Exhibit
10.18


 


Execution Copy


 


 


Innovative Micro Technology,
Inc.


 


 


INVESTORS’ RIGHTS AGREEMENT


 


 


Dated as of January 25,
2005


 





















 


TABLE OF CONTENTS


 


	
  ARTICLE I
  Definitions

  	
   

  
	
  1.1

  	
  Definition of Terms.

  	
   

  
	
  1.2

  	
  Construction.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II
  Registration Rights

  	
   

  
	
  2.1

  	
  Request for Registration.

  	
   

  
	
  2.2

  	
  Registration
  Incidental to Company Registration.

  	
   

  
	
  2.3

  	
  S-3
  Registration.

  	
   

  
	
  2.4

  	
  Conduct of Registration.

  	
   

  
	
  2.5

  	
  Expenses of Registration.

  	
   

  
	
  2.6

  	
  Delay of Registration.

  	
   

  
	
  2.7

  	
  Termination of
  Registration Rights

  	
   

  
	
  2.8

  	
  Indemnification.

  	
   

  
	
  2.9

  	
  Reports
  Under Securities Exchange Act of 1934.

  	
   

  
	
  2.10

  	
  Assignment of
  Registration Rights.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III
  Covenants of Company

  	
   

  
	
  3.1

  	
  Right of First Refusal.

  	
   

  
	
  3.2

  	
  Delivery of
  Financial Statements.

  	
   

  
	
  3.3

  	
  Inspection Rights.

  	
   

  
	
  3.4

  	
  Key Person Life
  Insurance.

  	
   

  
	
  3.5

  	
  Directors’ and
  Officers’ Insurance.

  	
   

  
	
  3.6

  	
  Management of the
  Company.

  	
   

  
	
  3.7

  	
  Termination of Covenants.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV
  Agreements of Holders

  	
   

  
	
  4.1

  	
  “Market Stand-Off”
  Agreement.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V
  Additional Investors and Holders

  	
   

  
	
  5.1

  	
  Additional Investors.

  	
   

  
	
  5.2

  	
  Consent to Joinder of
  WRH.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI
  Miscellaneous

  	
   

  
	
  6.1

  	
  Aggregation of Stock.

  	
   

  
	
  6.2

  	
  Severability.

  	
   

  
	
  6.3

  	
  Notices.

  	
   

  
	
  6.4

  	
  Headings.

  	
   

  
	
  6.5

  	
  Entire
  Agreement.

  	
   

  
	
  6.6

  	
  Counterparts.

  	
   

  
	
  6.7

  	
  Governing
  Law, Jurisdiction and Venue.

  	
   

  
	
  6.8

  	
  Waiver of Jury Trial.

  	
   

  
	
  6.9

  	
  Successors and Assigns.

  	
   

  
	
  6.10

  	
  No Third Party
  Beneficiaries.

  	
   

  
	
  6.11

  	
  Amendments and Waivers.

  	
   

  



 


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This INVESTORS’ RIGHTS AGREEMENT (this “Agreement”)
is made as of January 25, 2005, between Innovative Micro Technology, Inc.,
a Delaware corporation (the “Company”), on the one hand, and the
investors listed on Schedule I of this Agreement (the “Investors”)
on the other.


 


RECITALS:


 


A.                                   As of the date of
this Agreement, the Company and the Investors are also entering into a
Preferred Stock Purchase Agreement, as the same may be amended from time to
time (the “Purchase Agreement”), pursuant to which the Company will sell, and
the Investors will buy, 1,000,000 shares of Series A Redeemable Preferred
Stock (the “Series A Shares”) and 1,000,000 shares of Series A-1
Convertible Preferred Stock (the “Series A-1 Shares” and,
collectively with the Series A Shares, the “Preferred Shares”).


 


B.                                     As a condition to
the performance by the Investors of their obligations under the Purchase
Agreement, the Company has agreed, under the terms and conditions of this
Agreement, among other things, to provide under certain circumstances for the
registration for resale under the Securities Act of the Common Stock issuable
on conversion of the Series A-1 Shares.


 


D.                                    Capitalized terms
not defined in this Agreement have the meanings ascribed to them in the
Purchase Agreement.


 


NOW, THEREFORE, in consideration of the
foregoing facts and the mutual covenants, representations and warranties made
herein and other good and valuable consideration, the receipt and sufficiency
of which hereby are acknowledged, the parties hereto agree as follows:


 


ARTICLE I

Definitions


 


1.1                                 Definition
of Terms.


 


For all purposes of this Agreement, the
following terms shall have the meanings ascribed to them in this Section 1.1.


 


“Agreement” means this Investors’
Rights Agreement (including the Exhibits and the Schedules as provided herein),
as the same from time to time may be amended, supplemented, modified or waived.


 


“Board” means the Company’s Board of
Directors.


 


“Certificate of Designation” means the
Certificate of Designation of the Series A Redeemable Preferred Stock and Series
A-1 Convertible Preferred Stock.


 


“Common Stock” means the common stock,
par value $0.0001 of the Company, and also shall include any securities issued
or issuable with respect to the Common Stock, by way of a stock dividend, stock
split, combination of shares, recapitalization, restructuring, merger,
consolidation or other reorganization of the Company.


 


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“Company” has the meaning set forth in
the first paragraph of this Agreement.


 


“Company Registration” means a
registration under the Securities Act undertaken by the Company for the sale of
its shares of Common Stock or securities convertible into Common Stock, or for
the resale of such securities by holders other than the Holders, in connection
with the public offering of such securities, other than any of the following:


 


(i)                                     the First Public Offering;


 


(ii)                                  a registration relating the sale of
securities to employees, directors or consultants of the Company pursuant to a
stock option, stock purchase or similar plan;


 


(iii)                               a registration relating to a corporate
reorganization or other transaction under Rule 145 under the Securities Act;


 


(iv)                              a registration on any form that does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities; or


 


(v)                                 a registration in which the only Common
Stock being registered is Common Stock issuable upon conversion of debt
securities that are also being registered.


 


“Control” (including the terms “controlled
by” and “under  common  control  with”) means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise.


 


“Debt” means, as to any Person, all
obligations for payment of principal, interest, penalties and collection costs
thereof, with respect to money borrowed, incurred or assumed (including
guarantees), and other similar obligations in the nature of a borrowing by
which such Person will be obligated to pay.


