OPERATING AGREEMENT FOR MICROSCRIBE, LLC-7-1-1997

OPERATING AGREEMENT





MICROSCRIBE, LLC,



A CALIFORNIA LIMITED LIABILITY COMPANY



THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH HEREIN.





LIMITED LIABILITY COMPANY OPERATING AGREEMENT





MICROSCRIBE, LLC



This Limited Liability IMMERSION Operating Agreement (the "Agreement") is entered into effective as of July 1, 1997 by and among the parties listed on the signature page hereof (referred to individually as a "Member" and collectively as "Members"), with reference to the following facts:



A. On June 2, 1997, Articles of Organization for MicroScribe, LLC (the "IMMERSION"), a limited liability company organized under the laws of the State of California, were filed with the California Secretary of State.



B. The Members desire to adopt and approve an operating agreement for IMMERSION.



NOW THEREFORE, the Members by this Agreement set forth the operating agreement for IMMERSION under the laws of the State of California, upon the terms and subject to the conditions of this Agreement.



ARTICLE 1.





When used in this Agreement, the following terms shall have the meanings set forth below (all terms used in this Agreement that are not defined in this Article 1 shall have the meanings set forth elsewhere in this Agreement):



ARTICLE 1.1 "Act" shall mean the Beverly-Killea Limited Liability IMMERSION Act, codified in the California Corporations Code, Section 17000 et seq., as amended from time to time.



ARTICLE 1.2 "Affiliate" of a Member or Manager shall mean any Person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with a Member or Manager, as applicable. The term "control," as used in the immediately preceding sentence, shall mean with respect to a corporation or limited liability company the right to exercise, directly or indirectly, more than fifty percent (50%) of the voting rights attributable to the controlled corporation or limited liability company, and, with respect to any individual, partnership, trust, other entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity.



ARTICLE 1.3 "Agreement" shall mean this Operating Agreement, as originally executed





and as amended from time to time.



ARTICLE 1.4 "Articles" shall mean the Articles of Organization for IMMERSION originally filed with the California Secretary of State, as amended from time to time.



ARTICLE 1.5 "Assignee" shall mean the owner of an Economic Interest who has not been admitted as a substitute Member in accordance with Article 7.



ARTICLE 1.6 "Bankruptcy" shall mean: (a) the filing of an application by a Member for, or the Member's consent to, the appointment of a trustee, receiver, or custodian of the Member's other assets; (b) the entry of an order for relief with respect to a Member in proceedings under the United States Bankruptcy Code, as amended or superseded from time to time; (c) the making by a Member of a general assignment for the benefit of creditors; (d) the entry of an order, judgment, or decree by any court of competent jurisdiction appointing a trustee, receiver, or custodian of the assets of a Member unless the proceedings and the person appointed are dismissed within ninety (90) days; or (e) the failure by a Member generally to pay the Member's debts as the debts become due within the meaning of Section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court, or the admission in writing of the Member's inability to pay the Member's debts as they become due.



ARTICLE 1.7 "Capital Account" shall mean with respect to any Member the capital account which IMMERSION establishes and maintains for such Member as follows:



Each Member's Capital Account shall be:



A. increased by (1) the aggregate amount of cash contributions to IMMERSION by such Member, (2) such Member's share of IMMERSION Income, (3) the fair market value of property contributed by the Member net of liabilities secured by such property that IMMERSION is considered to assume or take subject to under Section 752 of the Code, and (4) the amount of any other upward adjustment to the Member's Capital Account required under Regulations Section 1.704-1(b), or any successor thereto; and



B. decreased by (1) cash distributions to such Member from IMMERSION (other than to any Member in repayment of any loan or advance), (2) such Member's share of IMMERSION Losses, (3) the fair market value of property distributed to the Member by IMMERSION net of liabilities secured by such property that such Member is considered to assume or take subject to under Section 752 of the Code, and (4) the amount of any other downward adjustment to the Member's Capital Account required under Regulations Section 1.704-1(b), or any successor thereto.



For purposes of computing the balance in a Member's Capital Account, no credit shall be given for any capital contribution which the Member is obligated to make until such contribution is actually made. For purposes of this Agreement, a transferee of any part of the interest of a Member who succeeds to the Economic Interest of a Member shall be deemed to have made the





capital contributions which were made by the Member with respect to the Economic Interest to which the transferee succeeds and to have received from IMMERSION the credits, allocations and charges received from IMMERSION by such transferor Member with respect to the transferred Economic Interest.



