acquired or otherwise obtained by Samsung independently of Immersion on and after the Effective Date.

1.59 “[***]” means a software application [***] of haptic or vibrotactile feedback.

1.60 “Source Code” shall have the meaning set forth in Section 2.1(b).

1.61 “Term” shall have the meaning set forth in Section 13.1.

1.62 “TS3000” shall have the meaning set forth in Exhibit A.

1.63 “TS4000” shall have the meaning set forth in Exhibit A.

1.64 “TS5000” shall have the meaning set forth in Exhibit A.

1.65 “Update” means a future version of an Immersion TouchSense/Integrator Solution 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/Integrator Solution being updated; and (iii) such future version is marketed and licensed by Immersion under the same Immersion TouchSense/Integrator Solution product name as the version of the Immersion TouchSense/Integrator Solution product being updated.

1.66 “Upgrade” means a future version of an Immersion TouchSense/Integrator Solution 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/Integrator Solution being upgraded; and (iii) such future version is marketed and licensed by Immersion under the same Immersion TouchSense/Integrator Solution product name as the version of the Immersion TouchSense/Integrator Solution product being upgraded.

1.67 “[***]” shall mean the applicable rights (pursuant to either 13.4(a), Section 13.4(b), or Section 13.4(c)) exercised by Samsung, if any, pursuant to Section 13.4.

1.68 “Withholding Claim” shall have the meaning set forth in Section 11.2.

2.	GRANT OF LICENSES.

2.1 Basic Haptics Patent License. Subject to Samsung’s compliance with the terms and conditions of this Agreement, Immersion Ireland hereby grants to Samsung a [***], worldwide, non-transferable,

[***] Confidential Treatment Requested

non-exclusive, non-sublicenseable, and non-assignable license during the Term, under the Immersion Patents [***], to make, use, sell, offer for sale, export and/or import Licensed Basic Haptic Devices in the Field of Use.

2.2 Release of Claims. Contingent upon Immersion’s receipt of the [***] Payment and effective upon the Effective Date, Immersion, on behalf of itself, its Affiliates, and their successors and assigns (“Releasing Entities”), hereby fully, finally, 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, whether now known or unknown, suspected or unsuspected, which the Releasing Entities may now hold or own, or has at any time heretofore held or owned, that are based on the Immersion Patents (collectively “Existing Claims”), which Existing Claims have been made or which might be made at any time based on the distribution, sale or manufacture of the Prior Basic Haptic Units. For the purpose of this Agreement, “Prior Basic Haptic Units” mean Mobile Devices With Basic Haptic Functionality sold or distributed under the Samsung brand by Samsung prior to the Effective Date.

2.3 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/Integrator Solutions (in object code form) and incorporate and install such copy into Licensed TouchSense Devices; (ii) distribute, sell, offer to sell, import, and export such copy of the Immersion TouchSense/Integrator Solutions, directly or indirectly through distributors, resellers and/or agents, solely as incorporated in a Licensed TouchSense 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/Integrator Solutions, for Samsung to undertake the acts set forth in (i) and (ii) above solely with respect to the Immersion TouchSense/Integrator Solutions as incorporated in a Licensed TouchSense 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/Integrator Solutions provided by Immersion to Samsung in source code form (the “Source Code”) solely as necessary to incorporate the Immersion TouchSense/Integrator Solutions into Licensed TouchSense 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 2.3 solely as necessary to incorporate the Immersion TouchSense/Integrator Solutions into Licensed TouchSense Devices in accordance with this Agreement.

(c) Haptic SDK License. Subject to Samsung’s compliance with the terms and conditions of this Agreement, Immersion Ireland grants to Samsung a royalty-bearing, worldwide, non-transferable, non-exclusive, non-sublicenseable (except as expressly permitted herein), and non-assignable license during the Term: (a) to use the Haptic SDK to internally develop Current Haptic Applications; and (b) to copy and incorporate such Current Haptic Applications into Licensed TouchSense Devices.

