Document:

Exhibit
4.7

 

THIS OFFER AND SALE OF THE SECURITIES OFFERED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “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

 

W.R. HAMBRECHT + CO., LLC

 

and

 

INNOVATIVE MICRO
TECHNOLOGY, INC.,

 

as the Company

 

Dated as of January 25, 2005

 

 

This WARRANT AGREEMENT dated as of January 25,
2005 (the “Agreement”), is made by and between W.R. Hambrecht + Co., LLC, a Delaware
limited liability company (“WRH”), and Innovative Micro Technology, Inc., a
Delaware corporation (the “Company”).

 

R E C I T A L S:

 

WHEREAS, the Company and WRH are parties to a Letter
Agreement dated as of April 16, 2004 and amended by a Letter dated January 14,
2005 (as so amended, the “Letter Agreement”), which provides that upon the
completion of a Placement (as defined in the Letter Agreement), subject to the
terms and conditions of the Letter Agreement, the Company shall issue to WRH a
warrant for the purchase of the Company’s common stock, par value $0.0001 per
share (the “Common Stock”) equal to 2% of the shares sold in the Placement; and

 

WHEREAS, on the date hereof, the Company is completing
a Placement pursuant to a Preferred Stock Purchase Agreement, for an aggregate
purchase price of $17,000,000, convertible into 5,666,666 shares of Common
Stock at a price of $3.00 per share of Common Stock on a fully converted basis.

 

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                                      Definition of Terms.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Investors’ Rights Agreement” means the
Investors’ Rights Agreement between the Company and the purchasers of the
Series A Redeemable Preferred Stock and Series A-1
Convertible Preferred Stock dated as of January 25, 2005.

 

1

 

“Notice” has the meaning set forth in Section 5.2.

 

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

 

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

 

“Securities” has the meaning set forth in Section 3.1.

 

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

 

“Warrant” has the meaning set forth in Section 2.1
together with any and all warrants resulting from a permitted transfer or
subdivision thereof.

 

“Warrant Shares” has the meaning set forth in Section 2.1.

 

“WRH” means W.R. Hambrecht + Co., LLC and
its transferees and assigns.

 

ARTICLE II

GRANT OF THE WARRANTS

 

Section 2.1                                      Grant of Warrants.  The Company
hereby grants to WRH a warrant for the purchase of up to 113,333 shares of
Common Stock at a price of $3.00 per share (the “Warrant”) at any time on or prior
to January 17, 2009 (the “Expiration Date”).  The shares of Common Stock issuable to WRH
upon exercise of the Warrant 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                                      Form of Warrant.  The Warrant
will be in the form of Exhibit A to this Agreement.

 

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

 

ARTICLE III

Investor Representations and Warranties

 

WRH hereby represents and warrants to the Company
that:

 

Section 3.1                                      Purchase Entirely for Own Account.  The Warrants
and the Warrant Shares (collectively, the “Securities”) are being acquired for
investment for WRH’s own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and WRH has no present
intention of selling, granting any participation in, or otherwise distributing
same.

 

2

 

Section 3.2                                      Disclosure of Information.  WRH believes
it has received all the information it considers necessary or appropriate for
deciding whether to purchase the Securities. 
WRH 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.

 

Section 3.3                                      Investment Experience.  WRH 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.  WRH also represents
it has not been organized for the purpose of acquiring the Securities.  WRH 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.

 

Section 3.4                                      Accredited
Investor.  WRH is an “accredited
investor” within the meaning of Rule 501 of Regulation D under the Securities
Act, as presently in effect.

 

Section 3.5                                      Restricted Securities.  WRH
understands that the Warrants and the Warrant Shares are characterized as “restricted
securities” under the federal securities laws 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 Securities Act only in limited circumstances.  In this connection, WRH represents that it is
familiar with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities 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.  WRH understands that the Securities have not
been registered under the Securities Act or qualified under the laws of any
state and, except as provided herein, will not be registered or qualified, and
thus WRH will not be able to resell or otherwise transfer the Securities unless
they are registered under the Securities Act of 1933, as amended, and
registered or qualified under applicable state securities laws, or an exemption
from such registration or qualification is available.  WRH has no immediate need for liquidity in
connection with this investment and does not anticipate that WRH will be
required to sell Securities in the foreseeable future.

 

Section 3.6                                      Further limitations on Disposition. 
Without in any way limiting the representations set forth above, WRH
further agrees not to make any disposition of all or any portion of the Warrant
or the Warrant Shares unless and until the transferee has agreed in writing for
the benefit of the Company to be bound by this Agreement.

 

Section 3.7                                      Legends.  The
Securities shall bear legends substantially as shown in the Form of Warrant
attached hereto as Exhibit A.

 

Section 3.8                                      No Reliance on Others.  WRH
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.