 


“Dollars” or “$” means lawful
money of the United States of America.


 


“Eligible Investor” has the meaning
set forth in Section 3.3.


 


“Exchange Act” means the Securities
Exchange Act of 1934, as amended.


 


“First Public Offering” means the
first underwritten public offering of securities of the Company, after the date
hereof, pursuant to an effective registration statement under the Securities
Act, other than a registration statement relating either to the sale of
securities to employees, directors or consultants of the Company pursuant to a
stock option, stock purchase or similar plan or a transaction under Rule 145
under the Securities Act.


 


“Form S-3” means Form S-3 promulgated
by the SEC for the registration of securities under the Securities Act as in
effect on the date hereof, or any registration form under the Securities Act
subsequently adopted by the SEC in place of Form S-3 that permits inclusion or


 


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incorporation of substantial information by reference to other
documents filed by the Company with the SEC.


 


“Holder” means any person owning
Registrable Securities or securities convertible into Registrable Securities.


 


“Initiating Holders” has the meaning
set forth in Section 2.1(a).


 


“Investor” means those Persons listed
on Schedule I, and if a Second Closing takes place under the
Purchase Agreement, those Persons listed on Schedule II.


 


“Material Adverse Effect” means any material
adverse change in the financial condition, business prospects, revenues or
properties of the Company and its subsidiaries, taken as a whole.


 


“New Shares” has the meaning set forth
in Section 3.1.


 


“Notice” has the meaning set forth in Section 6.3.


 


“Offer Notice” has the meaning set
forth in Section 3.1(a).


 


“Permitted Transferee” means a Person
to whom registration rights, along with Registrable Securities, have been
transferred in accordance with Section 2.10.


 


“Person” means any natural person, firm,
partnership, association, corporation, company, limited liability company,
trust, business trust, Governmental Authority or other entity.


 


“Preferred Shares” means the Series A
Shares and Series A-1 Shares.


 


“Qualified Public Offering” means the
Company’s first underwritten public offering after the date hereof that results
in gross proceeds of at least $35 million and a price per share that is equal
to at least $6.00 (subject to adjustment for recapitalizations, splits, reverse
splits and the like affecting the Common Stock).


 


“Refused Shares” has the meaning set
forth in Section 3.1(c).


 


The terms “register,” “registered,”
and “registration” refer to a registration effected by preparing and
filing a registration statement or similar document in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document;


 


“Registrable Securities” means (i) the
shares of Common Stock issuable or issued upon conversion of the Series A-1
Shares purchased by any Investor pursuant to the Purchase Agreement, and (ii)
shares of Common Stock issuable or issued upon exercise of the WRH Warrant,
excluding in all cases, however, any shares that have been sold or transferred
by a Person in any of the following transactions (and shares of Common Stock
issuable on conversion of Series A-1 Shares that have been so sold or
transferred):  a transaction in which
his, her or its rights under this Agreement are not assigned; a sale pursuant
to an effective registration statement under the Securities Act; or a sale
pursuant to Rule 144 under the Securities Act.  For


 


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purposes of determining the number of outstanding Registrable
Securities from time to time, and the number of Registrable Securities held by
a Holder from time to time, both Registrable Securities that have been issued
and those that are issuable on conversion of other securities shall be deemed
outstanding.


 


“SEC” means the United States
Securities and Exchange Commission.


 


“Second Offer Notice” has the meaning
set forth in Section 3.1(c).


 


“Securities Act” means the Securities
Act of 1933, as amended.


 


“Series A Directors” has the meaning
as provided in the Certificate of Designation.


 


“Series A Shares” means the shares of
the Company’s Series A Redeemable Preferred Stock sold pursuant to the Purchase
Agreement.


 


“Series A Original Issuance Price” has
the meaning set forth in the Certificate of Designation.


 


“Series A-1 Director” has the same
meaning as provided in the Certificate of Designation.


 


“Series A-1 Holder” means a
Person owning shares of Series A-1 Convertible Preferred Stock.


 


“Series A-1 Shares” means the
shares of the Company’s Series A-1 Convertible Preferred Stock sold
pursuant to the Purchase Agreement.


 


“Violation” has the meaning set forth
in Section 2.8(a).


 


“WRH” means W.R. Hambrecht +Co.
and its successors and assigns with respect to the WRH Warrant.


 


“WRH Warrant” means the Warrant for
the purchase of up to 113,000 shares of Common Stock issued pursuant to a
Warrant Agreement between the Company and W.R. Hambrecht + Co., dated
as of January 25, 2005.


 


1.2                                 Construction.


 


(a)                                  All references in
this Agreement to a Section, Exhibit or Schedule are to a Section, Exhibit
or Schedule of or to this Agreement, unless otherwise indicated.


 


(b)                                 Whenever the context
requires, the masculine pronoun shall include the feminine and the neuter, and
the singular shall include the plural.


 


(c)                                  The terms “include,”
“includes” and “including” shall be construed as if followed by
the phrase “without limitation.”


 


(d)                                 The term “or”
includes the meaning “and/or.”


 


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ARTICLE II

Registration Rights


 


2.1                                 Request
for Registration.


 


(a)                                  Subject to the
conditions of this Section 2.1 and Section 2.4(b), if
the Company shall receive at any time after the earlier of (i) the third
anniversary of the Initial Closing Date (as defined in the Purchase Agreement)
and (ii) six months after the effective date of the First Public Offering, a
written request from the Holders of forty percent (40%) or more of the
Registrable Securities then outstanding (the “Initiating Holders”) that
the Company file a registration statement under the Securities Act covering the
registration of Registrable Securities having an anticipated aggregate gross
offering price of at least $10,000,000, then the Company shall use all
commercially reasonable efforts to cause the resale of all of the Registrable
Securities covered by the request to be registered under the Securities Act.


 


(b)                                 If the Initiating
Holders intend to distribute the Registrable Securities covered by their
request by means of an underwriting, they shall so advise the Company as a part
of their request made pursuant to this Section 2.1, and the Company
shall include that information in the written notice referred to in Section 2.1(a).