Notwithstanding any other provision in this Agreement, the Capital Accounts of the Members shall be maintained in accordance with Regulations Section 1.704-1(b), or any successor thereto. If a Member holds an interest as both a Class 1 Member and a Class 2 Member, a single Capital Account shall nevertheless be maintained for such Member.



ARTICLE 1.8 "Capital Contribution" shall mean the total amount of cash and fair market value of property contributed to IMMERSION by a Member.



ARTICLE 1.9 "Capital Event" means a sale or disposition of any of IMMERSION's capital assets, the receipt of insurance and other proceeds derived from the involuntary conversion of IMMERSION property, or a similar event with respect to IMMERSION property or assets.



ARTICLE 1.10 "Class 1 Member" means a Member holding Units as a Class 1 Member.



ARTICLE 1.11 "Class 2 Member" means a Member holding Units as a Class 2 Member.



ARTICLE 1.12 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, the provisions of succeeding law, and to the extent applicable, the Regulations.



ARTICLE 1.13 "Common Stock" has the meaning set forth in Article 7.8.



ARTICLE 1.14 "IMMERSION" shall mean MicroScribe, LLC, a California limited liability company.



ARTICLE 1.15 "IMMERSION Minimum Gain" shall have the meaning ascribed to the term "Partnership Minimum Gain" in Regulations Section 1.704-2(d).



ARTICLE 1.16 "Corporations Code" shall mean the California Corporations Code, as amended from time to time, and the provisions of succeeding law.



ARTICLE 1.17 "Dissolution Event" shall mean with respect to all Managers who are Members one or more of the following: the death, insanity, withdrawal, resignation, retirement, expulsion, bankruptcy or dissolution of any such Member-Managers.



ARTICLE 1.18 "Distributable Cash" shall mean the amount of cash which the Managers deem available for distribution to the Members, taking into account all debts,





liabilities, and obligations of IMMERSION then due, and working capital and other amounts which the Managers deem necessary for IMMERSION's business or to place into reserves for customary and usual claims with respect to such business.



ARTICLE 1.19 "Economic Interest" shall mean the right to receive distributions of IMMERSION's assets and allocations of income, gain, loss, deduction, credit and similar items from IMMERSION pursuant to this Agreement and the Act, but shall not include any other rights of a Member, including, without limitation, the right to vote or participate in the management of IMMERSION, or except as provided in Section 17106 of the Corporations Code, any right to information concerning the business and affairs of IMMERSION.



ARTICLE 1.20 "Fiscal Year" shall mean IMMERSION's fiscal year, which shall be the calendar year.



ARTICLE 1.21 "Income" and "Losses" The IMMERSION's "Income" and "Losses" shall be determined as of December 31 or any other year end of each year of IMMERSION, and shall be deemed to mean the income and losses of IMMERSION for federal income tax purposes as determined by the Managers on the advice of the certified public accountant who prepares the company's federal income tax returns. "Income" shall include income exempt from federal income taxation and "Losses" shall include expenditures described in Section 705(a)(2)(B) of the Code or treated as such under Regulations Section 1.704-1(b). Income or Losses upon the disposition of any property contributed to IMMERSION shall be determined with respect to the book basis of such property instead of its income tax basis. Any items of gross income allocated pursuant to Articles 6.2B or 6.2C shall be excluded in determining Income or Losses for the years in which allocated.



ARTICLE 1.22 "Majority Interest" shall mean those Members who hold a majority of the Percentage Interests which all Members who are not defaulting Members hold.



ARTICLE 1.23 "Manager" shall mean each of the persons named as Managers on Exhibit A, or any other persons that succeed any of them as a manager of IMMERSION.



ARTICLE 1.24 "Member" shall mean each Person who (a) is an initial signatory to this Agreement, has been admitted to IMMERSION as a Member in accordance with the Articles or this Agreement or is an Assignee who has become a Member in accordance with Article 7, and (b) has not ceased to be a Member for any reason.



ARTICLE 1.25 "Member Nonrecourse Debt" shall have the meaning ascribed to the term "Partner Nonrecourse Debt" in Regulations Section 1.704-2(b)(4).



ARTICLE 1.26 "Member Nonrecourse Deductions" shall mean items of IMMERSION loss, deduction, or Code Section 705(a)(2)(B) expenditures which are attributable to Member Nonrecourse Debt.