 

3

 

ARTICLE IV

Registration Rights

 

Section 4.1                                      Registration Rights.  Upon
WRH’s execution and delivery of a Joinder to the Investors’ Rights Agreement,
in the form of Exhibit B hereto, the Warrant Shares shall be deemed Registrable
Securities pursuant the Investors’ Rights Agreement,
and WRH shall be a Holder pursuant to the Investors’ Rights Agreement.

 

ARTICLE V

Miscellaneous

 

Section 5.1                                      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 5.2                                      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 WRH, to:

 

W.R. Hambrecht + Co., LLC

539 Bryant Street

San Francisco, CA  94107-1237

Facsimile:  (415) 551-3242

Attention:  Jonathan Fayman

Chief Financial Officer

 

Attention:

 

(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

 

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

 

James J. Slaby, Esq.

Sheppard, Mullin, Richter & Hampton LLP

333 South Hope Street

Suite 4800

Los Angeles, CA  90071

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

 

Section 5.4                                      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 5.5                                      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 5.6                                      Entire Agreement.  This Agreement
(including the Exhibits hereto) 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 5.7                                      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 5.8                                      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)                                 WRH AND THE COMPANY HEREBY IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND
THE CENTRAL DISTRICT OF CALIFORNIA OF THE FEDERAL COURTS OF THE

 

5

 

UNITED STATES OF AMERICA 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 SUCH COURTS, AND THE PARTIES HERETO
IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR PROCEEDING
SHALL BE HEARD AND DETERMINED IN SUCH A CALIFORNIA STATE OR FEDERAL COURT.  EACH OF WRH 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 5.2, OR IN SUCH OTHER MANNER AS MAY BE
PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE THEREOF.

 

(c)                                  JURY TRIAL WAIVER.  WRH
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 5.9                                      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 5.10                                Assignment.  Except as
expressly permitted herein, this Agreement shall not be assignable or otherwise
transferable by any party hereto without the prior written consent of the other
parties hereto.

 

Section 5.11                                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 holder of this Warrant
or, if this Warrant has been subdivided, by holders of Warrants covering a
majority of the unexercised Warrant Shares originally subject to this
Warrant.  For the purpose of determining
whether the holders of outstanding Warrants entitled to purchase a requisite
number of Warrant Shares have at any time 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

 

6

 

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, including for such
purposes Warrant Shares issuable pursuant to outstanding, exercisable Warrants.

 

The next page is the
signature page.

 

7

 

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

 

	
   

  	
  W.R. HAMBRECHT + CO., LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INNOVATIVE MICRO TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John
  Foster

  	
   

  
	
   

  	
  John Foster

  
	
   

  	
  President and Chief Executive Officer

  
					

 

1

 

EXHIBIT A

 

Form of Warrant

 

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

 

WARRANT TO PURCHASE COMMON STOCK OF INNOVATIVE MICRO TECHNOLOGY,
INC.

 

For good and valuable
consideration, the receipt of which is hereby acknowledged, Innovative Micro
Technology, Inc., a Delaware corporation (the “Company”), hereby grants to WR
Hambrecht +  Co., LLC, a Delaware limited liability company, its
successors and assigns (collectively, the “Holder”), an irrevocable warrant
(the “Warrant”) to purchase, subject to the other terms hereof, 113,333 shares
of Common Stock, par value $0.0001 per share, of the Company (the “Shares”), at
the Warrant Price, as defined below, at any time beginning on January 25,
2005 and ending on January 24, 2009 (the “Expiration Date”).

 

1.                                       Exercise; Issuance of Certificates;
Payment for Shares.  This Warrant may be exercised by the Holder,
in whole or in part, and on one or more occasions, by written notice to the
Company, in the form attached as Exhibit A hereto, at any time prior to
5:00 p.m., Santa Barbara time, on the Expiration Date, and by payment to the
Company by wire transfer (in accordance with the wire transfer instructions
attached hereto as Exhibit B) of the aggregate Warrant Price for the
number of Shares designated by the Holder (but not more than the number of
Shares for which this Warrant then remains subject and unexercised).  Consideration received by the Company under a
broker-assisted sale and remittance program acceptable to the Company may also
be used to exercise this Warrant. 
Certificates for the Shares so purchased will be delivered to the Holder
within a reasonable time, not exceeding fifteen (15) business days, after
this Warrant has been exercised, and, unless this Warrant has expired, it will
continue in effect with respect to the number of Shares, if any, as to which it
has not then been exercised and which remain covered by this Warrant as herein
provided.  Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of
business on the business day on which the Notice is given to the Company.  At such time, the person or persons in whose
name or names any certificate for the Shares shall be issuable upon such
exercise shall be deemed to have become the holder or holders of record of the
Shares represented by such certificate or certificates, and to be entitled to
all rights of a Stockholder with respect to such Shares, including without
limitation voting rights.