2.4 Restrictions, Conditions and Obligations.

(a) Notwithstanding anything to the contrary herein, the licenses granted in Section 2.1 with respect to Licensed Devices cannot be used by or on behalf of Samsung to sell, or offer for sale, Licensed Devices that incorporate software programs or applications that

[***] Confidential Treatment Requested

utilize haptic or vibrotactile functionality (other than, to the extent applicable, (i) Current Haptic Applications in the case of Licensed Basic Haptic Devices. In addition, Samsung may only use Licensed Software for use with Current Haptic Applications in compliance with the terms of this Agreement.

(b) Notwithstanding anything to the contrary herein, a party shall not have the right to enter into any legally binding obligations on behalf of the other parties.

(c) Samsung shall not distribute the Licensed Software: (a) on a stand-alone basis or with any products other than as part of a Licensed TouchSense Device distributed in accordance with this Agreement; or (b) to any entity whom Samsung knows or should reasonably conclude will use the Licensed Software primarily for purposes of benchmarking or similar testing, or for reverse engineering or disassembling.

(d) Except as provided in this Agreement, no right to sublicense the rights granted to Samsung in this Agreement is granted by Immersion to Samsung.

(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 2.4(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):

(1) 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.

(2) 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) 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.

2.5 Affiliates of Samsung; Use of Third Parties; Distributors/Resellers. 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. Samsung shall be responsible for ensuring that all third parties exercising Samsung’s rights hereunder under Section 2.3(a)(iii) shall fully comply with this Agreement. Samsung shall notify Immersion promptly if Samsung becomes aware of the unauthorized use of Licensed Software by a distributor, reseller or agent of any Licensed Device.

3. MARKETING; ATTRIBUTION.

3.1 Press Release. The parties may issue joint press releases from time to time if mutually agreed upon by the parties. 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 Label Requirements. In accordance with Exhibit B, Samsung agrees to use commercially reasonable efforts to provide a reference to Immersion’s patents covering the Licensed Software and Immersion Patents by including the information set forth in Exhibit B on an Internet website or manuals designed to be accessed by end users (located in the United States) of Licensed Devices.

3.3 Trademark License. Immersion Ireland hereby grants to Samsung a non-exclusive, limited license to use, and Samsung may use, the Immersion trademarks set forth in Exhibit B (“Immersion Trademarks”) in connection with the Licensed Devices solely as provided in Exhibit B. Samsung agrees not to affix any Immersion Trademarks to products other than the Licensed Devices.

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3.4 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 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.

3.5 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 shall cooperate with Samsung to port the Licensed Software to Licensed TouchSense Devices selected by Samsung, and to otherwise integrate the Licensed Software into such Licensed TouchSense Devices. Subject to the restrictions set forth in this Agreement, all work performed under this Section 4.1 and under Section 4.2 shall be subject to the cooperation rules set forth in Section 1 of Exhibit C.

4.2 Application Support. Immersion shall cooperate with Samsung to define Current Haptic Applications for bundling with Licensed TouchSense Devices, which applications may include but may not be limited to alerts, menu or user interface effects, calling cues, power on/off effects, games and incoming call effects, in each case, to the extent such applications are Current Haptic Applications. Subject to the restrictions set forth in this Agreement, all work performed under this Section 4.2 shall be subject to the cooperation rules set forth in Section 2 of Exhibit C.

4.3 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 Licensed Software performed 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 Licensed Software with Immersion’s then-current specifications for the Licensed 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 Licensed 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 Licensed Software source code), at Immersion’s facilities, and shall cooperate with Samsung to reproduce, understand and correct such

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noncompliance. Immersion shall be obligated to provide the services set forth in Section 4 during the Term. The parties shall repeat the above process until the Licensed Software complies with the then-current specifications agreed between the parties or until Samsung has reasonably rejected the delivered Licensed 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 14.3 (provided that any award requiring Immersion to provide any refund shall be limited to a refund of [***] that is attributable to [***] following the Samsung’s initial notification of noncompliance.

