Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of November 30, 2005
by and among Microvision, Inc., a Delaware corporation, with headquarters
located at 19910 North Creek Parkway, Bothell, Washington 98011 (the “Company”),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer” and collectively, the “Buyers”).

 

WHEREAS:

 

A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by
Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and
Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the 1933 Act.

 

B. The Company has authorized the issuance and sale of (i) $7,000,000 in
principal amount of senior secured exchangeable convertible notes of the Company
in the form attached hereto as Exhibit A (together with any senior secured
exchangeable convertible notes issued in replacement or exchange thereof in
accordance with the terms thereof, the “Notes”), which Notes shall be, in
accordance with the terms of the Notes, in whole or in part, convertible into
shares of the Company’s common stock, par value $.001 per share (“Company Common
Stock”) (as converted, the “Conversion Shares”), (ii) 837,986 shares of Company
Common Stock and (iii) Warrants in substantially the form attached hereto as
Exhibit B (the “Warrants”) to purchase 1,089,386 shares of Company Common Stock.

 

C. The Notes bear interest, which at the option of the Company, subject to
certain conditions, may be paid in shares of Company Common Stock (“Interest
Shares”).

 

D. The principal of the Notes will be payable in five installments, which at the
option of the Company and each Buyer, subject to certain conditions, may be paid
in Conversion Shares.

 

E. Each Buyer wishes to purchase, severally but not jointly, and the Company
wishes to sell, upon the terms and conditions stated in this Agreement, (i) that
aggregate principal amount of Notes set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers (which aggregate principal amount for all
Buyers shall be $7,000,000), (ii) that number of shares of Company Common Stock
(the “Purchased Shares”) set forth opposite such Buyer’s name in column (4) on
the Schedule of Buyers and (iii) Warrants to acquire that number of shares of
Company Common Stock (as exercised, collectively, the “Warrant Shares”) set
forth opposite such Buyer’s name in column (5) on the Schedule of Buyers.

 

F. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a registration rights agreement,
substantially in the form attached hereto as Exhibit C (the “Registration Rights
Agreement”), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Conversion Shares,

--------------------------------------------------------------------------------

the Warrant Shares and the Interest Shares under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.

 

G. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are amending and restating each of the Pledge and Security
Agreements dated as of March 11, 2005, by and among the Company and each of the
Buyers, substantially in the form attached hereto as Exhibit D (as amended and
restated, each an “Amended and Restated Pledge and Security Agreement” and
collectively, the “Amended and Restated Pledge and Security Agreements”),
pursuant to which the Company has agreed to secure its obligations to pay
interest on and principal of the Notes with 1,750,000 shares (the “Lumera
Shares”) of common stock, par value $.001 per share (“Lumera Common Stock”), of
Lumera Corporation (“Lumera”) as set forth in the Amended and Restated Pledge
and Security Agreements.

 

H. The Notes, the Conversion Shares, the Interest Shares, the Purchased Shares,
the Warrants and the Warrant Shares collectively are referred to herein as the
“Securities.”

 

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

 

1. PURCHASE AND SALE OF NOTES AND WARRANTS.

 

(a) Amount. Subject to the satisfaction (or waiver) of the conditions set forth
in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and
each Buyer severally, but not jointly, agrees to purchase from the Company on
the Closing Date (as defined below), a principal amount of Notes, as is set
forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, the
number of Purchased Shares as is set forth opposite such Buyer’s name in column
(4) on the Schedule of Buyers and Warrants to acquire that number of Warrant
Shares as is set forth opposite such Buyer’s name in column (5) on the Schedule
of Buyers.

 

(b) Closing. The closing (the “Closing”) of the purchase of the Notes and the
Warrants by the Buyers shall occur at the offices of Proskauer Rose, LLP, 1585
Broadway, New York, New York 10036. The date and time of the Closing (the
“Closing Date”) shall be 10:00 a.m., New York City Time, on December 1, 2005,
subject to notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below (or such later date as is mutually
agreed to by the Company and each Buyer).

 

(c) Purchase Price. The purchase price for each Buyer (the “Purchase Price”) of
the Notes and related Warrants to be purchased by each such Buyer at the Closing
shall be equal to $1.00 for each $1.00 of principal amount of Notes being
purchased by such Buyer at the Closing plus the product of $3.58 and the number
of Purchased Shares being purchased by such Buyer at the Closing.

 

2

--------------------------------------------------------------------------------

(d) Form of Payment. On the Closing Date, (A) each Buyer shall pay its aggregate
applicable Purchase Price to the Company for the Notes, Purchased Shares and the
Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of
immediately available funds in accordance with the Company’s written wire
instructions, and (B) the Company shall deliver to each Buyer the Notes (in the
principal amounts as such Buyer shall have requested prior to the Closing),
Purchased Shares and Warrants which such Buyer is then purchasing, (each in the
amounts as such Buyer shall have requested prior to the Closing) such Buyer is
purchasing, duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.

 

2. BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer represents and warrants with respect to only itself that:

 

(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the Notes,
Purchased Shares and the Warrants, (ii) upon conversion or exchange of the Notes
will acquire the Conversion Shares, (iii) upon exercise of the Warrants will
acquire the Warrant Shares and (iv) may acquire Interest Shares in accordance
with the Notes, in each case, for its own account and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the 1933 Act; provided,
however, that by making the representations herein, such Buyer does not agree to
hold any of the Securities for any minimum or other specific term and reserves
the right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act. Such
Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.

 

(b) Accredited Investor Status. Such Buyer is an “accredited investor” as that
term is defined in Rule 501(a) of Regulation D.

 

(c) Reliance on Exemptions. Such Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and such Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire the
Securities.

 

(d) Information. Such Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have been
requested by such Buyer. Such Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer’s right to
rely on the Company’s representations and warranties contained herein.

 

3

--------------------------------------------------------------------------------

(e) Experience of such Buyer. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Buyer is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

 

(f) No Governmental Review. Such Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities or the fairness or
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.

 

(g) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company or
Lumera, as the case may be, an opinion of counsel, in a generally acceptable
form, to the effect that such Securities to be sold, assigned or transferred may
be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) such Buyer provides the Company or Lumera, as the case may
be, with reasonable assurance that such Securities will be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as
amended (or a successor rule thereto) (collectively, “Rule 144”), or (D) such
Securities are eligible for sale under Rule 144(k); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the Person (as defined in
Section 3(r)) through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder. The Securities
may be pledged in connection with a bona fide margin account or other loan or
financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section 2(g)
provided, that in order to make any sale, transfer or assignment of Securities,
such Buyer and its pledgee makes such disposition in accordance with or pursuant
to a registration statement or an exemption under the 1933 Act.

 

4

--------------------------------------------------------------------------------

(h) Legends. Such Buyer understands that the certificates or other instruments
representing the Notes, Purchased Shares and the Warrants and, until such time
as the resale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear any legend as required by
the “blue sky” laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE][EXERCISABLE]
HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144(K) UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES; PROVIDED, HOWEVER THAT ANY TRANSFER OF THE SECURITIES PURSUANT TO
SUCH PLEDGE ARRANGEMENT MUST COMPLY WITH THE FOREGOING.

 

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act; provided, that each
Buyer has complied with or covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it in
connection with sales of such Securities pursuant to a registration statement,
(ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that such legend is not required under applicable requirements of
the 1933 Act, or (iii) such holder provides the Company with reasonable
assurance that the Securities can be sold, assigned or transferred pursuant to
Rule 144(k).

 

(i) Validity; Enforcement. This Agreement, the Registration Rights Agreement and
the Amended and Restated Pledge and Security Agreement have been duly and
validly authorized, executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer, enforceable
against such Buyer in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.

 

5

--------------------------------------------------------------------------------

(j) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement, the Registration Rights Agreement and the Amended and Restated Pledge
and Security Agreement to which such Buyer is a party and the consummation by
such Buyer of the transactions contemplated hereby and thereby will not
(i) result in a violation of the organizational documents of such Buyer or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Buyer is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws) applicable to such Buyer,
except in the case of clauses (ii) and (iii) above, for such conflicts,
defaults, rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.

 

(k) Residency. Such Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.

