Exhibit
4.6


 


THIS WARRANT AND THE
SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE ACT, SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO AND ALL APPLICABLE
QUALIFICATIONS UNDER STATE SECURITIES LAWS SHALL HAVE BEEN OBTAINED WITH
RESPECT THERETO; (ii) A WRITTEN OPINION FROM COUNSEL FOR THE HOLDER
REASONABLY SATISFACTORY TO THE ISSUER HAS BEEN OBTAINED STATING THAT NO SUCH
REGISTRATION OR QUALIFICATION IS REQUIRED; OR (iii) SOLD PURSUANT TO RULE 144
UNDER SUCH ACT.


 


 


WARRANT TO PURCHASE COMMON STOCK OF

INNOVATIVE MICRO TECHNOLOGY, INC.


 


For good and valuable
consideration, the receipt of which is hereby acknowledged, Innovative Micro
Technology, Inc., a Delaware corporation (the “Company”), hereby grants to INVESTOR
GROWTH CAPITAL LIMITED, a limited partnership, its successors and assigns
(collectively, the “Holder”), an irrevocable warrant (the “Warrant”) to
purchase, subject to the satisfaction of the conditions set forth in Section 1
below and subject to the other terms hereof, the number of shares of Common
Stock, par value $0.0001 per share, of the Company (the “Shares”), if any,
determined in accordance with Section I hereto, at the Warrant Price, as
defined below, at any time beginning on March 15, 2006 (the “Determination
Date”) and ending on January 24, 2008 (the “Expiration Date” and such
period beginning on the Determination Date and ending on the Expiration Date,
the “Exercise Period”).


 


1.                                       Conditions to Exercise;
Number of Shares; Early Termination.  On or before March 15, 2006, the Company
shall deliver to the Holder a report in the form of Exhibit A
hereto (the “Performance Report”) setting forth the Company’s total Contract
Activity (as defined below) and gross profit for calendar year 2005.  If the Company’s performance described in the
Performance Report does not satisfy the Target Amounts set forth on Exhibit B
hereto, then this Warrant shall then become exercisable for the lesser of one
hundred sixty-four, seven hundred six (164,706) shares of Common Stock and the
number of shares of Common Stock calculated as purchasable pursuant to Exhibit B
hereto, subject to adjustment as provided below.  For purposes of this Warrant, “Contract
Activity” shall mean total revenue, as adjusted by work-in-process inventory,
for the period measured.  For purposes of
this Warrant, the terms “revenue” and “work-in-process inventory” shall have
the meanings ascribed to them under U.S. Generally Accepted Accounting
Principles (“GAAP”).  “Gross profit”
shall have the same meaning as that used in the budgets of the Company provided
heretofore to the Investors, in which “gross profit” means gross profit, within
the meaning of GAAP, before any deduction for profit sharing.  If, on the Determination Date, the number of
Shares purchasable is zero (0), this Warrant shall terminate and be of no
further force or effect.


 


1





















 


2.                                       Exercise; Issuance of
Certificates; Payment for Shares.


 


This Warrant may be
exercised by the Holder, in whole or in part, and on one or more occasions, by
written notice to the Company, in the form attached as Exhibit C hereto
(the “Notice”), at any time within the Exercise Period and by payment to the
Company by wire transfer (in accordance with the wire transfer instructions
attached hereto as Exhibit D) of the aggregate Warrant Price for the
number of Shares designated by the Holder (but not more than the number of
Shares for which this Warrant then remains subject and unexercised).  Consideration received by the Company under a
broker-assisted sale and remittance program acceptable to the Company may also
be used to exercise this Warrant. 
Certificates for the Shares so purchased will be delivered to the Holder
within a reasonable time, not exceeding fifteen (15) business days, after
this Warrant has been exercised, and, unless this Warrant has expired, it will
continue in effect with respect to the number of Shares, if any, as to which it
has not then been exercised and which remain covered by this Warrant as herein
provided.  Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of
business on the business day on which the Notice is given to the Company.  At such time, the person or persons in whose
name or names any certificate for the Shares shall be issuable upon such
exercise shall be deemed to have become the holder or holders of record of the
Shares represented by such certificate or certificates, and to be entitled to
all rights of a Stockholder with respect to such Shares, including without
limitation voting rights.


 


3.                                       Shares to be Fully Paid;
Reservation of Shares.  The
Company covenants and agrees as follows:


 


3.1                                 All shares issued upon the
exercise of this Warrant will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issuance
thereof.


 


3.2                                 During the period within
which this Warrant may be exercised, the Company will at all times have
authorized and reserved for the purpose of issuance or transfer upon exercise
of this Warrant a sufficient number of Shares to provide for the exercise of
this Warrant.


 


3.3                                 The Company will take all
actions necessary to assure that the Shares issuable upon the exercise of this
Warrant may be so issued without violation of any applicable law or regulation,
or of any requirements of any securities exchange upon which the shares of the
Company may then be listed.


 


4.                                       Warrant Price.


 


4.1                                 Initial Warrant Price;
Subsequent Adjustment of Price and Number of Purchasable Shares.  The initial Warrant Price (“Initial Warrant
Price”) will be $0.30 per Share, and will be adjusted from time to time as
provided below.  The Initial Warrant
Price or, if such price has been adjusted, the price per Share as last adjusted
pursuant to the terms hereof, is referred to as the “Warrant Price” herein.


 


4.2                                 Subdivision or Combination
of Shares.  If the
Company at any time while this Warrant, or any portion hereof, remains
outstanding and unexpired shall split, subdivide or


 


2





















 


combine the securities as to
which purchase rights under this Warrant exist, into a different number of
securities of the same class, the number of Shares for which this Warrant may
be exercised shall be adjusted to represent the aggregate number of securities
that, if this Warrant had been exercised immediately prior to such event, the
Holder would have owned upon such dividend, distribution, subdivision,
combination or reclassification, and the Warrant Price for such securities
shall be proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.


 


4.3                                 Reclassification.  If the Company, at any time while this
Warrant, or any portion hereof, remains outstanding and unexpired, by
reclassification of securities or otherwise shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with
respect to the securities that were subject to the purchase rights under this
Warrant immediately prior to such reclassification or other change and the
Warrant Price therefor shall be appropriately adjusted.


 


4.4                                 Adjustments for Dividends in
Stock or Other Securities or Property.  If while this Warrant, or any portion hereof,
remains outstanding and unexpired holders of the securities as to which
purchase rights under this Warrant exist at the time shall have received, or,
on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company by way of dividend, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that the
Holder would hold on the date of such exercise had it been holder of record of
the security receivable upon exercise of this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the
date of such exercise, retained such shares and/or all other additional
securities available to it as aforesaid during such period, giving effect to
all adjustments called for during such period.


 


4.5                                 Reorganization,
Reclassification, Consolidation, Merger or Sale.  If, while this Warrant, or any portion
hereof, remains outstanding and unexpired, any capital reorganization or
reclassification of the stock of the Company, or any consolidation or merger of
the Company with another corporation or entity, or the sale of all or
substantially all of the Company’s assets to another corporation will be
effected in such a way that holders of the securities for which this Warrant is
exercisable will be entitled to receive shares, securities or assets with
respect to or in exchange for such securities, then, upon exercise of this
Warrant, the Holder will thereafter have the right to receive such shares,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding securities equal to the number of securities
purchasable and receivable upon the exercise of this Warrant immediately prior
to such event.  If a purchase, tender or
exchange offer is made to and accepted by holders of more than 50% of the
outstanding capital stock of the Company (on an as-converted to Common Stock
basis), the Company will not effect any consolidation, merger or sale with the
Person, as defined below, making such offer or with any Affiliate, as defined
below, of such Person, unless, before the consummation of such consolidation,
merger or sale, the Holder of this


 


3





















 


Warrant is given at least
ten (10) business days’ notice prior to the scheduled closing date (the “Closing
Date”) of such transaction (which notice shall specify the material terms of
such transaction and the proposed Closing Date).  In the event the Holder elects to exercise
this Warrant or any portion thereof following such notice and such
consolidation, merger or sale is not consummated within ten (10) days of
the proposed Closing Date (or any subsequent proposed Closing Date), then the
Holder may rescind its exercise of this Warrant by providing
written notice thereof to the Company, the Company shall take all actions
consistent therewith (including without limitation the immediate return of the
Warrant Price paid with respect to such rescinded exercise) and this Warrant shall
continue in full force and effect.  As
used in this paragraph, the term “Person” includes an individual, a
partnership, a corporation, a trust, a joint venture, a limited liability
company, an unincorporated organization and a government or any department or
agency thereof, and an “Affiliate” of a Person means any Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with, such other Person.  A
Person will be deemed to control a corporation or other business entity if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.


 


4.6                                 Notice of Adjustment.  Upon any adjustment of the number of Shares
and/or the Warrant Price, the Company will give written notice thereof, by
first-class mail, postage prepaid, addressed to the Holder at the Holder’s
address as shown on the books of the Company, which notice will state
(i) the Warrant Price resulting from such adjustment and the increase or
decrease, if any, in the number of Shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based, and
(ii) whether, after giving effect to such adjustment, the maximum number
of Shares issuable upon the exercise of this Warrant will constitute more than
5% of the total number of the then issued and outstanding Shares (including in
such total number the maximum number of Shares issuable upon the exercise of
this Warrant).


 


4.7                                 Other Notices.  If at any time:


 


4.7.1                        the Company
declares a cash dividend on its Common Stock payable at a rate in excess of the
rate of the last cash dividend theretofore paid;


 


4.7.2                        the Company
declares a dividend on its Common Stock payable in securities or pays a special
dividend or other distribution (other than regular cash dividends) to holders
of its Shares;


 


4.7.3                        the Company offers
for subscription to holders of any of its Common Stock additional shares of any
class or other rights;


 


4.7.4                        there is a
reorganization, reclassification, consolidation or merger of the Company with,
or sale of all or substantially all of its assets to, another corporation or
other entity; or


 


4.7.5                        there is a
voluntary or involuntary dissolution, liquidation or winding up of the Company;


 


4





















 


then the Company will give,
as provided in paragraph 15 below, to the Holder’s address as shown on the
books of the Company, (i) at least ten (10) business days’ prior
written notice of the date on which the books of the Company will close or
a record will be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
ten (10) business days’ prior written notice of the date when the
same will take place.  Any notice
required by clause (i) will also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the Holder
will be entitled thereto, and any notice required by (ii) will also specify the
anticipated date on which the Holder will be entitled to exchange its Shares
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.


