Exhibit
4.4


 


THIS OFFER AND SALE OF THE SECURITIES OFFERED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR QUALIFIED UNDER ANY STATE OR NON-U.S. SECURITIES
LAWS.  THE WARRANT IS BEING OFFERED AND
SOLD IN RELIANCE ON THE EXEMPTIONS AFFORDED BY REGULATION D PROMULGATED UNDER
THE SECURITIES ACT.  THE WARRANT MAY NOT
BE TRANSFERRED OR RESOLD WITHOUT REGISTRATION AND QUALIFICATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE AND NON-U.S. SECURITIES LAWS, UNLESS AN
EXEMPTION FROM REGISTRATION AND QUALIFICATION UNDER THE SECURITIES ACT AND SUCH
LAWS IS THEN AVAILABLE.


 


THIS WARRANT AGREEMENT HAS NOT BEEN FILED WITH OR
REVIEWED OR APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY THE
ATTORNEY GENERAL OR SECURITIES AGENCY OF ANY STATE OR NON-U.S.
JURISDICTION.  NONE OF THE FOREGOING HAS
PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE WARRANT.  ANY REPRESENTATION TO THE CONTRARY IS
ILLEGAL.


 


WARRANT AGREEMENT


 


 


between


 


 


STUTMAN TREISTER & GLATT,
PROFESSIONAL CORPORATION,


 


as the Investor


 


 


and


 


 


INNOVATIVE MICRO TECHNOLOGY,
INC.,


 


as the Company


 


 


Dated as of September 30,
2003


 

















 


WARRANT AGREEMENT dated as of September 30, 2003
(this “Agreement”), between Stutman Treister & Glatt, Professional
Corporation, (the “Investor”), and Innovative Micro Technology, Inc., a
Delaware corporation (the “Company”).


 


R E C I T A L
S:


 


WHEREAS, the Company’s Third Amended Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code, dated as of
September 24, 2001 (the “Plan”), provides for the payment by the Company
to Stutman, Treister & Glatt, Professional Corporation (“Stutman”), of
professional fees incurred by the Company in connection with the Company’s
bankruptcy case.


 


WHEREAS, the Company has evidenced its obligation to
pay such professional fees by executing for the benefit of Stutman a Secured
Promissory Note dated as of November 16, 2001 (the “Note”), secured by,
among other things, that certain Deed of Trust, Assignment of Rents and Fixture
Filing (Robin Hill Road), dated as November 16, 2001, and recorded on
March 18, 2002, as document number 2002-0025765 in the Official Records of
the County of Santa Barbara, California (the “Deed of Trust”) encumbering the
real property commonly known 75 Robin Hill Road, Goleta, California.


 


WHEREAS, the Company and the Investor are parties to a
Letter Agreement dated as of September 22, 2003 (the “Letter Agreement”),
which provides for the payment in full of the Company’s obligations under the
Note and the release by Stutman of all collateral therefor;


 


WHEREAS, it is a condition to the obligations of the
Investor pursuant to the Letter Agreement that the parties execute and deliver
this Warrant Agreement, providing for the issuance and delivery to the Investor
in partial payment of the Note of (i) a warrant for the purchase of up to
16,437 additional shares the Company’s common stock, par value $0.0001 per
share (the “Common Stock”) at $5.35 per share, for a period of 18 months
from the date hereof (the “18-Month Warrant”) and (ii) a warrant for the
purchase of up to 68,777 additional shares of Common Stock at $7.29 per share,
for a period of three years from the date hereof (the “Three-Year Warrant” and,
collectively with the 18-Month Warrant and warrants issued in substitution or
on subdivision of either of them, the “Warrants”);


 


WHEREAS, the Investor and the Company have agreed that
the Warrants may be divided by Stutman and allocated to the shareholders of
Stutman;


 


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


 


ARTICLE I

DEFINITIONS


 


Section 1.1                                      Definitions. 
The terms defined in this Agreement, whenever used herein, shall have
the respective meanings indicated below for all purposes of this Agreement.


 


1

















 


ARTICLE II

GRANT OF THE WARRANTS


 


Section 2.1                                      Grant of Warrants. 
The Company hereby grants to the Investor (i) the 18-Month Warrant,
providing for the purchase of up to 16,437 shares of Common Stock at $5.35 per
share at any time prior to March 30, 2005, representing on the date of
this Agreement approximately 0.17 percent of the outstanding Common Stock after
exercise of the Warrant and issuance of the Common Stock as provided in the
Letter Agreement, and assuming issuance of all shares of Common Stock pursuant
to any options, warrants, convertible securities, subscription rights or
otherwise which are in existence or outstanding as of the date of this
Agreement plus shares of Common Stock issuable upon the issuance and exercise
of all unissued stock options available for grant under the Company’s Stock Option
Plan, but not the exercise of the Three-Year Warrant; and (ii) the Three-Year
Warrant, providing for the purchase of up to 68,777 shares of Common Stock at
$7.29 per share at any time prior to September 30, 2006 (the “Expiration
Date”), representing on the date of this Agreement approximately 0.70 percent
of the outstanding Common Stock after exercise of the Warrant and issuance of
the Common Stock as provided in the Letter Agreement, and assuming issuance of
all shares of Common Stock pursuant to any options, warrants, convertible
securities, subscription rights or otherwise which are in existence or
outstanding as of the date of this Agreement plus shares of Common Stock
issuable upon the issuance and exercise of all unissued stock options available
for grant under the Company’s Stock Option Plan, but not the exercise of the
18-Month Warrant.  The shares of Common
Stock deliverable to the Investor upon exercise of the Warrants are sometimes
collectively referred to as the “Warrant Shares”.  The last day for exercise of each of the
respective warrants is referred to herein as the “Expiration Date.”


 


Section 2.2                                      Forms of Warrant. 
The Warrants shall be in the form of Annex A and Annex B
to this Agreement.  As soon as
practicable after the date hereof the Company shall deliver to the Investor a
single certificate representing each of the Warrants registered in the names of
the shareholders of the Investor listed on Schedule I hereto (the “Stutman
Shareholders”), in the denominations set forth beside the name of each
on Schedule I.  As a
condition to such delivery, each Stutman Shareholder shall deliver to the
Company a Letter of Representations in the form attached hereto as Annex C.


 


Section 2.3                                      Securities Act Compliance. 
The Investor understands that the Company has not registered the
Warrants or the Warrant Shares under the Securities Act and the Investor agrees
that neither the Warrants nor the Warrant Shares shall be sold, transferred or
offered for sale without registration under the Securities Act or the
availability of an exemption therefrom.


 


Section 2.4                                      Investor Representations and Warranties. 
The Investor hereby represents and warrants to the Company that:


 


(a)                                  Purchase Entirely for Own Account. The Warrants and the Common Stock
issuable upon exercise thereof (collectively, the “Securities”) are being
acquired for investment for the account of the Investor and/or the Stutman
Shareholders, and not with a view to the resale or distribution of any part
thereof, and the Investor has no present intention of selling, granting any
participation in, or otherwise distributing same.


 


2

















 


(b)                                 Disclosure of Information. 
The Investor believes it has received all the information it considers
necessary or appropriate for deciding whether to purchase the Securities.  The Investor further represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Securities and the
business, properties, prospects and financial condition of the Company.


 


(c)                                  Investment Experience. 
The Investor is an investor in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities. 
The Investor also represents it has not been organized for the purpose
of acquiring the Securities.  Such
Investor acknowledges that any investment in the Securities involves a high
degree of risk, and represents that it is able, without materially impairing
its financial condition, to hold the Securities for an indefinite period of time
and to suffer a complete loss of its investment.


 


(d)                                 Accredited Investor. 
The Investor is an “accredited investor” within the meaning of Rule 501
of Regulation D under the Securities Act, as presently in effect.


 


(e)                                  Restricted Securities. 
The Investor understands that the Securities it is purchasing are
characterized as “restricted securities” under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Act only in
certain limited circumstances.  In this
connection, the Investor represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.  THE INVESTOR UNDERSTANDS
AND ACKNOWLEDGES HEREIN THAT AN INVESTMENT IN THE COMPANY’S SECURITIES INVOLVES
AN EXTREMELY HIGH DEGREE OF RISK AND MAY RESULT IN A COMPLETE LOSS OF ITS
INVESTMENT.  The Investor understands
that the Securities have not been and will not be registered under the
Securities Act and have not been and will not be registered or qualified in any
state in which they are offered, and thus the Investor will not be able to
resell or otherwise transfer the Securities unless they are registered under
the Act and registered or qualified under applicable state securities laws, or
an exemption from such registration or qualification is available.  The Investor has no immediate need for liquidity
in connection with this investment and does not anticipate that the Investor
will be required to sell the Securities in the foreseeable future.


 


(f)                                    Further limitations on Disposition. 
Without in any way limiting the representations set forth above, the
Investor further agrees not to make any disposition of all or any portion of
the Securities unless and until the transferee has agreed in writing for the
benefit of the Company to be bound by this Section 2.4.


 


(g)                                 Legends.  The
Securities shall bear legends substantially as shown in the Form of Warrant
attached hereto.


 


3

















 


(h)                                 No Reliance on Others. 
The Investor acknowledges that it is not relying upon any person, firm
or corporation, other than the Company and its officers and directors, in
making its investment or decision to invest in the Company.


 


ARTICLE III

MISCELLANEOUS


 


Section 3.1                                      Severability. 
If any provision of this Agreement, including any phrase, sentence,
clause, section or subsection is inoperative or unenforceable for any
reason, such circumstances shall not have the effect of rendering the provision
in question inoperative or unenforceable in any other case or circumstance, or
of rendering any other provision or provisions herein contained invalid,
inoperative, or unenforceable to any extent whatsoever.


 


Section 3.2                                      Notices.  All notices,
requests, demands, approvals, consents, waivers and other communications
required or permitted to be given under this Agreement (each, a “Notice”)
shall be in writing and shall be (a) delivered personally, (b) mailed
by first-class or certified mail, return receipt requested, postage prepaid,
(c) sent by next-day or overnight mail or delivery, or (d) sent by
facsimile transmission, provided that the original copy thereof also is sent by
first class or certified mail or by overnight delivery.


 


(a)                                  if to the Investor, including any
assignee, transferee or successor, to:

Stutman Treister & Glatt, Professional Corporation

1901 Avenue of the Stars, 12th Floor

Los Angeles, CA 90067

Facsimile: (310) 228-5788

Attention: Ted Stolman


 


(b)                                 if to the Company, to:

Innovative Micro Technology, Inc.

75 Robin Hill Road

Santa Barbara, CA 93117

Facsimile:  (805) 967-2677

Attention:  John Foster, President


 


with a copy (which shall not comprise Notice) to:


 


James J. Slaby, Esq.

Sheppard, Mullin, Richter & Hampton LLP

333 South Hope Street

Los Angeles, CA  90081

Facsimile:  (213) 620-1398


 


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


 


Section 3.3                                      Attorneys’ Fees. 
If any party hereto initiates any legal action arising out of or in
connection with this Agreement, the prevailing party shall be entitled to
recover from the


 


4

















 


other party all reasonable attorneys’ fees, expert
witness fees and expenses incurred by the prevailing party in connection
therewith.


 


Section 3.4                                      Liability for Transfer Taxes. The Company shall be responsible for
and pay in a timely manner all sales, use, value added, documentary, stamp,
gross receipts, registration, transfer, conveyance, excise, recording, license
and other similar taxes and fees (“Transfer Taxes”), arising out of or
in connection with or attributable to the transactions effected pursuant to
this Agreement.  Each party hereto shall
prepare and timely file all Tax Returns required to be filed in respect of
Transfer Taxes that are the primary responsibility of such party under applicable
law; provided, however, that such party’s preparation of any such
Tax Returns shall be subject to the other party’s approval, which approval
shall not be withheld or delayed unreasonably.