5. FINANCIAL TERMS.

5.1 [***]. In partial consideration of the licenses granted herein for the Term, Samsung shall pay to Immersion Ireland [***]:

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5.2 Porting and Other Implementation Fees. In consideration of the integration and porting services provided by Immersion pursuant to Section 4, Samsung shall pay to Immersion Ireland [***]

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5.3 Reports. On or before the forty-fifth (45th) day following the end of each calendar quarter [***], Samsung will provide Immersion with a report, in a form reasonably specified by the parties, detailing the number of individual units of Licensed Devices (broken down by model number and stock-keeping unit number or SKU).

5.4 Payments.

(a) [***] Samsung shall pay Immersion Ireland [***] in accordance with the payment schedule set forth in Section 5.1. All [***] payments are non-refundable and non-creditable, in each case, except to the extent expressly provided in this Agreement (without limiting Samsung’s rights to seek damages pursuant to a material breach of this Agreement).

(b) Integration and Porting Services Fee. Samsung shall pay Immersion Ireland the Integration and Porting Services Fee in accordance with the payment schedule set forth in Section 5.2. The Integration and Porting Services Fee [***] payments are non-refundable and non-creditable, in each case, except to the extent expressly provided in this Agreement (without limiting Samsung’s rights to seek damages pursuant to a material breach of this Agreement). The Integration and Porting Services Fee does not include materials and travel expenses, which shall be agreed upon by the parties in writing, and which will be separately invoiced to Samsung. Any such travel expenses shall be calculated using the actual cost for airline tickets (based on economy airfare) and a per diem allowance of $[***] per day for meals, ground transportation and accommodations. Immersion shall provide Samsung with a copy of the original invoices and Samsung’s prior written approval of such expense.

(c) Payment Method. All monies to be paid by Samsung to Immersion shall be paid to Immersion Ireland in U.S. dollars, by wire transfer of funds to a bank and account number designated by Immersion Ireland. Any payments that remain unpaid after such payments are due shall thereafter bear interest at a monthly rate of 1%.

5.5 Taxes and Duties. Subject to Section 11.2, each party shall be responsible for payment of any taxes imposed on such party. If Samsung is required by a governmental authority, including a Korean tax authority, to withhold any taxes on payments to be made by Samsung to Immersion Ireland hereunder, Samsung shall have right to withhold and deduct such taxes from payments to be made by Samsung. 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.

6. Audits. If the parties mutually agree to renew this Agreement as contemplated in Section 13.5, Immersion Ireland shall have the right to have an independent auditor

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audit from time to time the relevant books and records of Samsung in order to confirm that the [***] Sold Units reported by Samsung pursuant to Section 5.3 are complete and accurate. Immersion Ireland will pay the costs of any audit of Samsung; provided that if such audit reveals an understatement of [***] Sold Units such that the amount of [***] Sold Units reported by Samsung pursuant to Section 5.3 is [***] units, but where such audit reveals that the amount of [***] Sold Units is [***] units, then Samsung shall pay Immersion Ireland the amounts that would have been due had Samsung reported complete and accurate amounts for [***] Sold Units, and Samsung shall also pay the reasonable costs of each such audit. Any audit shall be preceded by at least forty-five (45) days’ advance written notice and shall be performed during normal business hours by the auditor.

7. RESERVATION OF RIGHTS.

7.1 Ownership of Preexisting Intellectual Property, Solely Developed Technology, and the Licensed Software. Immersion shall retain sole ownership and control of all Immersion Preexisting Technology, the Licensed Software (including without limitation 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.

7.2 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.

8. PROTECTION. Samsung acknowledges that the Licensed 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 Licensed Software or otherwise attempt to discover the internal workings or design of the Licensed Software; or (b) develop methods to enable unauthorized parties to use the Licensed 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 Licensed Software except as expressly permitted hereunder and shall protect the Licensed 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 Licensed Software may cause Immersion serious financial loss. Accordingly, in the event of any unauthorized modification, derivative work, duplication, disclosure, or other use of the Licensed Software, Samsung agrees that Immersion shall have the right to seek injunctive or other equitable relief.

9. NO WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 10, 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 LICENSED

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SOFTWARE OR THE LICENSED DEVICES HEREUNDER, INCLUDING THEIR CONDITION, THEIR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION, OR THE EXISTENCE 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.