 


5.                                       Listing.  If any Shares required to be reserved for the
purpose of issuance upon the exercise of this Warrant require registration with
or approval of any governmental authority under any federal or state law (other
than the filing of a Registration Statement under the Securities Act of 1933,
as then in effect (the “Securities Act”), or any similar law then in effect),
or listing on any securities exchange, before such Shares may be issued upon
such exercise, the Company will, at its expense and as expeditiously as
possible, use its commercially reasonable efforts to cause such Shares to be
duly registered or approved or listed on the relevant securities exchange, as
the case may be.


 


6.                                       Closing of Books.  The Company will at no time close its
transfer books against the transfer of this Warrant or of any Shares issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.


 


7.                                       Definition of Common Stock.  As used in this Warrant the term “Common
Stock” includes the Company’s authorized Common Stock, par value $0.0001 per
share, as constituted on the date hereof and also includes any shares of any
class of stock or other equity securities of the Company thereafter authorized
which will not be limited to a fixed sum or percentage of par value in respect
of the rights of holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company.


 


8.                                       Definition of Shares.  Except as provided in paragraph 4.5, the
Shares purchasable pursuant to this Warrant will include only Shares designated
as “common stock” of the Company or, in the case of any reclassification of the
outstanding Shares, the Shares, securities or assets provided for in
paragraph 4.5.


 


9.                                       No Voting Rights.  This Warrant will not entitle the Holder to
any voting rights or other rights as a stockholder of the Company.


 


10.                                 Warrant Transferable.  This Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Holder, by written
notice to the Company at the address referred to in paragraph 15 below by
the Holder, in person or by duly authorized attorney; provided that either (i) a
written opinion of counsel for the Holder reasonably satisfactory to the
Company has been obtained stating that such transfer will not violate the
registration


 


5





















 


requirements of the
Securities Act or any applicable state securities laws, and (ii) the transferee
has delivered to the Company a written agreement to be bound by the terms and
conditions hereof.  The Holder agrees
that after such notice, the Holder may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to further assign this Warrant, any notice to the contrary notwithstanding;
but until receipt of any such notice of assignment, the Company may treat the
Holder as shown on its records as the owner for all purposes.  Nothing in this paragraph 10 shall be
deemed to limit the effect of any agreement among the Holder, the Company and
other security holders of the Company restricting the transfer of this Warrant
or the Shares.


 


11.                                 Mutilation or Loss of
Warrant.  Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void.


 


12.                                 Taxes.  The Company shall not be required to pay any
tax or taxes attributable to the issuance of this Warrant or of the Warrant
Shares.


 


13.                                 No Limitation on Corporate
Action; No Impairment.


 


13.1                           No provision of this Warrant
and no right or option granted or conferred hereunder shall in any way limit,
affect or abridge the exercise by the Company of any of its corporate rights or
powers to recapitalize, amend its certificate of incorporation, reorganize,
consolidate or merge with or into another entity, or to transfer, all or any
part of its property or assets, or the exercise or any other of its corporate
rights and powers.


 


13.2                           The Company will not, by
amendment of its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by the Company
under this Warrant, but will at all times in good faith assist in the carrying
out of all of the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder under this Warrant against impairment.


 


14.                                 Restricted Securities.  This Warrant has not been registered under
the Act, or qualified under applicable state securities laws and has been
issued to the Holder for investment and not with a view to the distribution of
either the Warrant or the Shares. 
Neither this Warrant nor any of the Shares or any other security issued
or issuable upon exercise of this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under the
Act and qualification under applicable state securities laws relating to such
security or an available exemption from registration and qualification.  Each certificate for the Shares and any other
security issued or issuable upon exercise of this Warrant shall contain a
legend on the face thereof, in form and substance satisfactory to counsel for
the Company, setting forth the restrictions on transfer contained in this
Section.


 


6





















 


15.                                 Notices.  All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given (i) upon receipt, if delivered
personally, (ii) upon confirmation of receipt, if given by electronic facsimile
and (iii) (A) on the third business day following mailing, if mailed from a
United States address to a United States address or (B) on the tenth business day
following mailing, if mailed internationally, and in either case, postage
prepaid, certified mail, return receipt requested, to the following address (or
at such other address for a party as shall be specified by like notice):


 


(i)                                     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


 


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.


 


(ii)                                  if to the Holder, to:


 


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


 


16.                                 Supplements and Amendments;
Whole Agreement.  This
Warrant may be amended or supplemented only by an instrument in writing signed
by the Company and the Holder.  This
Warrant contains the full understanding of the Company and the Holder with
respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.


 


7





















 


17.                                 Governing Law.  This Warrant shall be deemed to be a contract
made under the laws of the State of California and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts to be made and performed entirely within such State, without
regard to its conflicts of laws rules.


 


18.                                 Descriptive Headings.  Descriptive headings of the several Sections
of this Warrant are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.


 


19.                                 No Fractional Shares.  No fractional Shares shall be issued upon
exercise of this Warrant.  In lieu of any
fractional Shares to which the Holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by the Warrant
Price.


 


20.                                 Waivers Strictly Construed.  With regard to any power, remedy or right
provided herein or otherwise available to any party hereunder (i) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (ii) no alteration, modification
or impairment shall be implied by reason of any previous waiver, extension of
time, delay or omission in exercise, or other indulgence.


 


21.                                 Severability.  The validity, legality or enforceability of
the remainder of this Warrant shall not be affected even if one or more of its
provisions shall be held to be invalid, illegal or unenforceable in any
respect.


 


[Signature Page Follows]


 


8





















 


IN WITNESS WHEREOF, the Company
has caused this Warrant to be signed by its duly authorized officer, as of January 25,
2005.


 


	
   

  	
  INNOVATIVE MICRO TECHNOLOGY, INC. 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ John Foster 

  	
   

  
	
   

  	
   

  	
  John Foster 

  
	
   

  	
   

  	
  President

  



 


9





















 


EXHIBIT
A


 


Form of Performance Report


 


Innovative Micro Technology, Inc.


Performance Report


 




	
   

  	
   

  	
  Calendar

  Year

  2005

  	
   

  
	
  Contract
  Activity

  	
   

  	
  $

  	
   

  	
   

  
	
  Incurred
  Costs

  	
   

  	
   

  	
   

  
	
  Gross Profit

  	
   

  	
  $

  	
   

  	
   

  
	
  %GM

  	
   

  	
  %   .

  	
   

  
	
  R&D

  	
   

  	
  $

  	
   

  	
   

  
	
  S,G&A

  	
   

  	
   

  	
   

  
	
  Profit
  Sharing

  	
   

  	
   

  	
   

  
	
  Interest
  income

  	
   

  	
   

  	
   

  
	
  Interest expense

  	
   

  	
   

  	
   

  
	
  Other income
  (expense)

  	
   

  	
   

  	
   

  
	
  taxes

  	
   

  	
   

  	
   

  
	
  Net Income
  (Loss)

  	
   

  	
  $

  	
   

  	
   

  






 


10





















 


EXHIBIT
B


 


Performance Targets


 


The “Performance Targets”
shall be as follows


 




	
  Contract
  Activity:

  	
   

  	
  $

  	
  19,814,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gross Profit:

  	
   

  	
  $

  	
  3,960,000

  	
   

  






 


Calculation of Shares Purchasable Pursuant to Warrant 


 


This Warrant shall be
exercisable for up to the number of Shares set forth below, based on the
information provided in the Performance Report, subject to adjustment as provided
in Section 4 of the Warrant.


 




	
  Performance, Calendar Year 2005

  	
   

  	
  Total Shares

  	
   

  
	
  Contract Activity

  	
   

  	
  Gross Profit

  	
   

  	
  Purchasable

  	
   

  
	
  0 -
  $17,481,999.99

  	
   

  	
  N/A

  	
   

  	
  164,706

  	
   

  
	
  $17,482,000
  - $19,813,999.99

  	
   

  	
  0 - $3,499,999

  	
   

  	
  164,706

  	
   

  
	
   

  	
   

  	
  $3,500,000 or more

  	
   

  	
  82,353

  	
   

  
	
  $19,814,000
  or more

  	
   

  	
  0-$3,959,999

  	
   

  	
  82,353

  	
   

  
	
   

  	
   

  	
  $3,960,000 or more

  	
   

  	
  0

  	
   

  






 


11





















 


EXHIBIT
C


 


FORM OF NOTICE OF EXERCISE
OF WARRANT


 


The “Holder” designated
below, subject to the conditions set forth in that certain Warrant to Purchase
Common stock of Innovative Micro Technology, Inc. (the “Company”), dated as of January 25,
2005 (the “Warrant”), hereby elects to exercise the right, represented by the
Warrant, to purchase shares of the Common Stock of the Company and tenders
herewith payment as follows:


 


AGGREGATE WARRANT
PRICE:  $____________________ (Payment
shall be made by wire transfer in accordance with the wire transfer
instructions attached to the Warrant as Exhibit A.)


 


	
  Please deliver the stock
  certificate to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
				



 


The Holder hereby represents
and warrants to the Company as follows:


 


•                                          The Holder has
sufficient knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of its prospective investment in
the shares of Common Stock of the Company.


 


•                                          The Holder
understands that it is purchasing the shares of Common Stock of the Company
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended (the “Act”) and without registration under the Act or
any state securities or Blue Sky laws.


 


•                                          The Holder is
an “accredited investor” as defined in Rule 501(a) of Regulation D under
the Act.


 


	
  Dated:

  	
   

  	
  , 

  	
  200

  	
   

  	
   

  
	
   

  
	
  “Holder”

  
	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
								



 


12





















 


EXHIBIT
D


 


WIRE
INSTRUCTIONS


 


On the exercise of the
Warrant the aggregate Warrant Price shall be paid to the Company by wire
transfer to the following address:


 


13





















 


THIS WARRANT AND THE
SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE ACT, SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO AND ALL APPLICABLE
QUALIFICATIONS UNDER STATE SECURITIES LAWS SHALL HAVE BEEN OBTAINED WITH
RESPECT THERETO; (ii) A WRITTEN OPINION FROM COUNSEL FOR THE HOLDER
REASONABLY SATISFACTORY TO THE ISSUER HAS BEEN OBTAINED STATING THAT NO SUCH
REGISTRATION OR QUALIFICATION IS REQUIRED; OR (iii) SOLD PURSUANT TO RULE 144
UNDER SUCH ACT.