 


Section 3.5                                      Headings  The headings
contained in this Agreement are for purposes of convenience only and shall not
affect the meaning or interpretation of this Agreement.


 


Section 3.6                                      Entire Agreement. 
This Agreement (including the Annexes hereto) and the Letter Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.


 


Section 3.7                                      Counterparts. 
This Agreement may be executed (including by facsimile transmission)
with counterpart signature pages or in several counterparts, each of which
shall be deemed an original and all of which shall together constitute one and
the same instrument.


 


Section 3.8                                      Governing Law, Etc.


 


(a)                                  THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL
LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
RULES THEREOF.


 


(b)                                 EACH OF THE INVESTOR AND THE COMPANY
HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF CALIFORNIA AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA
LOCATED IN THE CITY OF LOS ANGELES SOLELY IN RESPECT OF THE INTERPRETATION AND
ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND OF THE DOCUMENTS REFERRED
TO IN THIS AGREEMENT, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE
IN ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF
OR OF ANY SUCH DOCUMENT, THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION,
SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS OR
THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS AGREEMENT OR ANY OF
SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SAID COURTS, AND THE PARTIES HERETO
IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH


 


5

















 


ACTION
OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A CALIFORNIA STATE OR
FEDERAL COURT.  EACH OF THE INVESTOR AND
THE COMPANY HEREBY CONSENTS TO AND GRANTS ANY SUCH COURT JURISDICTION OVER THE
PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF ANY SUCH DISPUTE AND
AGREES THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH
ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 3.2, OR IN
SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT
SERVICE THEREOF.


 


(c)                                  JURY TRIAL WAIVER. 
THE INVESTOR AND THE COMPANY EACH WAIVE ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE OTHER THAT
PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE WARRANT, ANY ALLEGED
TORTIOUS CONDUCT BY THE INVESTOR OR THE COMPANY, OR IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN INVESTOR AND
COMPANY.


 


Section 3.9                                      Binding Effect. 
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors and permitted assigns.


 


Section 3.10                                Assignment.  This
Agreement shall not be assignable or otherwise transferable by any party hereto
without the prior written consent of the other parties hereto.


 


Section 3.11                                Amendment; Waivers, etc. 
No discharge of this Agreement, and no waiver hereunder, shall be valid
or binding unless set forth in writing and duly executed by the holders of
Warrants evidencing two-thirds in number of the total number of Stock Units at
the time purchasable upon the exercise of all then outstanding Warrants.  For the purpose of determining whether the
holders of outstanding Warrants entitled to purchase a requisite number of
Stock Units at any time have taken any action authorized by this Warrant, any
Warrants owned by the Company or any Affiliate of the Company shall be deemed
not to be outstanding.  The terms and
conditions at this Warrant Agreement may be waived or discharged only in
writing.  Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. 
Neither the waiver by any of the parties hereto of a breach of or a
default under any of the provisions of this Agreement, nor the failure by any
of the parties, on one or more occasions, to enforce any of the provisions of
this Agreement or to exercise any right or privilege hereunder, shall be
construed as a waiver of any other breach or default of a similar nature, or as
a waiver of any of such provisions, rights or privileges hereunder.  No amendment or modification of this Agreement
shall be effective unless in a writing executed by the holders of two-thirds of
the Warrant Shares.


 


Section 3.12                                Specific Performance. 
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or


 


6

















 


any state having jurisdiction, this being in addition
to any other remedy to which they are entitled at law or in equity.


 


[Signature Page Follows]


 


7

















 


IN WITNESS WHEREOF, the parties hereto have duly
executed this Warrant Agreement as of the date first above written.


 


	
   

  	
  STUTMAN TREISTER & GLATT,

  PROFESSIONAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Theodore B. Stolman

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Theodore B. Stolman

  
	
   

  	
   

  	
  Title:

  	
  V.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INNOVATIVE MICRO TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John Foster

  	
   

  
	
   

  	
   

  	
  Name: John Foster

  
	
   

  	
   

  	
  Title: 
  CEO

  
						



 


8

















 


SCHEDULE I


 


Shareholders of Stutman, Treister & Glatt,
Professional Corporation Receiving Warrants.


 


	
  Name

  	
   

  	
  18-Month Warrant Shares

  	
   

  	
  3-Year Warrant Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Richard M.
  Neiter

  	
   

  	
  1,541

  	
   

  	
  6,448

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Theodore B.
  Stolman

  	
   

  	
  2,311

  	
   

  	
  9,672

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Issac M.
  Pachulski

  	
   

  	
  2,568

  	
   

  	
  10,747

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gary E.
  Klausner

  	
   

  	
  2,311

  	
   

  	
  9,672

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Alan Pedlar

  	
   

  	
  2,588

  	
   

  	
  10,747

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  George C.
  Webster

  	
   

  	
  2,568

  	
   

  	
  10,747

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Michael H.
  Goldstein

  	
   

  	
  2,568

  	
   

  	
  10,747

  	
   

  



 


1

















 


ANNEX A

Form of 18-Month Warrant


 


THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAW OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE ACT OR ANY OTHER LEGAL EXEMPTION
UNDER THE ACT.


 


THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A WARRANT AGREEMENT BETWEEN INNOVATIVE MICRO TECHNOLOGY, INC. (THE “COMPANY”)
AND STUTMAN TREISTER & GLATT, PROFESSIONAL CORPORATION, A COPY OF WHICH IS
ON FILE WITH THE SECRETARY OF THE COMPANY. 
NO TRANSFER, SALE, ASSIGNMENT, EXCHANGE, LICENSE, MORTGAGE, PLEDGE,
CREATION OF A SECURITY INTEREST IN OR LIEN UPON, HYPOTHECATION OR OTHER
VOLUNTARY OR INVOLUNTARY DISPOSITION (EACH, A “TRANSFER”) OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF THE WARRANT AGREEMENT. 
THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE,
AGREES TO BE BOUND BY ALL THE PROVISIONS OF SUCH WARRANT AGREEMENT.


 


WARRANT


 


to purchase Common Stock, par value $0.0001 per share,
of

INNOVATIVE MICRO TECHNOLOGY, INC.

Commencing September 30, 2003 and expiring March 30, 2005


 


THIS IS TO CERTIFY THAT STUTMAN TREISTER & GLATT,
PROFESSIONAL CORPORATION, or registered assigns, is entitled to purchase from
INNOVATIVE MICRO TECHNOLOGY, INC., a Delaware corporation (the “Company”),
at any time on and after September 30, 2003 but not later than 5:00 P.M.,
California Time, on March 30, 2005 (the “Expiration Date”),
                       
Stock Units, in whole or in part, at a purchase price of $5.35 per share of
Common Stock (as such price may subsequently be adjusted under Article IV
hereof, the “Exercise Price”), or
                       
in the aggregate, all on the terms and conditions hereinbelow provided.


 


ARTICLE I

CERTAIN DEFINITIONS


 


Section 1.1                                      Certain Definitions. 
As used in this Warrant, unless the context otherwise requires:


 


“Additional Shares of Common Stock”:  means all shares of Common Stock issued by
the Company after the date hereof, other than (i) the Warrant Shares, (ii)
shares issued upon the


 


A-1

















 


exercise of any options, warrants or other rights
presently outstanding to subscribe for or purchase any shares of Common Stock
or Convertible securities, or (iii) shares that may be granted or issued upon
the exercise of any options that may hereafter be granted or exercised under
the Company’s 2001 Stock Incentive Plan or under any other employee benefit
plan of the Company approved by the Company’s Board of Directors; or (iv) any
shares of Common Stock sold to the public or the underwriter in a public
offering, or upon exercise of warrants comprising or underlying any units sold
in the Company’s initial public offering, including any shares or warrants
underlying the underwriter’s warrants or securities purchase option.  The shares of Common Stock and warrants to
be issued pursuant to the Plan, and any securities to be issued on exercise or
conversion thereof, regardless of the actual date of issuance, shall not be
deemed Additional Shares of Common Stock.


 


“Affiliate”: 
of a specified Person means a Person that directly or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, such specified Person or a member of such specified Person’s
immediate family.  “Control”
(including the terms “controlled by” and “under common control with”)
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management policies of a Person, whether through the
ownership of voting securities, by contract or credit arrangement, as trustee
or executor, or otherwise.


 


“Board”:  means the Board of Directors of the Company.


 


“Business Day”:  means any day which is not a Saturday, Sunday or day on which
banks are authorized by law to be closed in the State of California.


 


“Common Stock”:  means the Company’s authorized Common Stock, par value $0.0001
per share, irrespective of class unless otherwise specified, as constituted on
the date of original issuance of this Warrant, and any stock into which such
Common Stock may thereafter be changed, and also shall include stock of the
Company of any other class which is not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption that the Company hereafter may issue.


 


“Convertible Securities”:  means evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for
Additional Shares of Common Stock, either immediately or upon the arrival of a
specified date or the happening of a specified event.


 


“Current Market Value”:  is defined in Section 4.2.


 


“Exercise Price”:  per share of Common Stock, means, for the purpose of any
provision of this Warrant, $5.35 on the Original Issue Date and, at any
subsequent date, $5.35 per share as adjusted pursuant to Article IV
hereof.


 


“holder”: 
in respect of any security at any time means the Person then registered
on the books of the Company as the owner of such security.


 


“Letter Agreement”:  means that certain Letter Agreement between Stutman Treister
& Glatt, Professional Corporation, certain other Professional Persons (as
such term is defined in the


 


A-2

















 


Plan) and the Company dated as of September 22,
2003, as amended or modified from time to time.


 


“Original Issue Date”:  means September 30, 2003.


 


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


 


“Plan”:  means the
Company’s Third Amended Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code, dated as of September 24, 2001.


 


“Securities Act”:  means the Securities Act of 1933, as amended, or any successor or
similar law then in force.


 


“Stock Unit”:  means one
share of Common Stock, as such Common Stock was constituted on the date of
original issue of this Warrant, and thereafter shall mean such number of shares
(including any fractional shares) of Common Stock and other securities, cash or
other property, if any, as shall result from the adjustments specified in Article IV
hereof.


 


“Subsidiaries”:  means each corporation or other Person in which a Person owns or
controls, directly or indirectly, capital stock or other equity interests
representing more than 50% of the outstanding voting stock or other equity
interests.


 


“Warrant”: 
means each Warrant dated as of the Original Issue Date, originally
issued by the Company pursuant to the Warrant Agreement, evidencing rights to
purchase Stock Units, and all Warrants issued upon transfer, division or
combination of, or in substitution therefor. 
All Warrants shall at all times be identical as to terms and conditions
and date, except as to the number of Stock Units for which they may be
exercised.


 


“Warrant Agreement”:  means the Warrant Agreement dated as of September 30, 2003
between the Company and Stutman Treister & Glatt, Professional Corporation
for the purchase of Common Shares at $5.35 per share and $7.29 per share, as
such Warrant Agreement shall be modified and supplemented and in effect from
time to time.


 


“Warrant Shares”:  means the shares of Common Stock purchasable by the holders of
the Warrant upon the exercise thereof.