 

(l) Such Buyer was not solicited by the Registration Statement (defined to be
the registration statement on Form S-3 (File No. 333-128019) filed by the
Company on September 1, 2005 with the SEC (including the prospectus dated
September 8, 2005 filed pursuant to Rule 424(b) under the 1933 Act) in
connection with its purchase of Securities.

 

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that:

 

(a) Organization and Qualification. The Company is duly organized and validly
existing in good standing under the laws of the State of Delaware, and has the
requisite power and authorization to own its properties and assets and to carry
on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or assets or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any
material adverse effect on the business, properties, assets, operations, results
of operations, financial condition or prospects of the Company or on the
transactions contemplated hereby and the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company has
no subsidiaries (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns 50% or more of the capital stock or
holds 50% or more of the equity or similar interest).

 

6

--------------------------------------------------------------------------------

(b) Authorization; Enforcement; Validity. The Company has the requisite power
and authority to enter into and perform its obligations under this Agreement,
the Notes, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5(b)), the Warrants, the Amended and
Restated Pledge and Security Agreements and each of the other agreements entered
into by the parties hereto in connection with the transactions contemplated by
this Agreement (collectively, the “Transaction Documents”) and to issue the
Securities in accordance with the terms hereof and thereof. The execution and
delivery of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Notes, the Purchased Shares and the Warrants,
the reservation for issuance and the issuance of the Conversion Shares issuable
upon conversion of the Notes, and the reservation for issuance and issuance of
Warrant Shares issuable upon exercise of the Warrants and the pledging of the
Lumera Shares have been duly authorized by the Company’s Board of Directors and
no further corporate action is required by the Company, its Board of Directors
or its stockholders. This Agreement and the other Transaction Documents of even
date herewith have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies.

 

(c) Issuance of Securities. The issuance of the Notes, Purchased Shares and the
Warrants and the pledging of the Lumera Shares is duly authorized and is free
from all taxes, liens and charges with respect to the issue thereof. As of the
Closing, a number of shares of Company Common Stock shall have been duly
authorized and reserved for issuance which equals the sum of 100% of the maximum
number of shares Company Common Stock issuable as Interest Shares pursuant to
the terms of the Notes, issuable upon conversion of the Notes and issuable upon
exercise of the Warrants. The Purchased Shares, and upon issuance or conversion
or exchange in accordance with the Notes or exercise in accordance with the
Warrants, as the case may be, the Interest Shares, the Conversion Shares and the
Warrant Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Company Common Stock. The offer and issuance
by the Company of the Securities is exempt from registration under the 1933 Act.

 

7

--------------------------------------------------------------------------------

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Notes, Purchased Shares and the Warrants, the pledging of the Lumera Shares
and reservation for issuance and issuance of the Interest Shares, the Conversion
Shares and the Warrant Shares) will not (i) result in a violation of the
Certificate of Incorporation (as defined in Section 3(q)) of the Company, any
capital stock of the Company or Bylaws (as defined in Section 3(q)) of the
Company or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the Nasdaq Stock Market (the “Principal Market”))
applicable to the Company or by which any property or asset of the Company is
bound or affected.

 

(e) Consents. Except as disclosed in Schedule 3(e) and except for those failure
of which to obtain or make would not have a Material Adverse Effect, and other
than the filing with the SEC of the Registration Statement (as defined in the
Registration Rights Agreement), and any filings required pursuant to
Section 4(b) hereof, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the Closing
Date, and the Company is unaware of any facts or circumstances which might
prevent the Company from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence. The Company is not in
violation of the listing requirements of the Principal Market and has no
knowledge of any facts which would reasonably lead to delisting or suspension of
the Company Common Stock in the foreseeable future. The Company, without having
made an investigation, has no knowledge of any violation by Lumera of the
listing requirements of the Principal Market with respect to the Lumera Common
Stock. The Company, without having made an investigation, has no knowledge of
any facts which would reasonably lead to delisting or suspension of the Lumera
Common Stock in the foreseeable future.

 

8

--------------------------------------------------------------------------------

(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) to the knowledge of the Company, an “affiliate”
of the Company (as defined in Rule 144) or (iii) to the knowledge of the
Company, a “beneficial owner” of more than 10% of the shares of Company Common
Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of
1934, as amended (the “1934 Act”)). The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer’s purchase of the Securities. The Company further represents to each Buyer
that the Company’s decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.

 

(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor
any of its affiliates, nor any Person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offer or sale of the Securities. The
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commissions (other than for persons engaged
by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorney’s fees and out-of-pocket expenses) arising in connection with any such
claim. The Company has not engaged any placement agent or other agent in
connection with the sale of the Securities.

 

(h) No Integrated Offering. None of the Company, any of its affiliates, and any
Person acting on its behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under
circumstances that would require registration of any of the Securities under the
1933 Act or cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of any exchange or automated quotation system on which any of
the securities of the Company are listed or designated. None of the Company, its
affiliates and any Person acting on its behalf will take any action or steps
referred to in the preceding sentence that would require registration of any of
the Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.

 

(i) Dilutive Effect. The Company acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrants is, in each
case, absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.

 

9

--------------------------------------------------------------------------------

(j) Application of Takeover Protections; Rights Agreement. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the jurisdiction of its formation which is or could become applicable to any
Buyer as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company’s issuance of the Securities and any Buyer’s
ownership of the Securities. The Company has not adopted a stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Company Common Stock or a change in control of the Company.

 

(k) SEC Documents; Financial Statements. Since December 31, 2004, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
1934 Act (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
“SEC Documents”). The Company has delivered to the Buyers or their respective
representatives true, correct and complete copies of the SEC Documents not
available on the EDGAR system. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

 

10

--------------------------------------------------------------------------------

(l) Absence of Certain Changes. Except as specifically disclosed in the SEC
Documents filed not later than 10 days prior to the date hereof, since
December 31, 2004, there has been no material adverse change and no material
adverse development in the business, properties, assets, operations, results of
operations, financial condition or prospects of the Company. Since September 30,
2005, the Company has not (i) declared or paid any dividends, (ii) sold any
assets, individually or in the aggregate, in excess of $500,000 outside of the
ordinary course of business or (iii) had capital expenditures, individually or
in the aggregate, in excess of $500,000. The Company has not taken any steps to
seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company, is not as of the date hereof,
and after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this
Section 3(l), “Insolvent” means, with respect to any Person (as defined in
Section 3(r)), (i) the present fair saleable value of such Person’s assets is
less than the amount required to pay such Person’s total Indebtedness (as
defined in Section 3(r)), (ii) the Company is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

 

11

--------------------------------------------------------------------------------

(m) Conduct of Business; Regulatory Permits. The Company is not in violation of
any term of or in default under its Certificate of Incorporation or Bylaws. The
Company is not in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to it, and the Company will not conduct
its business in violation of any of the foregoing, except for possible
violations which would not, individually or in the aggregate, have a Material
Adverse Effect. Without limiting the generality of the foregoing, the Company is
not in violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Company Common Stock by the
Principal Market in the foreseeable future. Since December 31, 2004, (i) the
Company Common Stock has been designated for quotation on the Principal Market,
(ii) trading in the Company Common Stock has not been suspended by the SEC or
the Principal Market, (iii) the Company has received no communication, written
or oral, from the SEC or the Principal Market regarding the suspension or
delisting of the Company Common Stock from the Principal Market (iv) to the
knowledge of the Company, without having made an investigation, trading in
Lumera Common Stock has not been suspended by the SEC or the Principal Market
and (v) to the knowledge of the Company, without having made an investigation,
Lumera has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Lumera Common
Stock from the Principal Market. Since the date of the initial public offering
of the Lumera Common Stock, to the knowledge of the Company, without having made
an investigation, the Lumera Common Stock has been designated for quotation or
listed on the Principal Market. The Company possesses all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.

 

(n) Foreign Corrupt Practices. Neither the Company, nor any director, officer,
agent, employee or other Person acting on behalf of the Company has, in the
course of its actions for, or on behalf of, the Company (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.

 

(o) Sarbanes-Oxley Act. The Company is in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations promulgated by the SEC
thereunder that are effective as of the date hereof, except where such
noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.