 


WARRANT TO PURCHASE COMMON STOCK OF

INNOVATIVE MICRO TECHNOLOGY, INC.


 


For good and valuable
consideration, the receipt of which is hereby acknowledged, Innovative Micro
Technology, Inc., a Delaware corporation (the “Company”), hereby grants to
MIRAMAR VENTURE PARTNERS, L.P., a limited partnership, its successors and
assigns (collectively, the “Holder”), an irrevocable warrant (the “Warrant”) to
purchase, subject to the satisfaction of the conditions set forth in Section 1
below and subject to the other terms hereof, the number of shares of Common
Stock, par value $0.0001 per share, of the Company (the “Shares”), if any,
determined in accordance with Section I hereto, at the Warrant Price, as
defined below, at any time beginning on March 15, 2006 (the “Determination
Date”) and ending on January 24, 2008 (the “Expiration Date” and such period
beginning on the Determination Date and ending on the Expiration Date, the “Exercise
Period”).


 


1.                                       Conditions to Exercise;
Number of Shares; Early Termination.  On or before March 15, 2006, the Company
shall deliver to the Holder a report in the form of Exhibit A
hereto (the “Performance Report”) setting forth the Company’s total Contract
Activity (as defined below) and gross profit for calendar year 2005.  If the Company’s performance described in the
Performance Report does not satisfy the Target Amounts set forth on Exhibit B
hereto, then this Warrant shall then become exercisable for the lesser of
eighty-eight thousand, two hundred thirty-five (88,235) shares of Common Stock
and the number of shares of Common Stock calculated as purchasable pursuant to Exhibit B
hereto, subject to adjustment as provided below.  For purposes of this Warrant, “Contract
Activity” shall mean total revenue, as adjusted by work-in-process inventory,
for the period measured.  For purposes of
this Warrant, the terms “revenue” and “work-in-process inventory” shall have
the meanings ascribed to them under U.S. Generally Accepted Accounting
Principles (“GAAP”).  “Gross profit”
shall have the same meaning as that used in the budgets of the Company provided
heretofore to the Investors, in which “gross profit” means gross profit, within
the meaning of GAAP, before any deduction for profit sharing.  If, on the Determination Date, the number of
Shares purchasable is zero (0), this Warrant shall terminate and be of no
further force or effect.


 


1





















 


2.                                       Exercise; Issuance of
Certificates; Payment for Shares.


 


This Warrant may be
exercised by the Holder, in whole or in part, and on one or more occasions, by
written notice to the Company, in the form attached as Exhibit C hereto
(the “Notice”), at any time within the Exercise Period and by payment to the
Company by wire transfer (in accordance with the wire transfer instructions
attached hereto as Exhibit D) of the aggregate Warrant Price for the
number of Shares designated by the Holder (but not more than the number of
Shares for which this Warrant then remains subject and unexercised).  Consideration received by the Company under a
broker-assisted sale and remittance program acceptable to the Company may also
be used to exercise this Warrant. 
Certificates for the Shares so purchased will be delivered to the Holder
within a reasonable time, not exceeding fifteen (15) business days, after
this Warrant has been exercised, and, unless this Warrant has expired, it will
continue in effect with respect to the number of Shares, if any, as to which it
has not then been exercised and which remain covered by this Warrant as herein
provided.  Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of
business on the business day on which the Notice is given to the Company.  At such time, the person or persons in whose
name or names any certificate for the Shares shall be issuable upon such
exercise shall be deemed to have become the holder or holders of record of the
Shares represented by such certificate or certificates, and to be entitled to
all rights of a Stockholder with respect to such Shares, including without
limitation voting rights.


 


3.                                       Shares to be Fully Paid;
Reservation of Shares.  The
Company covenants and agrees as follows:


 


3.1                                 All shares issued upon the
exercise of this Warrant will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issuance
thereof.


 


3.2                                 During the period within
which this Warrant may be exercised, the Company will at all times have
authorized and reserved for the purpose of issuance or transfer upon exercise
of this Warrant a sufficient number of Shares to provide for the exercise of
this Warrant.


 


3.3                                 The Company will take all
actions necessary to assure that the Shares issuable upon the exercise of this
Warrant may be so issued without violation of any applicable law or regulation,
or of any requirements of any securities exchange upon which the shares of the
Company may then be listed.


 


4.                                       Warrant Price.


 


4.1                                 Initial Warrant Price;
Subsequent Adjustment of Price and Number of Purchasable Shares.  The initial Warrant Price (“Initial Warrant
Price”) will be $0.30 per Share, and will be adjusted from time to time as
provided below.  The Initial Warrant
Price or, if such price has been adjusted, the price per Share as last adjusted
pursuant to the terms hereof, is referred to as the “Warrant Price” herein.


 


4.2                                 Subdivision or Combination
of Shares.  If the
Company at any time while this Warrant, or any portion hereof, remains
outstanding and unexpired shall split, subdivide or


 


2





















 


combine the securities as to
which purchase rights under this Warrant exist, into a different number of
securities of the same class, the number of Shares for which this Warrant may
be exercised shall be adjusted to represent the aggregate number of securities
that, if this Warrant had been exercised immediately prior to such event, the
Holder would have owned upon such dividend, distribution, subdivision,
combination or reclassification, and the Warrant Price for such securities
shall be proportionately decreased in the case of a split or subdivision or proportionately
increased in the case of a combination.


 


4.3                                 Reclassification.  If the Company, at any time while this
Warrant, or any portion hereof, remains outstanding and unexpired, by
reclassification of securities or otherwise shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with
respect to the securities that were subject to the purchase rights under this
Warrant immediately prior to such reclassification or other change and the
Warrant Price therefor shall be appropriately adjusted.


 


4.4                                 Adjustments for Dividends in
Stock or Other Securities or Property.  If while this Warrant, or any portion hereof,
remains outstanding and unexpired holders of the securities as to which
purchase rights under this Warrant exist at the time shall have received, or,
on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company by way of dividend, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that the
Holder would hold on the date of such exercise had it been holder of record of
the security receivable upon exercise of this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the
date of such exercise, retained such shares and/or all other additional
securities available to it as aforesaid during such period, giving effect to
all adjustments called for during such period.


 


4.5                                 Reorganization,
Reclassification, Consolidation, Merger or Sale.  If, while this Warrant, or any portion
hereof, remains outstanding and unexpired, any capital reorganization or
reclassification of the stock of the Company, or any consolidation or merger of
the Company with another corporation or entity, or the sale of all or
substantially all of the Company’s assets to another corporation will be
effected in such a way that holders of the securities for which this Warrant is
exercisable will be entitled to receive shares, securities or assets with
respect to or in exchange for such securities, then, upon exercise of this
Warrant, the Holder will thereafter have the right to receive such shares,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding securities equal to the number of securities
purchasable and receivable upon the exercise of this Warrant immediately prior
to such event.  If a purchase, tender or
exchange offer is made to and accepted by holders of more than 50% of the
outstanding capital stock of the Company (on an as-converted to Common Stock
basis), the Company will not effect any consolidation, merger or sale with the
Person, as defined below, making such offer or with any Affiliate, as defined
below, of such Person, unless, before the consummation of such consolidation,
merger or sale, the Holder of this


 


3





















 


Warrant is given at least
ten (10) business days’ notice prior to the scheduled closing date (the “Closing
Date”) of such transaction (which notice shall specify the material terms of
such transaction and the proposed Closing Date).  In the event the Holder elects to exercise
this Warrant or any portion thereof following such notice and such
consolidation, merger or sale is not consummated within ten (10) days of
the proposed Closing Date (or any subsequent proposed Closing Date), then the
Holder may rescind its exercise of this Warrant by providing written notice
thereof to the Company, the Company shall take all actions consistent therewith
(including without limitation the immediate return of the Warrant Price paid
with respect to such rescinded exercise) and this Warrant shall continue in
full force and effect.  As used in this
paragraph, the term “Person” includes an individual, a partnership, a
corporation, a trust, a joint venture, a limited liability company, an
unincorporated organization and a government or any department or agency
thereof, and an “Affiliate” of a Person means any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with,
such other Person.  A Person will be
deemed to control a corporation or other business entity if such Person
possesses, directly or indirectly, the power to direct or cause the direction
of the management and policies of such corporation, whether through the
ownership of voting securities, by contract or otherwise.


 


4.6                                 Notice of Adjustment.  Upon any adjustment of the number of Shares
and/or the Warrant Price, the Company will give written notice thereof, by
first-class mail, postage prepaid, addressed to the Holder at the Holder’s
address as shown on the books of the Company, which notice will state
(i) the Warrant Price resulting from such adjustment and the increase or
decrease, if any, in the number of Shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based, and
(ii) whether, after giving effect to such adjustment, the maximum number
of Shares issuable upon the exercise of this Warrant will constitute more than
5% of the total number of the then issued and outstanding Shares (including in
such total number the maximum number of Shares issuable upon the exercise of
this Warrant).


 


4.7                                 Other Notices.  If at any time:


 


4.7.1                        the Company
declares a cash dividend on its Common Stock payable at a rate in excess of the
rate of the last cash dividend theretofore paid;


 


4.7.2                        the Company
declares a dividend on its Common Stock payable in securities or pays a special
dividend or other distribution (other than regular cash dividends) to holders
of its Shares;


 


4.7.3                        the Company
offers for subscription to holders of any of its Common Stock additional shares
of any class or other rights;


 


4.7.4                        there is a
reorganization, reclassification, consolidation or merger of the Company with,
or sale of all or substantially all of its assets to, another corporation or
other entity; or


 


4.7.5                        there is a
voluntary or involuntary dissolution, liquidation or winding up of the Company;


 


4





















 


then the Company will give,
as provided in paragraph 15 below, to the Holder’s address as shown on the
books of the Company, (i) at least ten (10) business days’ prior
written notice of the date on which the books of the Company will close or
a record will be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
ten (10) business days’ prior written notice of the date when the
same will take place.  Any notice
required by clause (i) will also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the Holder will
be entitled thereto, and any notice required by (ii) will also specify the
anticipated date on which the Holder will be entitled to exchange its Shares
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.