 

2

 

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

 

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

 

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

 

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

 

3.                                       Warrant Price.

 

3.1.                              Initial Warrant Price; Subsequent
Adjustment of Price and Number of Purchasable Shares. 
The initial Warrant Price (“Initial Warrant Price”) will be three
dollars ($3.00) per Share, and will be adjusted from time to time as provided
below.  The Initial Warrant Price or, if
such price has been adjusted, the price per Share as last adjusted pursuant to
the terms hereof, is referred to as the “Warrant Price” herein.

 

3.2.                              Subdivision or Combination of Shares. 
If the Company at any time while this Warrant, or any portion hereof,
remains outstanding and unexpired shall split, subdivide or combine the
securities as to which purchase rights under this Warrant exist, into a
different number of securities of the same class, the number of Shares for
which this Warrant may be exercised shall be adjusted to represent the
aggregate number of securities that, if this Warrant had been exercised immediately
prior to such event, the Holder would have owned upon such dividend, distribution,
subdivision, combination or reclassification, and the Warrant Price for such
securities shall be proportionately decreased in the case of a split or
subdivision or proportionately increased in the case of a combination.

 

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

 

3.4.                              Adjustments for Dividends in Stock or
Other Securities or Property.  If while this
Warrant, or any portion hereof, remains outstanding and unexpired holders of
the securities as to which purchase rights under this Warrant exist at the time
shall have received, or, on or after the record date fixed for the
determination of eligible stockholders, shall have become

 

3

 

entitled to receive, without payment therefor, other or additional
stock or other securities or property (other than cash) of the Company by way
of dividend, then and in each case, this Warrant shall represent the right to
acquire, in addition to the number of shares of the security receivable upon
exercise of this Warrant, and without payment of any additional consideration
therefor, the amount of such other or additional stock or other securities or
property (other than cash) of the Company that the Holder would hold on the
date of such exercise had it been holder of record of the security receivable
upon exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise,
retained such shares and/or all other additional securities available to it as
aforesaid during such period, giving effect to all adjustments called for
during such period.

 

3.5.                              Reorganization, Reclassification,
Consolidation, Merger or Sale.  If, while
this Warrant, or any portion hereof, remains outstanding and unexpired, any
capital reorganization or reclassification of the stock of the Company, or any
consolidation or merger of the Company with another corporation or entity, or
the sale of all or substantially all of the Company’s assets to another
corporation will be effected in such a way that holders of the securities for
which this Warrant is exercisable will be entitled to receive shares,
securities or assets with respect to or in exchange for such securities, then,
upon exercise of this Warrant, the Holder will thereafter have the right to
receive such shares, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding securities equal to the
number of securities purchasable and receivable upon the exercise of this
Warrant immediately prior to such event. 
If a purchase, tender or exchange offer is made to and accepted by holders
of more than 50% of the outstanding capital stock of the Company (on an
as-converted to Common Stock basis), the Company will not effect any
consolidation, merger or sale with the Person, as defined below, making such
offer or with any Affiliate, as defined below, of such Person, unless, before
the consummation of such consolidation, merger or sale, the Holder of this
Warrant is given at least ten (10) business days’ notice prior to the
scheduled closing date (the “Closing Date”) of such transaction (which notice
shall specify the material terms of such transaction and the proposed Closing
Date).  In the event the Holder elects to
exercise this Warrant or any portion thereof following such notice and such
consolidation, merger or sale is not consummated within ten (10) days of
the proposed Closing Date (or any subsequent proposed Closing Date), then the
Holder may rescind its exercise of this Warrant by providing
written notice thereof to the Company, the Company shall take all actions
consistent therewith (including without limitation the immediate return of the
Warrant Price paid with respect to such rescinded exercise) and this Warrant
shall continue in full force and effect. 
As used in this paragraph, the term “Person” includes an individual, a
partnership, a corporation, a trust, a joint venture, a limited liability
company, an unincorporated organization and a government or any department or
agency thereof, and an “Affiliate” of a Person means any Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with, such other Person.  A
Person will be deemed to control a corporation or other business entity if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.

 

3.6.                              Notice of Adjustment. 
Upon any adjustment of the number of Shares or the Warrant Price, the
Company will give written notice thereof, by first-class mail, postage
prepaid, addressed to the Holder at the Holder’s address as shown on the books
of the Company,

 

4

 

which notice will state (i) the Warrant Price resulting from such
adjustment and the increase or decrease, if any, in the number of Shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based, and (ii) whether, after giving effect to such
adjustment, the maximum number of Shares issuable upon the exercise of this
Warrant will constitute more than 5% of the total number of the then issued and
outstanding Shares (including in such total number the maximum number of Shares
issuable upon the exercise of this Warrant).

 

3.7.                              Other Notices. 
If at any time:

 

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

 

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

 

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

 

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

 

3.7.5.                     there is a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then the Company will give, as
provided in paragraph 14 below, to the Holder’s address as shown on the books
of the Company, (i) at least ten (10) business days’ prior written notice
of the date on which the books of the Company will close or a record will be
taken for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, and
(ii) in the case of such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, at least ten (10)
business days’ prior written notice of the date when the same will take
place.  Any notice required by
clause (i) will also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the Holder will be
entitled thereto, and any notice required by (ii) will also specify the
anticipated date on which the Holder will be entitled to exchange its Shares
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.