 

12

--------------------------------------------------------------------------------

(p) Transactions With Affiliates. Except as disclosed in Schedule 3(p) and
except as set forth in the SEC Documents filed at least ten days prior to the
date hereof, and other than the grant of stock options disclosed that are
required to be publicly disclosed, none of the officers, directors or employees
of the Company is presently a party to any transaction with the Company (other
than for ordinary course services as employees, officers or directors) required
to be disclosed pursuant to Regulation S-K Item 404, including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner, which such transaction would be
required to be disclosed.

 

13

--------------------------------------------------------------------------------

(q) Equity Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (i) 73,000,000 shares of Company Common Stock, of
which as of the date hereof, 24,151,491 are issued and outstanding, 5,391,743
shares are reserved for issuance pursuant to the Company’s stock option plans,
3,030,424 shares are reserved for issuance upon conversion of warrants (other
than the Warrants which are the subject of this agreement) and 740,741 shares
are reserved for issuance upon conversion of 5,000 shares of convertible
preferred stock listed as issued and outstanding hereafter and (ii) 25,000,000
shares of preferred stock, $.001 par value per share, of which as of the date
hereof, 5,000 shares are issued and outstanding as preferred stock convertible
into common stock as disclosed above. All of such outstanding shares have been,
or upon issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in Schedule 3(q): (i) none of the Company’s share capital is
subject to preemptive rights or any other similar rights that would be triggered
upon issuance of the Securities; (ii) except as disclosed in the Form 10-K/A of
the Company filed in April 2005 with the SEC or subsequently filed Forms 10-Q or
Forms 8-K, there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
share capital of the Company, or contracts, commitments, understandings or
arrangements by which the Company is or may become bound to issue additional
share capital of the Company or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any share
capital of the Company; (iii) there are no outstanding debt securities, notes,
credit agreements, credit facilities or other agreements, documents or
instruments evidencing Indebtedness (as defined in Section 3(r)) of the Company
or by which the Company is or may become bound; (iv) there are no financing
statements securing obligations in any material amounts, either singly or in the
aggregate, filed in connection with the Company; (v) except as disclosed in the
Form 10-K/A of the Company filed in April 2005 with the SEC or in subsequently
filed Forms 10-Q or Forms 8-K, there are no agreements or arrangements under
which the Company is obligated to register the sale of any of their securities
under the 1933 Act (except the Registration Rights Agreement); (vi) there are no
outstanding securities or instruments of the Company which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
redeem a security of the Company; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (viii) the Company does not have any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (ix) the Company has no liabilities or obligations required to
be disclosed in the SEC Documents but not so disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company’s businesses and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect. The Company has made available to each Buyer true, correct and
complete copies of the Company’s Certificate of Incorporation, as amended and as
in effect on the date hereof (the “Certificate of Incorporation”), and the
Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”),
and the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Company Common Stock and the material rights of the holders
thereof in respect thereto.

 

14

--------------------------------------------------------------------------------

(r) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(r), the
Company (i) has no outstanding Indebtedness (as defined below), (ii) except as
disclosed in the exhibits filed as SEC Documents of the Company, is not a party
to any contract, agreement or instrument, the violation of which, or default
under which, by the other party(ies) to such contract, agreement or instrument
would result in a Material Adverse Effect; provided, however, that the Company
has no knowledge of any such violations or default, (iii) is not in violation of
any term of or in default under any contract, agreement or instrument relating
to any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is not a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. Schedule 3(r) provides a detailed
description of the material terms of any such outstanding Indebtedness, except
as otherwise disclosed therein. For purposes of this Agreement:
(x) “Indebtedness” of any Person means, without duplication (A) all indebtedness
for borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with generally accepted accounting principals)
(other than trade payables entered into in the ordinary course of business),
(C) all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses
(A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; and
(z) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

 

15

--------------------------------------------------------------------------------

(s) Absence of Litigation. Except as set forth in Schedule 3(s), there is no
action, suit, proceeding, inquiry or investigation before or by the Principal
Market, any court, public board, government agency, self-regulatory organization
or body pending other than those which would not, individually or in the
aggregate, have a Material Adverse Effect or, to the knowledge of the management
of the Company, threatened against or affecting the Company, the Company Common
Stock or any of the Company’s officers or directors in their capacities as such.

 

(t) Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which
the Company is engaged. The Company has not been refused any insurance coverage
sought or applied for and the Company has no reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material Adverse
Effect.

 

(u) Employee Relations. (i) The Company is not a party to any collective
bargaining agreement or employs any member of a union. The Company believes that
its relations with its employees are good. No executive officer of the Company
(as defined in Rule 501(f) of the 1933 Act) has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer’s
employment with the Company. No executive officer of the Company, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company to any liability
with respect to any of the foregoing matters.

 

(ii) The Company is in compliance with all federal, state, local and foreign
laws and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.

 

(v) Title. Except as disclosed in Schedule 3(v), the Company has good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the businesses
of the Company, in each case free and clear of all liens and encumbrances (other
than such liens and encumbrances on Intellectual Property Rights (as defined
below)), and defects except such as do not interfere with the use made and
proposed to be made of such property by the Company or that would not have a
Material Adverse Effect. Any material real property and facilities held under
lease by the Company are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company.

 

16

--------------------------------------------------------------------------------

(w) Intellectual Property Rights. The Company owns or possesses adequate rights
or licenses to use all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights (“Intellectual Property Rights”) necessary to
conduct their respective businesses as now conducted. Except as set forth in
Schedule 3(w), none of the Company’s Intellectual Property Rights have expired
or terminated, or are expected to expire or terminate, within three years from
the date of this Agreement. The Company does not have any knowledge of any
infringement by the Company of Intellectual Property Rights of others. There is
no claim, action or proceeding being made or brought, or to the knowledge of the
Company, being threatened, against the Company regarding its Intellectual
Property Rights. The Company is unaware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their Intellectual Property Rights.

 

(x) Environmental Laws. The Company (i) is in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) has received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (iii) is in compliance with all terms
and conditions of any such permit, license or approval where, in each of the
foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term “Environmental Laws” means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

 

(y) Investment Company. The Company is not, and is not an affiliate of, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

 

(z) Tax Status. Except as could not reasonably have a Material Adverse Effect,
the Company (i) has made or filed all foreign, federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.

 

17

--------------------------------------------------------------------------------

(aa) Internal Accounting and Disclosure Controls. The Company maintains a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset and liability accountability,
(iii) access to assets or incurrence of liabilities is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets and liabilities is compared with the existing
assets and liabilities at reasonable intervals and appropriate action is taken
with respect to any difference. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-14 under the 1934 Act) that are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.

 

(bb) Off Balance Sheet Arrangements. There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its
Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

 

(cc) Ranking of Notes. Except as disclosed on Schedule 3(cc), no Indebtedness of
the Company is senior to or ranks pari passu with the Notes in right of payment,
whether with respect of payment of redemptions, interest, damages or upon
liquidation or dissolution or otherwise.

 

(dd) Form S-3 Eligibility. The Company is eligible to register the Purchased
Shares, Conversion Shares, the Warrant Shares and the Interest Shares for resale
by the Buyers using Form S-3 promulgated under the 1933 Act.

 

(ee) Lumera Shares.

 

(i) The Company is the beneficial and record owner of all of the Lumera Shares,
free and clear of any Liens, and upon transfer in accordance with the applicable
Transaction Documents, the Company will transfer to the Buyers good and
marketable title to such Lumera Shares, free and clear of any Liens. Upon any
such transfer in accordance with the applicable Transaction Documents to the
Buyers of any Lumera Shares, the Lumera Shares shall be unrestricted and freely
tradable on the Principal Market without any delivery or other requirements
whatsoever and without the need to make any registration or other filing with
the SEC.

 

(ii) The Company has no legal obligation, absolute or contingent, to any other
Person to transfer or sell any of the Lumera Shares. There is no action, claim,
suit, investigation or proceeding pending or, to the knowledge of the Company,
threatened by or against or affecting the Company or the Company’s ownership of
the Lumera Shares before any court or governmental or regulatory authority or
body, that could effect the ability of the Company to

 

18

--------------------------------------------------------------------------------

pledge and transfer to the Buyers any Lumera Shares. There are no writs,
decrees, injunctions or orders of any court or governmental or regulatory
agency, authority or body outstanding against the Company with respect to the
Lumera Shares.