 


ARTICLE II

EXERCISE OF WARRANT


 


Section 2.1                                      Procedure for Exercise. 
Subject to the provisions of Section 2.2, the holder of this
Warrant may, at any time on and after September 30, 2003, but not later
than the Expiration Date, exercise this Warrant in whole at any time or in part
from time to time for the number of Stock Units which such holder is then
entitled to purchase hereunder.  In
order to exercise this Warrant, in whole or in part, the holder hereof shall
deliver to the Company, at its office maintained for such purpose pursuant to Section 11.1
hereof, (a) a written notice of such holder’s election to exercise this Warrant
(a “Subscription Notice”), which shall specify (i) the number of Stock
Units to be purchased and delivered to the holder, provided  that
such number


 


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shall be at least the lesser of 1,000 or the total
number of Stock Units for which the Warrant may be exercised, (ii) the
aggregate Exercise Price therefor, (iii) the denomination or denominations of
the certificates for Warrant Shares to be delivered to the holder and (iv) the
name or names in which such certificates are to be issued, (b) payment of the
aggregate Exercise Price by certified or official bank check payable to the
order of the Company or by wire transfer of immediately available funds to the
account designated by the Company, and (c) this Warrant.  Such notice may be in the form of the
Subscription Notice set out at the end of this Warrant.


 


Section 2.2                                      Fulfillment by the Company. 
Upon receipt of a Subscription Notice, payment of the aggregate Exercise
Price and receipt of such other information reasonably required by the Company
or its transfer agent, the Company shall, as promptly as practicable and in any
event within five Business Days thereafter, cause to be executed and delivered
to the holder:  (i) a certificate or
certificates representing the aggregate number of fully paid and nonassessable
Warrant Shares issuable upon such exercise, free from all taxes, liens and
charges with respect to the issuance thereof (except income tax liability of
the holder, if any), (ii) in the case of partial exercise, statement of total
number of Stock Units still eligible for exercise under the warrant (i.e.,
             less
number already exercised), and (iii) any other documentation reasonably
required by the Investor.


 


Section 2.3                                      Names and Denominations of Issuance. 
The stock certificate or certificates for Warrant Shares so delivered
shall be in such denominations as may be specified in the Subscription Notice
and shall be registered in the name of such holder or such other name or names
as shall be designated in the Exercise Notice. 
Such certificate or certificates shall be deemed to have been issued and
such holder or any other person so designated to be named therein shall be
deemed to have become a holder of record of such shares, including to the
extent permitted by law the right to vote such shares or to consent or to
receive notice as a stockholder, as of the time the Subscription Notice is
received by the Company as aforesaid. 
If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of said certificate or certificates, either (i)
deliver to such holder a new Warrant dated the date it is issued, evidencing
the rights of such holder to purchase the remaining Stock Units called for by
this Warrant, which new Warrant shall in all other respects be identical with
this Warrant, or (ii), at the request of such holder, appropriate notation may
be made on this Warrant and the same returned to such holder.


 


Section 2.4                                      No Fractional Shares; Current Market
Value.  The Company shall not be required to issue
fractions of shares, upon exercise of this Warrant or otherwise, or to
distribute certificates that evidence fractional shares.  With respect to any fraction of a share
called for upon any exercise hereof, the Company shall pay to the holder an
amount in cash equal to such fraction multiplied by the “Current Market Value,”
determined as follows:


 


(1)                                  If the Common Stock is listed on a
national securities exchange or listed for trading on the Nasdaq National
Market System (“NMS”), the Current Market Value shall be the average of the
last reported sale price of the Common Stock on such exchange on each of the
last ten business days prior to the date of determination, or for any day which
no such sale is made or no closing sale price is quoted, the average of the
closing bid and asked prices for such day on such exchange or system; or


 


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(2)                                  If the Common Stock is not listed, the
Current Market Value shall be an amount determined in such reasonable manner as
may be prescribed in good faith by the Board of Directors of the Company.


 


ARTICLE III

TRANSFER, DIVISION AND COMBINATION


 


Section 3.1                                      Warrant Transferrable. 
Subject to Sections 2.3 and 2.4 of the Warrant
Agreement and all applicable restrictions under the Securities Act and state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, on the books of the Company to be maintained for such purpose,
upon surrender of this Warrant at the office of the Company maintained for such
purpose pursuant to Section 10.1 hereof, together with a written
assignment of this Warrant duly executed by the holder hereof or its agent or
attorney and payment of funds sufficient to pay any stock transfer taxes
payable upon the making of such transfer. 
Upon such surrender and payment the Company shall, execute and deliver a
new Warrant or Warrants in the name of the assignee or assignees and in the
denominations specified in such instrument of assignment, and this Warrant
shall promptly be canceled.


 


Section 3.2                                      Division and Combination. 
This Warrant may, subject to Sections 2.3 and 2.4 of the
Warrant Agreement and all applicable restrictions under the Securities Act and
state securities law, be divided or combined with other Warrants upon
presentation at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued, signed by the holder hereof or its agent or attorney.  Subject to compliance with the next
preceding paragraph and with any applicable Securities Act and state securities
law restrictions, as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.


 


ARTICLE IV

ADJUSTMENT OF STOCK UNIT AND EXERCISE PRICE


 


Section 4.1                                      Adjustment Generally. 
The number of shares of Common Stock comprising a Stock Unit and the
Exercise Price at which a share of Common Stock may be purchased upon exercise
of this Warrant shall each be subject to adjustment from time to time as set
forth in this Article IV.


 


Section 4.2                                      Stock Dividends, Subdivisions and
Combinations. In
case at any time or from time to time the Company shall (a) take a record of
the holders of its Common Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, Common Stock;  (b) subdivide its outstanding shares of
Common Stock into a larger number of shares of Common Stock; or (c) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then the number of shares of Common Stock comprising a Stock Unit
immediately after the happening of any such event shall be adjusted so as to
consist of the number of shares of Common Stock which a record holder of the
number of shares of Common Stock comprising a Stock Unit immediately prior to the
happening of such event would own or be entitled to receive after the happening
of such event.


 


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Section 4.3                                      Certain Other Dividends and Distributions. 
In case at any time or from time to time the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
any dividend or other distribution of


 


(a)                                  cash (other than a cash dividend or
distribution payable out of funds legally available for the payment of dividends
under the laws of the jurisdiction of incorporation of the Company, to the
extent, but only to the extent, that the aggregate of all such dividends paid
or declared after the date hereof, does not exceed the consolidated net income
of the Company and its consolidated Subsidiaries, if any, earned subsequent to
the date hereof determined in accordance with generally accepted accounting
principles); or


 


(b)                                 any evidence of its indebtedness (other
than Convertible Securities), any shares of its stock (other than Additional
Shares of Common Stock) or any other securities or property of any nature
whatsoever (other than cash and other than Convertible Securities or Additional
Shares of Common Stock); or


 


(c)                                  any warrants or other rights to subscribe
for or purchase any evidences of its indebtedness (other than Convertible
Securities), any shares of its stock (other than Additional Shares of Common
Stock) or any other securities or property of any nature whatsoever (other than
cash and other than Convertible Securities or Additional Shares of Common
Stock), then the number of shares of Common Stock thereafter comprising a Stock
Unit shall be adjusted to that number determined by multiplying the number of
shares of Common Stock comprising a Stock Unit immediately prior to such
adjustment by a fraction (i) the numerator of which shall be the Exercise
Price at the date of taking such record, and (ii) the denominator of which
shall be such Exercise Price per share minus the portion applicable to one share
of Common Stock of any such cash so distributable and of the fair value of any
and all such evidences of indebtedness, shares of stock, other securities or
property, or warrants or other subscription or purchase rights, so
distributable.  Such fair value shall be
determined in good faith by the Board, provided that if such determination is
objected to by the holders of Warrants entitled to purchase a majority of the
Stock Units covered by all Warrants, such determination shall be made by an
independent appraiser selected by the Board and not objected to by such
holders.  A reclassification of the
Common Stock into shares of Common Stock and shares of any other class of stock
shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this Section 4.3
and, if the outstanding shares of Common Stock shall be changed into a larger
or smaller number of shares of Common Stock as a part of such reclassification,
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.2
hereof.


 


Section 4.4                                      Issuance of Additional Shares of Common
Stock.  In case at any time or from time to time the
Company shall (except as hereinafter provided) issue any Additional Shares of
Common Stock for a consideration per share less than the Current Market Value,
then the number of shares of Common Stock thereafter comprising a Stock Unit
shall be adjusted to that number determined by multiplying the number of shares
of Common Stock comprising a


 


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Stock Unit immediately prior to such adjustment by a
fraction (i) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus the number of such Additional Shares of Common
Stock so issued, and (ii) the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of shares of Common Stock
which the aggregate consideration for the total number of such Additional
Shares of Common Stock so issued would purchase at the then current Exercise
Price.  For purposes of this Section 4.4,
the date as of which the Current Market Value shall be computed shall be the
earlier of (1) the date on which the Company shall enter into a firm
contract for the issuance of such Additional Shares of Common Stock and
(2) the date of actual issuance of such Additional Shares of Common
Stock.  This Section 4.4
shall not apply to any issuance of Additional Shares of Common Stock for which
an adjustment is provided under Section 4.2 hereof. No adjustment
of the number of shares of Common Stock comprising a Stock Unit shall be made
under this Section 4.4 upon the issuance of any Additional Shares
of Common Stock which are issued pursuant to the exercise of any warrants or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of such warrants
or other rights or upon the issuance of such Convertible Securities (or upon the
issuance of any warrant or other rights therefor) pursuant to Section 4.5
hereof.


 


Section 4.5                                      Issuance of Warrants or Other Rights. 
In case at any time or from time to time the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a distribution of, or shall otherwise issue, any warrants or other rights to
subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities and the consideration per share for which additional shares
of Common Stock may at any time thereafter be issuable pursuant to such
warrants or other rights or pursuant to the terms of such Convertible
Securities shall be less than the Current Market Value, then the number of
shares of Common Stock thereafter comprising a Stock Unit shall be adjusted as
provided in Section 4.4 hereof on the basis that (i) the maximum
number of Additional Shares of Common Stock issuable pursuant to all such
warrants or other rights or necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued as of (and,
accordingly, the date as of which the Exercise Price shall be computed shall
be) the computation date specified in the last sentence of this Section 4.5,
and (ii) the aggregate consideration for such maximum number of Additional
Shares of Common Stock shall be deemed to be the minimum consideration received
and receivable by the Company for the issuance of such Additional Shares of
Common Stock pursuant to such warrants or other rights or pursuant to the terms
of such Convertible Securities.  For
purposes of this Section 4.5, the computation date for clause (i)
above shall be the earliest of (A) the date on which the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any such warrants or other rights, (B) the date on which the Company
shall enter into a firm contract for the issuance of such warrants or other
rights, and (C) the date of actual issuance of such warrants or other rights.


 


Section 4.6                                      Issuance of Convertible Securities. 
In case at any time or from time to time the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a distribution of, or shall otherwise issue, any Convertible Securities and the
consideration per share for which Additional Shares of Common Stock may at any
time


 


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thereafter be issuable pursuant to the terms of such
Convertible Securities shall be less than the Current Market Value, then the
number of shares of Common Stock thereafter comprising a Stock Unit shall be
adjusted as provided in Section 4.4 hereof on the basis that (i)
the maximum number of Additional Shares of Common Stock necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the computation date specified in the penultimate
sentence of this Section 4.6, and (ii) the aggregate consideration
for such maximum number of Additional Shares of Common Stock shall be deemed to
be the minimum consideration received and receivable by the Company for the
issuance of such Additional Shares of Common Stock pursuant to the terms of
such Convertible Securities.  For purposes
of this Section 4.6, the computation date for clause (i) above
shall be the earliest of (A) the date on which the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
any such Convertible Securities, (B) the date on which the Company shall enter
into a firm contract for the issuance of such Convertible Securities, and (C)
the date of actual issuance of such Convertible Securities.  No adjustment of the number of shares of
Common Stock comprising a Stock Unit shall be made under this Section 4.6
upon the issuance of any Convertible Securities which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights therefor,
if any such adjustment shall previously have been made upon the issuance of
such warrants or other rights pursuant to Section 4.5 hereof.