10.

REPRESENTATIONS AND WARRANTIES.

10.1

Mutual.

(a) As of the date of execution of this Agreement, Immersion Ireland 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 (and, in the case of Samsung, during the period of time during which Samsung has [***]), Immersion Ireland 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, Immersion Ireland 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, Immersion Ireland 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.

10.2

Immersion Ireland. Immersion Ireland warrants as follows:

(a) At the time of delivery of any Licensed Software, Immersion Ireland warrants that such Licensed 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 4.3(b).

(b) The Licensed Software, as delivered by Immersion Ireland, does not contain any known virus or any other contaminant, including but not limited to, 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 Licensed Software, with the use of the Licensed 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 Licensed Software without Samsung’s prior consent.

11.

INDEMNITY.

11.1 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 the Licensed Software, as used within the scope of this Agreement, infringes any patent, copyright, trademark, trade secret, or other intellectual property right of any third party (an “IP Claim”), and (2) pay all damages, 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

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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 option and expense, may: (i) obtain for Samsung the right to continue to use the Licensed Software as contemplated herein, (ii) modify the Licensed Software so that it becomes non-infringing, but without materially altering its functionality, (iii) replace the Licensed 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 this Agreement and, to the extent that any [***] at the time of such termination, shall [***] occurring after such termination. Notwithstanding the foregoing, Immersion Ireland assumes no liability for IP Claims to the extent arising from or based on (i) the combination of the Licensed Software with other products not provided by Immersion Ireland where such claim would not have arisen from the use of the Licensed Software standing alone; except where such combination is necessary for or the intended use of the Licensed Software, (ii) any modification of the Licensed 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 Licensed Software other than the current version of the Licensed 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 11.

11.2 Immersion Ireland. 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 such payments 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 the Korean tax authorities assert that withholding tax should have been withheld on such payments and impose such withholding tax thereafter (a “Withholding Claim”), Immersion Ireland or Immersion Corporation shall either (a) 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, if necessary, Immersion Ireland or Immersion Corporation may 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, or (b) appeal such Withholding Claim through all applicable administrative and judicial sources of appeal (provided that Immersion shall pay the Imposed Tax and all related expenses to appeal such Withholding Claim according to 11.2(a) above), and Samsung shall cooperate with Immersion Ireland and Immersion Corporation in connection with such appeal. For the avoidance of doubt, Samsung may not settle any Withholding Claim without the consent of Immersion Ireland and Immersion Corporation. 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. In a reasonable opinion of an independent tax attorney agreed between the parties, if it is reasonably likely that the Korean tax authorities challenge the issue of beneficial ownership with respect to Immersion Ireland, then Samsung is entitled to withhold applicable withholding taxes. 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.

11.3 Immersion Ireland has executed an Application for Entitlement to Reduced Tax Rate on Domestic Source Income (for Foreign Corporation) (“Application”) attached as Exhibit D hereto, and has delivered such Application on or prior to the execution of this Agreement.

12. 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 INDEMNIFICATION OBLIGATIONS AND A BREACH OF

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THE 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 TOTAL AMOUNT RECEIVED BY IMMERSION FROM SAMSUNG PURSUANT TO THIS AGREEMENT. The parties acknowledge that the limitations of liability in this Section 12 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.

13.

TERM AND TERMINATION.

13.1 Term. This Agreement shall commence as of the Effective Date and continue until [***] (the “Term”). Thereafter, this Agreement may be renewed for additional periods of time only upon the mutual written agreement between the parties hereto via a written amendment to this Agreement.

13.2 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.

13.3 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 distributing all Licensed Devices, using all Immersion Trademarks, and holding itself out as a reseller or distributor of the Licensed Software and shall promptly return or destroy, as directed by Immersion, all copies of the Licensed 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, and Samsung shall immediately pay to Immersion all amounts then due and outstanding under this Agreement (if any). 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 2.2, Section 2.4, Section 2.5, Section 3.1 through Section 3.3 (in each case, during the period of time that Samsung has [***]), Section 3.4, Section 3.5, Section 5.1 (with respect to amounts due at the end of the Term), Section 5.2 (with respect to amounts due at the end of the Term), Section 5.3 through Section 6, Section 7, Section 8, Section 9, Section 11, Section 12, Section 13, and Section 14.