 


(c)                                  Notwithstanding any
other provision of this Section 2.1, if the underwriter advises the
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the number of shares of Registrable Securities
that may be included in the underwriting shall be so limited on a pro rata
basis, provided that no reduction shall be made in the Registrable Securities
included in the underwriting until the number of any securities to be sold by
the Company or by holders other than the Holders has been reduced to zero.


 


(d)                                 The Company shall not be required to
effect a registration pursuant to this Section 2.1 under any of the
following circumstances:


 


(i)                                     after the Company has effected two
registrations pursuant to this Section 2.1, and the registrations
have been declared or ordered effective;


 


(ii)                                  during the period starting with the date
sixty (60) days prior to the Company’s good faith estimate of the date of the
filing of a Company Registration, and ending on a date one hundred eighty (180)
days following the effective date of such Company Registration, provided that
the Company is actively employing in good faith all commercially reasonable
efforts to cause the registration statement for the Company Registration to
become effective;


 


(iii)                               if the Initiating Holders propose to
dispose of Registrable Securities that may be registered on Form S-3 pursuant
to Section 2.3;


 


(iv)                              if the Company shall furnish to Holders
requesting a registration pursuant to this Section 2.1 a
certificate signed by the Company’s Chief Executive Officer or Chairman of the
Board stating that, in the good faith judgment of the Board, it would be
seriously detrimental to the Company and its stockholders for such registration
to be effected at such time, in which event the Company shall have the right to
defer such


 


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filing for a period of not more than ninety (90) days
after receipt of the request of the Initiating Holders, provided that such
right to delay a request shall be exercised by the Company not more than once
in any twelve-month period; or


 


(v)                                 in any jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service
in such jurisdiction and except as may be required under the Securities Act.


 


2.2                                 Registration
Incidental to Company Registration.


 


(a)                                  If the Company proposes a Company
Registration, the Company shall, at a reasonable time prior to the filing of
the registration statement, give each Holder written notice of such Company
Registration.  Upon the written request
of each Holder given within twenty (20) days after mailing of such notice by
the Company, the Company shall, subject to the conditions set forth in this Section 2.2
and Section 2.4(b), use all commercially reasonable efforts to
cause to be registered under the Securities Act all of the Registrable
Securities that each such Holder has requested to be registered.


 


(b)                                 Notwithstanding any other provision of
this Section 2.2, if the Company Registration is an underwritten
offering and the underwriter advises the Company that in its reasonable
judgment the inclusion of Registrable Securities requested by the Holders in
such registration may adversely affect the offering of the securities
contemplated thereby, the Registrable Securities shall be reduced on a pro rata
basis among the participating Holders, as determined by the Company or its
managing underwriters.  Notwithstanding
the foregoing, in no event shall the amount of securities of the selling
Holders included in the offering be reduced below fifty percent (50%) of the
total amount of securities included in such offering without the consent of
holders of a majority of the Series A-1 Shares, unless such offering is the
Initial Public Offering, in which case all Registrable Securities held by the
selling Holders may be excluded if the underwriters make the determination
described above and no other stockholders’ securities are included in such
offering.


 


(c)                                  The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 2.2
prior to its effectiveness, whether or not any Holder has elected to include
Registrable Securities in such registration. 
The expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.5.


 


2.3                                 S-3
Registration.


 


(a)                                  If the Company receives from the Holders
of at least ten percent (10%) of the outstanding Registrable Securities a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of
the Registrable Securities owned by such Holder or Holders, the Company shall:


 


(i)                                     promptly give written notice of the
proposed registration, and any related qualification or compliance, to all
other Holders; and


 


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(ii)                                  subject to the conditions of this Section 2.3
and Section 2.4(b), use commercially reasonable efforts to effect,
as soon as practicable, such registration and all such qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Holders’ Registrable Securities
as are specified in such request, together with all or such portion of the
Registrable Securities of any other Holders joining in such request as are
specified in a written request given within 20 days after receipt of such
written notice from the Company, provided, however, that the Company shall not
be obligated to effect any such registration, qualification or compliance
pursuant to this Section 2.3 under any of the following
circumstances:


 


(1)                                  if Form S-3 is not available for such
offering by the Holders;


 


(2)                                  if the Holders, together with the holders
of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public (net of any underwriters’
discounts or commissions) of less than $1,000,000;


 


(3)                                  if the Company shall furnish to the
Holders a certificate signed by the Chief Executive Officer or Chairman of the
Board of the Company stating that in the good faith judgment of the Board, it
would be seriously detrimental to the Company and its stockholders for such
Form S-3 registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 registration statement
for a period of not more than ninety (90) days after receipt of the request of
the Holder or Holders under this Section 2.3, provided, however,
that the Company shall not utilize this right more than once in any 12-month
period and provided further, that the Company shall not register any of its
other equity securities during such ninety (90) day period;


 


(4)                                  during the period beginning sixty (60)
days prior to the filing of a registration statement under the Securities Act
pursuant to Section 2.1 or Section 2.2, and ending one hundred eighty
(180) days following the effective date of any such Registration Statement; and


 


(5)                                  in any jurisdiction in which the Company
would be required to qualify to do business, where not otherwise required, or
to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act.


 


2.4                                 Conduct
of Registration.


 


(a)                                  Obligations of Company. 
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:


 


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(i)                                     prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use all
commercially reasonable efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for a period of up to one hundred eighty (180) days or, if earlier,
until the distribution contemplated in the Registration Statement has been
completed; provided, however, that (A) such one hundred eighty (180) day period
shall be extended for a period of time equal to the period the Holder refrains
from selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (B) in
the case of any registration of Registrable Securities on Form S-3 that are
intended to be offered on a continuous or delayed basis, such 180-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Securities
Act governing the obligation to file a post-effective amendment to a
registration statement permit the registrant to incorporate information into
the registration statement by reference to periodic reports filed pursuant to Section 13
or 15(d) of the Exchange Act after the effective date to provide information
required by Section 10(a)(3) of the Securities Act or to disclose facts or
events representing a material or fundamental change in the information
originally provided in the registration statement;


 


(ii)                                  prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement;


 


(iii)                               furnish to each Holder (A) a draft copy
of the registration statement prior to effectiveness, and (B) such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as it may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by it;


 