ARTICLE 1.27 "Membership Interest" shall mean a Member's entire interest in IMMERSION including the Member's Economic Interest, the right to vote on or participate in the management, and the right to receive information concerning the business and affairs, of IMMERSION.



ARTICLE 1.28 "Nonrecourse Liability" shall have the meaning set forth in Regulations Section 1.752-1(a)(2).



ARTICLE 1.29 "Percentage Interest" shall mean the percentage of a Member as of any relevant date determined by dividing a Member's Units by the total outstanding Units as of that date, as such percentage may be adjusted from time to time pursuant to the terms of this Agreement.



ARTICLE 1.30 "Person" shall mean an individual, partnership, limited partnership, limited liability company, corporation, trust, estate, association or any other entity.



ARTICLE 1.31 "Preferred Stock" has the meaning set forth in Article 7.8.



ARTICLE 1.32 "Regulations" shall, unless the context clearly indicates otherwise, mean the regulations in force as final or temporary that have been issued by the U.S. Department of Treasury pursuant to its authority under the Code, and any successor regulations.



ARTICLE 1.33 "Tax Matters Partner" (as defined in Code Section 6231) shall be Timothy Lacey or his successor as designated pursuant to Article 8.8.



ARTICLE 1.34 "Unit" means a Unit held as a Class 1 or Class 2 Member in IMMERSION, as applicable.



ARTICLE 1.35 "Unreturned Capital" means the excess of a Member's aggregate Capital Contributions to IMMERSION over the aggregate distributions to the Member under Article 6.4, as such excess may vary from time to time.



ARTICLE 2.



ORGANIZATIONAL MATTERS



ARTICLE 2.1 Formation. The Members have formed a California limited liability company under the laws of the State of California by filing the Articles with the California Secretary of State and entering into this Agreement, which Agreement shall be deemed effective as of the date of this Agreement. The rights and liabilities of the Members shall be determined pursuant to the Act and this Agreement. To the extent that the rights or obligation of any Member are different by reason of any provision of this Agreement than they would be in the





absence of such provision, this Agreement shall, to the extent permitted by the Act, control.



ARTICLE 2.2 Name. The name of IMMERSION shall be "MicroScribe, LLC." The business of IMMERSION may be conducted under that name or, upon compliance with applicable laws, any other name that the Managers deem appropriate or advisable.



ARTICLE 2.3 Term. The term of this Agreement commenced on the filing of the Articles and shall continue until December 31, 2047, unless extended or sooner terminated as hereinafter provided.



ARTICLE 2.4 Office and Agent. The IMMERSION shall continuously maintain an office and registered agent in the State of California. The principal office of IMMERSION shall be at 2158 Paragon Drive, San Jose, California or as the Managers may determine. The IMMERSION may also have such offices, anywhere within and without the State of California, as the Managers may determine from time to time, or the business of IMMERSION may require. The registered agent shall be as stated in the Articles or as otherwise determined by the Managers.



ARTICLE 2.5 Addresses of the Members and the Managers. The respective addresses of the Members and the Managers are set forth on Exhibit A. A Member may change the Member's address upon notice thereof to the Managers.



ARTICLE 2.6 Purpose and Business of IMMERSION. The purpose of IMMERSION is to engage in any lawful activity for which a limited liability company may be organized under the Act.



ARTICLE 3.



CAPITAL CONTRIBUTIONS



ARTICLE 3.1 Initial Capital Contributions.



A. Immersion Corporation. Immersion Corporation, a California corporation ("Immersion") shall contribute to IMMERSION all of its right, title and interest in and to certain hardware, software, know-how, patent rights and trademarks related to three dimensional ("3D") digitizing technology, specifically including the assets described on Exhibit C, subject to all of the liabilities related thereto, in exchange for One Thousand (1,000) Units as a Class 1 Member and Ninety-Eight Thousand Nine Hundred Ninety-Nine (98,999) Units as a Class 2 Member. Upon its execution of this Agreement, Immersion shall receive a credit to its Capital Account in the amount set forth on Exhibit A. The Members acknowledge their understanding that Immersion intends to declare a dividend and distribute all of its Class 2 Member Units to its shareholders.



B. Other Member. The Capital Contribution of the other Class 2 Member as





set forth on Exhibit A will be paid in cash. The Class 2 Member will receive One Unit for One Cent ($.01) contributed to IMMERSION as a Class 2 Member, and receive a corresponding credit to the Member's Capital Account as and when the Member's contribution is made.