13.4 [***]. Subject to the terms and conditions of this Section 13.4 (including, but not limited to, payment of the applicable fees to Immersion Ireland), Samsung may exercise one of the following:

(a) [***]. Notwithstanding Section 13.3, if on or prior to [***], Samsung provides written notice to Immersion Ireland that Samsung would like to exercise its rights pursuant to this Section 13.4(a) (and pays to Immersion Ireland an amount equal to U.S.$[***]), then Samsung may continue to sell Licensed Device models after the expiration of the Term that, as of the expiration of the Term, Samsung had commenced commercially producing, distributing and selling, for a period not to exceed [***] (the “[***]”);

(b) [***]. Notwithstanding Section 13.3, if on or prior to [***], Samsung provides written notice to Immersion Ireland that Samsung would like to exercise its rights pursuant to this Section 13.4(b) (and pays to Immersion Ireland an amount equal to U.S.$[***]), then Samsung may continue to sell Licensed Device models after the expiration of the Term that, as of the expiration of the Term, Samsung had commenced commercially producing, distributing and selling, for a period not to exceed [***] (the “[***]”); or

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(c) [***]. Notwithstanding Section 13.3, if on or prior to [***], Samsung provides written notice to Immersion Ireland that Samsung would like to exercise its rights pursuant to this Section 13.4(c) (and pays to Immersion Ireland an amount equal to U.S.$ [***]), then Samsung may continue to sell a Licensed Device model after the expiration of the Term that, as of the expiration of the Term, Samsung had commenced commercially producing, distributing and selling, [***] such Licensed Device model (the “[***]”).

13.5

Price Protection.

(a) [***] Sold Units [***]. If the [***] Sold Units reported by Samsung pursuant to Section 5.3 (or determined in an audit pursuant to Section 6) is [***], then if Immersion and Samsung mutually agree to renew this Agreement, then [***] consideration for the licenses set forth in this Agreement (as renewed) shall not [***] (unless otherwise agreed in writing by the parties), with respect to the [***] the Term, so long as, in connection with such amendment to renew this Agreement, Samsung agrees that all other terms and conditions set forth in this Agreement apply to this Agreement (as renewed). Notwithstanding the foregoing, no party shall be required to enter into any agreement (including, but not limited to, an amendment to extend the Term), and no party shall be entitled to unilaterally renew this Agreement or amend this Agreement in any way to extend the Term [***], in each case, without the other party’s written consent via an amendment to this Agreement.

(b) [***] Sold Units [***]. If the [***] Sold Units reported by Samsung pursuant to Section 5.3 (or determined in an audit pursuant to Section 6) is [***], then if Immersion and Samsung mutually agree to renew this Agreement, then [***] consideration for the licenses set forth in this Agreement (as renewed) shall not [***] (unless otherwise agreed in writing by the parties), with respect to the [***] the Term, so long as, in connection with such amendment to renew this Agreement, Samsung agrees that all other terms and conditions set forth in this Agreement apply to this Agreement (as renewed). Notwithstanding the foregoing, no party shall be required to enter into any agreement (including, but not limited to, an amendment to extend the Term), and no party shall be entitled to unilaterally renew this Agreement or amend this Agreement in any way to extend the Term [***], in each case, without the other party’s written consent via an amendment to this Agreement.

14.

MISCELLANEOUS.