 


5.                                       Listing.  If any Shares required to be reserved for the
purpose of issuance upon the exercise of this Warrant require registration with
or approval of any governmental authority under any federal or state law (other
than the filing of a Registration Statement under the Securities Act of 1933,
as then in effect (the “Securities Act”), or any similar law then in effect),
or listing on any securities exchange, before such Shares may be issued upon
such exercise, the Company will, at its expense and as expeditiously as
possible, use its commercially reasonable efforts to cause such Shares to be
duly registered or approved or listed on the relevant securities exchange, as
the case may be.


 


6.                                       Closing of Books.  The Company will at no time close its
transfer books against the transfer of this Warrant or of any Shares issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.


 


7.                                       Definition of Common Stock.  As used in this Warrant the term “Common
Stock” includes the Company’s authorized Common Stock, par value $0.0001 per
share, as constituted on the date hereof and also includes any shares of any
class of stock or other equity securities of the Company thereafter authorized
which will not be limited to a fixed sum or percentage of par value in respect
of the rights of holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company.


 


8.                                       Definition of Shares.  Except as provided in paragraph 4.5, the
Shares purchasable pursuant to this Warrant will include only Shares designated
as “common stock” of the Company or, in the case of any reclassification of the
outstanding Shares, the Shares, securities or assets provided for in
paragraph 4.5.


 


9.                                       No Voting Rights.  This Warrant will not entitle the Holder to
any voting rights or other rights as a stockholder of the Company.


 


10.                                 Warrant Transferable.  This Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Holder, by written
notice to the Company at the address referred to in paragraph 15 below by
the Holder, in person or by duly authorized attorney; provided that either
(i) a written opinion of counsel for the Holder reasonably satisfactory to
the Company has been obtained stating that such transfer will not violate the
registration


 


5





















 


requirements of the
Securities Act or any applicable state securities laws, and (ii) the transferee
has delivered to the Company a written agreement to be bound by the terms and
conditions hereof.  The Holder agrees that
after such notice, the Holder may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to further assign this Warrant, any notice to the contrary notwithstanding;
but until receipt of any such notice of assignment, the Company may treat the
Holder as shown on its records as the owner for all purposes.  Nothing in this paragraph 10 shall be
deemed to limit the effect of any agreement among the Holder, the Company and
other security holders of the Company restricting the transfer of this Warrant
or the Shares.


 


11.                                 Mutilation or Loss of
Warrant.  Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void.


 


12.                                 Taxes.  The Company shall not be required to pay any
tax or taxes attributable to the issuance of this Warrant or of the Warrant
Shares.


 


13.                                 No Limitation on Corporate
Action; No Impairment.


 


13.1                           No provision of this Warrant
and no right or option granted or conferred hereunder shall in any way limit,
affect or abridge the exercise by the Company of any of its corporate rights or
powers to recapitalize, amend its certificate of incorporation, reorganize,
consolidate or merge with or into another entity, or to transfer, all or any
part of its property or assets, or the exercise or any other of its corporate
rights and powers.


 


13.2                           The Company will not, by
amendment of its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by the Company
under this Warrant, but will at all times in good faith assist in the carrying
out of all of the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder under this Warrant against impairment.


 


14.                                 Restricted Securities.  This Warrant has not been registered under
the Act, or qualified under applicable state securities laws and has been
issued to the Holder for investment and not with a view to the distribution of
either the Warrant or the Shares. 
Neither this Warrant nor any of the Shares or any other security issued
or issuable upon exercise of this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under the
Act and qualification under applicable state securities laws relating to such
security or an available exemption from registration and qualification.  Each certificate for the Shares and any other
security issued or issuable upon exercise of this Warrant shall contain a
legend on the face thereof, in form and substance satisfactory to counsel for
the Company, setting forth the restrictions on transfer contained in this
Section.


 


6





















 


15.                                 Notices.  All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given (i) upon receipt, if delivered
personally, (ii) upon confirmation of receipt, if given by electronic facsimile
and (iii) (A) on the third business day following mailing, if mailed from a
United States address to a United States address or (B) on the tenth business
day following mailing, if mailed internationally, and in either case, postage
prepaid, certified mail, return receipt requested, to the following address (or
at such other address for a party as shall be specified by like notice):


 


(i)                                     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


 


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.


 


(ii)                                  if to the Holder, to:


 


Miramar Venture Partners, L.P.


2101 East Coast Hwy., Ste. 300


Corona del Mar, CA 92625


Facsimile: 
(949) 760-4451


Attention: 
                           


 


16.                                 Supplements and Amendments;
Whole Agreement.  This
Warrant may be amended or supplemented only by an instrument in writing signed
by the Company and the Holder.  This
Warrant contains the full understanding of the Company and the Holder with
respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.


 


17.                                 Governing Law.  This Warrant shall be deemed to be a contract
made under the laws of the State of California and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts to be made and performed entirely within such State, without
regard to its conflicts of laws rules.


 


18.                                 Descriptive Headings.  Descriptive headings of the several Sections
of this Warrant are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.


 


7





















 


19.                                 No Fractional Shares.  No fractional Shares shall be issued upon
exercise of this Warrant.  In lieu of any
fractional Shares to which the Holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by the Warrant
Price.


 


20.                                 Waivers Strictly Construed.  With regard to any power, remedy or right
provided herein or otherwise available to any party hereunder (i) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (ii) no alteration, modification
or impairment shall be implied by reason of any previous waiver, extension of
time, delay or omission in exercise, or other indulgence.


 


21.                                 Severability.  The validity, legality or enforceability of
the remainder of this Warrant shall not be affected even if one or more of its
provisions shall be held to be invalid, illegal or unenforceable in any
respect.


 


[Signature Page Follows]


 


8





















 


IN WITNESS WHEREOF, the Company
has caused this Warrant to be signed by its duly authorized officer, as of January 25,
2005.


 


	
   

  	
  INNOVATIVE MICRO TECHNOLOGY, INC. 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ John Foster

  	
   

  
	
   

  	
   

  	
  John Foster 

  
	
   

  	
   

  	
  President

  



 


9





















 


EXHIBIT
A


 


Form of Performance Report


 


Innovative Micro Technology, Inc.


Performance
Report


 




	
   

  	
   

  	
  Calendar

  Year

  2005

  	
   

  
	
  Contract
  Activity

  	
   

  	
  $

  	
   

  	
   

  
	
  Incurred
  Costs

  	
   

  	
   

  	
   

  
	
  Gross Profit

  	
   

  	
  $

  	
   

  	
   

  
	
  %GM

  	
   

  	
  %   .

  	
   

  
	
  R&D

  	
   

  	
  $

  	
   

  	
   

  
	
  S,G&A

  	
   

  	
   

  	
   

  
	
  Profit
  Sharing

  	
   

  	
   

  	
   

  
	
  Interest
  income

  	
   

  	
   

  	
   

  
	
  Interest expense

  	
   

  	
   

  	
   

  
	
  Other income
  (expense)

  	
   

  	
   

  	
   

  
	
  taxes

  	
   

  	
   

  	
   

  
	
  Net Income
  (Loss)

  	
   

  	
  $

  	
   

  	
   

  






 


10





















 


EXHIBIT
B


 


Performance Targets


 


The “Performance Targets”
shall be as follows


 




	
  Contract
  Activity:

  	
   

  	
  $

  	
  19,814,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gross Profit:

  	
   

  	
  $

  	
  3,960,000

  	
   

  






 


Calculation of Shares Purchasable Pursuant to Warrant 


 


This Warrant shall be
exercisable for up to the number of Shares set forth below, based on the
information provided in the Performance Report, subject to adjustment as
provided in Section 4 of the Warrant. 


 




	
  Performance, Calendar Year 2005

  	
   

  	
  Total Shares

  	
   

  
	
  Contract Activity

  	
   

  	
  Gross Profit

  	
   

  	
  Purchasable

  	
   

  
	
  0 -
  $17,481,999.99

  	
   

  	
  N/A

  	
   

  	
  88,235

  	
   

  
	
  $17,482,000
  - $19,813,999.99

  	
   

  	
  0 - $3,499,999

  	
   

  	
  88,235

  	
   

  
	
   

  	
   

  	
  $3,500,000 or more

  	
   

  	
  44,118

  	
   

  
	
  $19,814,000
  or more

  	
   

  	
  0-$3,959,999

  	
   

  	
  44,118

  	
   

  
	
   

  	
   

  	
  $3,960,000 or more

  	
   

  	
  0

  	
   

  






 


11





















 


EXHIBIT
C


 


FORM OF NOTICE OF EXERCISE
OF WARRANT


 


The “Holder” designated
below, subject to the conditions set forth in that certain Warrant to Purchase
Common stock of Innovative Micro Technology, Inc. (the “Company”), dated as of January 25,
2005 (the “Warrant”), hereby elects to exercise the right, represented by the
Warrant, to purchase shares of the Common Stock of the Company and tenders
herewith payment as follows:


 


AGGREGATE WARRANT
PRICE:  $____________________ (Payment
shall be made by wire transfer in accordance with the wire transfer
instructions attached to the Warrant as Exhibit A.)


 


	
  Please deliver the stock
  certificate to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
				



 


The Holder hereby represents
and warrants to the Company as follows:


 


•                                          The Holder has
sufficient knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of its prospective investment in the
shares of Common Stock of the Company.


 


•                                          The Holder
understands that it is purchasing the shares of Common Stock of the Company
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended (the “Act”) and without registration under the Act or
any state securities or Blue Sky laws.


 


•                                          The Holder is
an “accredited investor” as defined in Rule 501(a) of Regulation D under
the Act.