 

(ff) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder
will be, or will have been, fully paid or provided for by the Company, and all
laws imposing such taxes will be or will have been complied with.

 

(gg) Manipulation of Price. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases in the marketplace of, any of the Securities, or (iii) paid
or agreed to pay to any person any compensation for soliciting another to
purchase in the marketplace any other securities of the Company.

 

(hh) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information. The Company understands and confirms
that each of the Buyers will rely on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the Buyers
in writing regarding the Company, its business and the transactions contemplated
hereby, including the Schedules to this Agreement, furnished by or on behalf of
the Company, in the aggregate, is true and correct in all material respects and
does not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each
press release issued by the Company during the twelve (12) months preceding the
date of this Agreement did not at the time of release contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company
or its businesses, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, currently requires public
disclosure or announcement by the Company on or before the date hereof but which
has not been so publicly announced or disclosed.

 

(ii) Seniority. As of the date of this Agreement, no Indebtedness of the Company
is or will be senior to the Notes in right of payment, whether with respect to
interest or upon liquidation or dissolution.

 

4. COVENANTS.

 

(a) Best Efforts. Each party shall use its best efforts timely to satisfy each
of the conditions to be satisfied by it as provided in Sections 6 and 7 of this
Agreement.

 

19

--------------------------------------------------------------------------------

(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary to
be taken on or before the Closing Date in order to obtain an exemption for or to
qualify the Securities for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or “Blue Sky” laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to the Buyers on or prior to the
Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or “Blue
Sky” laws of the states of the United States following the Closing Date.

 

(c) Use of Proceeds. The Company will use the proceeds from the sale of the
Notes and Warrants for working capital purposes and not for the redemption or
repurchase of any of its equity securities.

 

(d) Financial Information. The Company agrees to send the following to each
Investor during the Reporting Period (i) unless the following are filed with the
SEC through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports on Form 10-K its Quarterly Reports on Form 10-Q, any Current
Reports on Form 8-K and any registration statements (other than on Form S-8) or
amendments filed pursuant to the 1933 Act, (ii) on the same day as the release
thereof, facsimile copies of all press releases issued by the Company, and
(iii) copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders. For the purposes of this
Section 4(d) only, the Company may send notice to the Investors by electronic
mail to their respective electronic mail addresses as set forth in the Schedule
of Buyers attached hereto. As used herein, “Business Day” means any day other
than Saturday, Sunday or other day on which commercial banks in The City of New
York are authorized or required by law to remain closed.

 

(e) Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Company Common Stock is then listed (subject to official notice of
issuance) and shall maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company
shall maintain the Company Common Stocks’ authorization for listing on the
Principal Market. The Company shall not take any action which would be
reasonably expected to result in the delisting or suspension of the Company
Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(e).

 

20

--------------------------------------------------------------------------------

(f) Fees. Subject to Section 8 below, at the Closing, the Company shall pay an
expense allowance to Omicron Master Trust (a Buyer) or its designee(s) (in
addition to any other expense amounts paid to any Buyer prior to the date of
this Agreement) to cover expenses reasonably incurred by Omicron Master Trust (a
Buyer) or any professionals engaged by Omicron Master Trust in relation to due
diligence and investment documentation, in an amount not to exceed $70,000,
which amount shall be withheld by such Buyer from its Purchase Price at the
Closing. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or broker’s commissions relating to or
arising out of the transactions contemplated hereby, including, without
limitation, any fees or commissions payable to the Agent. The Company shall pay,
and hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney’s fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payment. Except as
otherwise set forth in the Transaction Documents, each party to this Agreement
shall bear its own expenses in connection with the sale of the Securities to the
Buyers.

 

(g) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration Rights
Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(g) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(g) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.

 

21

--------------------------------------------------------------------------------

(h) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York City time, on the first Business Day following the date of this
Agreement, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules to this
Agreement), the form of the Note, the form of Warrant, the form of Amended and
Restated Pledge and Security Agreement and the Registration Rights Agreement) as
exhibits to such filing (including all attachments, the “8-K Filing”). From and
after the filing of the 8-K Filing with the SEC, unless required pursuant to a
Transaction Document, no Buyer shall be in possession of any material, nonpublic
information received from the Company or any of its officers, directors,
employees or agents, that is not disclosed in the 8-K Filing. Unless required
pursuant to a Transaction Document, the Company shall not, and shall cause each
of its officers, directors, employees and agents, not to, provide any Buyer with
any material, nonpublic information regarding the Company from and after the
filing of the 8-K Filing with the SEC without the express written consent of
such Buyer. In the event of a breach of the foregoing covenant by the Company,
or any of its officers, directors, employees and agents, in addition to any
other remedy provided herein or in the Transaction Documents, a Buyer shall have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, or any of its officers, directors, employees or
agents. No Buyer shall have any liability to the Company, or any of its
officers, directors, employees, stockholders or agents for any such disclosure.
Subject to the foregoing, neither the Company nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).

 

(i) Restriction on Redemption and Cash Dividends. So long as any Notes are
outstanding, the Company shall not, directly or indirectly, redeem, or declare
or pay any cash dividend or distribution on, the Company Common Stock without
the prior express written consent of the holders of Notes representing not less
than a majority of the aggregate principal amount of the then outstanding Notes
other than (i) in connection with employee stock repurchases pursuant to an
Approved Stock Plan (as defined in the Notes) existing as of the date hereof and
(ii) cash payments in lieu of fractional shares of Company Common Stock issuable
upon conversion or exercise of Convertible Securities or Options.

 

(j) Conduct of Business. The businesses of the Company shall not be conducted in
violation of any law, ordinance or regulation of any governmental entity, except
where such violations would not result, either individually or in the aggregate,
in a Material Adverse Effect.

 

22

--------------------------------------------------------------------------------

(k) Additional Notes; Variable Securities; Dilutive Issuances. So long as any
Buyer beneficially owns any Securities, the Company will not issue any Notes
other than to the Buyers as contemplated hereby and the Company shall not issue
any other securities that would cause a breach or default under the Notes. For
so long as any Notes remain outstanding, the Company shall not, in any manner,
issue or sell any rights, warrants or options to subscribe for or purchase
Company Common Stock or directly or indirectly convertible into or exchangeable
or exercisable for Company Common Stock at a price which varies or may vary
after issuance with the market price of the Company Common Stock, including by
way of one or more reset(s) to any fixed price unless the conversion, exchange
or exercise price of any such security cannot be less than the then applicable
Conversion Price (as defined in the Notes) with respect to the Company Common
Stock into which any Note is convertible or the then applicable Exercise Price
(as defined in the Warrants) with respect to the Company Common Stock into which
any Warrant is exercisable. For purposes of clarification, this does not
prohibit the issuance of securities with customary “weighted average” or “full
ratchet” anti-dilution adjustments which adjust a fixed conversion or exercise
price of securities sold by the Company in the future. For so long as any Notes
or Warrants remain outstanding, the Company shall not, in any manner, enter into
or affect any Dilutive Issuance (as defined in the Notes) if the effect of such
Dilutive Issuance is to cause the Company to be required to issue upon
conversion of any Note or exercise of any Warrant any shares of Company Common
Stock in excess of that number of shares of Company Common Stock which the
Company may issue upon conversion of the Notes and exercise of the Warrants
without breaching the Company’s obligations under the rules or regulations of
the Principal Market.

 

(l) Corporate Existence. So long as any Buyer beneficially owns any Notes or
Warrants, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants.

 

(m) Incurrence of Liens. So long as any Notes are outstanding, the Company shall
not, directly or indirectly, allow or suffer to exist any Lien, other than
Permitted Liens (as defined in the Notes), upon any property or assets
(including accounts and contract rights) owned by the Company.

 

(n) Reservation of Shares. The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance, after the
Closing Date, 100% of the sum of the number of Interest Shares issuable pursuant
to the terms of the Notes, shares of Company Common Stock issuable upon
conversion of all of the Notes and shares of Company Common Stock issuable upon
exercise of the Warrants.