(iv)                              use all commercially reasonable efforts
to register and qualify the securities covered by such registration statement
under such other securities or “blue sky” laws of such jurisdictions as shall
be reasonably requested by the Holders, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business, where not otherwise required, or to file a general consent to service
of process in any such states or jurisdictions, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;


 


(v)                                 in any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such offering;


 


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(vi)                              notify each Holder of Registrable
Securities covered by such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of (A) the issuance of any stop order by the SEC in respect of such
registration statement, or (B) the happening of any event as a result of which
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing;


 


(vii)                           cause all such Registrable Securities registered
under this Agreement to be listed on each securities exchange on which similar
securities issued by the Company are then listed; provided, that if a
registration effected pursuant to Section 2.1 above constitutes the
First Public Offering, the Company shall use its best efforts to list the
Registrable Securities on a national securities exchange or the Nasdaq National
Market System; and


 


(viii)                        provide a transfer agent and registrar
for all Registrable Securities registered pursuant hereunder and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration.


 


(b)                                 Required Actions by Holders. 
The obligations of the Company to take any action pursuant to this
Agreement with respect to registering the Registrable Securities of any Holder
shall be subject to the fulfillment of the following conditions:


 


(i)                                     the Holder shall furnish to the Company
such information regarding the Holder, the Registrable Securities held by the
Holder, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder’s Registrable Securities;


 


(ii)                                  in any underwritten offering of
Registrable Securities, the Holder shall enter into and perform its obligations
under an underwriting agreement, in usual and customary form, with the managing
underwriter of such offering;


 


(iii)                               in any underwritten offering of Company
securities, the Company shall not be required to include Registrable Securities
of any Holder unless the Holder accepts the terms of the underwriting as agreed
upon between the Company and the underwriters selected by the Company and
enters into an underwriting agreement in customary form with an underwriter or
underwriters selected by the Company (and, in the case of a registration under Section 2.1,
reasonably acceptable to the Initiating Holders holding at least sixty percent
(60%) of the Registrable Securities held by the Initiating Holders), and agree
to customary conditions to an underwritten offering on behalf of selling
security holders, including the surrender of securities into custody prior to
the closing of the offering and the appointment of an officer of the Company as
attorney-in-fact to execute such underwriting agreement on behalf of the Holder(s).


 


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2.5                                 Expenses of
Registration.


 


(a)                                  All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 2.1 and 2.2, including all registration,
filing and qualification fees (including “blue sky” fees), printers’ and
accounting fees, fees and disbursements of counsel for the Company shall be
borne by the Company, including fees and disbursements of counsel for the Company
in its capacity as counsel to the selling Holders hereunder; if Company counsel
does not make itself available for this purpose, the Company will pay the
reasonable fees and disbursements of one counsel for the selling Holders.  Notwithstanding the foregoing, the Company
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to Section 2.1 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses pro rata based upon the number of Registrable
Securities that were to be registered in the withdrawn registration), unless
the Holders of a majority of the Registrable Securities agree to forfeit one
right to demand registration pursuant to Section 2.1; provided, however, that if at the time of such withdrawal,
the Holders have learned of a material adverse change in the condition,
business or prospects of the Company, taken as a whole, from that known to the
Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 2.1.


 


(b)                                 All expenses incurred in connection with
a registration requested pursuant to Section 2.3, including all
registration, filing and qualification fees (including “blue sky” fees), printers’
and accounting fees, fees and disbursements of counsel for the Company and the
fees and disbursements of counsel for the selling Holder or Holders, shall be
borne pro rata by the Holder or Holders participating in the registration.


 


2.6                                 Delay
of Registration.  No Holder
shall have any right to obtain or seek an injunction restraining or otherwise
delaying any such registration as the result of any controversy that might
arise with respect to the interpretation or implementation of this Agreement.


 


2.7                                 Termination of
Registration Rights.  No
Holder shall be entitled to exercise any right provided for in this Article II
after the earlier of (i) five years following the date the Company consummates
the First Public Offering and is subject to the provisions of the Exchange Act
or (ii) the time when all Registrable Securities held by such Holder (together
with Registrable Securities held by any affiliate of the Holder with whom such
Holder must aggregate its sales under Rule 144) can be sold without registration
pursuant to Rule 144.


 


2.8                                 Indemnification.


 


(a)                                  Indemnification by Company. 
If any Registrable Securities are included in a registration statement
of the Company under this Agreement, then, to the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners or officers,
directors and stockholders of each Holder, legal counsel and accountants for
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter, within the
meaning of the Securities Act or the Exchange


 


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Act, against any losses,
claims, damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or any state securities
laws, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a “Violation”):  (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state securities
laws or any rule or regulation promulgated under the Securities Act, the
Exchange Act or any state securities laws; and the Company will reimburse each
such Holder, partner, officer, director, stockholder, counsel, accountant, or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that the
indemnity agreement contained in this Section 2.8(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be liable
in any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder, partner,
officer, director, stockholder, counsel, accountant or controlling person;
provided further, however, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of any Holder,
partner, officer, director, stockholder, counsel or accountant, or any person
controlling such Holder, from whom the person asserting any such losses,
claims, damages or liabilities purchased shares in the offering, if a copy of the
prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Holder or underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the shares to
such person, and if the prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage or liability.


 


(b)                                 Indemnification by Holders. 
To the extent permitted by law, each selling Holder, on a several and
not joint basis, will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, legal counsel and accountants for the Company, any underwriter, any other
stockholder selling securities in such registration statement and any
controlling person of any such underwriter or other stockholder, against any
losses, claims, damages or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, the Exchange
Act or any state securities laws, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation (but excluding clause (iii) of the definition thereof), in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will reimburse any person intended to be indemnified pursuant to this Section 2.8(b)
for any legal or other expenses reasonably incurred by such person in
connection with investigating or defending any such loss, claim, damage,


 


11





















 


liability or action;
provided, however, that the indemnity agreement contained in this Section 2.8(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder (which consent shall not be unreasonably withheld), provided that in no
event shall any indemnity under this Section 2.8(b) exceed the net
proceeds from the offering received by such Holder.


 


(c)                                  Procedures for Indemnification. 
Promptly after receipt by an indemnified party under this Section 2.8
of actual knowledge of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.8,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in such
proceeding.  The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the indemnified
party under this Section 2.8 to the extent of such prejudice, but
the omission to so deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 2.8.