 


Section 4.7                                      Superseding Adjustment of Stock Unit. 
If, at any time after any adjustment of the number of shares comprising
a Stock Unit shall have been made pursuant to Sections 4.5 or 4.6
hereof on the basis of the issuance of warrants or other rights or the issuance
of other Convertible Securities, or after any new adjustment of the number of
shares comprising a Stock Unit shall have been made pursuant to this Section 4.7,
(a) such warrants or rights or the right of conversion or exchange in such
other Convertible Securities shall expire, and a portion of such warrants or
rights, or the right of conversion or exchange in respect of a portion of such
other Convertible Securities, as the case may be, shall not have been exercised
and (b) the consideration per share, for which shares of Common Stock are
issuable pursuant to such warrants or rights or the terms of such other
Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share
upon the arrival of a specified date or the happening of a specified event, the
Additional Shares of Common Stock that were deemed to have been issued by virtue
of the computation made in connection with such previous adjustment shall no
longer be deemed to have been issued by virtue of such computation.  Thereupon, a recomputation shall be made of
the effect of such rights or options or other Convertible Securities on the
basis of treating the number of Additional Shares of Common Stock, if any,
theretofore actually issued or issuable pursuant to the previous exercise of
such warrants or rights or such right of conversion or exchange, as having been
issued on the date or dates of such issuance as determined for purposes of such
previous adjustment and for the consideration actually received and receivable
therefor, and treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been granted or
issued immediately after the time of such increase of the consideration per
share for such shares of Common Stock are issuable under such warrants or
rights or other Convertible Securities, and, if and to the extent called for by
the foregoing provisions of this Article IV on the basis aforesaid,
a new adjustment of the number of shares comprising a Stock Unit shall be made,
which new adjustment shall supersede the previous adjustment.


 


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Section 4.8                                      Other Provisions Applicable to
Adjustments Under this Article IV.  The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock comprising a Stock Unit hereinbefore provided
for in this Article IV:


 


(a)                                  Treasury Stock. 
The sale or other disposition of any issued shares of Common Stock owned
or held by or for the account of the Company shall be deemed an issuance
thereof for the consideration paid at the time of such sale or disposition.


 


(b)                                 Computation of Consideration. 
To the extent that any Additional Shares of Common Stock or any
Convertible Securities or any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities
shall be issued for a cash consideration, the consideration received by the
Company therefor shall be deemed to be the amount of cash received by the
Company therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Convertible Securities are
sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price, in any such case excluding any
amounts paid or receivable for accrued interest or accrued dividends and
without deduction of any compensation, discounts or expenses paid or incurred
by the Company for and in the underwriting of, or otherwise in connection with,
the issue thereof.  To the extent that
such issuance shall be for a consideration other than cash, then, except as
herein otherwise expressly provided, the amount of such consideration shall be
deemed to be the fair value of such consideration at the time of such issuance
as determined in good faith by the Board, provided that if such determination
is reasonably objected to by the holders of Warrants entitled to purchase a
majority of the Stock Units covered by all Warrants, such determination shall
be made by an independent appraiser selected by the Board and not reasonably
objected to by such holders.  The
consideration for any Additional Shares of Common Stock issuable pursuant to
any warrants or other rights to subscribe for or purchase the same shall be the
consideration received or receivable by the Company for issuing such warrant or
other rights, plus the additional consideration payable to the Company upon the
exercise of such warrants or other rights. 
The consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the consideration
received or receivable by the Company for issuing any warrants or other rights
to subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the subscription for
or purchase of such Convertible Securities, plus the additional consideration,
if any, payable to the Company upon the exercise of the right of conversion or
exchange in such Convertible Securities. 
In case of the issuance at any time of any Additional Shares of Common
Stock or Convertible Securities in payment or satisfaction of any dividend upon
any class of stock other than Common Stock, the Company shall be deemed to have
received for such Additional Shares of Common Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or satisfied.


 


(c)                                  When Adjustments to Be Made. 
The adjustments required by the foregoing provisions of this Article IV
shall be made whenever and as often as any specified event requiring an
adjustment shall occur, except that no adjustment of the


 


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number
of shares of Common Stock comprising a Stock Unit that would otherwise be
required shall be made (except in the case of a subdivision or combination of
shares of Common Stock, as provided for in Section 4.2 hereof)
unless and until such adjustment, either by itself or with other adjustments
not previously made, adds or subtracts at least $0.05 to the Exercise Price, as
determined in good faith by the Board, provided that, in any event such
adjustment shall be made if such adjustment either by itself or with other
adjustments not previously made adds or subtracts at least 1/20th of a share to
or from the number of shares of Common Stock comprising a Stock Unit
immediately prior to the making of such adjustment.  Any adjustment representing a change of less than such minimum
amount (except as aforesaid) shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Article IV
and not previously made, would result in a minimum adjustment.  For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.


 


(d)                                 Fractional Interests. 
In computing adjustments under this Article IV, fractional
interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.


 


Section 4.9                                      When Adjustment Not Required. 
If the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before the distribution
thereof to stockholders, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and any
such adjustment previously made in respect thereof shall be rescinded and
annulled.


 


Section 4.10                                Merger, Consolidation or Disposition of
Assets.  In case the Company shall merge or
consolidate into another corporation, or shall sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business to
another corporation and pursuant to the terms of such merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation are to be received by or distributed to the holders of Common Stock
of the Company, then the holder of the Warrant shall have the right thereafter
to receive, upon exercise of the Warrant, Stock Units each comprising the
number of shares of common stock of the successor or acquiring corporation
receivable upon or as a result of such merger, consolidation or disposition of
assets by a holder of the number of shares of Common Stock comprising a Stock
Unit immediately prior to such event. 
If, pursuant to the terms of such merger, consolidation or disposition
of assets, any cash, shares of stock or other securities or property of any
nature whatsoever (including without limitation warrants or other subscription
or purchase rights) are to be received by or distributed to the holders of
Common Stock of the Company in addition to common stock of the successor or
acquiring corporation, there shall be a reduction of the purchase price per
Stock Unit equal to the amount applicable to the number of shares of Common
Stock then comprising a Stock Unit of any such cash and of the fair value of
any and all such shares of stock or of other securities or property to be
received by or distributed to the holders of Common Stock of the Company.  Such fair value shall be determined in good
faith by the Board, provided that if such determination is reasonably objected
to by the holders of Warrants entitled to purchase a majority of the Stock
Units covered by all Warrants, such


 


A-10

















 


determination shall be made by an independent
appraiser selected by such Board and not reasonably objected to by such
holders.  In case of any such merger,
consolidation or disposition of assets, the successor acquiring corporation
shall expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant to be performed and observed
by the Company and all of the obligations and liabilities hereunder, subject to
such modification as shall be necessary to provide for adjustments of Stock Units
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Article IV.  For
the purposes of this Article IV “common stock of the successor
or acquiring corporation” shall include stock of such corporation of any
class, which is not preferred as to dividends or assets over any other class of
stock of such corporation and which is not subject to redemption, and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event, and any warrants or other rights to subscribe for or purchase
any such stock.  The foregoing
provisions of this Section 4.10 shall similarly apply to successive
mergers, consolidations or dispositions of assets.


 


Section 4.11                                Adjustment of Exercise Price.  Whenever the number of shares of Common Stock
comprising a Stock Unit purchasable upon the exercise of this Warrant is adjusted
as herein provided, the Exercise Price payable upon exercise of this Warrant
also shall be adjusted by multiplying such Exercise Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number of
shares of Common Stock comprising a Stock Unit purchasable upon the exercise of
this Warrant immediately prior to such adjustment, and the denominator of which
shall be the number of shares of Common Stock comprising a Stock Unit so
purchasable immediately thereafter.


 


Section 4.12                                Other Action Affecting Common Stock. 
In case at any time or from time to time the Company shall take any
action affecting its Common Stock, other than an action described in any of the
foregoing Sections 4.2 through 4.10, inclusive, then, unless in
the opinion of the Board such action will not have a materially adverse effect
upon the rights of the holders of the Warrants, the number of shares of Common
Stock or other stock comprising a Stock Unit, or the Current Warrant Price,
shall be adjusted in such manner and at such time as the Board may in good
faith determine to be equitable in the circumstances.


 


ARTICLE V

NOTICE TO WARRANT HOLDERS


 


Section 5.1                                      Notice of Adjustment of Stock Unit or
Exercise Price.  Whenever the number of shares of Common Stock
comprising a Stock Unit, or the price at which a Stock Unit may be purchased
upon exercise of their Warrants, shall be adjusted pursuant to Article IV
hereof, the Company shall forthwith obtain a certificate signed by Chief
Financial Officer or independent accountants of recognized national standing
selected by the Company and reasonably acceptable to the holders entitled to
purchase the majority of the Stock Units covered by all Warrants, setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including without limitation a
statement of the Current Market Value when determined by the Board pursuant to Section 2.4(2),
of any evidences of indebtedness, shares of stock, other securities or property
or warrants or other subscription or purchase rights referred to in Sections
4.3, 4.8(b) or 4.11 hereof) and specifying


 


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the number of shares of Common Stock comprising a
Stock Unit and (if such adjustment was made pursuant to Sections 4.10 or
4.11 hereof) describing the number and kind of any other shares of stock
comprising a Stock Unit, and any change in the Exercise Price, after giving
effect to such adjustment or change. 
The Company shall promptly, and in any case within 45 days after the
making of such adjustment, cause a signed copy of such certificate to be
delivered to each holder of a Warrant in accordance with Section 10.2
hereof.  The Company shall keep at its
office or agency, maintained for the purpose pursuant to Section 10.1
hereof, copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by any holder of a
Warrant or any prospective purchaser of a Warrant designated by a holder
thereof.


 


Section 5.2                                      Notice of Certain Corporate Action. 
In case the Company shall propose (a) to pay any dividend payable in
stock of any class to the holders of its Common Stock or to make any other
distribution to the holders of its Common Stock,  or (b) to offer to the holders of its Common Stock rights to
subscribe for or to purchase any Additional Shares of Common Stock or shares of
stock of any class or any other securities, rights or options, or (c) to effect
any reclassification of its Common Stock (other than a reclassification
involving only the subdivision, or combination, of outstanding shares of Common
Stock), or (d) to effect any capital reorganization, or (e) to effect any
consolidation, merger or sale, transfer or other disposition of all or
substantially all of its property, assets or business, or (f) to effect the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall give to each holder of a Warrant, in accordance with Section 10.2
hereof, a notice of such proposed action, which shall specify the date on which
a record is to be taken for the purposes of such stock dividend, distribution
or rights, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, disposition, liquidation, dissolution or
winding up is to take place and the date of participation therein by the
holders of Common Stock, if any such date is to be fixed, and shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Common Stock and the number and kind
of any other shares of stock which will comprise a Stock Unit, and the purchase
price or prices thereof, after giving effect to any adjustment which will be
required as a result of such action. 
Such notice shall be so given in the case of any action covered by
clause (a) or (b) above at least 20 days prior to the record date for
determining holders of the Common Stock for purposes of such action, and in the
case of any other such action, at least 20 days prior to the date of the taking
of such proposed action or the date of participation therein by the holders of
Common Stock, whichever shall be the earlier.


 


Section 5.3                                      Notice of Expiration Date. 
The Company shall give to each holder of a Warrant notice of the
Expiration Date.  Such notice may be
given by the Company not less than 30 days but not more than 60 days prior to
the Expiration Date.


 


ARTICLE VI

CERTAIN COVENANTS


 


Section 6.1                                      Reservation and Authorization of Common
Stock; Registration with or Approval of any Governmental Authority.