ARTICLE 3.2 Additional Capital Contributions. No Member shall be required to make any additional Capital Contributions. To the extent approved by the Managers and a Majority Interest, from time to time, the Members may be permitted to make additional Capital Contributions if and to the extent they so desire. If the Managers determine that such additional Capital Contributions are necessary or appropriate for the conduct of IMMERSION's business, including without limitation, expansion or diversification. In that event, the Members desiring to make such contributions shall have the opportunity, but not the obligation, for a period of up to twenty (20) days from receipt of written notice from IMMERSION of the opportunity, to participate in such additional Capital Contributions for additional Units on a pro rata basis in accordance with their Percentage Interests. Each Member shall receive a credit to the Member's Capital Account in the amount of any additional capital which he contributes to IMMERSION. Immediately following any such Capital Contributions, the Percentage Interests shall be as adjusted by the Managers as agreed by a Majority Interest.



ARTICLE 3.3 No Interest. No Member shall be entitled to receive any interest on the Member's Capital Contributions.



ARTICLE 4.





ARTICLE 4.1 Limited Liability. Except as expressly set forth in this Agreement or required by law, no Member shall be personally liable for any debt, obligation, or liability of IMMERSION, whether that liability or obligation arises in contract, tort, or otherwise.



ARTICLE 4.2 Admission of Additional Members.



A. Subject to Article 4.2B, the Managers may issue additional Membership Interests and admit additional Members to IMMERSION. Any additional Members shall obtain Membership Interests and Units and will participate in the management, Income and Losses, and distributions of IMMERSION on such terms as are determined by the Managers and approved by a Majority Interest.



B. If at any time IMMERSION should desire to issue any additional Membership Interests approved pursuant to Article 4.2A, it shall give the Members notice of the first right to purchase the Member's pro rata share (or any part thereof) of all such offered Membership Interests, on the same terms and subject to the same conditions, as IMMERSION is willing to sell such Membership Interests to any other person (the "Right of First Refusal Notice"). Each Member's pro rata share shall be such Member's Percentage Interest immediately





prior to the offering.



(i) Within twenty (20) days after receipt of the Right of First Refusal Notice, each Member shall notify IMMERSION whether such Member desires to exercise the option to purchase the Member's pro rata share (or any part thereof) of the Membership Interests so offered.



(ii) After termination of the twenty (20) day period specified in Article 4.2B(i) above, IMMERSION may, during a period of ninety (90) days following the end of such twenty (20) day period, sell and issue such Membership Interests as to which no Member indicates a desire to purchase pursuant to the Member's Right of First Refusal Notice to other persons, upon the same terms and conditions as those set forth in the Right of First Refusal Notice to the Members.



(iii) If the Member gives IMMERSION notice that the Member desires to purchase any of the Membership Interests offered by IMMERSION, payment for the Membership Interests shall be by check or wire transfer against delivery of the Membership Interests at the executive offices of IMMERSION within ten (10) days after giving IMMERSION such notice, or, if later, the closing date for the sale of such Membership Interests. The IMMERSION shall take all the action as may be required by any regulatory authority in connection with the exercise by such Member of the Right of First Refusal.



(iv) The Right of First Refusal contained in this Article 4.2 shall not apply to the issuance by IMMERSION of Membership Interests (i) to employees, officers, directors or consultants of IMMERSION when approved by the Managers, (ii) as part of an acquisition by IMMERSION of all or substantially all of the assets or shares of another company or entity whether through a merger, exchange, reorganization or the like, or (iii) pursuant to equipment financing or leasing arrangements or in connection with strategic partnering transactions approved by the Managers.



(v) A Member shall have the right to assign the Member's Right of First Refusal to an Affiliate of the Member.



ARTICLE 4.3 Withdrawals or Resignations. Any Member who is under an obligation to render services to IMMERSION may withdraw or resign as a Member at any time upon sixty (60) days prior written notice to IMMERSION, without prejudice to the rights, if any, of IMMERSION or the other Members under any contract to which the withdrawing Member is a party. Upon such withdrawal, such Member's Membership Interest shall terminate pursuant to Article 4.4. No other Member may withdraw or resign from IMMERSION.