 


	
  Dated:

  	
   

  	
  , 

  	
  200

  	
   

  	
   

  
	
   

  
	
  “Holder”

  
	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
								



 


12





















 


EXHIBIT
D


 


WIRE
INSTRUCTIONS


 


On the exercise of the
Warrant the aggregate Warrant Price shall be paid to the Company by wire
transfer to the following address:


 


13





















 


THIS WARRANT AND THE
SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE ACT, SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO AND ALL APPLICABLE
QUALIFICATIONS UNDER STATE SECURITIES LAWS SHALL HAVE BEEN OBTAINED WITH
RESPECT THERETO; (ii) A WRITTEN OPINION FROM COUNSEL FOR THE HOLDER
REASONABLY SATISFACTORY TO THE ISSUER HAS BEEN OBTAINED STATING THAT NO SUCH
REGISTRATION OR QUALIFICATION IS REQUIRED; OR (iii) SOLD PURSUANT TO RULE 144
UNDER SUCH ACT.


 


WARRANT TO PURCHASE COMMON STOCK OF

INNOVATIVE MICRO TECHNOLOGY, INC.


 


For good and valuable
consideration, the receipt of which is hereby acknowledged, Innovative Micro
Technology, Inc., a Delaware corporation (the “Company”), hereby grants to INVESTOR
GROUP L.P., a limited partnership, its successors and assigns (collectively,
the “Holder”), an irrevocable warrant (the “Warrant”) to purchase, subject to
the satisfaction of the conditions set forth in Section 1 below and
subject to the other terms hereof, the number of shares of Common Stock, par
value $0.0001 per share, of the Company (the “Shares”), if any, determined in
accordance with Section I hereto, at the Warrant Price, as defined below,
at any time beginning on March 15, 2006 (the “Determination Date”) and
ending on January 24, 2008 (the “Expiration Date” and such period beginning
on the Determination Date and ending on the Expiration Date, the “Exercise
Period”).


 


1.                                       Conditions to Exercise;
Number of Shares; Early Termination.  On or before March 15, 2006, the Company
shall deliver to the Holder a report in the form of Exhibit A
hereto (the “Performance Report”) setting forth the Company’s total Contract
Activity (as defined below) and gross profit for calendar year 2005.  If the Company’s performance described in the
Performance Report does not satisfy the Target Amounts set forth on Exhibit B
hereto, then this Warrant shall then become exercisable for the lesser of seventy
thousand, five hundred eighty-eight (70,588) shares of Common Stock and the
number of shares of Common Stock calculated as purchasable pursuant to Exhibit B
hereto, subject to adjustment as provided below.  For purposes of this Warrant, “Contract
Activity” shall mean total revenue, as adjusted by work-in-process inventory,
for the period measured.  For purposes of
this Warrant, the terms “revenue” and “work-in-process inventory” shall have
the meanings ascribed to them under U.S. Generally Accepted Accounting
Principles (“GAAP”).  “Gross profit”
shall have the same meaning as that used in the budgets of the Company provided
heretofore to the Investors, in which “gross profit” means gross profit, within
the meaning of GAAP, before any deduction for profit sharing.  If, on the Determination Date, the number of
Shares purchasable is zero (0), this Warrant shall terminate and be of no further
force or effect.


 


1





















 


2.                                       Exercise; Issuance of
Certificates; Payment for Shares.


 


This Warrant may be
exercised by the Holder, in whole or in part, and on one or more occasions, by
written notice to the Company, in the form attached as Exhibit C hereto
(the “Notice”), at any time within the Exercise Period and by payment to the
Company by wire transfer (in accordance with the wire transfer instructions
attached hereto as Exhibit D) of the aggregate Warrant Price for the
number of Shares designated by the Holder (but not more than the number of
Shares for which this Warrant then remains subject and unexercised).  Consideration received by the Company under a
broker-assisted sale and remittance program acceptable to the Company may also
be used to exercise this Warrant. 
Certificates for the Shares so purchased will be delivered to the Holder
within a reasonable time, not exceeding fifteen (15) business days, after
this Warrant has been exercised, and, unless this Warrant has expired, it will
continue in effect with respect to the number of Shares, if any, as to which it
has not then been exercised and which remain covered by this Warrant as herein
provided.  Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of
business on the business day on which the Notice is given to the Company.  At such time, the person or persons in whose
name or names any certificate for the Shares shall be issuable upon such
exercise shall be deemed to have become the holder or holders of record of the
Shares represented by such certificate or certificates, and to be entitled to
all rights of a Stockholder with respect to such Shares, including without
limitation voting rights.


 


3.                                       Shares to be Fully Paid;
Reservation of Shares.  The
Company covenants and agrees as follows:


 


3.1                                 All shares issued upon the
exercise of this Warrant will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issuance
thereof.


 


3.2                                 During the period within
which this Warrant may be exercised, the Company will at all times have
authorized and reserved for the purpose of issuance or transfer upon exercise
of this Warrant a sufficient number of Shares to provide for the exercise of
this Warrant.


 


3.3                                 The Company will take all
actions necessary to assure that the Shares issuable upon the exercise of this
Warrant may be so issued without violation of any applicable law or regulation,
or of any requirements of any securities exchange upon which the shares of the
Company may then be listed.


 


4.                                       Warrant Price.


 


4.1                                 Initial Warrant Price;
Subsequent Adjustment of Price and Number of Purchasable Shares.  The initial Warrant Price (“Initial Warrant
Price”) will be $0.30 per Share, and will be adjusted from time to time as
provided below.  The Initial Warrant
Price or, if such price has been adjusted, the price per Share as last adjusted
pursuant to the terms hereof, is referred to as the “Warrant Price” herein.


 


4.2                                 Subdivision or Combination
of Shares.  If the
Company at any time while this Warrant, or any portion hereof, remains
outstanding and unexpired shall split, subdivide or


 


2





















 


combine the securities as to
which purchase rights under this Warrant exist, into a different number of
securities of the same class, the number of Shares for which this Warrant may
be exercised shall be adjusted to represent the aggregate number of securities
that, if this Warrant had been exercised immediately prior to such event, the
Holder would have owned upon such dividend, distribution, subdivision,
combination or reclassification, and the Warrant Price for such securities
shall be proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.


 


4.3                                 Reclassification.  If the Company, at any time while this
Warrant, or any portion hereof, remains outstanding and unexpired, by
reclassification of securities or otherwise shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with
respect to the securities that were subject to the purchase rights under this
Warrant immediately prior to such reclassification or other change and the
Warrant Price therefor shall be appropriately adjusted.


 


4.4                                 Adjustments for Dividends in
Stock or Other Securities or Property.  If while this Warrant, or any portion hereof,
remains outstanding and unexpired holders of the securities as to which
purchase rights under this Warrant exist at the time shall have received, or,
on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company by way of dividend, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that the
Holder would hold on the date of such exercise had it been holder of record of
the security receivable upon exercise of this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the
date of such exercise, retained such shares and/or all other additional
securities available to it as aforesaid during such period, giving effect to
all adjustments called for during such period.


 


4.5                                 Reorganization,
Reclassification, Consolidation, Merger or Sale.  If, while this Warrant, or any portion
hereof, remains outstanding and unexpired, any capital reorganization or
reclassification of the stock of the Company, or any consolidation or merger of
the Company with another corporation or entity, or the sale of all or
substantially all of the Company’s assets to another corporation will be
effected in such a way that holders of the securities for which this Warrant is
exercisable will be entitled to receive shares, securities or assets with
respect to or in exchange for such securities, then, upon exercise of this
Warrant, the Holder will thereafter have the right to receive such shares,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding securities equal to the number of securities
purchasable and receivable upon the exercise of this Warrant immediately prior
to such event.  If a purchase, tender or
exchange offer is made to and accepted by holders of more than 50% of the
outstanding capital stock of the Company (on an as-converted to Common Stock
basis), the Company will not effect any consolidation, merger or sale with the
Person, as defined below, making such offer or with any Affiliate, as defined
below, of such Person, unless, before the consummation of such consolidation,
merger or sale, the Holder of this


 


3





















 


Warrant is given at least
ten (10) business days’ notice prior to the scheduled closing date (the “Closing
Date”) of such transaction (which notice shall specify the material terms of
such transaction and the proposed Closing Date).  In the event the Holder elects to exercise
this Warrant or any portion thereof following such notice and such
consolidation, merger or sale is not consummated within ten (10) days of
the proposed Closing Date (or any subsequent proposed Closing Date), then the
Holder may rescind its exercise of this Warrant by providing
written notice thereof to the Company, the Company shall take all actions
consistent therewith (including without limitation the immediate return of the
Warrant Price paid with respect to such rescinded exercise) and this Warrant
shall continue in full force and effect. 
As used in this paragraph, the term “Person” includes an individual, a
partnership, a corporation, a trust, a joint venture, a limited liability
company, an unincorporated organization and a government or any department or
agency thereof, and an “Affiliate” of a Person means any Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with, such other Person.  A
Person will be deemed to control a corporation or other business entity if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.


 


4.6                                 Notice of Adjustment.  Upon any adjustment of the number of Shares
and/or the Warrant Price, the Company will give written notice thereof, by
first-class mail, postage prepaid, addressed to the Holder at the Holder’s
address as shown on the books of the Company, which notice will state
(i) the Warrant Price resulting from such adjustment and the increase or
decrease, if any, in the number of Shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based, and
(ii) whether, after giving effect to such adjustment, the maximum number
of Shares issuable upon the exercise of this Warrant will constitute more than
5% of the total number of the then issued and outstanding Shares (including in such
total number the maximum number of Shares issuable upon the exercise of this
Warrant).


 


4.7                                 Other Notices.  If at any time:


 


4.7.1                        the Company
declares a cash dividend on its Common Stock payable at a rate in excess of the
rate of the last cash dividend theretofore paid;


 


4.7.2                        the Company
declares a dividend on its Common Stock payable in securities or pays a special
dividend or other distribution (other than regular cash dividends) to holders
of its Shares;


 


4.7.3                        the Company
offers for subscription to holders of any of its Common Stock additional shares
of any class or other rights;


 


4.7.4                        there is a
reorganization, reclassification, consolidation or merger of the Company with,
or sale of all or substantially all of its assets to, another corporation or
other entity; or


 


4.7.5                        there is a
voluntary or involuntary dissolution, liquidation or winding up of the Company;


 


4





















 


then the Company will give,
as provided in paragraph 15 below, to the Holder’s address as shown on the
books of the Company, (i) at least ten (10) business days’ prior
written notice of the date on which the books of the Company will close or
a record will be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
ten (10) business days’ prior written notice of the date when the
same will take place.  Any notice
required by clause (i) will also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the Holder
will be entitled thereto, and any notice required by (ii) will also specify the
anticipated date on which the Holder will be entitled to exchange its Shares
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.