 


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(a)                                  The Company shall at all times reserve
and keep available for issue upon the exercise of these Warrants such number of
its authorized but unissued shares of Common Stock as shall be sufficient to
permit the exercise in full of all outstanding Warrants.  The Company shall not amend its charter in
any respect relating to the Common Stock other than to increase or decrease the
number of shares of authorized capital stock (subject to the provisions of the
preceding sentence) or to decrease the par value of any shares of Common
Stock.  All shares of Common Stock that
shall be so issuable, when issued upon exercise of any Warrant and payment in
full of the Exercise Price, shall be duly and validly issued and fully-paid and
nonassessable.


 


(b)                                 Before taking any action which would
result in an adjustment in the number of shares of Common Stock comprising a
Stock Unit or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.


 


(c)                                  If any shares of Common Stock required to
be reserved for issue upon exercise of Warrants require registration with any
governmental authority under any federal or state law before such shares may be
so issued, the Company shall in good faith and as expeditiously as possible and
at its expense endeavor to cause such shares to be duly registered.


 


ARTICLE VII

TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS


 


Section 7.1                                      Taking of Record, etc. 
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Article IV
hereof refers to the taking of a record of such holders, the Company shall in
each such case take such a record and shall take such record as of the close of
business on a Business Day.  The Company
shall not at any time, except upon dissolution, liquidation or winding up,
close its stock transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.


 


Section 7.2                                      Replacement of Instruments. 
Upon receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any
certificate or instrument evidencing any Warrants, and (a) in the case of loss,
theft or destruction, of indemnity reasonably satisfactory to it, or (b) in the
case of mutilation, upon surrender or cancellation thereof, the Company, at its
expense, shall execute, register and deliver, in lieu thereof, a new
certificate or instrument for (or covering the purchase of) an equal number of
Warrants.


 


ARTICLE VIII

EXPENSES, TRANSFER TAXES AND OTHER CHARGES


 


Section 8.1                                      Expenses, etc. 
The Company shall pay any and all expenses, transfer taxes and other
charges, including, without limitation, all costs associated with the preparation,
issue and delivery of stock or warrant certificates, that may be incurred in
respect of the issuance


 


A-13

















 


or delivery of shares of Common Stock upon exercise of
this Warrant pursuant to Article II hereof, or in connection with
any transfer, division or combination of Warrants pursuant to Article III
hereof.  The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Common Stock in a name other
than that in which this Warrant is registered, and no such issue or delivery
shall be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established, to the satisfaction of
the Company, that such tax has been paid.


 


ARTICLE IX

NO VOTING RIGHTS


 


Section 9.1                                      No Voting Rights. 
This Warrant shall not entitle the holder hereof to any voting rights or
other rights as a stockholder of the Company.


 


ARTICLE X

MISCELLANEOUS


 


Section 10.1                                Office of the Company. 
So long as any of the Warrants remains outstanding, the Company shall
maintain an office in the continental United States of America where the
Warrants may be presented for exercise, transfer, division or combination as in
this Warrant provided.  Such office
shall be at Company’s office unless and until the Company shall designate and
maintain some other office for such purposes and give notice thereof to the
Holders of all outstanding Warrants. 
The Company shall maintain at such office books for the registration and
transfer of the Warrants.


 


Section 10.2                                Notices.  All notices,
requests, demands, approvals, consents, waivers and other communications
required or permitted to be given under this Warrant (each, a “Notice”) shall
be in writing and shall be (a) delivered personally, (b) mailed by first-class
mail or certified mail, return receipt requested, postage prepaid, (c) sent by
next-day or overnight mail or delivery or (d) sent by facsimile transmission, provided
that a confirmation statement is retained by sender.


 


(a)                                  if to holder, to:


 


Stutman Treister & Glatt, Professional
Corporation


1901 Avenue of the Stars, 12th Floor


Los Angeles, CA 90067


Facsimile: (310) 228-5788


Attention: Ted Stolman


 


(b)                                 if to Company, to:


 


Innovative Micro Technology, Inc.


75 Robin Hill Road


Santa Barbara, California  93117


Facsimile: 
(805) 967-2677


Attention: 
John Foster, President


 


A-14

















 


with a copy, which shall not constitute
notice, to:


 


James J. Slaby, Esq.


Sheppard, Mullin, Richter & Hampton LLP


333 South Hope Street


Los Angeles, California  90017


Facsimile: 
(213) 620-1398


 


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


 


Section 10.3                                Amendments.  The terms of
this Warrant and all other Warrants may be amended, and the observance of any
term therein may be waived, but only with the written consent of the holders of
Warrants evidencing two-thirds in number of the total number of Stock Units at
the time purchasable upon the exercise of all then outstanding Warrants.  For the purposes of determining whether the
holders of outstanding Warrants entitled to purchase a requisite number of
Stock Units at any time have taken any action authorized by this Warrant, any
Warrants owned by the Company or any Affiliate of the Company shall be deemed
not to be outstanding.


 


Section 10.4                                Restrictions on Transferability. 
The Warrants and the Warrant Shares shall be transferable only upon
compliance with the conditions specified in Sections 5.3, 5.4 and
5.5 of the Stock Purchase Agreement, Section 8.1 of the
Warrant and applicable Securities Act restrictions referred to in Section 3.1
of this Warrant, which conditions are intended to ensure compliance with the
provisions of the Securities Act in respect of the transfer of any Warrant or
any Warrant Shares, and any holder of this Warrant shall be bound by the provisions
of (and entitled to the benefits of) Section 3.1 and the remainder of this
Warrant.


 


Section 10.5                                Governing Law. 
This Warrant shall be governed by, and construed in accordance with, the
law of the State of California.


 


Section 10.6                                JURY TRIAL WAIVER. 
THE HOLDER AND THE COMPANY EACH WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE OTHER THAT
PERTAINS DIRECTLY OR INDIRECTLY TO THIS WARRANT, ANY ALLEGED TORTIOUS CONDUCT
BY THE HOLDER OR THE COMPANY, OR IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT
OF OR RELATES TO THE RELATIONSHIP BETWEEN HOLDER AND COMPANY.


 


Section 10.7                                Limitation of Liability. 
No provision hereof, in the absence of affirmative action by the holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of
the rights or privileges of the holder hereof, shall give rise to any liability
of such holder for the purchase price or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.


 


[Signature Page Follows]


 


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IN WITNESS WHEREOF, the Company has caused this
Warrant to be signed in its name by a duly authorized officer and attested by
its Secretary or an Assistant Secretary.


 


Dated:


	
   

  	
  INNOVATIVE MICRO TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  John Foster

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Peter T. Altavilla

  	
   

  
	
  Secretary

  	
   

  
					



 


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ANNEX B

Form of 3-Year Warrant


 


THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAW OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE ACT OR ANY OTHER LEGAL EXEMPTION
UNDER THE ACT.


 


THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A WARRANT AGREEMENT BETWEEN INNOVATIVE MICRO TECHNOLOGY, INC. (THE “COMPANY”)
AND STUTMAN TREISTER & GLATT, PROFESSIONAL CORPORATION, A COPY OF WHICH IS
ON FILE WITH THE SECRETARY OF THE COMPANY. 
NO TRANSFER, SALE, ASSIGNMENT, EXCHANGE, LICENSE, MORTGAGE, PLEDGE,
CREATION OF A SECURITY INTEREST IN OR LIEN UPON, HYPOTHECATION OR OTHER
VOLUNTARY OR INVOLUNTARY DISPOSITION (EACH, A “TRANSFER”) OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF THE WARRANT AGREEMENT. 
THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE,
AGREES TO BE BOUND BY ALL THE PROVISIONS OF SUCH WARRANT AGREEMENT.


 


WARRANT


 


to purchase Common Stock, par value $0.0001 per share,
of

INNOVATIVE MICRO TECHNOLOGY, INC.

Commencing September 30, 2003 and expiring September 30, 2006


 


THIS IS TO CERTIFY THAT STUTMAN TREISTER & GLATT,
PROFESSIONAL CORPORATION, or registered assigns, is entitled to purchase from
INNOVATIVE MICRO TECHNOLOGY, INC., a Delaware corporation (the “Company”),
at any time on and after September 30, 2003 but not later than 5:00 P.M.,
California Time, on September 30, 2006 (the “Expiration Date”),
                   
Stock Units, in whole or in part, at a purchase price of $7.29 per share of
Common Stock (as such price may subsequently be adjusted under Article IV
hereof, the “Exercise Price”), or
$                   
in the aggregate, all on the terms and conditions hereinbelow provided.


 


ARTICLE I

CERTAIN DEFINITIONS


 


Section 1.1                                      Certain Definitions. 
As used in this Warrant, unless the context otherwise requires:


 


“Additional Shares of Common Stock”:  means all shares of Common Stock issued by
the Company after the date hereof, other than (i) the Warrant Shares, (ii)
shares issued upon the


 


B-1

















 


exercise of any options, warrants or other rights
presently outstanding to subscribe for or purchase any shares of Common Stock
or Convertible securities, or (iii) shares that may be granted or issued upon
the exercise of any options that may hereafter be granted or exercised under
the Company’s 2001 Stock Incentive Plan or under any other employee benefit
plan of the Company approved by the Company’s Board of Directors; or (iv) any
shares of Common Stock sold to the public or the underwriter in a public
offering, or upon exercise of warrants comprising or underlying any units sold
in the Company’s initial public offering, including any shares or warrants
underlying the underwriter’s warrants or securities purchase option.  The shares of Common Stock and warrants to
be issued pursuant to the Plan, and any securities to be issued on exercise or
conversion thereof, regardless of the actual date of issuance, shall not be
deemed Additional Shares of Common Stock.


 


“Affiliate”: 
of a specified Person means a Person that directly or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, such specified Person or a member of such specified Person’s
immediate family.  “Control”
(including the terms “controlled by” and “under common control with”)
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management policies of a Person, whether through the
ownership of voting securities, by contract or credit arrangement, as trustee
or executor, or otherwise.


 


“Board”:  means the Board of Directors of the Company.


 


“Business Day”:  means any day which is not a Saturday, Sunday or day on which
banks are authorized by law to be closed in the State of California.


 


“Common Stock”:  means the Company’s authorized Common Stock, par value $0.0001
per share, irrespective of class unless otherwise specified, as constituted on
the date of original issuance of this Warrant, and any stock into which such
Common Stock may thereafter be changed, and also shall include stock of the
Company of any other class which is not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption that the Company hereafter may issue.


 


“Convertible Securities”:  means evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for
Additional Shares of Common Stock, either immediately or upon the arrival of a
specified date or the happening of a specified event.


 


“Current Market Value”:  is defined in Section 4.2.


 


“Exercise Price”:  per share of Common Stock, means, for the purpose of any
provision of this Warrant, $7.29 on the Original Issue Date and, at any subsequent
date, $7.29 per share as adjusted pursuant to Article IV hereof.


 


“holder”: 
in respect of any security at any time means the Person then registered
on the books of the Company as the owner of such security.


 


“Letter Agreement”:  means that certain Letter Agreement between Stutman Treister
& Glatt, Professional Corporation, certain other Professional Persons (as
such term is defined in the


 


B-2

















 


Plan) and the Company dated as of September 22,
2003, as amended or modified from time to time.


 


“Original Issue Date”:  means September 30, 2003.


 


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


 


“Securities Act”:  means the Securities Act of 1933, as amended, or any successor or
similar law then in force.


 


“Stock Unit”:  means one
share of Common Stock, as such Common Stock was constituted on the date of
original issue of this Warrant, and thereafter shall mean such number of shares
(including any fractional shares) of Common Stock and other securities, cash or
other property, if any, as shall result from the adjustments specified in Article IV
hereof.


 


“Subsidiaries”:  means each corporation or other Person in which a Person owns or
controls, directly or indirectly, capital stock or other equity interests
representing more than 50% of the outstanding voting stock or other equity
interests.