 


(d)                                 Contribution. 
If the indemnification provided for in this Section 2.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of and the
relative benefits received by the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage or expense, as well as any
other relevant equitable considerations, provided that no person guilty of
fraud shall be entitled to contribution. 
The relative fault of the indemnifying party and of the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties’ relative intent, knowledge, access to information,
and opportunity to correct or prevent such statement or omission.  The relative benefits received by the
indemnifying party and the indemnified party shall be determined by reference
to the net proceeds and underwriting discounts and commissions from the
offering received by each such party.  In
no event shall any Holder’s contribution under this Section 2.8
exceed the net proceeds from the offering received by such Holder, less any
amounts paid under Section 2.8(b).


 


(e)                                  Underwriting Agreements. 
Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement


 


12





















 


entered into in
connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.


 


(f)                                    Survival.  The
obligations of the Company and Holders under this Section 2.8 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement.


 


2.9                                 Reports Under
Securities Exchange Act of 1934.


 


(a)                                  With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant
to a registration on Form S-3, the Company agrees to:


 


(b)                                 make and keep public information
available, as those terms are understood and defined in SEC Rule 144, at all
times after ninety (90) days after the effective date of the Initial Public
Offering;


 


(c)                                  take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act, as
is necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after
the end of the fiscal year in which the first registration statement filed by
the Company for the offering of its securities to the general public is
declared effective;


 


(d)                                 file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act; and


 


(e)                                  furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144 (at any time after ninety (90) days after the effective date of the Initial
Public Offering), the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.


 


2.10                           Assignment of
Registration Rights.


 


(a)                                  Permitted Assignees. 
Subject to Section 2.10(b), the right to cause the Company
to register Registrable Securities pursuant to this Article II may
be assigned (but only with all related obligations) by a Holder only to one of
the following Persons (“Permitted Transferees”):


 


(i)                                     a partner, retired partner, or affiliated
partner of any Holder that is a partnership;


 


13





















 


(ii)                                  a member of any Holder that is a limited
liability company;


 


(iii)                               a subsidiary or affiliate of any Holder;


 


(iv)                              an immediate family member of an
individual Holder, or a trust for the benefit of such Holder or immediate
family member; or


 


(v)                                 a Person who, after such assignment or
transfer, holds at least 50% of the outstanding Registrable Securities, subject
to appropriate adjustment for stock splits, reverse stock splits and similar
transactions.


 


(b)                                 The transfer to a Permitted Transferee of
any right to cause the Company to register Registrable Securities pursuant to
this Agreement is subject to the satisfaction of all of the following
conditions:


 


(i)                                     the Company receives, within a reasonable
time after such transfer, Notice of the name and address of the Permitted
Transferee and the securities with respect to which such the registration
rights are being transferred;


 


(ii)                                  the Permitted Transferee agrees in
writing (a copy of which writing is provided to the Company at the time of
transfer) to be bound by and subject to the terms and conditions of this
Agreement, including the provisions of Section 4.1; and


 


(iii)                               immediately following their transfer, the
further disposition of the Registrable Securities by the transferee or assignee
is restricted under the Securities Act.


 


ARTICLE III

Covenants of Company


 


As long as Series A-1 Shares are outstanding,
the Company covenants and agrees to do the following:


 


3.1                                 Right
of First Refusal.  Each
time the Company proposes to offer any shares of its capital stock, or
securities convertible into or exchangeable or exercisable for any shares of
its capital stock (the “New Shares”), the Company shall, subject to the
terms and conditions in this Section 3.1, first offer such New
Shares to each Series A-1 Holder in accordance with the following
provisions:


 


(a)                                  Not less than twenty-five (25) days prior
to the anticipated closing of the sale of New Shares, the Company shall deliver
a Notice (the “Offer Notice”) to the Series A-1 Holders stating
(i) its bona fide intention to offer New Shares, (ii) the number of
New Shares to be offered, (iii) the price and terms upon which it proposes
to offer the New Shares, (iv) the Series A-1 Holders’ pro rata share of the New
Shares to be offered (determined as described in Section 3.1(b))
and (v) the anticipated closing date of such sale of New Shares.


 


(b)                                 By Notice received by the Company, within
ten (10) business days after delivery by the Company of the Offer Notice
(delivered in accordance with Section 6.3), each Series A-1
Holder may elect to purchase or obtain New Shares, at the price and on the
terms


 


14





















 


specified in the Offer
Notice, in an amount up to such holder’s pro rata share of the New Shares,
based on the percentage of the outstanding Series A-1 Shares held by such
Series A-1 Holder.


 


(c)                                  The Company shall promptly send a Notice
(the “Second Offer Notice”) to each Series A-1 Holder who indicated its
intent to purchase or obtain all of the New Shares available to it under the
Offer Notice (a “Fully Exercising Holder”) of any other Series A-1
Holders’ failure to do likewise, stating the number of New Shares that such
holders have not elected to purchase (the “Refused Shares”).


 


(d)                                 By Notice received by the Company within
ten (10) business days after delivery by the Company of the Second Offer
Notice, each Series A-1 Holder may elect to purchase or obtain Refused
Shares, at the price and on the terms specified in the Offer Notice, in an
amount up to the total number of Refused Shares.  If the Fully Exercising Holders elect in
aggregate to purchase a number of shares in excess of the Refused Shares, the
Refused Shares shall be allocated among the holders so electing on a pro rata
basis, based on the relative holdings of Series A-1 Shares among the holders
who have elected to purchase Refused Shares, up to the full amount of Refused
Shares each holder has elected to purchase, until all New Shares have been
allocated.


 


(e)                                  If the Series A-1 Holders have not
elected to purchase all of the New Shares, the Company may, during the sixty-
(60)-day period following the expiration of the period provided in Section 3.1(d)
hereof, offer the remaining unsubscribed portion of the New Shares to any
person or persons at a price not less than, and upon terms (other than the time
permitted to close the purchase) no more favorable to the offeree than those
specified in the Offer Notice.  If the
Company does not enter into an agreement for the sale of the New Shares within
such period, or if such agreement is not consummated within thirty (30) days of
its execution, the right provided under this Section 3.1 shall be
revived and the New Shares shall not be offered unless first reoffered to the
Series A-1 Holders in accordance with subsections (a) through (d) of this Section 3.1.