14.1 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. Any attempt to assign this Agreement, or any license granted herein, in violation of the provisions of this Section 14.1 shall be void. Immersion Ireland shall ensure that any third party to whom Immersion Ireland 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 Ireland, including, but not limited to, continuing to grant the licenses to Samsung under this Agreement. Upon consummation of a Change of Control of Immersion Ireland to a Samsung Competitor, or if Immersion Ireland delegates its obligations hereunder or assigns this Agreement to a Samsung Competitor, in whole or in part, either voluntarily or by operation of law, without the prior written consent of Samsung, Samsung may (i) obtain a refund for [***] and/or (ii) may cease to pay Integration and Porting Services Fees for the remaining portion of the Term; provided that, if Samsung exercises its rights with respect to either (i) and/or (ii), then no party (including, but not limited to, Immersion Ireland, Immersion Corporation or an entity that acquires Immersion Ireland or Immersion Corporation) shall be obligated to perform any services (including, but not limited to, Section 4) for Samsung. Further, in case of a Change of Control of Immersion Ireland to a Samsung Competitor, Immersion Ireland 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

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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 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.

14.2 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.

14.3 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.

14.4 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.

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14.5 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 narrowing the scope of such disclosure; (c) as required by the applicable securities laws, including, without limitation, 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; or (g) as reasonably necessary in connection with the enforcement of this Agreement.

14.6 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.

14.7 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.

14.8 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 14.8, shall be sent to the address and attention set forth on the cover page hereof.

14.9 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, but not limited to, [***]). 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

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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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EXHIBIT A

IMMERSION TOUCHSENSE SOLUTIONS


Name		Description
TouchSense 3000 (“TS3000”)		Immersion’s TouchSense Player 3000 (and any related haptic effect libraries), executable only in object code format, providing single-actuator support, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement.
TouchSense 4000 (“TS4000”)		Immersion’s TouchSense Player 4000 (and any related haptic effect libraries), executable only in object code format, providing multiple-actuator support, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement.
TouchSense 5000 (“TS5000”)		Immersion’s TouchSense Player 5000 (and any related haptic effect libraries), executable only in object code format, providing Piezoactuator support, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement.
Integrator (formerly MOTIV) (“Integrator”)		The modules of Immersion Corporation’s Integrator that are commercially-available as of the Effective Date – which includes, and is limited to, the following modules: • User Interface Module, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement. Generally, this module provides a mechanism to integrate haptics into applications of the Android operating system that are developed using standard Android operating system “widgets.” • Theme Manager Module, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement. Generally, this module provides default haptic themes that can be applied to the Android operating system. • Reverb Module, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement. Generally, this module translates audio data into haptic effects. • Ringtones Module, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement. Generally, this module couples pre-designed haptic effects with ringtones. • WebKit Module, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement. Generally, this module provides a mechanism to integrate haptics into standard elements of webpages when viewed with the browser software known as “WebKit”.
HD Integrator (“HD Integrator”)		The modules of Immersion Corporation’s HD Integrator that are commercially-available as of the Effective Date – which includes, and is limited to, the following modules: • User Interface Module, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement. Generally, this module provides a mechanism to integrate haptics into applications of the Android operating system that are developed using standard Android operating system “widgets.”

[***] Confidential Treatment Requested

• Theme Manager Module, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement. Generally, this module provides default haptic themes that can be applied to the Android operating system.

• Reverb Module, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement. Generally, this module translates audio data into haptic effects.

• Ringtones Module, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement. Generally, this module couples pre-designed haptic effects with ringtones.

• WebKit Module, solely in the form delivered by Immersion Ireland to Samsung pursuant to this Agreement. Generally, this module provides a mechanism to integrate haptics into standard elements of webpages when viewed with the browser software known as “WebKit”.

[***] Confidential Treatment Requested

EXHIBIT B

ATTRIBUTION

Weblink or manuals

Required Logo and/or Legend

(1) Samsung will use best efforts to place the language in the column to the immediate right on an Internet website or manuals designed to be accessed by end users (located in the United States) of Licensed Devices.