 

(o) Additional Issuances of Securities. The Company and each of the Buyers agree
that Section 4(o) of the Securities Purchase Agreement (the “March SPA”) dated
as of March 11, 2005 among the Company and the Buyers, pursuant to which the
Company issued certain notes (the “Old Notes”) to the Buyers, is hereby amended
and restated to delete the entire Section 4(o) and replace it with:
“[Reserved].” The Notes and the Old Notes are collectively referred to as the
“Company Notes.”

 

(i) For purposes of this Section 4(o), the following definitions shall apply.

 

(A) “Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for shares of Company Common
Stock.

 

23

--------------------------------------------------------------------------------

(B) “Options” means any rights, warrants or options to subscribe for or purchase
shares of Company Common Stock or Convertible Securities.

 

(C) “Common Stock Equivalents” means, collectively, Options and Convertible
Securities.

 

(ii) Subject to clause (iii) and (iv) below, from the date hereof until
March 11, 2006, the Company will not, directly or indirectly, offer, sell, grant
any option to purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition of) any of its equity or
equity equivalent securities, including without limitation any debt, preferred
stock or other instrument or security that is, at any time during its life and
under any circumstances, convertible into or exchangeable or exercisable for
shares of Company Common Stock or Common Stock Equivalents (any such offer,
sale, grant, disposition or announcement being referred to as a “Subsequent
Placement”) unless the Company shall have first complied with this
Section 4(o)(ii).

 

(A) The Company shall deliver to each Buyer a written notice (the ”Pre-Offer
Notice”) of any proposed or intended issuance or sale or exchange
(the ”Pre-Offer”) of the securities being offered (the “Pre-Offered Securities”)
in a Subsequent Placement, which Pre-Offer Notice shall (w) identify and
describe the Pre-Offered Securities, (x) describe the price and other terms upon
which they are to be issued, sold or exchanged, and the number or amount of the
Pre-Offered Securities to be issued, sold or exchanged, (y) identify the persons
or entities (if known) to which or with which the Pre-Offered Securities are to
be offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyers a pro rata portion of 25% of the Pre-Offered
Securities allocated among such Buyers (a) based on such Buyer’s pro rata
portion of the aggregate principal amount of Company Notes purchased hereunder
or under the March SPA (the “Pre-Basic Amount”), and (b) with respect to each
Buyer that elects to purchase its Pre-Basic Amount, any additional portion of
the Pre-Offered Securities attributable to the Pre-Basic Amounts of other Buyers
as such Buyer shall indicate it will purchase or acquire should the other Buyers
subscribe for less than their Pre-Basic Amounts (the “Pre-Undersubscription
Amount”).

 

(B) To accept a Pre-Offer, in whole or in part, such Buyer must deliver a
written notice to the Company prior to the end of the fifth (5th) Business Day
after such Buyer’s receipt of the Pre-Offer Notice (the “Pre-Offer Period”),
setting forth the portion of such Buyer’s Pre-Basic Amount that such Buyer
elects to purchase and, if such Buyer shall elect to purchase all of its
Pre-Basic Amount, the Pre-Undersubscription Amount, if any, that such Buyer
elects to purchase (in either case, the “Pre-Notice of Acceptance”). If the
Pre-Basic Amounts subscribed for by all Buyers are less than the total of all of
the Pre-Basic Amounts, then each Buyer who has set forth a Pre-Undersubscription
Amount in its Pre-Notice of Acceptance shall be entitled to purchase, in
addition to the Pre-Basic Amounts subscribed for, the Pre-Undersubscription
Amount it has subscribed for; provided, however, that if the
Pre-Undersubscription Amounts subscribed for exceed the difference between the
total of all the Pre-Basic Amounts and the Pre-Basic Amounts subscribed for (the
“Pre-Available Undersubscription Amount”), each Buyer who has subscribed for any
Pre-Undersubscription

 

24

--------------------------------------------------------------------------------

Amount shall be entitled to purchase only that portion of the Pre-Available
Undersubscription Amount as the Pre-Basic Amount of such Buyer bears to the
total Pre-Basic Amounts of all Buyers that have subscribed for
Pre-Undersubscription Amounts, subject to rounding by the Company to the extent
its deems reasonably necessary.

 

(C) The Company shall have ten (10) Business Days from the expiration of the
Pre-Offer Period above to offer, issue, sell or exchange all or any part of such
Pre-Offered Securities as to which a Pre-Notice of Acceptance has not been given
by the Buyers (the “Refused Securities”), but only to the offerees described in
the Pre-Offer Notice (if so described therein) and only upon terms and
conditions (including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring person or persons or less favorable to
the Company than those set forth in the Pre-Offer Notice.

 

(D) In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 4(o)(ii)(C) above), then each Buyer may, at its sole option and in its
sole discretion, reduce the number or amount of the Pre-Offered Securities
specified in its Pre-Notice of Acceptance to an amount that shall be not less
than the number or amount of the Pre-Offered Securities that such Buyer elected
to purchase pursuant to Section 4(o)(ii)(B) above multiplied by a fraction,
(i) the numerator of which shall be the number or amount of Pre-Offered
Securities the Company actually proposes to issue, sell or exchange (including
Pre-Offered Securities to be issued or sold to Buyers pursuant to
Section 4(o)(ii)(C) above prior to such reduction) and (ii) the denominator of
which shall be the original amount of the Pre-Offered Securities. In the event
that any Buyer so elects to reduce the number or amount of Pre-Offered
Securities specified in its Pre-Notice of Acceptance, the Company may not issue,
sell or exchange more than the reduced number or amount of the Pre-Offered
Securities unless and until such securities have again been offered to the
Buyers in accordance with Section 4(o)(ii)(A) above.

 

(E) Upon the closing of the issuance, sale or exchange of all or less than all
of the Refused Securities, the Buyers shall acquire from the Company, and the
Company shall issue to the Buyers, the number or amount of Pre-Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4(o)(ii)(C) above if the Buyers have so elected, upon the terms and
conditions specified in the Pre-Offer. The purchase by the Buyers of any
Pre-Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Buyers of a purchase agreement relating to such
Pre-Offered Securities reasonably satisfactory in form and substance to the
Buyers and their respective counsel.

 

(F) Any Pre-Offered Securities not acquired by the Buyers or other persons in
accordance with Section 4(o)(ii)(C) above may not be issued, sold or exchanged
until they are again offered to the Buyers under the procedures specified in
this Agreement.

 

(iii) Subject to clause (iv) below, from the date hereof until March 11, 2006,
in lieu of complying with the provisions of Section 4(o)(ii) above, the Company
may, at its option, effect a Subsequent Placement, provided that it shall comply
with this Section 4(o)(iii).

 

(A) The Company shall deliver to each Buyer a written notice (the ”Post-Offer
Notice”) of any completed issuance or sale or exchange (the ”Post-Offer”) of the
securities that were offered (the “Post-Offered Securities”) in a Subsequent
Placement no

 

25

--------------------------------------------------------------------------------

later than one Business Day before the public announcement of such Post-Offer,
which Post-Offer Notice shall (w) identify and describe the Post-Offered
Securities, (x) describe the price and other terms upon which they were issued,
sold or exchanged, and the number or amount of the Post-Offered Securities that
were issued, sold or exchanged, (y) identify the persons or entities (if known)
to which or with which the Post-Offered Securities were offered, issued, sold or
exchanged and (z) offer to issue and sell to or exchange with such Buyers a pro
rata portion of 33 1/3% of the Post-Offered Securities that were purchased by
such other investors on the same terms and conditions as such third party sale,
allocated among such Buyers (a) based on such Buyer’s pro rata portion of the
aggregate principal amount of Company Notes purchased hereunder or under the
March SPA (the “Post-Basic Amount”), and (b) with respect to each Buyer that
elects to purchase its Post-Basic Amount, any additional portion of the
Post-Offered Securities attributable to the Post-Basic Amounts of other Buyers
as such Buyer shall indicate it will purchase or acquire should the other Buyers
subscribe for less than their Post-Basic Amounts (the “Post-Undersubscription
Amount”).