 


(f)                                    The Notice by a Series A-1 Holder of the
exercise of the right to acquire New Shares under subsection (b) or (d) of
this Section 3.1 shall be a binding agreement by the exercising holder to
purchase the securities under the terms and conditions of the Offer Notice,
subject to the conditions that, (a) there shall not have occurred a Material
Adverse Effect after the date of the Offer Notice, and (b) the closing of the
sale of New Shares takes place not earlier than, and not more than twenty (20)
days later than, the anticipated closing date of such sale set forth in the
Offer Notice.


 


(g)                                 The right of first refusal under this Section 3.1
shall not be applicable to any of the following:


 


(i)                                     the issuance or sale of Preferred Shares
to any Additional Investors under the Purchase Agreement;


 


(ii)                                  the issuance of securities pursuant to
the conversion or exercise of convertible or exercisable securities outstanding
as of the date hereof,


 


15





















 


(iii)                               any of the following, if such issuance is
approved by the Board of Directors, including at least two of the Series A and
Series A-1 Directors (if any);


 


(1)                                  the issuance or sale of shares of Common
Stock, or the grant of options to purchase Common Stock, to employees,
directors, officers and consultants for the primary purpose of soliciting or
retaining their employment or services; provided, that the number of securities
issued under this clause (1) after the date of this Agreement does not
exceed 3,000,000 shares (as adjusted for any stock dividends, combinations or
splits with respect to such shares effected after the date hereof and to be calculated net of any
repurchases of such shares by the Company and net of any shares of restricted
stock issued and outstanding under the 2001 Stock Incentive Plan, as amended);
or such greater number approved by the Board of Directors, including at least
two of the Series A and Series A-1 Directors;


 


(2)                                  the issuance of securities pursuant to a
firmly underwritten public offering of shares of Common Stock, registered under
the Securities Act;


 


(3)                                  the issuance of warrants as additional
consideration in connection with any debt financing, provided the warrants have
an exercise price at or above the fair market value of the Common Stock at the
time of such financing;


 


(4)                                  the issuance of securities in connection
with a bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise;
provided, such transaction is approved by the Board, including at least two of
the Series A and Series A-1 Directors;


 


(5)                                  the issuance or sale of stock, warrants
or other securities or rights to new customers of the Company or other persons
or entities with which the Company establishes or expands a business
relationship, provided such issuances are primarily for purposes other than
equity financing, and such transaction is approved by the Board, including at
least two of the Series A and Series A-1 Directors


 


(h)                                 The right of first refusal set forth in
this Section 3.1 may not be assigned or transferred, except by an
Investor who transfers Series A-1 Shares (along with all related obligations
under this Agreement) to a transferee that is (i) a partner, retired partner,
or affiliated partner of any Investor that is a partnership; (ii) a member of
any Investor that is a limited liability company; (iii) a subsidiary or
affiliate of any Investor; or (iv) an immediate family member of an individual
Investor, or a trust for the benefit of such Investor or immediate family
member.


 


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3.2                                 Delivery of
Financial Statements.


 


(a)                                  On a monthly basis, within ten (10) days
following the end of each month, the Company shall deliver to the Investors
such monthly financial information as the Company prepares for management.


 


(b)                                 Promptly after filing with the SEC, and
in any event, with fifteen (15) days after such filing, the Company shall
deliver to each investor the annual and quarterly reports the Company is
required to file under Section 13(a) or Section 15(d) of the Exchange
Act.


 


(c)                                  At any time when the Company is not
required to comply with the periodic reporting requirements of either Section 13(a)
or Section 15(d) of the Exchange Act, the Company shall deliver to each
Investor the following:


 


(i)                                     within ninety (90) days after the end of
each fiscal year, an income statement for such fiscal year, a balance sheet of
the Company as of the end of such year, and a cash flow statement, such
year-end financial reports to be in reasonable detail, prepared in accordance
with generally accepted accounting principles (“GAAP”), and audited and
certified by independent public accountants of nationally recognized standing
selected by the Company; and


 


(ii)                                  within forty-five (45) days after the end
of each quarter, an unaudited statement of operations, cash flow analysis and
balance sheet for and as of the end of such quarter, in reasonable detail.


 


3.3                                 Inspection
Rights.  The Company shall
permit each Investor holding at least 50,000 shares (appropriately adjusted for
any splits, reverse splits or similar transactions) of Registrable Securities
(an “Eligible Investor”), at such Investor’s expense, to visit and inspect the
Company’s properties, to examine its books of account and records and to
discuss the Company’s affairs, finances and accounts with its officers, all at
such reasonable times as may be reasonably requested by the Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 3.3
to provide access to any information that it reasonably considers to be a trade
secret, to be subject to attorney-client privilege, or to otherwise constitute
confidential information (unless the representative of the Eligible Investor to
whom such information is to be provided is a member of the Board), and provided
further that the Company may require the Eligible Investor seeking such access
to execute a confidentiality and nondisclosure agreement prior to any such
visit and inspection.


 


3.4                                 Key
Person Life Insurance.  Within
three months of the date of this Agreement, the Company shall obtain and, until
the consummation of the First Public Offering, use commercially reasonable
efforts to maintain, at its expense, a policy of “key person” life insurance
covering the life of the Chief Executive Officer, the death benefit of which
insurance shall be payable to the Company. 
In no event shall the Company be required to obtain or maintain key
person life insurance having a death benefit in excess of $1,000,000 for any
individual.


 


3.5                                 Directors’ and
Officers’ Insurance.  The
Company presently has in effect and shall maintain a policy of directors’ and
officers’ liability insurance with an aggregate limit of liability in each
policy period of at least $5 million.