 


“Warrant”: 
means each Warrant dated as of the Original Issue Date, originally
issued by the Company pursuant to the Warrant Agreement, evidencing rights to
purchase Stock Units, and all Warrants issued upon transfer, division or
combination of, or in substitution therefor. 
All Warrants shall at all times be identical as to terms and conditions
and date, except as to the number of Stock Units for which they may be
exercised.


 


 “Warrant
Agreement”:  means the Warrant
Agreement dated as of September 30, 2003 between the Company and Stutman
Treister & Glatt, Professional Corporation for the purchase of Common
Shares at $5.35 per share and $7.29 per share, as such Warrant Agreement shall
be modified and supplemented and in effect from time to time.


 


 “Warrant
Shares”:  means the shares of Common
Stock purchasable by the holders of the Warrant upon the exercise thereof.


 


ARTICLE II

EXERCISE OF WARRANT


 


Section 2.1                                      Procedure for Exercise. 
Subject to the provisions of Section 2.2, the holder of this
Warrant may, at any time on and after September 30, 2003, but not later
than the Expiration Date, exercise this Warrant in whole at any time or in part
from time to time for the number of Stock Units which such holder is then
entitled to purchase hereunder.  In
order to exercise this Warrant, in whole or in part, the holder hereof shall
deliver to the Company, at its office maintained for such purpose pursuant to Section 11.1
hereof, (a) a written notice of such holder’s election to exercise this Warrant
(a “Subscription Notice”), which shall specify (i) the number of Stock
Units to be purchased and delivered to the holder, provided  that
such number shall be at least the lesser of 1,000 or the total number of Stock
Units for which the Warrant may be exercised, (ii) the aggregate Exercise Price
therefor, (iii) the denomination or denominations of the certificates for
Warrant Shares to be delivered to the holder and (iv) the name or names in


 


B-3

















 


which such certificates are to be issued, (b) payment
of the aggregate Exercise Price by certified or official bank check payable to
the order of the Company or by wire transfer of immediately available funds to
the account designated by the Company, and (c) this Warrant.  Such notice may be in the form of the
Subscription Notice set out at the end of this Warrant.


 


Section 2.2                                      Fulfillment by the Company. 
Upon receipt of a Subscription Notice, payment of the aggregate Exercise
Price and receipt of such other information reasonably required by the Company
or its transfer agent, the Company shall, as promptly as practicable and in any
event within five Business Days thereafter, cause to be executed and delivered
to the holder:  (i) a certificate or
certificates representing the aggregate number of fully paid and nonassessable
Warrant Shares issuable upon such exercise, free from all taxes, liens and
charges with respect to the issuance thereof (except income tax liability of
the holder, if any), (ii) in the case of partial exercise, statement of total
number of Stock Units still eligible for exercise under the warrant (i.e.,
                  
less number already exercised), and (iii) any other documentation reasonably
required by the Investor.


 


Section 2.3                                      Names and Denominations of Issuance. 
The stock certificate or certificates for Warrant Shares so delivered
shall be in such denominations as may be specified in the Subscription Notice
and shall be registered in the name of such holder or such other name or names
as shall be designated in the Exercise Notice. 
Such certificate or certificates shall be deemed to have been issued and
such holder or any other person so designated to be named therein shall be
deemed to have become a holder of record of such shares, including to the
extent permitted by law the right to vote such shares or to consent or to
receive notice as a stockholder, as of the time the Subscription Notice is
received by the Company as aforesaid. 
If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of said certificate or certificates, either (i)
deliver to such holder a new Warrant dated the date it is issued, evidencing
the rights of such holder to purchase the remaining Stock Units called for by
this Warrant, which new Warrant shall in all other respects be identical with
this Warrant, or (ii), at the request of such holder, appropriate notation may
be made on this Warrant and the same returned to such holder.


 


Section 2.4                                      No Fractional Shares; Current Market
Value.  The Company shall not be required to issue
fractions of shares, upon exercise of this Warrant or otherwise, or to
distribute certificates that evidence fractional shares.  With respect to any fraction of a share
called for upon any exercise hereof, the Company shall pay to the holder an
amount in cash equal to such fraction multiplied by the “Current Market Value,”
determined as follows:


 


(1)                                  If the Common Stock is listed on a
national securities exchange or listed for trading on the Nasdaq National
Market System (“NMS”), the Current Market Value shall be the average of the
last reported sale price of the Common Stock on such exchange on each of the
last ten business days prior to the date of determination, or for any day which
no such sale is made or no closing sale price is quoted, the average of the closing
bid and asked prices for such day on such exchange or system; or


 


(2)                                  If the Common Stock is not listed, the
Current Market Value shall be an amount determined in such reasonable manner as
may be prescribed in good faith by the Board of Directors of the Company.


 


B-4

















 


ARTICLE III

TRANSFER, DIVISION AND COMBINATION


 


Section 3.1                                      Warrant Transferrable. 
Subject to Sections 2.3 and 2.4 of the Warrant
Agreement and all applicable restrictions under the Securities Act and state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, on the books of the Company to be maintained for such
purpose, upon surrender of this Warrant at the office of the Company maintained
for such purpose pursuant to Section 10.1 hereof, together with a
written assignment of this Warrant duly executed by the holder hereof or its
agent or attorney and payment of funds sufficient to pay any stock transfer
taxes payable upon the making of such transfer.  Upon such surrender and payment the Company shall, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denominations specified in such instrument of assignment, and this
Warrant shall promptly be canceled.


 


Section 3.2                                      Division and Combination. 
This Warrant may, subject to Sections 2.3 and 2.4 of the
Warrant Agreement and all applicable restrictions under the Securities Act and
state securities law, be divided or combined with other Warrants upon
presentation at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued, signed by the holder hereof or its agent or attorney.  Subject to compliance with the next
preceding paragraph and with any applicable Securities Act and state securities
law restrictions, as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.


 


ARTICLE IV

ADJUSTMENT OF STOCK UNIT AND EXERCISE PRICE


 


Section 4.1                                      Adjustment Generally. 
The number of shares of Common Stock comprising a Stock Unit and the
Exercise Price at which a share of Common Stock may be purchased upon exercise
of this Warrant shall each be subject to adjustment from time to time as set
forth in this Article IV.


 


Section 4.2                                      Stock Dividends, Subdivisions and
Combinations. In
case at any time or from time to time the Company shall (a) take a record of
the holders of its Common Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, Common Stock;  (b) subdivide its outstanding shares of
Common Stock into a larger number of shares of Common Stock; or (c) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then the number of shares of Common Stock comprising a Stock Unit
immediately after the happening of any such event shall be adjusted so as to
consist of the number of shares of Common Stock which a record holder of the
number of shares of Common Stock comprising a Stock Unit immediately prior to
the happening of such event would own or be entitled to receive after the
happening of such event.


 


Section 4.3                                      Certain Other Dividends and Distributions. 
In case at any time or from time to time the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
any dividend or other distribution of


 


B-5

















 


(a)                                  cash (other than a cash dividend or
distribution payable out of funds legally available for the payment of
dividends under the laws of the jurisdiction of incorporation of the Company,
to the extent, but only to the extent, that the aggregate of all such dividends
paid or declared after the date hereof, does not exceed the consolidated net
income of the Company and its consolidated Subsidiaries, if any, earned
subsequent to the date hereof determined in accordance with generally accepted
accounting principles); or


 


(b)                                 any evidence of its indebtedness (other
than Convertible Securities), any shares of its stock (other than Additional
Shares of Common Stock) or any other securities or property of any nature
whatsoever (other than cash and other than Convertible Securities or Additional
Shares of Common Stock); or


 


(c)                                  any warrants or other rights to subscribe
for or purchase any evidences of its indebtedness (other than Convertible
Securities), any shares of its stock (other than Additional Shares of Common
Stock) or any other securities or property of any nature whatsoever (other than
cash and other than Convertible Securities or Additional Shares of Common
Stock), then the number of shares of Common Stock thereafter comprising a Stock
Unit shall be adjusted to that number determined by multiplying the number of
shares of Common Stock comprising a Stock Unit immediately prior to such
adjustment by a fraction (i) the numerator of which shall be the Exercise
Price at the date of taking such record, and (ii) the denominator of which
shall be such Exercise Price per share minus the portion applicable to one
share of Common Stock of any such cash so distributable and of the fair value
of any and all such evidences of indebtedness, shares of stock, other
securities or property, or warrants or other subscription or purchase rights,
so distributable.  Such fair value shall
be determined in good faith by the Board, provided that if such determination
is objected to by the holders of Warrants entitled to purchase a majority of
the Stock Units covered by all Warrants, such determination shall be made by an
independent appraiser selected by the Board and not objected to by such
holders.  A reclassification of the Common
Stock into shares of Common Stock and shares of any other class of stock shall
be deemed a distribution by the Company to the holders of its Common Stock of
such shares of such other class of stock within the meaning of this Section 4.3
and, if the outstanding shares of Common Stock shall be changed into a larger
or smaller number of shares of Common Stock as a part of such reclassification,
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.2
hereof.


 


Section 4.4                                      Issuance of Additional Shares of Common
Stock.  In case at any time or from time to time the
Company shall (except as hereinafter provided) issue any Additional Shares of
Common Stock for a consideration per share less than the Current Market Value,
then the number of shares of Common Stock thereafter comprising a Stock Unit
shall be adjusted to that number determined by multiplying the number of shares
of Common Stock comprising a Stock Unit immediately prior to such adjustment by
a fraction (i) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus the number of such Additional Shares of Common Stock
so issued, and (ii) the denominator of which shall be the number of shares
of Common


 


B-6

















 


Stock outstanding immediately prior to the issuance of
such Additional Shares of Common Stock plus the number of shares of Common
Stock which the aggregate consideration for the total number of such Additional
Shares of Common Stock so issued would purchase at the then current Exercise
Price.  For purposes of this Section 4.4,
the date as of which the Current Market Value shall be computed shall be the
earlier of (1) the date on which the Company shall enter into a firm
contract for the issuance of such Additional Shares of Common Stock and
(2) the date of actual issuance of such Additional Shares of Common
Stock.  This Section 4.4
shall not apply to any issuance of Additional Shares of Common Stock for which
an adjustment is provided under Section 4.2 hereof. No adjustment
of the number of shares of Common Stock comprising a Stock Unit shall be made
under this Section 4.4 upon the issuance of any Additional Shares
of Common Stock which are issued pursuant to the exercise of any warrants or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of such warrants
or other rights or upon the issuance of such Convertible Securities (or upon
the issuance of any warrant or other rights therefor) pursuant to Section 4.5
hereof.


 


Section 4.5                                      Issuance of Warrants or Other Rights. 
In case at any time or from time to time the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a distribution of, or shall otherwise issue, any warrants or other rights to
subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities and the consideration per share for which additional
shares of Common Stock may at any time thereafter be issuable pursuant to such
warrants or other rights or pursuant to the terms of such Convertible
Securities shall be less than the Current Market Value, then the number of
shares of Common Stock thereafter comprising a Stock Unit shall be adjusted as
provided in Section 4.4 hereof on the basis that (i) the maximum
number of Additional Shares of Common Stock issuable pursuant to all such
warrants or other rights or necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued as of (and,
accordingly, the date as of which the Exercise Price shall be computed shall
be) the computation date specified in the last sentence of this Section 4.5,
and (ii) the aggregate consideration for such maximum number of Additional
Shares of Common Stock shall be deemed to be the minimum consideration received
and receivable by the Company for the issuance of such Additional Shares of
Common Stock pursuant to such warrants or other rights or pursuant to the terms
of such Convertible Securities.  For
purposes of this Section 4.5, the computation date for clause (i)
above shall be the earliest of (A) the date on which the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any such warrants or other rights, (B) the date on which the Company
shall enter into a firm contract for the issuance of such warrants or other
rights, and (C) the date of actual issuance of such warrants or other rights.