(2) Samsung must also use best efforts to place the following Immersion logo (or future derivative or version of the mark created by Immersion), prominently in the appropriate portion of such Internet website or manuals:

(3)

LOGO

TouchSense^® Technology and TouchSense ^®System 3000 Series and TouchSense ^®System 5000 Series Licensed from Immersion Corporation. TouchSense ^®System 3000 Series, TouchSense ^®System 5000 Series, and other Immersion software contained herein are protected under one or more of the U.S. Patents found at the following address www.immersion.com/patent-marking.html and other patents pending

[***] Confidential Treatment Requested

EXHIBIT C

COOPERATIVE IMPLEMENTATION

[***]

[***] Confidential Treatment Requested

EXHIBIT D

Application for Entitlement to Reduced Tax Rate on Domestic Source Income (for Foreign Corporation)

[See Attached]

[***] Confidential Treatment Requested

LOGO

[***] Confidential Treatment Requested

Enforcement Regulation of the Corporate Income Tax Law [Form No, 72-2]

Application for Entitlement to Reduced Tax Rate on Domestic Source Income (for Foreign Corporation)

Please check the appropriate ¨

1. Applicant Information

¨ Type of Entity

x Corporation, ¨ Pension, ¨ Fund,

¨ Overseas investment vehicle recognized as beneficial owner under tax treaty

(Relevant tax treaty provisions: ) ¨ Other ¨

¨ Name of corporation, Immersion Software Ireland Limited

¨ Address Ulysses House, Foley Street, Dublin 1

¨ Name of Representative Liam Grainger ¨ Country of Residence Ireland

¨ Taxpayer Identification No. 9822582N

¨Country Code IE

Date of Incorporation October 24, 2011

¨ Telephone Number 353 018881004

2. Claim of Applicable Tax Treaty Provisions

¨ Tax Treaty between Korea and Ireland :

Article 12 Paragraph 1 Subparagraph Type of Income Roythes Tax Rate 0 %

Article Paragraph Subparagraph Type of Income Tax Rate%

3. Determination of Beneficial Owner

¨A pension established under the laws of a tax treaty partner country, which are equivalent to the Korean National Pension Act, Public Officials Pension Act, Armed Forces Personnel Act, Pension for Private School Teachers and Staff Act, and Guarantee of Workers’ Retirement, Benefits Act, etc.: Yes ¨ No x

¨ A find that is established as a non-profit organization under the laws of a tax treaty partner country, which does not distribute its profits to its members: Yes ¨ No x

¨ An overseas investment vehicle recognized as beneficial owner under the tax treaty between Korean and the country in which it is incorporated: Yes ¨ No x

¨ Is the corporation liable to tax under the tax laws of the country of residence?: Yes x No ¨

¨ Is the corporation a beneficial owner of domestic source income?: Yes x No ¨

¨ Is the Applicant or its income subject to the provisions of the tax treaty between Korea and its country of residence that deny (restrict) tax treaty benefits? Yes¨ No x

The Applicant hereby confirms that with regard to submitting this Application pursuant to Article 98-6 of the Corporate Income Tax Law (“CITL”) and Article 138-7 of the Enforcement Decree of CITL (“ED-CITL”), the Applicant is clearly aware of the followings provided below that there is no false statement in the contents of this Application, and that the Applicant is the beneficial owner (or attorney-in-fact authorized to sign this Application on behalf of the beneficial owner) of all the domestic source income which this application relates.

1) The Applicant is aware that if any of the contents of this Application is different from true facts, the amount of withholding tax under this Application may be less than the amount of withholding tax that shall be withheld in accordance with the relevant laws.

2) The Applicant is aware that if it answers “Yes” to any one of ¨ through ¨ above satisfying the requirements thereof, the withhold agent shall apply the reduced tax rate under the tax treaty between Korea and the country in which the relevant pension, etc. is established,

3) The Applicant is aware that if it answers “No” to any one of 14 and 15 or “Yes” to 16 above, the reduced tax rate under the tax treaty between Korea and the country of the Applicant’s residence shall not apply,

Date

July 1, 2012

Applicant (Representative)( Signature or Seal)

To Samsung Electronic, Co. Ltd

Attachment: Documents substantiating the fact that the Applicant falls under any of the categories ¨ through ¨

Attorney-in-Fact

17 Type 18 Name of individual on corporation 19 Taxpayer ID No. (Resident Registration No.) ¨ Tax Administrator ¨ Other

20 Address or Location

LOGO

[***] Confidential Treatment Requested

Filling Instruction

The Filing date is the date on which the withholding agent files this Application as received from the beneficial owner and the filing number is the serial number assigned to such filing.