 

(B) To accept a Post-Offer, in whole or in part, such Buyer must deliver a
written notice to the Company (i) in the case of issuances by the Company of
Company Common Stock pursuant to an effective shelf registration statement in
transactions marketed by independent agents to a syndicated group of investors
(commonly known as “registered direct offerings”), prior to the end of the fifth
(5th) Business Day, and (ii) in all other cases, prior to the end of the tenth
(10th) Business Day, after such Buyer’s receipt of the Offer Notice (the
“Post-Offer Period”), setting forth the portion of such Buyer’s Post-Basic
Amount that such Buyer elects to purchase and, if such Buyer shall elect to
purchase all of its Post-Basic Amount, the Post-Undersubscription Amount, if
any, that such Buyer elects to purchase (in either case, the “Post-Notice of
Acceptance”). If the Post-Basic Amounts subscribed for by all Buyers are less
than the total of all of the Post-Basic Amounts, then each Buyer who has set
forth a Post-Undersubscription Amount in its Post-Notice of Acceptance shall be
entitled to purchase, in addition to the Post-Basic Amounts subscribed for, the
Post-Undersubscription Amount it has subscribed for; provided, however, that if
the Post-Undersubscription Amounts subscribed for exceed the difference between
the total of all the Post-Basic Amounts and the Post-Basic Amounts subscribed
for (the “Post-Available Undersubscription Amount”), each Buyer who has
subscribed for any Post-Undersubscription Amount shall be entitled to purchase
only that portion of the Post-Available Undersubscription Amount as the
Post-Basic Amount of such Buyer bears to the total Post-Basic Amounts of all
Buyers that have subscribed for Post-Undersubscription Amounts, subject to
rounding by the Company to the extent its deems reasonably necessary.

 

(C) The Company shall have no right to offer, issue, sell or exchange all or any
part of such Post-Offered Securities as to which a Post-Notice of Acceptance has
not been given by the Buyers.

 

(D) The purchase by the Buyers of any Post-Offered Securities is subject in all
cases to the preparation, execution and delivery by the Company and the Buyers
of a purchase agreement and other agreements relating to such Post-Offered
Securities which contain substantially the same price and other terms upon which
such securities were issued, sold or exchanged to other investors.

 

26

--------------------------------------------------------------------------------

(E) Any Post-Offered Securities not acquired by the Buyers above may not be
issued, sold or exchanged until they are again offered to the Buyers under the
procedures specified in this Agreement.

 

(iv) The restrictions contained in subsection (ii) and (iii) of this
Section 4(o) shall not apply in connection with the issuance of any Excluded
Securities (as defined in the Notes).

 

(p) Transfer of Lumera Shares. Upon transfer of any Lumera Shares to a Buyer
pursuant to the terms of the Transaction Documents, including, without
limitation, pursuant to an Event of Default (as defined in the Notes), the
Company shall take all actions necessary to transfer to Buyer, in accordance
with the applicable terms of the Transaction Documents, the Lumera Shares free
and clear of all Liens or restrictions such that after such transfer, the Lumera
Shares will be unrestricted and freely tradable by the Buyer. In connection with
the foregoing, the Company shall (i) cause Ropes & Gray LLP or other counsel
reasonably acceptable to holders of Notes representing at least a majority of
the aggregate principal amount of the Notes then outstanding to deliver to the
transfer agent of Lumera any necessary legal opinion, and (ii) use reasonable
best efforts to take any other actions reasonably requested by any Buyer in
connection with any such transfer.

 

5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

 

(a) Register. The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to each
holder of Notes or Warrants), a register for the Notes and the Warrants, in
which the Company shall record the name and address of the Person in whose name
the Notes and the Warrants have been issued (including the name and address of
each transferee), the principal amount of the Notes held by such Person and the
number of Warrant Shares issuable upon exercise of the Warrants held by such
Person. The Company shall keep the register open and available during business
hours for inspection by any Buyer or its legal representatives upon prior
written notice.

 

27

--------------------------------------------------------------------------------

(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company (“DTC”), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares, the Interest Shares, if any,
and the Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Notes or exercise of the Warrants in
the form of Exhibit E attached hereto (the “Irrevocable Transfer Agent
Instructions”). The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(g) hereof, will be given
by the Company to its transfer agent with respect to the Securities, and that
the Securities shall otherwise be freely transferable on the books and records
of the Company, as applicable, and to the extent provided in this Agreement and
the other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(g), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue one
or more certificates or credit shares to the applicable balance accounts at DTC
in such name and in such denominations as specified by such Buyer to effect such
sale, transfer or assignment. In the event that such sale, assignment or
transfer involves Purchased Shares, Conversion Shares, Interest Shares, Warrant
Shares sold, assigned or transferred pursuant to an effective registration
statement or pursuant to Rule 144, the transfer agent shall issue such
Securities to the Buyer, assignee or transferee, as the case may be, without any
restrictive legend. The Company shall cause its counsel to issue the letter
included in the Irrevocable Transfer Agent Instructions to the Company’s
transfer agent on the effective date of the registration statement. Following
the effective date of the registration statement or at such earlier time as a
legend is no longer required for certain securities, the Company will, no later
than three Business Days following the receipt by the Company of notice that a
Purchaser has delivered to the Company or the Company’s transfer agent a
legended certificate representing such securities, deliver or cause to be
delivered to such Purchaser a certificate representing such securities that is
free from all restrictive legends. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to a Buyer.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5(b) will be inadequate and agrees, in the event
of a breach or threatened breach by the Company of the provisions of this
Section 5(b), that a Buyer shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.

 

6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Notes, Purchased
Shares and the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company’s sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:

 

(a) Such Buyer shall have executed each of the Transaction Documents to which it
is a party and delivered the same to the Company.

 

28

--------------------------------------------------------------------------------

(b) Such Buyer shall have delivered to the Company the Purchase Price for the
Notes, Purchased Shares and the related Warrants being purchased by such Buyer
at the Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.

 

(c) The representations and warranties of such Buyer shall be true and correct
as of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date),
and such Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at or prior
to the Closing Date.

 

7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase the Notes, Purchased Shares
and the related Warrants at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer’s sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:

 

(a) The Company shall have executed and delivered to such Buyer (A) each of the
Transaction Documents and (B) the Notes (in such principal amounts as such Buyer
shall have requested prior to the Closing), the Purchased Shares and the related
Warrants (each in such amounts as such Buyer shall have requested prior to the
Closing) being purchased by such Buyer at the Closing pursuant to this
Agreement.

 

(b) Such Buyer shall have received the opinion of Ropes & Gray LLP, the
Company’s counsel, dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to such Buyer and in substantially the form of Exhibit F
attached hereto.

 

(c) The Company shall have delivered to such Buyer a certificate evidencing the
incorporation and good standing of the Company issued by the Secretary of State
of the State of Delaware as of a date within 10 days of the Closing Date.

 

(d) The Company shall have delivered to such Buyer a certificate evidencing the
Company’s qualification as a foreign corporation and good standing issued by the
Secretary of State of Washington as of a date within 10 days of the Closing
Date.

 

(e) The Company shall have delivered to such Buyer a certified copy of the
Certificate of Incorporation as certified by the Secretary of State of the State
of Delaware within 10 days of the Closing Date.

 

(f) The Company shall have delivered to such Buyer a copy of the Irrevocable
Transfer Agent Instructions, in the form of Exhibit E attached hereto, which
instructions shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.

 

29

--------------------------------------------------------------------------------

(g) The Company shall have delivered to such Buyer a certificate, executed by
the Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s Board of
Directors or a committee thereof in a form reasonably acceptable to such Buyer,
(ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at
the Closing, in the form attached hereto as Exhibit G.

 

(h) The representations and warranties of the Company shall be true and correct
in all material respects (except for those representations and warranties that
are qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing in the form attached hereto as Exhibit H.

 

(i) The Company shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the sale of the Notes and the
Warrants.

 

(j) The Company shall have delivered to such Buyer a letter from the Company’s
transfer agent certifying the number of shares of Company Common Stock
outstanding as of a date within ten days of the Closing Date.