 

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

 

5

 

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

 

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

 

7.                                       Definition of Shares. 
Except as provided in paragraph 3.5, the Shares purchasable
pursuant to this Warrant will include only Shares designated as “common stock”
of the Company or, in the case of any reclassification of the outstanding
Shares, the Shares, securities or assets provided for in paragraph 3.5.

 

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

 

9.                                       Warrant Transferable. 
This Warrant and all rights hereunder are transferable, in whole or in
part, without charge to the Holder, by written notice to the Company at
the address referred to in paragraph 14 below by the Holder, in person or
by duly authorized attorney; provided that (i) a written opinion of
counsel for the Holder reasonably satisfactory to the Company has been obtained
stating that such transfer will not violate the registration requirements of
the Securities Act or any applicable state securities laws, and (ii) the
transferee has delivered to the Company a written agreement to be bound by
the terms and conditions hereof; provided that a written opinion shall not be
required in a transfer by the Holder to an entity controlling, controlled by or
under common control with the Holder. 
The Holder agrees that after such notice, the Holder may be treated by
the Company and all other persons dealing with this Warrant as the absolute
owner hereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to further assign this Warrant, any notice to
the contrary notwithstanding; but until receipt of any such notice of
assignment, the Company may treat the Holder as shown on its records as the
owner for all purposes.  Nothing in this
paragraph 9 shall be deemed to limit the effect of any agreement among the
Holder, the Company and other security holders of the Company restricting the
transfer of this Warrant or the Shares.

 

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

 

11.                                 Taxes.  The Company
shall any transfer tax attributable to the issuance of this Warrant or of the
Warrant Shares.

 

6

 

12.                                 No Limitation on Corporate Action; No
Impairment

 

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

 

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

 

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

 

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

 

(i)                                     if
to the Company, to:

 

Innovative Micro Technology, Inc.

75 Robin Hill Rd.

Santa Barbara, CA  93117

Facsimile:  805-967-2677

Attention:  John Foster, President

 

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

 

Sheppard, Mullin, Richter & Hampton LLP

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

Facsimile:  (213) 620-1398

Attention:  James J. Slaby, Esq.

 

7

 

(ii)                                  if
to the Holder, to:

 

W.R. Hambrecht + Co., LLC

539 Bryant Street

San Francisco, CA  94107-1237

Facsimile:  (415) 551-3242

Attention:  Jonathan Fayman

Chief Financial Officer

 

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

 

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

 

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

 

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

 

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

 

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

 

The next page is the signature page.

 

8

 

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

 

	
   

  	
  INNOVATIVE MICRO TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  John Foster

  
	
   

  	
   

  	
  President

  

 

9

 

FORM OF

 

NOTICE OF EXERCISE OF WARRANT

 

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

 

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

 

Please deliver the stock certificate to: ____________________________________

 

___________________________________________________________________

 

___________________________________________________________________

 

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

 

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

 

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

 

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

 

Dated: ______________ , 200__

 

“Holder”

 

 

	
   

  	
   

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
			

 

 

WIRE INSTRUCTIONS

 

On the exercise of the Warrant the aggregate Warrant
Price shall be paid to the Company by wire transfer to the following address,
or such other address as may be provided by the Company hereafter:

 

 

EXHIBIT B

 

Form of Joinder to
Investors’ Rights Agreement

 

Innovative Micro Technology
Inc. (the “Company”) and W.R. Hambrecht + Co., LLC (“WRH”) are entering into
this Joinder to Investors’ Rights Agreement (“Joinder Agreement”), dated as of January 25,
2004, pursuant to Section 5.2 of the Investors’ Rights Agreement dated as
of January 25, 2005 (the “ Investors’ Rights
Agreement “) by and between the Company and the Investors listed on Schedule I
attached thereto.

 

Any capitalized terms used
but not defined herein shall have the meanings ascribed to them in the
Investors’ Rights Agreement.

 

a.               The Company hereby agrees that, subject to paragraph 2
hereof and the terms, conditions and limitations of the Investors’ Rights
Agreement, WRH shall be joined to the Investors’ Rights agreement as a “Holder”
under Articles II, IV and VI thereof, and shall have, on a pro rata basis, the
same rights as other Holders with respect to Registrable Securities under
Articles II, IV and VI.

 

b.              WRH hereby agrees to become a party to the Investors’
Rights Agreement, to be bound by the same conditions, limitations and
obligations as the other Holders pursuant to the Investors’ Rights Agreement,
and to comply with the provisions of the Investors’ Rights Agreement in the
same manner as if it were an original signatory to such agreement.