 


5.                                       Listing.  If any Shares required to be reserved for the
purpose of issuance upon the exercise of this Warrant require registration with
or approval of any governmental authority under any federal or state law (other
than the filing of a Registration Statement under the Securities Act of 1933,
as then in effect (the “Securities Act”), or any similar law then in effect),
or listing on any securities exchange, before such Shares may be issued upon
such exercise, the Company will, at its expense and as expeditiously as
possible, use its commercially reasonable efforts to cause such Shares to be
duly registered or approved or listed on the relevant securities exchange, as
the case may be.


 


6.                                       Closing of Books.  The Company will at no time close its
transfer books against the transfer of this Warrant or of any Shares issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.


 


7.                                       Definition of Common Stock.  As used in this Warrant the term “Common
Stock” includes the Company’s authorized Common Stock, par value $0.0001 per
share, as constituted on the date hereof and also includes any shares of any
class of stock or other equity securities of the Company thereafter authorized
which will not be limited to a fixed sum or percentage of par value in respect
of the rights of holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company.


 


8.                                       Definition of Shares.  Except as provided in paragraph 4.5, the
Shares purchasable pursuant to this Warrant will include only Shares designated
as “common stock” of the Company or, in the case of any reclassification of the
outstanding Shares, the Shares, securities or assets provided for in
paragraph 4.5.


 


9.                                       No Voting Rights.  This Warrant will not entitle the Holder to
any voting rights or other rights as a stockholder of the Company.


 


10.                                 Warrant Transferable.  This Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Holder, by written
notice to the Company at the address referred to in paragraph 15 below by
the Holder, in person or by duly authorized attorney; provided that either (i) a
written opinion of counsel for the Holder reasonably satisfactory to the
Company has been obtained stating that such transfer will not violate the
registration


 


5





















 


requirements of the
Securities Act or any applicable state securities laws, and (ii) the transferee
has delivered to the Company a written agreement to be bound by the terms and
conditions hereof.  The Holder agrees
that after such notice, the Holder may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to further assign this Warrant, any notice to the contrary notwithstanding;
but until receipt of any such notice of assignment, the Company may treat the
Holder as shown on its records as the owner for all purposes.  Nothing in this paragraph 10 shall be deemed
to limit the effect of any agreement among the Holder, the Company and other
security holders of the Company restricting the transfer of this Warrant or the
Shares.


 


11.                                 Mutilation or Loss of
Warrant.  Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void.


 


12.                                 Taxes.  The Company shall not be required to pay any
tax or taxes attributable to the issuance of this Warrant or of the Warrant
Shares.


 


13.                                 No Limitation on Corporate
Action; No Impairment.


 


13.1                           No provision of this Warrant
and no right or option granted or conferred hereunder shall in any way limit,
affect or abridge the exercise by the Company of any of its corporate rights or
powers to recapitalize, amend its certificate of incorporation, reorganize,
consolidate or merge with or into another entity, or to transfer, all or any
part of its property or assets, or the exercise or any other of its corporate
rights and powers.


 


13.2                           The Company will not, by
amendment of its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed by the Company under this
Warrant, but will at all times in good faith assist in the carrying out of all
of the provisions of this Warrant and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder under
this Warrant against impairment.


 


14.                                 Restricted Securities.  This Warrant has not been registered under
the Act, or qualified under applicable state securities laws and has been
issued to the Holder for investment and not with a view to the distribution of
either the Warrant or the Shares. 
Neither this Warrant nor any of the Shares or any other security issued
or issuable upon exercise of this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under the
Act and qualification under applicable state securities laws relating to such
security or an available exemption from registration and qualification.  Each certificate for the Shares and any other
security issued or issuable upon exercise of this Warrant shall contain a
legend on the face thereof, in form and substance satisfactory to counsel for
the Company, setting forth the restrictions on transfer contained in this
Section.


 


6





















 


15.                                 Notices.  All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given (i) upon receipt, if delivered personally,
(ii) upon confirmation of receipt, if given by electronic facsimile and (iii)
(A) on the third business day following mailing, if mailed from a United States
address to a United States address or (B) on the tenth business day following
mailing, if mailed internationally, and in either case, postage prepaid,
certified mail, return receipt requested, to the following address (or at such
other address for a party as shall be specified by like notice):


 


(i)                                     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


 


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.


 


(ii)                                  if to the Holder, to:


 


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


Pillsbury Winthrop LLP


2475 Hanover Street


Palo Alto, CA  94304-1114


Facsimile:  (650) 233-4545


 


16.                                 Supplements and Amendments;
Whole Agreement.  This Warrant
may be amended or supplemented only by an instrument in writing signed by the
Company and the Holder.  This Warrant
contains the full understanding of the Company and the Holder with


 


7





















 


respect to the subject
matter hereof and thereof and there are no representations, warranties,
agreements or understandings other than expressly contained herein and therein.


 


17.                                 Governing Law.  This Warrant shall be deemed to be a contract
made under the laws of the State of California and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts to be made and performed entirely within such State, without
regard to its conflicts of laws rules.


 


18.                                 Descriptive Headings.  Descriptive headings of the several Sections
of this Warrant are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.


 


19.                                 No Fractional Shares.  No fractional Shares shall be issued upon
exercise of this Warrant.  In lieu of any
fractional Shares to which the Holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by the Warrant
Price.


 


20.                                 Waivers Strictly Construed.  With regard to any power, remedy or right
provided herein or otherwise available to any party hereunder (i) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (ii) no alteration, modification
or impairment shall be implied by reason of any previous waiver, extension of
time, delay or omission in exercise, or other indulgence.


 


21.                                 Severability.  The validity, legality or enforceability of
the remainder of this Warrant shall not be affected even if one or more of its
provisions shall be held to be invalid, illegal or unenforceable in any
respect.


 


[Signature Page Follows]


 


8





















 


IN WITNESS WHEREOF, the
Company has caused this Warrant to be signed by its duly authorized officer, as
of January 25, 2005.


 


	
   

  	
  INNOVATIVE MICRO TECHNOLOGY, INC. 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ John Foster

  	
   

  
	
   

  	
   

  	
  John Foster 

  
	
   

  	
   

  	
  President

  



 


9





















 


EXHIBIT
A


 


Form of Performance Report


 


Innovative Micro Technology, Inc.


Performance
Report


 




	
   

  	
   

  	
  Calendar

  Year

  2005

  	
   

  
	
  Contract
  Activity

  	
   

  	
  $

  	
   

  	
   

  
	
  Incurred
  Costs

  	
   

  	
   

  	
   

  
	
  Gross Profit

  	
   

  	
  $

  	
   

  	
   

  
	
  %GM

  	
   

  	
  %   .

  	
   

  
	
  R&D

  	
   

  	
  $

  	
   

  	
   

  
	
  S,G&A

  	
   

  	
   

  	
   

  
	
  Profit
  Sharing

  	
   

  	
   

  	
   

  
	
  Interest
  income

  	
   

  	
   

  	
   

  
	
  Interest
  expense

  	
   

  	
   

  	
   

  
	
  Other income
  (expense)

  	
   

  	
   

  	
   

  
	
  taxes

  	
   

  	
   

  	
   

  
	
  Net Income
  (Loss)

  	
   

  	
  $

  	
   

  	
   

  






 


10





















 


EXHIBIT
B


 


Performance Targets


 


The “Performance Targets”
shall be as follows


 




	
  Contract
  Activity:

  	
   

  	
  $

  	
  19,814,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gross
  Profit:

  	
   

  	
  $

  	
  3,960,000

  	
   

  






 


Calculation of Shares Purchasable Pursuant to Warrant 


 


This Warrant shall be
exercisable for up to the number of Shares set forth below, based on the
information provided in the Performance Report, subject to adjustment as provided
in Section 4 of the Warrant.


 




	
  Performance, Calendar Year 2005

  	
   

  	
  Total Shares

  	
   

  
	
  Contract Activity

  	
   

  	
  Gross Profit

  	
   

  	
  Purchasable

  	
   

  
	
  0 -
  $17,481,999.99

  	
   

  	
  N/A

  	
   

  	
  70,588

  	
   

  
	
  $17,482,000
  - $19,813,999.99

  	
   

  	
  0 - $3,499,999

  	
   

  	
  70,588

  	
   

  
	
   

  	
   

  	
  $3,500,000 or more

  	
   

  	
  35,294

  	
   

  
	
  $19,814,000
  or more

  	
   

  	
  0-$3,959,999

  	
   

  	
  35,294

  	
   

  
	
   

  	
   

  	
  $3,960,000 or more

  	
   

  	
  0

  	
   

  






 


11





















 


EXHIBIT
C


 


FORM OF NOTICE OF EXERCISE
OF WARRANT


 


The “Holder” designated
below, subject to the conditions set forth in that certain Warrant to Purchase
Common stock of Innovative Micro Technology, Inc. (the “Company”), dated as of January 25,
2005 (the “Warrant”), hereby elects to exercise the right, represented by the
Warrant, to purchase shares of the Common Stock of the Company  and tenders herewith payment as follows:


 


AGGREGATE WARRANT
PRICE:  $____________________ (Payment
shall be made by wire transfer in accordance with the wire transfer
instructions attached to the Warrant as Exhibit A.)


 


	
  Please deliver the stock
  certificate to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
				



 


The Holder hereby represents
and warrants to the Company as follows:


 


•                                          The Holder has
sufficient knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of its prospective investment in
the shares of Common Stock of the Company.


 


•                                          The Holder
understands that it is purchasing the shares of Common Stock of the Company
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended (the “Act”) and without registration under the Act or
any state securities or Blue Sky laws.


 


•                                          The Holder is
an “accredited investor” as defined in Rule 501(a) of Regulation D under
the Act.