ARTICLE 4.4 Termination of Membership Interest. Upon (a) the transfer of a Member's Membership Interest in violation of Article 7 or (b) the withdrawal or resignation of a Member in accordance with Article 4.3, the Membership Interest of a Member shall be terminated by the Managers and thereafter that Member shall be an Assignee only. Each Member acknowledges





and agrees that such termination or purchase of a Membership Interest upon the occurrence of any of the foregoing events is not unreasonable under the circumstances existing as of the date hereof.



ARTICLE 4.5 Competing Activities.



A. Except as provided in Article 5.6 with regard to Managers, during the term of IMMERSION, the Members and their officers, directors, shareholders, partners, members, managers, agents, employees and Affiliates may engage or invest in, independently or with others, any business activity of any type or description, including without limitation those that might be the same as or similar to IMMERSION's business and that might be in direct or indirect competition with IMMERSION. Neither IMMERSION nor any Member shall have any right in or to such other ventures or activities or to the income or proceeds derived therefrom.



B. Except as provided in Article 5.6 with regard to Managers, during the term of IMMERSION, the Members and their officers, directors, shareholders, partners, members, managers, agents, employees and Affiliates shall not be obligated to present any investment opportunity or prospective economic advantage to IMMERSION. Neither IMMERSION nor any Member shall have any right in or to such other ventures or activities or to the income or proceeds derived therefrom.



ARTICLE 4.6 Transactions With The IMMERSION. Subject to any limitations set forth in this Agreement and with the prior approval of the Managers, a Member may lend money to and transact other business with IMMERSION. Subject to other applicable law, such Member has the same rights and obligations with respect thereto as a Person who is not a Member.



ARTICLE 4.7 Remuneration To Members. Except as otherwise specifically provided in this Agreement, no Member is entitled to remuneration for acting in IMMERSION business.



ARTICLE 4.8 Members Are Not Agents. Pursuant to Article 5.1 and the Articles, the management of IMMERSION is vested in the Managers. The Members shall have no power to participate in the management of IMMERSION except as expressly authorized by this Agreement or the Articles and except as expressly required by the Act. No Member, acting solely in the capacity of a Member, is an agent of IMMERSION nor does any Member, unless expressly and duly authorized in writing to do so by a Manager or Managers, have any power or authority to bind or act on behalf of IMMERSION in any way, to pledge its credit, to execute any instrument on its behalf or to render it liable for any purpose.



ARTICLE 4.9 Voting Rights. Except as expressly provided in this Agreement or the Articles, Members shall have no voting, approval or consent rights. Members shall have the right to approve or disapprove matters as specifically stated in this Agreement, including the following:



A. Approval by Members Holding a Majority Interest. Except as set forth in





Article 5.3B, in all matters in which a vote, approval or consent of the Members is required, a vote, consent or approval of a Majority Interest (or, in instances in which there are defaulting or remaining members, non-defaulting or remaining Members who hold a majority of the Percentage Interests held by all non-defaulting or remaining Members) shall be sufficient to authorize or approve such act.



B. Other Voting Rights. Members may vote, consent or approve to the extent and on the terms provided in this Agreement including, but not limited to, as provided in the following Articles:



(i) Article 3.2 on additional Capital Contributions;



(ii) Article 4.2 on issuance of additional Membership

interests;



(iii) Article 5.2 on election and removal of a

Manager;



(iv) Article 5.3B on reorganization of IMMERSION;



(v) Article 5.3B on other limitations on the

Managers' authority;



(vi) Article 5.7 on transactions with the Managers

and Affiliates of the Managers;



(vii) Article 5.9A on management fees payable to

Managers;



(viii) Article 7.1 on Transfer of Interests;



(ix) Articles 9.1 and 9.2 on dissolving IMMERSION;



(x) Article 12.14 on any amendment to the Articles

or this Agreement.



ARTICLE 4.10 Meetings of Members. No meetings of the Members are required. If Meetings are held, they shall be called, written notice shall be given or waived, a quorum shall be constituted, action shall be valid or consented to, an agent or written proxy may be utilized, and participation may be through the use of conference telephones or otherwise, all in accordance with Corporations Code Section 17104. The Managers shall appoint a Person to preside at the meeting and act as secretary of the meeting. The secretary of the meeting shall prepare minutes of the meeting which shall be placed in the minute book of IMMERSION. Any action that may be taken at a meeting of Members may be taken without a meeting, if a consent in writing is signed and delivered to IMMERSION in accordance with Corporations Code Section 17104. All such written consents shall be maintained in IMMERSION's records.
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