 


17





















 


3.6                                 Management
of the Company.  The Company
shall not do any of the following without the approval of the Board, including
at least two of the Series A and Series A-1 Directors:


 


(a)                                  hire or terminate a Chief Executive
Officer or agree with any member of senior management regarding the terms of
employment or modification of such terms;


 


(b)                                 adopt the annual accounts or budgets of
the Corporation or any material subsidiary, amend the accounting policies
previously adopted or change the fiscal year of the Corporation; or


 


(c)                                  use the net proceeds of the sale of
Series A Shares or Series A-1 Shares (i) to repay indebtedness of the
Corporation, other than the repayment of the indebtedness to L-3 Communications
Corp. in the original principal amount of $1,500,000, plus all accrued interest
thereon, or (ii) to pay dividends upon or redeem any security of the Corporation.


 


3.7                                 Termination
of Covenants.  The Covenants
in this Article III shall terminate and be of no further effect upon the
earlier of (a) the time when no Series A-1 Shares remain outstanding, and
(b) the consummation of a Qualified Public Offering.


 


ARTICLE IV

Agreements of Holders


 


4.1                                 “Market Stand-Off”
Agreement.  


 


(a)                                  Each Holder hereby agrees that it will
not, directly or indirectly, without the prior written consent of the Company
and the managing underwriter, during the period commencing on the date of the
final prospectus relating to any underwritten public offering by the Company
and ending on the date specified by the Company and the managing underwriter
(such period not to exceed one hundred eighty (180) days) (1) lend, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock (whether such shares or any such
securities are then owned by the Holder or are thereafter acquired), or (2)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise.


 


(b)                                 This Section 4.1 shall not
apply to the sale of Registrable Shares to an underwriter pursuant to an
underwriting agreement, and shall only be applicable to the Holders if all
officers and directors and holders of at least 5% of the voting stock of the
Company enter into similar agreements.


 


18





















 


(c)                                  The underwriters in connection with any
underwritten public offering by the Company are intended third party
beneficiaries of this Section 4.1(c), and shall have the right, power and
authority to enforce the provisions hereof as though they were parties hereto;
further, each Holder hereby agrees to enter into a written agreement with such
underwriters in customary form containing terms substantially equivalent to the
terms of this Section 4.1(c), and each Holder hereby agrees that the
underwriters shall be entitled to require the Holder to enter into such a
written agreement.


 


(i)                                     Notwithstanding the foregoing, nothing in
this Section 4.1(c) shall prevent a Holder from making a transfer
of any share of Common Stock purchased by the Holder in the open market from a
person other than the Company.


 


(ii)                                  In order to enforce this Section 4.1(c),
the Company may impose stop-transfer instructions with respect to the
Registrable Securities of each Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such
period.


 


ARTICLE V

Additional Investors and Holders


 


5.1                                 Additional
Investors.  If a
Subsequent Closing (as defined in the Purchase Agreement) takes place pursuant
to the Purchase Agreement, the purchasers of additional Preferred Shares at
such closing (the “Additional Investors”) shall, after signing this Agreement
and agreeing to be bound by its terms, and performing their obligations under
the Purchase Agreement, become Investors for all purposes under this Agreement,
as if originally parties hereto, and shall be Holders under this Agreement to
the extent they hold Registrable Securities pursuant to such Subsequent
Closing.  The Company shall append a Schedule II
to this Agreement, listing the Additional Investors and the Preferred Shares
held by each, and by signing this Agreement, each Additional Investor
acknowledges the accuracy of the information set forth on Schedule II with
respect to such Additional Investor.  The
original Investors hereby consent to the Additional Investors’ becoming parties
to this Agreement on such terms, and consent to the Company’s delivery to the
Additional Investors of this Agreement and Schedule II, along with any
endorsements necessary to confirm the rights of the Additional Investors under
this Agreement.


 


5.2                                 Consent
to Joinder of WRH.  The
Investors hereby consent to the joinder of WRH to this Agreement as a Holder
pursuant to Articles II, IV and VI hereof, and to the extension to WRH of the
same rights hereunder, on a pro rata basis, with respect to Registrable
Securities as the other Holders, provided WRH agrees in writing to be bound by
the same conditions, limitations and obligations as the other Holders
hereunder, and provided further that WRH shall not be deemed an Investor for
any purpose hereunder.


 


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ARTICLE VI

Miscellaneous


 


6.1                                 Aggregation
of Stock.  When determining
the availability of any rights under this Agreement, the Company shall
aggregate all shares of securities held or acquired by affiliated entities, and
shall deem all such securities to be held by a single Person.


 


6.2                                 Severability.  If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.


 


6.3                                 Notices.  All notices, requests, demands, approvals,
consents, waivers and other communications required or permitted to be given
under this Agreement (each, a “Notice”) shall be in writing and shall be
(a) delivered personally, (b) mailed by certified mail, return
receipt requested, postage prepaid, (c) sent by next-day or overnight mail
or delivery, or (d) sent by facsimile transmission, provided that a
confirmation statement is retained by sender, as follows;


 


(a)                                  if to an Investor, to the address or
facsimile number for that investor provided in Schedule I or Schedule II.


 


(b)                                 if to the Company, to:


 


Innovative Micro Technology, Inc.

75 Robin Hill Rd.

Santa Barbara, CA  93117

Facsimile:  805-967-2677

Attention:  John Foster, President and
Chief Executive Officer


 


With a copy (which shall not constitute Notice to):


 


Sheppard, Mullin, Richter & Hampton LLP

333 S. Hope Street, 48th Floor Los Angeles, CA 90017

Facsimile:  (213) 620-1398

Attention:  James J. Slaby, Esq.


 


or, in each case, at such other address as may be specified in a Notice
to the other party hereto.  All Notices
shall be deemed effective and given upon receipt.


 


6.4                                 Headings.  The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement or any of its terms.


 


6.5                                 Entire
Agreement.  This Agreement
(including any Schedules and Exhibits hereto) constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all prior agreements and understandings, both written and oral, between the
parties with respect thereto.


 


20





















 


6.6                                 Counterparts.  This Agreement may be signed (including by
facsimile) in one or more counterpart signature pages, each of which shall be
deemed an original and all of which shall together constitute one and the same
instrument.