 


Section 4.6                                      Issuance of Convertible Securities. 
In case at any time or from time to time the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a distribution of, or shall otherwise issue, any Convertible Securities and the
consideration per share for which Additional Shares of Common Stock may at any
time thereafter be issuable pursuant to the terms of such Convertible
Securities shall be less than the Current Market Value, then the number of
shares of Common Stock thereafter comprising a Stock Unit shall be adjusted as
provided in Section 4.4 hereof on the basis that (i) the maximum
number of Additional Shares of Common Stock necessary to effect the conversion
or exchange


 


B-7

















 


of all such Convertible Securities shall be deemed to
have been issued as of the computation date specified in the penultimate
sentence of this Section 4.6, and (ii) the aggregate consideration
for such maximum number of Additional Shares of Common Stock shall be deemed to
be the minimum consideration received and receivable by the Company for the
issuance of such Additional Shares of Common Stock pursuant to the terms of
such Convertible Securities.  For
purposes of this Section 4.6, the computation date for clause (i)
above shall be the earliest of (A) the date on which the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any such Convertible Securities, (B) the date on which the Company
shall enter into a firm contract for the issuance of such Convertible
Securities, and (C) the date of actual issuance of such Convertible
Securities.  No adjustment of the number
of shares of Common Stock comprising a Stock Unit shall be made under this Section 4.6
upon the issuance of any Convertible Securities which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights therefor,
if any such adjustment shall previously have been made upon the issuance of
such warrants or other rights pursuant to Section 4.5 hereof.


 


Section 4.7                                      Superseding Adjustment of Stock Unit. 
If, at any time after any adjustment of the number of shares comprising
a Stock Unit shall have been made pursuant to Sections 4.5 or 4.6
hereof on the basis of the issuance of warrants or other rights or the issuance
of other Convertible Securities, or after any new adjustment of the number of
shares comprising a Stock Unit shall have been made pursuant to this Section 4.7,
(a) such warrants or rights or the right of conversion or exchange in such other
Convertible Securities shall expire, and a portion of such warrants or rights,
or the right of conversion or exchange in respect of a portion of such other
Convertible Securities, as the case may be, shall not have been exercised and
(b) the consideration per share, for which shares of Common Stock are issuable
pursuant to such warrants or rights or the terms of such other Convertible
Securities, shall be increased solely by virtue of provisions therein contained
for an automatic increase in such consideration per share upon the arrival of a
specified date or the happening of a specified event, the Additional Shares of
Common Stock that were deemed to have been issued by virtue of the computation
made in connection with such previous adjustment shall no longer be deemed to
have been issued by virtue of such computation.  Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the basis of treating the
number of Additional Shares of Common Stock, if any, theretofore actually
issued or issuable pursuant to the previous exercise of such warrants or rights
or such right of conversion or exchange, as having been issued on the date or
dates of such issuance as determined for purposes of such previous adjustment
and for the consideration actually received and receivable therefor, and
treating any such warrants or rights or any such other Convertible Securities
which then remain outstanding as having been granted or issued immediately
after the time of such increase of the consideration per share for such shares
of Common Stock are issuable under such warrants or rights or other Convertible
Securities, and, if and to the extent called for by the foregoing provisions of
this Article IV on the basis aforesaid, a new adjustment of the
number of shares comprising a Stock Unit shall be made, which new adjustment
shall supersede the previous adjustment.


 


Section 4.8                                      Other Provisions Applicable to
Adjustments Under this Article IV.  The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock comprising a Stock Unit hereinbefore provided
for in this Article IV:


 


B-8

















 


(a)                                  Treasury Stock. 
The sale or other disposition of any issued shares of Common Stock owned
or held by or for the account of the Company shall be deemed an issuance
thereof for the consideration paid at the time of such sale or disposition.


 


(b)                                 Computation of Consideration. 
To the extent that any Additional Shares of Common Stock or any
Convertible Securities or any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities
shall be issued for a cash consideration, the consideration received by the
Company therefor shall be deemed to be the amount of cash received by the
Company therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Convertible Securities are
sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price, in any such case excluding any
amounts paid or receivable for accrued interest or accrued dividends and
without deduction of any compensation, discounts or expenses paid or incurred
by the Company for and in the underwriting of, or otherwise in connection with,
the issue thereof.  To the extent that
such issuance shall be for a consideration other than cash, then, except as
herein otherwise expressly provided, the amount of such consideration shall be
deemed to be the fair value of such consideration at the time of such issuance
as determined in good faith by the Board, provided that if such determination
is reasonably objected to by the holders of Warrants entitled to purchase a
majority of the Stock Units covered by all Warrants, such determination shall
be made by an independent appraiser selected by the Board and not reasonably
objected to by such holders.  The
consideration for any Additional Shares of Common Stock issuable pursuant to
any warrants or other rights to subscribe for or purchase the same shall be the
consideration received or receivable by the Company for issuing such warrant or
other rights, plus the additional consideration payable to the Company upon the
exercise of such warrants or other rights. 
The consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the consideration
received or receivable by the Company for issuing any warrants or other rights
to subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the subscription for
or purchase of such Convertible Securities, plus the additional consideration,
if any, payable to the Company upon the exercise of the right of conversion or
exchange in such Convertible Securities. 
In case of the issuance at any time of any Additional Shares of Common
Stock or Convertible Securities in payment or satisfaction of any dividend upon
any class of stock other than Common Stock, the Company shall be deemed to have
received for such Additional Shares of Common Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or satisfied.


 


(c)                                  When Adjustments to Be Made. 
The adjustments required by the foregoing provisions of this Article IV
shall be made whenever and as often as any specified event requiring an adjustment
shall occur, except that no adjustment of the number of shares of Common Stock
comprising a Stock Unit that would otherwise be required shall be made (except
in the case of a subdivision or combination of shares of Common Stock, as
provided for in Section 4.2 hereof) unless and until such
adjustment, either by itself or with other adjustments not previously made,
adds or subtracts at least


 


B-9

















 


$0.05
to the Exercise Price, as determined in good faith by the Board, provided
that, in any event such adjustment shall be made if such adjustment either by
itself or with other adjustments not previously made adds or subtracts at least
1/20th of a share to or from the number of shares of Common Stock comprising a
Stock Unit immediately prior to the making of such adjustment.  Any adjustment representing a change of less
than such minimum amount (except as aforesaid) shall be carried forward and
made as soon as such adjustment, together with other adjustments required by
this Article IV and not previously made, would result in a minimum
adjustment.  For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close
of business on the date of its occurrence.


 


(d)                                 Fractional Interests. 
In computing adjustments under this Article IV, fractional
interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.


 


Section 4.9                                      When Adjustment Not Required. 
If the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before the
distribution thereof to stockholders, legally abandon its plan to pay or
deliver such dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.


 


Section 4.10                                Merger, Consolidation or Disposition of
Assets.  In case the Company shall merge or
consolidate into another corporation, or shall sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business to
another corporation and pursuant to the terms of such merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation are to be received by or distributed to the holders of Common Stock
of the Company, then the holder of the Warrant shall have the right thereafter
to receive, upon exercise of the Warrant, Stock Units each comprising the
number of shares of common stock of the successor or acquiring corporation
receivable upon or as a result of such merger, consolidation or disposition of
assets by a holder of the number of shares of Common Stock comprising a Stock
Unit immediately prior to such event. 
If, pursuant to the terms of such merger, consolidation or disposition
of assets, any cash, shares of stock or other securities or property of any
nature whatsoever (including without limitation warrants or other subscription
or purchase rights) are to be received by or distributed to the holders of
Common Stock of the Company in addition to common stock of the successor or
acquiring corporation, there shall be a reduction of the purchase price per
Stock Unit equal to the amount applicable to the number of shares of Common
Stock then comprising a Stock Unit of any such cash and of the fair value of
any and all such shares of stock or of other securities or property to be
received by or distributed to the holders of Common Stock of the Company.  Such fair value shall be determined in good
faith by the Board, provided that if such determination is reasonably objected
to by the holders of Warrants entitled to purchase a majority of the Stock
Units covered by all Warrants, such determination shall be made by an
independent appraiser selected by such Board and not reasonably objected to by
such holders.  In case of any such
merger, consolidation or disposition of assets, the successor acquiring
corporation shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be


 


B-10

















 


performed and observed by the Company and all of the
obligations and liabilities hereunder, subject to such modification as shall be
necessary to provide for adjustments of Stock Units which shall be as nearly
equivalent as practicable to the adjustments provided for in this Article IV.  For the purposes of this Article IV
“common stock of the successor or acquiring corporation” shall include
stock of such corporation of any class, which is not preferred as to dividends
or assets over any other class of stock of such corporation and which is not
subject to redemption, and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event, and any warrants or other rights to
subscribe for or purchase any such stock. 
The foregoing provisions of this Section 4.10 shall
similarly apply to successive mergers, consolidations or dispositions of assets.


 


Section 4.11                                Adjustment of Exercise Price.  Whenever the number of shares of Common Stock
comprising a Stock Unit purchasable upon the exercise of this Warrant is
adjusted as herein provided, the Exercise Price payable upon exercise of this
Warrant also shall be adjusted by multiplying such Exercise Price immediately
prior to such adjustment by a fraction, the numerator of which shall be the
number of shares of Common Stock comprising a Stock Unit purchasable upon the
exercise of this Warrant immediately prior to such adjustment, and the
denominator of which shall be the number of shares of Common Stock comprising a
Stock Unit so purchasable immediately thereafter.


 


Section 4.12                                Other Action Affecting Common Stock. 
In case at any time or from time to time the Company shall take any
action affecting its Common Stock, other than an action described in any of the
foregoing Sections 4.2 through 4.10, inclusive, then, unless in
the opinion of the Board such action will not have a materially adverse effect
upon the rights of the holders of the Warrants, the number of shares of Common
Stock or other stock comprising a Stock Unit, or the Current Warrant Price,
shall be adjusted in such manner and at such time as the Board may in good
faith determine to be equitable in the circumstances.


 


ARTICLE V

NOTICE TO WARRANT HOLDERS


 


Section 5.1                                      Notice of Adjustment of Stock Unit or
Exercise Price.  Whenever the number of shares of Common
Stock comprising a Stock Unit, or the price at which a Stock Unit may be
purchased upon exercise of their Warrants, shall be adjusted pursuant to Article IV
hereof, the Company shall forthwith obtain a certificate signed by Chief
Financial Officer or independent accountants of recognized national standing
selected by the Company and reasonably acceptable to the holders entitled to
purchase the majority of the Stock Units covered by all Warrants, setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including without limitation a
statement of the Current Market Value when determined by the Board pursuant to Section 2.4(2),
of any evidences of indebtedness, shares of stock, other securities or property
or warrants or other subscription or purchase rights referred to in Sections
4.3, 4.8(b) or 4.11 hereof) and specifying the number of
shares of Common Stock comprising a Stock Unit and (if such adjustment was made
pursuant to Sections 4.10 or 4.11 hereof) describing the number
and kind of any other shares of stock comprising a Stock Unit, and any change
in the Exercise Price, after giving effect to such adjustment or change.  The Company shall promptly, and in any case
within 45 days


 


B-11

















 


after the making of such adjustment, cause a signed
copy of such certificate to be delivered to each holder of a Warrant in
accordance with Section 10.2 hereof.  The Company shall keep at its office or agency, maintained for
the purpose pursuant to Section 10.1 hereof, copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by any holder of a Warrant or any prospective
purchaser of a Warrant designated by a holder thereof.