1. This Application shall be submitted by a foreign corporation which wishes to apply a reduced tax rate under the relevant tax treaty applicable to its Korean source income, and this form shall not be submitted by a foreign corporation which is exempt from Korean withholding tax pursuant to the relevant tax treaty. In the case where the Applicant receives additional Korean source income after the submission of this Application whereby a reduced tax rate under the relevant tax treaty was applied to the previous Korean source income, the Applicant is required to prepare and file a new application if there is any change in its corporate name, representative, taxpayer ID No., address, country of residence and telephone number, etc., or if three years have elapsed since the submission of this Application.

2. Item 1 Check the appropriate type of entity that applies. If the Applicant is a pension, fund of overseas investment vehicle falling under any one of the items under Article 138-7(5) of the ED-CITL, check the appropriate [space]. Also, enter the relevant tax treaty provisions in the parentheses in the case of an overseas investment vehicle. For other types of Applicants such as a government , local government or central bank, etc., select “Other” and specify the type in parentheses.

3. Item 2 Enter the Applicant’s full name in English.

4. Item 3 If the representative is a foreigner: enter his/her full English name as shown in his/her passport.

5. Item 4 Enter the investment registration number from the investment registration certificate. In the absence of such number, enter the Applicant’s taxpayer ID No. issued by the tax authority of its residence country (enter the Applicant’s Korean taxpayer ID No if it is issued by the district tax office).

6. Item 5 Enter the Applicant’s date of incorporation in the following formal: YYYY-MM-DD.

7. Item 6 Enter the Applicant’s address in English in the following order: street number, street name, city, state, postal code and Country. Do not enter a PO Box.

8. Items 7 and 8 Enter the country abbreviation and code from ISO Country Codes set by the International Organization for Standardization (ISO).

9. Item 9 Enter current telephone number including the country code and area code, if any.

10. Item 10 Enter the tax treaty and relevant provisions therein to be applied, type of relevant Korean source income and reduced tax rate If the reduced tax rate under the relevant tax treaty does not include local income surtax, enter a tax rate reflecting the tax rate under Article 89(1) of the Local Tax Law.

11. If the Applicant answers “Yes” to any one of 11 through 13 satisfying the requirement thereof, the reduced tax rate under the tax treaty between Korea and the country in which the Applicant (i.e., the pension, fund or overseas investment vehicle, etc) is established’s ted shall be applied.

12. If the Applicant answers “No” to any one of 14 and 15 the reduced tax rate under the relevant tax treaty shall not apply.

13. For Item 16, confirm whether or not the Applicant or its income is subject to the provisions of the tax treaty between Korea and its country of residence which deny (restrict) the tax treaty benefits. If checked “Yes,” the Applicant shall not be entitled to the reduced tax treaty under the tax treaty,

14. Items 17 through 30 should be completed when an attorney-in-fact submits this Application on behalf of the Applicant. An attorney-in-fact other than a tax administrator under Article 82 of the National tax Basic Law is required to submit the power of Attorney together with a Korean translation

15. The withholding agent or overseas investment vehicle who received this Application (including any attachments thereto) is required to maintain it for five years starting from the day following the withholding tax payment due date under Article 98(1) of the CITL and submit it upon request to the Chief of the district tax office having jurisdiction over the tax payment place of the withholding agent.

EX-31.1

Exhibit 31.1

CERTIFICATIONS PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Victor Viegas, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Immersion Corporation;

2. 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;

3. 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;

4. 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:

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;

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;

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

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

5. 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):

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

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: May 7, 2013

/s/ Victor Viegas

Victor Viegas

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Paul Norris, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Immersion Corporation;

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: May 7, 2013

/s/ Paul Norris

Paul Norris

Chief Financial Officer

EX-32.1

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 March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Victor Viegas, 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/ Victor Viegas

Victor Viegas

Chief Executive Officer

May 7, 2013

EX-32.2

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 March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul Norris, Chief Financial 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/ Paul Norris

Paul Norris

Chief Financial Officer

May 7, 2013