 

(k) The Company Common Stock (I) shall be designated for quotation or listed on
the Principal Market and (II) shall not have been suspended by the SEC or the
Principal Market from trading on the Principal Market nor shall suspension by
the SEC or the Principal Market have been threatened either (A) in writing by
the SEC or the Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market.

 

(l) The Company shall have delivered to such Buyer such other documents relating
to the transactions contemplated by this Agreement as such Buyer or its counsel
may reasonably request.

 

8. TERMINATION.

 

In the event that the Closing shall not have occurred with respect to a Buyer on
or before ten (10) Business Days from the date hereof due to the Company’s or
such Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7
above (and the nonbreaching party’s failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business on such
date without liability of any party to any other party; provided, however, if
this Agreement is terminated pursuant to this Section 8, the Company shall
remain obligated to reimburse the non-breaching Buyers for the expenses
described in Section 4(f) above.

 

30

--------------------------------------------------------------------------------

9. MISCELLANEOUS.

 

(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

 

(c) Headings. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.

 

(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

31

--------------------------------------------------------------------------------

(e) Entire Agreement; Amendments. This Agreement supersedes all other prior oral
or written agreements between the Buyers, the Company, their affiliates and
Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
holders of Notes representing at least a majority of the aggregate principal
amount of the Notes, or, if prior to the Closing Date, the Company and the
Buyers listed on the Schedule of Buyers as being obligated to purchase at least
a majority of the aggregate principal amount of the Notes, and any amendment to
this Agreement made in conformity with the provisions of this Section 9(e) shall
be binding on all Buyers and holders of Notes, as applicable. No provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Notes then
outstanding. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of Notes or holders of the Warrants, as the
case may be. The Company has not, directly or indirectly, made any agreements
with any Buyers relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in the Transaction
Documents.

 

(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

Microvision, Inc.

19910 North Creek Parkway

Bothell, Washington 98011

Telephone:

   (425) 415-6847

Facsimile:

   (425) 415-6795

Attention:

   Thomas M. Walker, Esq.

 

with a copy to:

 

Ropes & Gray LLP

One International Place

Boston, Massachusetts 02110

Telephone:

   (617) 951-7000

Facsimile:

   (617) 951-7050

Attention:

   Joel F. Freedman, Esq.

 

32

--------------------------------------------------------------------------------

If to the Transfer Agent:

 

American Stock Transfer & Trust Company

Operations Center

6201 15th Avenue

Brooklyn, New York 11219

Telephone:

   (718) 921-8145

Facsimile:

   (718) 921-8116

Attention:

   Office of General Counsel

 

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer’s representatives as set forth on the Schedule
of Buyers,

 

with a copy (for informational purposes only) to:

 

Proskauer Rose LLP

1585 Broadway

New York, New York 10036-8299

Facsimile No.: (212) 969-2900

Telephone No.: (212) 969-3000

Attn: Adam J. Kansler, Esq.

 

or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or
(C) provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.

 

(g) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent (not to be unreasonably withheld) of the holders of at least a
majority of the aggregate number of Registrable Securities issued and issuable
hereunder, including by way of a Fundamental Transaction (unless the Company is
in compliance with the applicable provisions governing Fundamental Transactions
set forth in the Notes and the Warrants). A Buyer may assign some or all of its
rights hereunder in connection with transfer of its Securities without the
consent of the Company, in which event such assignee shall be deemed to be a
Buyer hereunder with respect to such assigned rights; provided, that such Buyer
shall give prompt written notice to the Company after such assignment.

 

(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

 

33

--------------------------------------------------------------------------------

(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.

 

(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

 

(k) Indemnification. In consideration of each Buyer’s execution and delivery of
the Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(h), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. Except as otherwise set forth herein, the mechanics and procedures with
respect to the rights and obligations under this Section 9(k) shall be the same
as those set forth in Section 6 of the Registration Rights Agreement.

 

(l) No Strict Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

 

34

--------------------------------------------------------------------------------

(m) Remedies. Each Buyer and each holder of the Securities shall have all rights
and remedies set forth in the Transaction Documents and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under the Transaction Documents, any remedy at law may prove to
be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond
or other security.

 

(n) Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Buyer may rescind or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

 

(o) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

 

35

--------------------------------------------------------------------------------

(p) Independent Nature of Buyers’ Obligations and Rights. The obligations of
each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose. Each Buyer represents that it has been represented
by its own separate legal counsel in its review and negotiations of this
Agreement and the Transaction Documents and that Proskauer Rose LLP represents
only Omicron Master Trust in connection with this Agreement and the Transaction
Documents.

 

(q) Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

 

(r) Waiver and Amendment. The Company and each of the Buyers hereby agree that
Sections 4(k) and 4(o) of the March SPA do not apply to, or prohibit the
issuance of, the Securities pursuant to this Agreement, notwithstanding anything
to the contrary that may be provided in those Sections. The Company and each of
the Buyers on behalf of themselves and each other Buyer hereby amend
Section 17(a) of the Old Notes to delete everything after the phrase “other
than” and replace it with: “(i) the Indebtedness evidenced by this Note,
(ii) Permitted Indebtedness and (iii) Indebtedness evidenced by the Notes (as
defined in the November SPA) issued pursuant to the Securities Purchase
Agreement (the “November SPA”) dated as of November 30, 2005 among the Company
and the Buyers named therein.”

 

[Signature Page Follows]

 

36

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

COMPANY: MICROVISION, INC. By:   /s/    RICHARD A. RAISIG        

Name:

  Richard A. Raisig

Title:

  Chief Financial Officer

 

Signature Page to Securities Purchase Agreement

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

BUYERS: IROQUOIS MASTER FUND LTD By:   /s/    JOSHUA SILVERMAN        

Name:

  Joshua Silverman

Title:

  Authorized Signatory

 

Signature Page to Securities Purchase Agreement

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

BUYERS: SMITHFIELD FIDUCIARY LLC By:   /s/    ADAM J. CHILL        

Name:

  Adam J. Chill

Title:

  Authorized Signatory

 

Signature Page to Securities Purchase Agreement

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

BUYERS: OMICRON MASTER TRUST

By: Omicron Capital L.P., as advisor

By: Omicron Capital Inc., its general partner

By:   /s/    BRUCE BERNSTEIN        

Name:

  Bruce Bernstein

Title:

  Managing Partner

 

Signature Page to Securities Purchase Agreement

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

BUYERS: CRANSHIRE CAPITAL L.P. By:   /s/    MITCHELL D. KOPIN        

Name:

  Mitchell D. Kopin

Title:

 

President - Downsview Capital, Inc.

The General Partner

 

Signature Page to Securities Purchase Agreement

--------------------------------------------------------------------------------

SCHEDULE OF BUYERS

 

(1)

--------------------------------------------------------------------------------

  

(2)

--------------------------------------------------------------------------------

   (3)

--------------------------------------------------------------------------------

   (4)

--------------------------------------------------------------------------------

   (5)

--------------------------------------------------------------------------------

   (6)

--------------------------------------------------------------------------------

Buyer  

--------------------------------------------------------------------------------

  

Address and Facsimile Number

--------------------------------------------------------------------------------

   Aggregate
Principal
Amount
of Notes

--------------------------------------------------------------------------------

   Aggregate
Number of
Purchased Shares

--------------------------------------------------------------------------------

   Aggregate
Number of
Warrants

--------------------------------------------------------------------------------

   Legal Representative’s Address
and Facsimile Number

--------------------------------------------------------------------------------

Iroquois Master Fund Ltd   

Iroquois Master Fund Ltd

641 Lexington Ave., 26th Floor

New York, New York 10022

Facsimile: (212) 207-3452

Telephone: (212) 974-3070

E-mail: jsilverman@icfund.com

Attention: Joshua Silverman

Residence: Delaware

   1,400,000    167,597    217,877      Smithfield Fiduciary LLC   

c/o Highbridge Capital Management, LLC

9 West 57th Street, 27th Floor

New York, New York 10019

Attention: Ari J. Storch

                  Adam J. Chill

Facsimile: (212) 751-0755

Telephone: (212) 287-4720

E-mail: ari.storch@hcmny.com

adam.chill@hcmny.com

Residence: Cayman Islands

   2,100,000    251,396    326,816      Omicron Master Trust   

c/o Omicron Capital L.P.