 


Section 5.2                                      Notice of Certain Corporate Action. 
In case the Company shall propose (a) to pay any dividend payable in
stock of any class to the holders of its Common Stock or to make any other
distribution to the holders of its Common Stock,  or (b) to offer to the holders of its Common Stock rights to subscribe
for or to purchase any Additional Shares of Common Stock or shares of stock of
any class or any other securities, rights or options, or (c) to effect any
reclassification of its Common Stock (other than a reclassification involving
only the subdivision, or combination, of outstanding shares of Common Stock),
or (d) to effect any capital reorganization, or (e) to effect any
consolidation, merger or sale, transfer or other disposition of all or
substantially all of its property, assets or business, or (f) to effect the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall give to each holder of a Warrant, in accordance with Section 10.2
hereof, a notice of such proposed action, which shall specify the date on which
a record is to be taken for the purposes of such stock dividend, distribution
or rights, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, disposition, liquidation, dissolution or
winding up is to take place and the date of participation therein by the
holders of Common Stock, if any such date is to be fixed, and shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Common Stock and the number and kind
of any other shares of stock which will comprise a Stock Unit, and the purchase
price or prices thereof, after giving effect to any adjustment which will be
required as a result of such action. 
Such notice shall be so given in the case of any action covered by
clause (a) or (b) above at least 20 days prior to the record date for
determining holders of the Common Stock for purposes of such action, and in the
case of any other such action, at least 20 days prior to the date of the taking
of such proposed action or the date of participation therein by the holders of
Common Stock, whichever shall be the earlier.


 


Section 5.3                                      Notice of Expiration Date. 
The Company shall give to each holder of a Warrant notice of the
Expiration Date.  Such notice may be
given by the Company not less than 30 days but not more than 60 days prior to
the Expiration Date.


 


ARTICLE VI

CERTAIN COVENANTS


 


Section 6.1                                      Reservation and Authorization of Common
Stock; Registration with or Approval of any Governmental Authority.


 


(a)                                  The Company shall at all times reserve
and keep available for issue upon the exercise of these Warrants such number of
its authorized but unissued shares of Common Stock as shall be sufficient to
permit the exercise in full of all outstanding Warrants.  The Company shall not amend its charter in
any respect relating to the Common Stock other than to increase or decrease the
number of shares of authorized


 


B-12

















 


capital
stock (subject to the provisions of the preceding sentence) or to decrease the
par value of any shares of Common Stock. 
All shares of Common Stock that shall be so issuable, when issued upon
exercise of any Warrant and payment in full of the Exercise Price, shall be
duly and validly issued and fully-paid and nonassessable.


 


(b)                                 Before taking any action which would
result in an adjustment in the number of shares of Common Stock comprising a
Stock Unit or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.


 


(c)                                  If any shares of Common Stock required to
be reserved for issue upon exercise of Warrants require registration with any governmental
authority under any federal or state law before such shares may be so issued,
the Company shall in good faith and as expeditiously as possible and at its
expense endeavor to cause such shares to be duly registered.


 


ARTICLE VII

TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS


 


Section 7.1                                      Taking of Record, etc. 
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Article IV
hereof refers to the taking of a record of such holders, the Company shall in
each such case take such a record and shall take such record as of the close of
business on a Business Day.  The Company
shall not at any time, except upon dissolution, liquidation or winding up,
close its stock transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.


 


Section 7.2                                      Replacement of Instruments. 
Upon receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any
certificate or instrument evidencing any Warrants, and (a) in the case of loss,
theft or destruction, of indemnity reasonably satisfactory to it, or (b) in the
case of mutilation, upon surrender or cancellation thereof, the Company, at its
expense, shall execute, register and deliver, in lieu thereof, a new
certificate or instrument for (or covering the purchase of) an equal number of
Warrants.


 


ARTICLE VIII

EXPENSES, TRANSFER TAXES AND OTHER CHARGES


 


Section 8.1                                      Expenses, etc. 
The Company shall pay any and all expenses, transfer taxes and other
charges, including, without limitation, all costs associated with the
preparation, issue and delivery of stock or warrant certificates, that may be
incurred in respect of the issuance or delivery of shares of Common Stock upon
exercise of this Warrant pursuant to Article II hereof, or in
connection with any transfer, division or combination of Warrants pursuant to Article III
hereof.  The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Common Stock in a name other
than that in which this Warrant is registered, and no such issue or delivery
shall


 


B-13

















 


be made unless and until the Person requesting such
issue has paid to the Company the amount of any such tax, or has established,
to the satisfaction of the Company, that such tax has been paid.


 


ARTICLE IX

NO VOTING RIGHTS


 


Section 9.1                                      No Voting Rights. 
This Warrant shall not entitle the holder hereof to any voting rights or
other rights as a stockholder of the Company.


 


ARTICLE X

MISCELLANEOUS


 


Section 10.1                                Office of the Company. 
So long as any of the Warrants remains outstanding, the Company shall
maintain an office in the continental United States of America where the
Warrants may be presented for exercise, transfer, division or combination as in
this Warrant provided.  Such office
shall be at Company’s office unless and until the Company shall designate and
maintain some other office for such purposes and give notice thereof to the
Holders of all outstanding Warrants. 
The Company shall maintain at such office books for the registration and
transfer of the Warrants.


 


Section 10.2                                Notices.  All notices,
requests, demands, approvals, consents, waivers and other communications
required or permitted to be given under this Warrant (each, a “Notice”) shall
be in writing and shall be (a) delivered personally, (b) mailed by first-class
mail or certified mail, return receipt requested, postage prepaid, (c) sent by
next-day or overnight mail or delivery or (d) sent by facsimile transmission,
provided that a confirmation statement is retained by sender.


 


(a)                                  if to holder, to:


 


Stutman Treister & Glatt, Professional Corporation

1901 Avenue of the Stars, 12th Floor

Los Angeles, CA 90067

Facsimile: (310) 228-5788

Attention: Ted Stolman


 


(b)                                 if to Company, to:


 


Innovative Micro Technology, Inc.

75 Robin Hill Road

Santa Barbara, California  93117

Facsimile:  (805) 967-2677

Attention:  John Foster, President


 


B-14

















 


with a copy, which shall not constitute notice, to:


 


James J. Slaby, Esq.

Sheppard, Mullin, Richter & Hampton LLP

333 South Hope Street

Los Angeles, California  90017

Facsimile:  (213) 620-1398


 


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


 


Section 10.3                                Amendments.  The terms of
this Warrant and all other Warrants may be amended, and the observance of any
term therein may be waived, but only with the written consent of the holders of
Warrants evidencing two-thirds in number of the total number of Stock Units at
the time purchasable upon the exercise of all then outstanding Warrants.  For the purposes of determining whether the
holders of outstanding Warrants entitled to purchase a requisite number of Stock
Units at any time have taken any action authorized by this Warrant, any
Warrants owned by the Company or any Affiliate of the Company shall be deemed
not to be outstanding.


 


Section 10.4                                Restrictions on Transferability. 
The Warrants and the Warrant Shares shall be transferable only upon
compliance with the conditions specified in Sections 5.3, 5.4 and
5.5 of the Stock Purchase Agreement, Section 8.1 of the
Warrant and applicable Securities Act restrictions referred to in Section 3.1
of this Warrant, which conditions are intended to ensure compliance with the
provisions of the Securities Act in respect of the transfer of any Warrant or
any Warrant Shares, and any holder of this Warrant shall be bound by the
provisions of (and entitled to the benefits of) Section 3.1 and the
remainder of this Warrant.


 


Section 10.5                                Governing Law. 
This Warrant shall be governed by, and construed in accordance with, the
law of the State of California.


 


Section 10.6                                JURY TRIAL WAIVER. 
THE HOLDER AND THE COMPANY EACH WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE OTHER THAT
PERTAINS DIRECTLY OR INDIRECTLY TO THIS WARRANT, ANY ALLEGED TORTIOUS CONDUCT
BY THE HOLDER OR THE COMPANY, OR IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT
OF OR RELATES TO THE RELATIONSHIP BETWEEN HOLDER AND COMPANY.


 


Section 10.7                                Limitation of Liability. 
No provision hereof, in the absence of affirmative action by the holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of
the rights or privileges of the holder hereof, shall give rise to any liability
of such holder for the purchase price or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.


 


[Signature Page Follows]


 


B-15

















 


IN WITNESS WHEREOF, the Company has caused this
Warrant to be signed in its name by a duly authorized officer and attested by
its Secretary or an Assistant Secretary.


 


Dated:


	
   

  	
  INNOVATIVE MICRO TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  John Foster

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Peter T. Altavilla

  	
   

  
	
  Secretary

  	
   

  
					



 


B-16

















 


ANNEX C

Letter of Representations


 


Name:


Address:


 


 


Tax I.D.:


Email:


Facsimile:


September 30,
2003


 


Innovative Micro Technology, Inc.


75 Robin Hill Road


Santa Barbara, CA  93117


Dear Sir:


In connection with the acquisition by the person named
above (the “Holder”) of (i)
               
shares (the “Shares”) of common stock, par value $0.0001 per share (the “Common
Stock”) of Innovative Micro Technology, Inc. (the “Company”); (ii) a warrant
providing for the purchase of up to an aggregate of
               shares
of Common Stock of the Company at any time prior to March 30, 2005 (the
“18-Month Warrant”), and (iii) a warrant providing for the purchase of up to an
aggregate of
               shares
of Common Stock at any time prior to September 30, 2006 (the “Three-Year
Warrant” and, collectively with the 18-Month Warrant and the Shares, the
“Securities”),and in consideration of the Company’s issuance of certificates
evidencing the Securities to the Holder and the entry of the Holder as record
holder thereof, the Holder hereby represents, warrants and acknowledges the
following as of the date of purchase and the date hereof:


 


(1)  Holder is
an “accredited investor” within the meaning of Rule 501 under the Securities
Act of 1933, as amended (the “Securities Act”) by virtue of the following
(check all that apply):


 


o                                    Holder is a natural person and has a net worth, either
alone or with Holder’s spouse, of more than $1,000,000.


 


o                                    Holder is a natural person and had income in excess of
$200,000 during each of the previous two years and reasonably expects to have
income in excess of $200,000 during the current year.


 


o                                    Holder is a natural person and had joint income with
Holder’s spouse in excess of $300,000 during each of the previous two years and
reasonably expects to have joint income in excess of $300,000 during the
current year.


 


(2)  The
Securities are being acquired for the purpose of investment and not with a view
to, or sale in connection with, the distribution thereof, nor with any present
intention of distributing the Securities.


 


C-1

















 


(3)  The Holder
shall not transfer or sell the Securities without registration under the
Securities Act, or an exemption therefrom.


 


(4)  Prior to
the acquisition of the Securities, the Holder had the opportunity to ask
questions of and receive answers from representatives of the Company concerning
the finances, operations and business of the Company.


 


(5)  The Holder
is capable of evaluating the merits and risks of the purchase of the Securities
and can afford a complete loss of the Holder’s investment.


 


(6)  The Holder
by reason of its business or financial experience or the business or financial
experience of the Holder’s professional advisors, who are neither affiliated
with nor compensated by the Company or any affiliate of the Company, directly
or indirectly, could be reasonably assumed to have the capacity to protect the
Holder’s interests in connection with the acquisition of the Securities.


 


(7)  The
Company intends to place one or more restrictive legends on each certificate
for the Securities, including a legend stating that the Securities have not
been registered under the Securities Act and setting forth or referring to the
restrictions on transferability and sale, which legends shall read
substantially as follows:


 


“THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER THE ACT OR
COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED.”


 


(13)  The
Holder warrants that the Holder is not acting as an underwriter or dealer in
the receiving the Securities.


 


(14)  The Holder
acknowledges that the Company and its outside legal counsel will rely on the
foregoing representation and warranties.


 


	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  
				



 


C-2