 


	
  Dated:

  	
   

  	
  , 

  	
  200

  	
   

  	
   

  
	
   

  
	
  “Holder”

  
	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
								



 


12





















 


EXHIBIT
D


 


WIRE
INSTRUCTIONS


 


On the exercise of the
Warrant the aggregate Warrant Price shall be paid to the Company by wire
transfer to the following address:


 


13





















 


THIS WARRANT AND THE
SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE ACT, SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO AND ALL APPLICABLE
QUALIFICATIONS UNDER STATE SECURITIES LAWS SHALL HAVE BEEN OBTAINED WITH
RESPECT THERETO; (ii) A WRITTEN OPINION FROM COUNSEL FOR THE HOLDER
REASONABLY SATISFACTORY TO THE ISSUER HAS BEEN OBTAINED STATING THAT NO SUCH
REGISTRATION OR QUALIFICATION IS REQUIRED; OR (iii) SOLD PURSUANT TO RULE 144
UNDER SUCH ACT.


 


WARRANT TO PURCHASE COMMON STOCK OF

INNOVATIVE MICRO TECHNOLOGY, INC.


 


For good and valuable
consideration, the receipt of which is hereby acknowledged, Innovative Micro
Technology, Inc., a Delaware corporation (the “Company”), hereby grants to BAVP
VII, L.P., a limited partnership, its successors and assigns (collectively, the
“Holder”), an irrevocable warrant (the “Warrant”) to purchase, subject to the
satisfaction of the conditions set forth in Section 1 below and subject to
the other terms hereof, the number of shares of Common Stock, par value $0.0001
per share, of the Company (the “Shares”), if any, determined in accordance with
Section I hereto, at the Warrant Price, as defined below, at any time
beginning on March 15, 2006 (the “Determination Date”) and ending on
January 24, 2008 (the “Expiration Date” and such period beginning on the
Determination Date and ending on the Expiration Date, the “Exercise Period”).


 


1.                                       Conditions to Exercise;
Number of Shares; Early Termination.  On or before March 15, 2006, the Company
shall deliver to the Holder a report in the form of Exhibit A
hereto (the “Performance Report”) setting forth the Company’s total Contract
Activity (as defined below) and gross profit for calendar year 2005.  If the Company’s performance described in the
Performance Report does not satisfy the Target Amounts set forth on Exhibit B
hereto, then this Warrant shall then become exercisable for the lesser of one
hundred seventy-six thousand, four hundred seventy-one (176,471) shares of
Common Stock and the number of shares of Common Stock calculated as purchasable
pursuant to Exhibit B hereto, subject to adjustment as provided
below.  For purposes of this Warrant,
“Contract Activity” shall mean total revenue, as adjusted by work-in-process
inventory, for the period measured.  For
purposes of this Warrant, the terms “revenue” and “work-in-process inventory”
shall have the meanings ascribed to them under U.S. Generally Accepted
Accounting Principles (“GAAP”).  “Gross
profit” shall have the same meaning as that used in the budgets of the Company
provided heretofore to the Investors, in which “gross profit” means gross profit,
within the meaning of GAAP, before any deduction for profit sharing.  If, on the Determination Date, the number of
Shares purchasable is zero (0), this Warrant shall terminate and be of no
further force or effect.


 


1





















 


2.                                       Exercise; Issuance of
Certificates; Payment for Shares.


 


This Warrant may be
exercised by the Holder, in whole or in part, and on one or more occasions, by
written notice to the Company, in the form attached as Exhibit C hereto
(the “Notice”), at any time within the Exercise Period and by payment to the
Company by wire transfer (in accordance with the wire transfer instructions
attached hereto as Exhibit D) of the aggregate Warrant Price for the
number of Shares designated by the Holder (but not more than the number of
Shares for which this Warrant then remains subject and unexercised).  Consideration received by the Company under a
broker-assisted sale and remittance program acceptable to the Company may also
be used to exercise this Warrant. 
Certificates for the Shares so purchased will be delivered to the Holder
within a reasonable time, not exceeding fifteen (15) business days, after
this Warrant has been exercised, and, unless this Warrant has expired, it will
continue in effect with respect to the number of Shares, if any, as to which it
has not then been exercised and which remain covered by this Warrant as herein
provided.  Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the business day on which the Notice is given to the Company.  At such time, the person or persons in whose
name or names any certificate for the Shares shall be issuable upon such
exercise shall be deemed to have become the holder or holders of record of the
Shares represented by such certificate or certificates, and to be entitled to
all rights of a Stockholder with respect to such Shares, including without
limitation voting rights.


 


3.                                       Shares to be Fully Paid;
Reservation of Shares.  The
Company covenants and agrees as follows:


 


3.1                                 All shares issued upon the
exercise of this Warrant will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issuance
thereof.


 


3.2                                 During the period within which
this Warrant may be exercised, the Company will at all times have authorized
and reserved for the purpose of issuance or transfer upon exercise of this
Warrant a sufficient number of Shares to provide for the exercise of this
Warrant.


 


3.3                                 The Company will take all
actions necessary to assure that the Shares issuable upon the exercise of this
Warrant may be so issued without violation of any applicable law or regulation,
or of any requirements of any securities exchange upon which the shares of the
Company may then be listed.


 


4.                                       Warrant Price.


 


4.1                                 Initial Warrant Price;
Subsequent Adjustment of Price and Number of Purchasable Shares.  The initial Warrant Price (“Initial Warrant
Price”) will be $0.30 per Share, and will be adjusted from time to time as provided
below.  The Initial Warrant Price or, if
such price has been adjusted, the price per Share as last adjusted pursuant to
the terms hereof, is referred to as the “Warrant Price” herein.


 


4.2                                 Subdivision or Combination
of Shares.  If the
Company at any time while this Warrant, or any portion hereof, remains
outstanding and unexpired shall split, subdivide or


 


2





















 


combine the securities as to
which purchase rights under this Warrant exist, into a different number of
securities of the same class, the number of Shares for which this Warrant may
be exercised shall be adjusted to represent the aggregate number of securities
that, if this Warrant had been exercised immediately prior to such event, the
Holder would have owned upon such dividend, distribution, subdivision,
combination or reclassification, and the Warrant Price for such securities
shall be proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.


 


4.3                                 Reclassification.  If the Company, at any time while this
Warrant, or any portion hereof, remains outstanding and unexpired, by
reclassification of securities or otherwise shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with
respect to the securities that were subject to the purchase rights under this
Warrant immediately prior to such reclassification or other change and the
Warrant Price therefor shall be appropriately adjusted.


 


4.4                                 Adjustments for Dividends in
Stock or Other Securities or Property.  If while this Warrant, or any portion hereof,
remains outstanding and unexpired holders of the securities as to which
purchase rights under this Warrant exist at the time shall have received, or,
on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company by way of dividend, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that the
Holder would hold on the date of such exercise had it been holder of record of
the security receivable upon exercise of this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the
date of such exercise, retained such shares and/or all other additional
securities available to it as aforesaid during such period, giving effect to
all adjustments called for during such period.


 


4.5                                 Reorganization,
Reclassification, Consolidation, Merger or Sale.  If, while this Warrant, or any portion
hereof, remains outstanding and unexpired, any capital reorganization or
reclassification of the stock of the Company, or any consolidation or merger of
the Company with another corporation or entity, or the sale of all or
substantially all of the Company’s assets to another corporation will be
effected in such a way that holders of the securities for which this Warrant is
exercisable will be entitled to receive shares, securities or assets with
respect to or in exchange for such securities, then, upon exercise of this
Warrant, the Holder will thereafter have the right to receive such shares,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding securities equal to the number of securities
purchasable and receivable upon the exercise of this Warrant immediately prior
to such event.  If a purchase, tender or
exchange offer is made to and accepted by holders of more than 50% of the
outstanding capital stock of the Company (on an as-converted to Common Stock
basis), the Company will not effect any consolidation, merger or sale with the
Person, as defined below, making such offer or with any Affiliate, as defined
below, of such Person, unless, before the consummation of such consolidation,
merger or sale, the Holder of this


 


3





















 


Warrant is given at least
ten (10) business days’ notice prior to the scheduled closing date (the “Closing
Date”) of such transaction (which notice shall specify the material terms of
such transaction and the proposed Closing Date).  In the event the Holder elects to exercise
this Warrant or any portion thereof following such notice and such consolidation,
merger or sale is not consummated within ten (10) days of the proposed
Closing Date (or any subsequent proposed Closing Date), then the Holder may
rescind its exercise of this Warrant by providing written notice thereof
to the Company, the Company shall take all actions consistent therewith
(including without limitation the immediate return of the Warrant Price paid
with respect to such rescinded exercise) and this Warrant shall continue in
full force and effect.  As used in this
paragraph, the term “Person” includes an individual, a partnership, a
corporation, a trust, a joint venture, a limited liability company, an
unincorporated organization and a government or any department or agency
thereof, and an “Affiliate” of a Person means any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with,
such other Person.  A Person will be
deemed to control a corporation or other business entity if such Person
possesses, directly or indirectly, the power to direct or cause the direction
of the management and policies of such corporation, whether through the
ownership of voting securities, by contract or otherwise.


 


4.6                                 Notice of Adjustment.  Upon any adjustment of the number of Shares
and/or the Warrant Price, the Company will give written notice thereof, by
first-class mail, postage prepaid, addressed to the Holder at the Holder’s
address as shown on the books of the Company, which notice will state
(i) the Warrant Price resulting from such adjustment and the increase or
decrease, if any, in the number of Shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based, and
(ii) whether, after giving effect to such adjustment, the maximum number
of Shares issuable upon the exercise of this Warrant will constitute more than
5% of the total number of the then issued and outstanding Shares (including in
such total number the maximum number of Shares issuable upon the exercise of
this Warrant).


 


4.7                                 Other Notices.  If at any time:


 


4.7.1                        the Company
declares a cash dividend on its Common Stock payable at a rate in excess of the
rate of the last cash dividend theretofore paid;


 


4.7.2                        the Company
declares a dividend on its Common Stock payable in securities or pays a special
dividend or other distribution (other than regular cash dividends) to holders
of its Shares;


 


4.7.3                        the Company
offers for subscription to holders of any of its Common Stock additional shares
of any class or other rights;


 


4.7.4                        there is a
reorganization, reclassification, consolidation or merger of the Company with,
or sale of all or substantially all of its assets to, another corporation or
other entity; or


 


4.7.5                        there is a
voluntary or involuntary dissolution, liquidation or winding up of the Company;


 


4





















 


then the Company will give,
as provided in paragraph 15 below, to the Holder’s address as shown on the
books of the Company, (i) at least ten (10) business days’ prior
written notice of the date on which the books of the Company will close or
a record will be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, and
(ii) in the case of such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, at least ten (10)
business days’ prior written notice of the date when the same will take
place.  Any notice required by
clause (i) will also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the Holder will be
entitled thereto, and any notice required by (ii) will also specify the
anticipated date on which the Holder will be entitled to exchange its Shares
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.