650 Fifth Ave., 24th Floor

New York, New York 10019

Attention: Bruce Bernstein

Facsimile: (212) 258-2315

Telephone: (212) 258-2301

Residence: Bermuda

   2,100,000    251,396    326,816    Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Facsimile No.: (212) 969-2900
Telephone No.: (212) 969-3000
Attn: Adam J. Kansler, Esq. Cranshire Capital L.P.   

c/o Downsview Capital, Inc.

The General Partner

666 Dundee Road, Suite 1901

Northbrook, IL 60062

Attention: Mitchell D. Kopin

Facsimile: (847) 562-9031

Telephone: (847) 562-9030

E-mail: mkopin@cranshirecapital.com

Residence: Illinois

   1,400,000    167,597    217,877     

--------------------------------------------------------------------------------

EXHIBITS

 

Exhibit A    Form of Notes Exhibit B    Form of Warrants Exhibit C    Form of
Registration Rights Agreement Exhibit D    Form of Amended and Restated Pledge
and Security Agreement Exhibit E    Form of Irrevocable Transfer Agent
Instructions Exhibit F    Form of Company Counsel Opinion Exhibit G    Form of
Secretary’s Certificate Exhibit H    Form of Chief Executive Officer’s
Certificate

 

SCHEDULES

 

Schedule 3(e)    Consents Schedule 3(p)    Transaction with Affiliates
Schedule 3(q)    Capitalization Schedule 3(r)    Indebtedness and Other
Contracts Schedule 3(s)    Litigation Schedule 3(v)    Title Schedule 3(w)   
Intellectual Property Schedule 3(cc)    Ranking of Notes

--------------------------------------------------------------------------------

DISCLOSURE SCHEDULES

 

to the Securities Purchase Agreement (the “Agreement”) dated as of November 30,
2005 between Microvision, Inc. (the “Company”) and the investors listed on the
Schedule of Buyers thereto.

 

Introduction

 

The representations and warranties in Section 3 of the Agreement are made and
given subject to the disclosures in these Schedules. Unless otherwise defined
herein, terms used in these Schedules have the meaning given to them in the
Agreement.

 

The Schedules are qualified in their entirety by reference to specific
provisions of the Agreement and are not intended to constitute, and shall not be
construed as constituting, any representation or warranty of the Company except
to the extent provided in the Agreement.

--------------------------------------------------------------------------------

Schedule 3(e)

 

Consents

 

The Company has filed with the NASDAQ Stock Market a notification form for the
listing of additional shares.

--------------------------------------------------------------------------------

Schedule 3(p)

 

Transactions with Affiliates

 

None.

--------------------------------------------------------------------------------

Schedule 3(q)

 

Equity Capitalization.

 

(i) None.

 

(ii) See attached.

 

(iii) Outstanding Debt Securities

 

See Schedule 3(r).

 

(iv) Financing Statements Securing Obligations in Material Amounts

 

None, except under capital leases.

 

(v) Securities Containing Registration Rights

 

The shares of Series A Convertible Preferred Stock issued in September 2004, the
senior secured convertible notes issued as of March 11, 2005 (as amended and
restated in July 2005), the warrants issued in March 2005 and July 2005, and the
shares and warrants issued in August 2005 and September 2005 all have
registration rights.

 

(vi) Redemption Rights

 

The Company is required to redeem the Series A Convertible Preferred Stock for
cash in certain circumstances, including in the event of a material breach of
the Company’s representations, warranties or covenants under the Securities
Purchase Agreement dated as of September 9, 2004 by and between the Company and
Satellite Strategic Finance Associates, LLC or a change in control.

 

(vii) Securities Containing Anti-dilution Adjustments

 

The shares of Series A Convertible Preferred Stock issued in September 2004, the
senior secured convertible notes issued as of March 11, 2005 (as amended and
restated in July 2005), the warrants issued in March 2005 and July 2005, and the
warrants issued in August 2005 and September 2005 all have anti-dilution
adjustments. See also attached.

--------------------------------------------------------------------------------

Microvision, Inc.

Schedule 3(q)

Equity Capitalization

At November 28, 2005

 

A. Shares Capitalization           Shares

--------------------------------------------------------------------------------

Preferred Stock

    

Authorized

   25,000,000

Outstanding-Convertible Preferred Series A

   5,000

Retired-Convertible Preferred Series A

   5,000     

--------------------------------------------------------------------------------

Available

   24,990,000     

--------------------------------------------------------------------------------

Common Stock

    

Authorized

   73,000,000     

--------------------------------------------------------------------------------

Issued and outstanding

   24,151,491

Reserved for warrants issued (A)

   1,456,299

Reserved for options issued (B)

   5,391,743

Conversion of Debt & Related Warrants:

    

Common Stock (C)

   1,411,360

Warrants (C)

   1,212,330

Conversion of Series A Preferred & Related Warrants:

    

Common Stock (C)

   740,741

Warrants (C)

   361,795     

--------------------------------------------------------------------------------

     34,725,759     

--------------------------------------------------------------------------------

Available

   38,274,241     

--------------------------------------------------------------------------------

 

(A) Balance includes 300,409 Warrants subject to anti-dilution rights

 

(B) Balance excludes 3,063,734 authorized but ungranted option shares

 

(C) Subject to anti-dilution rights

--------------------------------------------------------------------------------

Schedule 3(r)

 

Indebtedness and Other Contracts

 

See attached.

--------------------------------------------------------------------------------

Microvision, Inc.

Schedule 3(r)

Indebtedness & Other Contracts

At November 28, 2005

 

A. Debt             Balance

--------------------------------------------------------------------------------

Redeemable Preferred Stock

   $ 5,000,000     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Convertible Notes

   $ 8,200,000     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Tenant improvement loan on existing building & capital leases

   $ 165,645     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Contracted pass-thru tenant improvement costs to be amortized into new building
rent

   $ 2,578,076     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

B. Lumera Corporation Common Stock Pledged             Shares

--------------------------------------------------------------------------------

Lumera Corp. common stock pledged as collateral

     1,750,000     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Schedule 3(s)

 

Absence of Litigation

 

On March 6, 2003 the Company received a letter from Feldman Weinstein, LLP,
counsel to Crestview Capital Fund I, Crestview Capital Fund II and Crestview
Capital Offshore Fund, Inc., (the “Fund”), claiming that the Fund had been
defrauded in the Microvision public offering by failure of Microvision to
disclose “material adverse information.” No further correspondence has been
received by the Company with respect to this matter.

 

On March 11, 2003 the Company received a letter from Fish & Richardson, P.C.,
counsel to Gryphon Master Fund, L.P. (“Gryphon”), stating that Gryphon had
sustained financial losses in its investment in the common stock of the Company,
due to “securities laws improprieties” by the Company’s failure to disclose
certain financial information in its Prospectus Supplement. No further
correspondence has been received by the Company with respect to this matter.

 

On September 14, 2004, Adil Lahrichi, a former employee of Lumera Corporation
(“Lumera”), filed a complaint against Microvision, Inc., Lumera and Tom Mino,
alleging discrimination and negligence, all stemming from Mr. Lahrichi’s
termination from Lumera in April 2004. The defendants answered Mr. Lahrichi’s
complaint by denying the allegations. The discovery cut-off has passed and
Defendants filed motions for summary judgment on November 8, 2005. A trial date
of February 6, 2006 has been set. The Company believes it has meritorious
defenses to Mr. Lahrichi’s claims against it.

--------------------------------------------------------------------------------

Schedule 3(v)

 

Title

 

1,750,000 shares of Lumera Corporation’s common stock have been pledged to
secure the Company’s obligations under the convertible notes issued in March
2005.

--------------------------------------------------------------------------------

Schedule 3(w)

 

Intellectual Property Rights

 

The following patents will expire before November 30, 2008: (1) 4,902,083,
(2) 4,934,773, (3) 5,003,300, (4) 5,048,077 and (5) 5,023,905.

--------------------------------------------------------------------------------

Schedule 3(cc)

 

Ranking of Notes

 

None.