 

c.               Notices pursuant to this Joinder Agreement and the
Investors’ Rights Agreement shall be provided as set forth in Section 6.3
of the Investors’ Rights Agreement, to the following addresses:

 

1.               if to the Company, to any Investor or to
any Holder other than WRH, to their respective addresses provided in the
Investors’ Rights Agreement pursuant to Section 6.3 thereof;

 

2.               if to WRH, to the address set forth below
WRH’s signature below.

 

The next page is the signature
page.

 

2

 

IN WITNESS WHEREOF, the
parties hereto have executed and delivered this Joinder Agreement as of the
25th  day of January, 2005.

 

	
  By: W.R. HAMBRECHT + CO., LLC

  
	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  
	
  Telephone:

  	
   

  	
   

  
	
  Facsimile:

  	
   

  	
   

  
	
   

  
	
   

  
	
  ACKNOWLEDGED:

  
	
   

  
	
  INNOVATIVE MICRO TECHNOLOGY, INC.

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name: John Foster

  
	
  Title: President and CEO

  
	
  Date: January 25, 2005

  
									

 

3Exhibit
10.17

 

Execution Copy

 

 

Innovative Micro Technology,
Inc.

 

PREFERRED STOCK PURCHASE
AGREEMENT

 

Dated as of January 25,
2005

 

 

The 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 securities
are being offered and sold in reliance on the exemptions afforded by Regulation
D promulgated under the Securities Act. 
The securities 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 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
securities.  Any representation to the
contrary is illegal.

 

 

TABLE
OF CONTENTS

 

	
  ARTICLE 1 Definitions

  	
   

  
	
   

  	
  1.1

  	
  Definition of Terms.

  	
   

  
	
   

  	
  1.2

  	
  Construction.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2
  Sale and Purchase of the Shares

  	
   

  
	
   

  	
  2.1

  	
  Purchase and Sale of
  Shares.

  	
   

  
	
   

  	
  2.2

  	
  Purchase
  Price.

  	
   

  
	
   

  	
  2.3

  	
  Payment
  and Delivery of the Shares and Performance Warrants at Initial Closing.

  	
   

  
	
   

  	
  2.4

  	
  Subsequent
  Closings.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3
  Representations and Warranties of the Company

  	
   

  
	
   

  	
  3.1

  	
  Corporate Status.

  	
   

  
	
   

  	
  3.2

  	
  Authority.

  	
   

  
	
   

  	
  3.3

  	
  Capital Stock of the
  Company.

  	
   

  
	
   

  	
  3.4

  	
  No
  Conflicts.

  	
   

  
	
   

  	
  3.5

  	
  Reporting Status.

  	
   

  
	
   

  	
  3.6

  	
  Financial Statements.

  	
   

  
	
   

  	
  3.7

  	
  Absence of
  Undisclosed Liabilities.

  	
   

  
	
   

  	
  3.8

  	
  Subsidiaries

  	
   

  
	
   

  	
  3.9

  	
  Taxes.

  	
   

  
	
   

  	
  3.10

  	
  Absence of Changes.

  	
   

  
	
   

  	
  3.11

  	
  Litigation.

  	
   

  
	
   

  	
  3.12

  	
  Compliance with
  Laws; Governmental Approvals and Consents.

  	
   

  
	
   

  	
  3.13

  	
  Assets.

  	
   

  
	
   

  	
  3.14

  	
  Contracts.

  	
   

  
	
   

  	
  3.15

  	
  Product Warranties.

  	
   

  
	
   

  	
  3.16

  	
  Intellectual Property.

  	
   

  
	
   

  	
  3.17

  	
  Insurance.

  	
   

  
	
   

  	
  3.18

  	
  Environmental Matters.

  	
   

  
	
   

  	
  3.19

  	
  Employees,
  Labor Matters, etc.

  	
   

  
	
   

  	
  3.20

  	
  Investors’ Percentage
  Ownership.

  	
   

  
	
   

  	
  3.21

  	
  Brokers, Finders, etc.

  	
   

  
	
   

  	
  3.22

  	
  Dealings with Affiliates.

  	
   

  
	
   

  	
  3.23

  	
  Territorial Restrictions.

  	
   

  
	
   

  	
  3.24

  	
  Effect of Transaction.

  	
   

  
	
   

  	
  3.25

  	
  Antitakeover Provisions.

  	
   

  
	
   

  	
  3.26

  	
  No Retention Agreements.

  	
   

  
	
   

  	
  3.27

  	
  Real Property Holding Company.

  	
   

  
	
   

  	
  3.28

  	
  Affiliated Group Liability.

  	
   

  
	
   

  	
  3.29

  	
  Registration Rights.

  	
   

  
	
   

  	
  3.30

  	
  Stockholders.

  	
   

  
	
   

  	
  3.31

  	
  No
  Intervention.

  	
   

  
	
   

  	
  3.32

  	
  Disclosure

  	
   

  

 

i

 

	
  ARTICLE 4
  Representations and Warranties of Investors

  	
   

  
	
   

  	
  4.1

  	
  Authorization,
  etc.