 


6.7                                 Governing
Law, Jurisdiction and Venue. 
This Agreement shall be governed in all respects, including as to
validity, interpretation and effect, by the internal laws of the State of
California, without giving effect to the conflict of laws rules thereof.  Each Investor and the Company hereby
irrevocably submits to the jurisdiction of the courts of the State of
California, and the federal courts of the United States of America located in
the Central District of California, in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred
to in this Agreement, and hereby waive, and agree not to assert, as a defense
in any action, suit or proceeding for the interpretation or enforcement hereof
or of any such document, that it is not subject thereto or that such action,
suit or proceeding may not be brought or is not maintainable in said courts or
that the venue thereof may not be appropriate or that this Agreement or any of
such document may not be enforced in or by those courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a California State Court or federal
court.  Each Investor and the Company
hereby consent to and grant any such court jurisdiction over the person of such
parties and over the subject matter of any such dispute and agree that mailing of
process or other papers in connection with any such action or proceeding in the
manner provided in Section 6.3, or in such other manner as may be
permitted by law, shall be valid and sufficient service thereof.


 


6.8                                 WAIVER
OF JURY TRIAL.  IF ANY
DISPUTE BETWEEN THE COMPANY AND THE INVESTORS OR HOLDERS ARISES OUT OF THIS
AGREEMENT OR ANY RELATED TRANSACTION, WITH RESPECT TO ANY LITIGATION THE
PARTIES EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A JURY TRIAL AND AGREE THAT
ANY SUCH LITIGATION SHALL BE TRIED BY A JUDGE WITHOUT A JURY.


 


6.9                                 Successors
and Assigns.  Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the successors and Permitted
Transferees of the parties.  Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and Permitted Transferees any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.


 


6.10                           No Third Party
Beneficiaries.  Except as
provided in Section 4.1(c), nothing in this Agreement shall confer
any rights upon any Person other than the parties to this Agreement and their
heirs, legal representatives, successors and Permitted Transferees.


 


6.11                           Amendments
and Waivers.  Any term of this
Agreement may be amended and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of at least a majority of the then-outstanding Preferred Shares
(including Common Stock not previously sold to the public that is issued or
issuable upon conversion of the then-outstanding Preferred Shares).  Any amendment or waiver effected in
accordance with this section shall be binding upon each Investor, Holder
and Permitted Transferee, each future holder of all securities otherwise
subject to this Agreement and the Company. 
Any such waiver shall


 


21





















 


constitute a waiver only with respect to the specific matter described
in such writing and shall in no way impair the rights of the party granting the
waiver in any other respect or at any other time.  Neither the waiver by any of the parties
hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights
or privileges hereunder.


 


The next page is the
signature page.


 


22





















 


IN WITNESS
WHEREOF, the parties have executed this Investors’ Rights Agreement as of the
date first above written.


 


	
  Company:

  
	
   

  
	
  INNOVATIVE MICRO
  TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ John Foster

  	
   

  
	
   

  	
  John Foster

  
	
   

  	
  President and Chief Executive Officer

  
	
   

  
	
  Investors:

  
	
   

  
	
  INVESTOR GROWTH CAPITAL LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Lisa Crawford

  	
  , its “A” Director

  
	
   

  	
  Name: Lisa
  Crawford

  
	
   

  	
  Title: “A” Director

  
	
   

  	
   

  
	
  By:

  	
  /s/ Robert de Heus

  	
  , its “B” Director

  
	
   

  	
  Name: Robert
  de Heus

  
	
   

  	
  Title: “B” Director

  
	
   

  	
   

  
	
  INVESTOR
  GROUP L.P.

  
	
   

  
	
  By:  Investor Group GP LTD., its General
  Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Lisa Crawford

  	
  , its “A” Director

  
	
   

  	
  Name: Lisa
  Crawford

  
	
   

  	
  Title: “A” Director

  
	
   

  	
   

  
	
  By:

  	
  /s/ Robert de Heus

  	
  , its “B”
  Director

  
	
   

  	
  Name: Robert
  de Heus

  
	
   

  	
  Title: “B” Director

  
	
   

  	
   

  
	
  BAVP VII, L.P.

  
	
   

  
	
  By: BA Venture Partners
  VII, LLC

  
	
  its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Eric M. Sigler

  	
   

  
	
   

  	
  Name: Eric
  M. Sigler

  
	
   

  	
  Title: Member

  
							



 


23





















 


	
  MIRAMAR VENTURE PARTNERS, L.P.

  
	
   

  	
   

  
	
  By:

  	
  Miramar Venture Associates, LLC

  
	
   

  	
  its general partner

  
	
   

  	
   

  
	
  By:

  	
  /s/ Robert R. Holmen

  	
   

  
	
   

  	
  Name: Robert R. Holmen

  
	
   

  	
  Title: Member

  
				



 


24





















 


Schedule I


 


Investors


 


	
  Name

  	
   

  	
  Shares, Series A

  Redeemable

  Preferred Stock

  	
   

  	
  Shares, Series A-1

  Convertible

  Preferred Stock

  	
   

  
	
  Investor Growth Capital Limited

  National Westminster House

  Le Truchot, St. Peter Port

  GY1 4PW, Guernsey

  Channel Islands

  Tel.: +44 1481 732 615

  Facsimile: +44 1481 732 616

  Attention: Wayne Tallowin

  

  With a copy (which shall not

  constitute notice) to:

  Benjamin B. Quinones, Esq.

  Pillsbury Winthrop LLP

  2475 Hanover Street

  Palo Alto, CA 94304-1114

  Facsimile: (650) 233-4545

  	
   

  	
  329,412

  	
   

  	
  329,412

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Investor Group L.P.

  National Westminster House

  Le Truchot, St. Peter Port

  GY1 4PW, Guernsey

  Channel Islands

  Tel.: +44 1481 732 615

  Facsimile: +44 1481 732 616

  Attention: Wayne Tallowin

  

  With a copy (which shall not

  constitute notice) to:

  Benjamin B. Quinones, Esq.

  (address as above) .

  	
   

  	
  141,176

  	
   

  	
  141,176

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BAVP VII, L.P.

  950 Tower Lane, Suite 700

  Foster City, CA. 94404

  [FACSIMILE]

  	
   

  	
  352,941

  	
   

  	
  352,941

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Miramar Venture Partners, L.P.

  2101 East Coast Hwy., Ste. 300

  Corona del Mar, CA 92625

  Facsimile: (949) 760-4451

  	
   

  	
  176,471

  	
   

  	
  176,471

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  1,000,000

  	
   

  	
  1,000,000

  	
   

  



 


i