 


5.                                       Listing.  If any Shares required to be reserved for the
purpose of issuance upon the exercise of this Warrant require registration with
or approval of any governmental authority under any federal or state law (other
than the filing of a Registration Statement under the Securities Act of 1933,
as then in effect (the “Securities Act”), or any similar law then in effect),
or listing on any securities exchange, before such Shares may be issued upon
such exercise, the Company will, at its expense and as expeditiously as
possible, use its commercially reasonable efforts to cause such Shares to be
duly registered or approved or listed on the relevant securities exchange, as
the case may be.


 


6.                                       Closing of Books.  The Company will at no time close its
transfer books against the transfer of this Warrant or of any Shares issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.


 


7.                                       Definition of Common Stock.  As used in this Warrant the term “Common
Stock” includes the Company’s authorized Common Stock, par value $0.0001 per
share, as constituted on the date hereof and also includes any shares of any
class of stock or other equity securities of the Company thereafter authorized
which will not be limited to a fixed sum or percentage of par value in respect
of the rights of holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company.


 


8.                                       Definition of Shares.  Except as provided in paragraph 4.5, the
Shares purchasable pursuant to this Warrant will include only Shares designated
as “common stock” of the Company or, in the case of any reclassification of the
outstanding Shares, the Shares, securities or assets provided for in
paragraph 4.5.


 


9.                                       No Voting Rights.  This Warrant will not entitle the Holder to
any voting rights or other rights as a stockholder of the Company.


 


10.                                 Warrant Transferable.  This Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Holder, by written
notice to the Company at the address referred to in paragraph 15 below by
the Holder, in person or by duly authorized attorney; provided that either
(i) a written opinion of counsel for the Holder reasonably satisfactory to
the Company has been obtained stating that such transfer will not violate the
registration


 


5





















 


requirements of the
Securities Act or any applicable state securities laws, and (ii) the transferee
has delivered to the Company a written agreement to be bound by the terms and
conditions hereof.  The Holder agrees
that after such notice, the Holder may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to further assign this Warrant, any notice to the contrary notwithstanding;
but until receipt of any such notice of assignment, the Company may treat the
Holder as shown on its records as the owner for all purposes.  Nothing in this paragraph 10 shall be
deemed to limit the effect of any agreement among the Holder, the Company and
other security holders of the Company restricting the transfer of this Warrant
or the Shares.


 


11.                                 Mutilation or Loss of
Warrant.  Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void.


 


12.                                 Taxes.  The Company shall not be required to pay any
tax or taxes attributable to the issuance of this Warrant or of the Warrant
Shares.


 


13.                                 No Limitation on Corporate
Action; No Impairment.


 


13.1                           No provision of this Warrant
and no right or option granted or conferred hereunder shall in any way limit,
affect or abridge the exercise by the Company of any of its corporate rights or
powers to recapitalize, amend its certificate of incorporation, reorganize,
consolidate or merge with or into another entity, or to transfer, all or any
part of its property or assets, or the exercise or any other of its corporate
rights and powers.


 


13.2                           The Company will not, by
amendment of its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by the Company
under this Warrant, but will at all times in good faith assist in the carrying
out of all of the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder under this Warrant against impairment.


 


14.                                 Restricted Securities.  This Warrant has not been registered under
the Act, or qualified under applicable state securities laws and has been
issued to the Holder for investment and not with a view to the distribution of
either the Warrant or the Shares. 
Neither this Warrant nor any of the Shares or any other security issued
or issuable upon exercise of this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under the
Act and qualification under applicable state securities laws relating to such
security or an available exemption from registration and qualification.  Each certificate for the Shares and any other
security issued or issuable upon exercise of this Warrant shall contain a
legend on the face thereof, in form and substance satisfactory to counsel for
the Company, setting forth the restrictions on transfer contained in this
Section.


 


6





















 


15.                                 Notices.  All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given (i) upon receipt, if delivered
personally, (ii) upon confirmation of receipt, if given by electronic facsimile
and (iii) (A) on the third business day following mailing, if mailed from a
United States address to a United States address or (B) on the tenth business
day following mailing, if mailed internationally, and in either case, postage prepaid,
certified mail, return receipt requested, to the following address (or at such
other address for a party as shall be specified by like notice):


 


(i)                                     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


 


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.


 


(ii)                                  if to the Holder, to:


 


BAVP VII, L.P.


950 Tower Lane, Suite 700


Foster City, CA. 94404


Facsimile: 
                      


Attention: 
                      


 


16.                                 Supplements and Amendments;
Whole Agreement.  This
Warrant may be amended or supplemented only by an instrument in writing signed
by the Company and the Holder.  This
Warrant contains the full understanding of the Company and the Holder with
respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.


 


17.                                 Governing Law.  This Warrant shall be deemed to be a contract
made under the laws of the State of California and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts to be made and performed entirely within such State, without
regard to its conflicts of laws rules.


 


18.                                 Descriptive Headings.  Descriptive headings of the several Sections
of this Warrant are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.


 


7





















 


19.                                 No Fractional Shares.  No fractional Shares shall be issued upon
exercise of this Warrant.  In lieu of any
fractional Shares to which the Holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by the Warrant
Price.


 


20.                                 Waivers Strictly Construed.  With regard to any power, remedy or right
provided herein or otherwise available to any party hereunder (i) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (ii) no alteration, modification
or impairment shall be implied by reason of any previous waiver, extension of
time, delay or omission in exercise, or other indulgence.


 


21.                                 Severability.  The validity, legality or enforceability of
the remainder of this Warrant shall not be affected even if one or more of its
provisions shall be held to be invalid, illegal or unenforceable in any
respect.


 


[Signature Page Follows]


 


8





















 


IN WITNESS WHEREOF, the
Company has caused this Warrant to be signed by its duly authorized officer, as
of January 25, 2005.


 


	
   

  	
  INNOVATIVE MICRO TECHNOLOGY, INC. 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ John Foster

  	
   

  
	
   

  	
   

  	
  John Foster 

  
	
   

  	
   

  	
  President

  



 


9





















 


EXHIBIT
A


 


Form of Performance Report


 


Innovative Micro Technology, Inc.


Performance
Report


 




	
   

  	
   

  	
  Calendar

  Year

  2005

  	
   

  
	
  Contract
  Activity

  	
   

  	
  $

  	
   

  	
   

  
	
  Incurred
  Costs

  	
   

  	
   

  	
   

  
	
  Gross Profit

  	
   

  	
  $

  	
   

  	
   

  
	
  %GM

  	
   

  	
  %   .

  	
   

  
	
  R&D

  	
   

  	
  $

  	
   

  	
   

  
	
  S,G&A

  	
   

  	
   

  	
   

  
	
  Profit
  Sharing

  	
   

  	
   

  	
   

  
	
  Interest
  income

  	
   

  	
   

  	
   

  
	
  Interest
  expense

  	
   

  	
   

  	
   

  
	
  Other income
  (expense)

  	
   

  	
   

  	
   

  
	
  taxes

  	
   

  	
   

  	
   

  
	
  Net Income
  (Loss)

  	
   

  	
  $

  	
   

  	
   

  






 


10





















 


EXHIBIT
B


 


Performance Targets


 


The “Performance Targets”
shall be as follows


 




	
  Contract
  Activity:

  	
   

  	
  $

  	
  19,814,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gross
  Profit:

  	
   

  	
  $

  	
  3,960,000

  	
   

  






 


Calculation of Shares Purchasable Pursuant to Warrant 


 


This Warrant shall be
exercisable for up to the number of Shares set forth below, based on the
information provided in the Performance Report, subject to adjustment as
provided in Section 4 of the Warrant. 


 




	
  Performance, Calendar Year 2005

  	
   

  	
  Total Shares

  	
   

  
	
  Contract Activity

  	
   

  	
  Gross Profit

  	
   

  	
  Purchasable

  	
   

  
	
  0 -
  $17,481,999.99

  	
   

  	
  N/A

  	
   

  	
  176,471

  	
   

  
	
  $17,482,000
  - $19,813,999.99

  	
   

  	
  0 - $3,499,999

  	
   

  	
  176,471

  	
   

  
	
   

  	
   

  	
  $3,500,000 or more

  	
   

  	
  88,235

  	
   

  
	
  $19,814,000
  or more

  	
   

  	
  0-$3,959,999

  	
   

  	
  88,235

  	
   

  
	
   

  	
   

  	
  $3,960,000 or more

  	
   

  	
  0

  	
   

  






 


 


B-1





















 


EXHIBIT
C


 


FORM OF NOTICE OF EXERCISE
OF WARRANT


 


The “Holder” designated
below, subject to the conditions set forth in that certain Warrant to Purchase
Common stock of Innovative Micro Technology, Inc. (the “Company”), dated as of
January 25, 2005 (the “Warrant”), hereby elects to exercise the right,
represented by the Warrant, to purchase shares of the Common Stock of the
Company  and tenders herewith payment as
follows:


 


AGGREGATE WARRANT
PRICE:  $________________________
(Payment shall be made by wire transfer in accordance with the wire transfer
instructions attached to the Warrant as Exhibit A.)


 


	
  Please deliver the stock
  certificate to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
				



 


The Holder hereby represents
and warrants to the Company as follows:


 


•                                          The Holder has
sufficient knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of its prospective investment in
the shares of Common Stock of the Company.


 


•                                          The Holder
understands that it is purchasing the shares of Common Stock of the Company
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended (the “Act”) and without registration under the Act or
any state securities or Blue Sky laws.


 


•                                          The Holder is
an “accredited investor” as defined in Rule 501(a) of Regulation D under
the Act.


 


	
  Dated:

  	
   

  	
  , 

  	
  200

  	
   

  	
   

  
	
   

  
	
  “Holder”

  
	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
								



 


C-1





















 


EXHIBIT
D


 


WIRE
INSTRUCTIONS


 


On the exercise of the
Warrant the aggregate Warrant Price shall be paid to the Company by wire
transfer to the following address:


 


D-1