  	
   

  
	
   

  	
  4.2

  	
  Brokers,
  Finders, etc.

  	
   

  
	
   

  	
  4.3

  	
  Purchase Entirely for
  Own Account.

  	
   

  
	
   

  	
  4.4

  	
  Investment Experience.

  	
   

  
	
   

  	
  4.5

  	
  Disclosure of
  Information.

  	
   

  
	
   

  	
  4.6

  	
  Projections.

  	
   

  
	
   

  	
  4.7

  	
  Accredited Investor.

  	
   

  
	
   

  	
  4.8

  	
  Restricted Securities.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5
  Conditions Precedent

  	
   

  
	
   

  	
  5.1

  	
  Conditions
  to Obligations of Each Party.

  	
   

  
	
   

  	
  5.2

  	
  Conditions to
  Obligations of Investors.

  	
   

  
	
   

  	
  5.3

  	
  Conditions to
  Obligations of Company.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6 Covenants

  	
   

  
	
   

  	
  6.1

  	
  Mutual
  Covenant,

  	
   

  
	
   

  	
  6.2

  	
  Covenants of the Company.

  	
   

  
	
   

  	
  6.3

  	
  Covenants of Investor.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7
  Indemnification

  	
   

  
	
   

  	
  7.1

  	
  Company Indemnification.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8
  Miscellaneous

  	
   

  
	
   

  	
  8.1

  	
  Miscellaneous Expenses.

  	
   

  
	
   

  	
  8.2

  	
  Severability.

  	
   

  
	
   

  	
  8.3

  	
  Notices.

  	
   

  
	
   

  	
  8.4

  	
  Attorneys’ Fees.

  	
   

  
	
   

  	
  8.5

  	
  Notification of Certain
  Matters.

  	
   

  
	
   

  	
  8.6

  	
  Liability for Transfer Taxes.

  	
   

  
	
   

  	
  8.7

  	
  Headings.

  	
   

  
	
   

  	
  8.8

  	
  Entire Agreement.

  	
   

  
	
   

  	
  8.9

  	
  Counterparts.

  	
   

  
	
   

  	
  8.10

  	
  Governing Law, Jurisdiction and Venue.

  	
   

  
	
   

  	
  8.11

  	
  Waiver
  of Jury Trial

  	
   

  
	
   

  	
  8.12

  	
  Successors and Assigns.

  	
   

  
	
   

  	
  8.13

  	
  No Third Party Beneficiaries.

  	
   

  
	
   

  	
  8.14

  	
  Amendment;
  Waivers, etc.

  	
   

  
	
   

  	
  8.15

  	
  Exculpation Among Investors

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EXHIBIT A
  Form of Certificate of Designation

  	
   

  
	
   

  	
   

  	
  EXHIBIT B Form
  of Closing Certificate

  	
   

  
	
   

  	
   

  	
  EXHIBIT
  C Form of Investors’ Rights Agreement

  	
   

  
	
   

  	
   

  	
  EXHIBIT
  D Form of Right of First Refusal and Co-Sale Agreement

  	
   

  
	
   

  	
   

  	
  EXHIBIT E Form of
  Voting Agreement

  	
   

  
	
   

  	
   

  	
  EXHIBIT F Form
  of Performance Warrant

  	
   

  
	
   

  	
   

  	
  EXHIBIT
  G Form of Amendment to Company Bylaws

  	
   

  

 

ii

 

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

 

RECITALS:

 

A.                                   The Company is
principally in the business of developing and supplying micro-electronic
machines (MEMs) technology and operating a fully equipped and functional
wafer fabricating facility on a foundry basis.

 

B.                                     The Company has
designated from its 2,500,000 shares of authorized but unissued preferred stock
1,000,000 shares to be issued and sold as Series A Redeemable Preferred
Stock (the “Series A Shares”), and 1,000,000 shares to be issued
and sold as Series A-1 Convertible Preferred Stock (the “Series A-1
Shares,” and, collectively with the Series A Shares, the “Shares”).

 

C.                                     The Investors
wish to purchase the Shares from the Company, and the Company wishes to sell
the Shares to the Investors, at a purchase price of $14.1667 per Series A
Share and $2.8333 per Series A-1 Share, all on the terms and conditions
set forth herein.  In addition, the
Investors shall receive conditional warrants for
the purchase of up to an aggregate of 500,000 shares of the Company’s Common
Stock, in the form attached hereto as Exhibit F (the “Performance Warrants”).

 

D.                                    Capitalized
terms have the meanings ascribed to them in Article I.

 

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

 

ARTICLE 1

Definitions

 

1.1                                 Definition of
Terms.

 

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

 

“Additional Shares”
has the meaning set forth in Section 2.4.

 

“Affiliate” the “Affiliate”
of a Person means a Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
the Person or a member of such Person’s immediate family.

 

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

 

1

 

“Applicable Law”
means all applicable provisions of all (i) constitutions, treaties,
statutes, laws (including the common law), rules, regulations, ordinances,
codes or orders of any Governmental Authority known or reasonably believed to
have authority over the Company, (ii) Governmental Approvals, and
(iii) orders, decisions, injunctions, judgments, awards and decrees of or
agreements with any Governmental Authority to which the Company, to its Knowledge,
is subject.

 

“Certificate of
Designation” means the Certificate of Designation of Series A
Redeemable Preferred Stock and Series A-1 Convertible Preferred Stock, in
the form attached hereto as Exhibit A.

 

“Closing” means
either the Initial Closing or a Subsequent Closing, as the context requires.

 

“Closing Date” means
either the Initial Closing Date or a Subsequent Closing Date, as the context
requires.

 

“Closing Schedules”
has the meaning set forth in Section 5.2(a).

 

“Code” means the
Internal Revenue Code of 1986, as amended.

 

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

 

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

 

“Consent” means any
consent, approval, authorization, stipulation, waiver, permit, grant,
franchise, concession, agreement, license, exemption or order of, registration,
certificate, declaration or filing with, or report or notice to, any Person,
including any Governmental Authority.

 

“Contract” has the
meaning set forth in Section 3.14(a).

 

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

 

“Conversion Shares”
means shares of common stock of the Company issued upon conversion of shares of
Series A-1 Convertible Preferred Stock in accordance with the Certificate
of Designation.

 

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

 

2

 

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

 

“Environmental Laws”
means the Comprehensive Environmental Response, Compensation and Liability Act
(“CERCLA”), 42 U.S.C.A. § 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C.A. § 6901 et seq., the Clean Water Act,
33 U.S.C.A. § 1251 et seq., the Clean Air Act, 42 U.S.C.A. § 
7401 et seq., and laws and regulations relating to emissions, spills, leaks,
discharges, releases or threatened releases of any “hazardous substance,” or “hazardous
waste,” as defined therein, petroleum and petroleum products, natural gas or
synthetic gas, special nuclear or by-product material, as defined by the Atomic
Energy Act of 1954, 42 U.S.C.A. § 3011 et seq., and the regulations
promulgated thereto, and any “hazardous chemical,” as defined in 29 C.F.R.
Part 1910, or otherwise relating to the manufacture, possession, distribution,
use, treatment, storage, disposal, transport or handling of such material.

 

“Environmental
Liabilities and Costs” means all Losses: 
(a) relating to the alleged presence of Hazardous Substances,
including claims for diminution of property value, personal injury or property
damages; (b) imposed by, under or pursuant to Environmental Laws,
including all fees, disbursements and expenses of counsel, court costs and
expert witness fees, based on, arising out of or otherwise in respect of
(i) the ownership or operation of the Company or Real Property, by
Company, and (ii) the environmental conditions existing on each Closing
Date on, under, above, or about any Real Property owned, leased or operated by
Company.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended.

 

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

 

“Financial Statements”
has the meaning set forth in Section 3.6.

 

“GAAP” means United
States generally accepted accounting principles.

 

“Governmental Approval”
means any Consent of, with or to any Governmental Authority.

 

“Governmental Authority”  means any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including any government authority, agency, department, board,
commission or instrumentality of the United States, any State of the United
States or any political subdivision thereof, and any tribunal or arbitrator(s)
of competent jurisdiction, and any self-regulatory organization.

 

“Hazardous Substances”
means any substance that: 
(i) requires investigation, removal or remediation under any
Environmental Law, or is defined, listed or identified as a “hazardous waste,” “hazardous
material,” “toxic substance,” “contaminant,” “pollutant,” “oil” or “hazardous
substance” thereunder; or (ii) is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is
regulated as such by any Governmental Authority or Environmental Law.

 

3

 

“Incentive Plan”
means the Innovative Micro Technology, Inc. 2001 Stock Incentive Plan, as
amended.

 

“Initial Closing and “Initial
Closing Date” have the meanings set forth in Section 2.3.

 

“Intellectual Property”
means (a) any and all trademarks, service marks, brand names,
certification marks, trade dress, assumed names, trade names, logos and other
indications of origin, sponsorship or affiliation (whether the foregoing are
registered or unregistered); registrations thereof in any jurisdiction and
applications to register any of the foregoing in any jurisdiction, and any
extension, modification or renewal of any such registration or application;
(b) any and all inventions, developments, improvements, discoveries, know
how, concepts and ideas, whether patentable or not in any jurisdiction;
(c) any and all patents, revalidations, industrial designs, industrial
models and utility models, patent applications (including reissues, continuations,
divisions, continuations-in-part and extensions) and patent disclosures;
(d) any and all mask works and other semiconductor chip rights and
registrations thereof; (e) any and all non-public information, trade
secrets and proprietary or confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any Person; (f) any
and all writings and other works, whether copyrighted, copyrightable or not in
any jurisdiction, such works including computer programs and software
(including source code, object code, data and databases); (g) any and all
copyrights, copyright registrations and applications for registration of
copyrights in any jurisdiction, and any renewals or extensions thereof;
(h) any and all other intellectual property or proprietary rights;
(i) any and all agreements, licenses, immunities, covenants not to sue and
the like relating any of to the foregoing; and (j) any and all claims or
causes of action arising out of or related to any infringement or misappropriation
of any of the foregoing.

 

“Inventory” means
those items of personal property classified as inventory under GAAP.

 

“Investor” means any
of the investors listed on Schedule I and, if a Subsequent Closing occurs,
any of the investors listed on Schedule II.

 

“IRS” means the
United States Internal Revenue Service.

 

“Knowledge” as to the
Company, means the actual knowledge of John Foster or Peter Altavilla
after reasonable inquiry of customers, officers, and other personnel within the
Company.

 

“Leases” means the
real property leases, subleases, use agreements, licenses and occupancy
agreements pursuant to which the Company is the lessee, sublessee, user,
licensee or occupant.

 

“Lien” means any
mortgage, pledge, hypothecation, right of others, claim, security interest,
encumbrance, lease, sublease, license, occupancy agreement, adverse claim or
interest, easement, covenant, encroachment, burden, title defect, title
retention agreement, voting trust agreement, interest, equity, option, lien,
right of first refusal, charge or other restriction or limitation.

 

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

 

4

 

“Notice” has the
meaning set forth in Section 8.3.

 

“Order” means the
order filed with the U.S. Bankruptcy Court for the Central District of
California on November 3, 2001 confirming the Reorganization Plan.

 

“Owned Real Property”
has the meaning set forth in Section 3.13(a).

 

“Performance Warrants”
has the meaning set forth in paragraph C of the Recitals.

 

“Permitted Liens” has
the meaning set forth in Section 3.13(c).

 

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

 

“Purchase Price”
means the Purchase Price Per Share multiplied by the number of pairs of
Series A Shares and Series A-1 Shares to be purchased by an Investor.

 

“Purchase Price Per Share”
has the meaning set forth in Section 2.2.

 

“Release” means any
releasing, disposing, discharging, injecting, spilling, leaking, leaching,
pumping, dumping, emitting, escaping, emptying, seeping, dispersal, migration,
transporting, placing and the like, including the moving of any materials
through, into or upon, any land, soil, surface water, ground water or air, or
otherwise causing their entry into the environment.

 

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

 

“SEC Documents” has
the meaning set forth in Section 3.5.

 

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

 

“Series A Share”
means a share of Series A Redeemable Preferred Stock.

 

“Series A-1 Share”
means a share of Series A-1 Convertible Preferred Stock.

 

“Shares” has the
meaning set forth in paragraph B of the recitals of this Agreement, and
also shall include the Additional Shares, if any, and any securities issued or
issuable with respect thereto, by way of a stock dividend, stock split,
combination of shares, recapitalization, restructuring, merger, consolidation
or other reorganization of the Company.

 

“Subsequent Closing”
and “Subsequent Closing Date” have the meanings set forth in Section 2.4.

 

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

 

5

 

“Tax Return” means
any return, report, declaration, form, claim for refund or information return
or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.

 

“Taxes” means any federal,
state, provincial, local or foreign income, alternative, minimum, accumulated
earnings, personal holding company, franchise, capital stock, net worth,
capital, profits, windfall profits, gross receipts, value added, sales, use,
goods and services, excise, customs duties, transfer, conveyance, mortgage,
registration, stamp, documentary, recording, premium, severance, environmental
(including taxes under Section 59A of the Code), real property, personal
property, ad valorem, intangibles, rent, occupancy, license, occupational,
employment, unemployment insurance, social security, disability, workers’
compensation, payroll, health care, withholding, estimated or other similar
tax, duty or other governmental charge or assessment or deficiencies thereof, and
including any interest, penalties or additions to tax attributable to the
foregoing.

 

“Transfer Taxes” has
the meaning set forth in Section 8.6.

 

“Treasury Regulations”
means the regulations promulgated pursuant to the Code.

 

1.2                                 Construction.

 

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

 

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

 

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

 

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

 

ARTICLE 2

Sale and Purchase of the Shares

 

2.1                                 Purchase and Sale
of Shares.  At each Closing,
the Company will sell to each Investor, and each Investor will purchase from
the Company, upon the terms and conditions hereinafter set forth, the Shares.

 

2.2                                 Purchase
Price.  The purchase price of
each Series A Redeemable Share shall be $14.1667, and the purchase price
for each Series A-1 Convertible Share shall be $2.8333.  The Shares shall be sold only in pairs
consisting of one Series A Share and one Series A-1 Share, for a
purchase price of $17.00 per pair (the “Purchase Price Per Share”).

 

2.3                                 Payment and
Delivery of the Shares and Performance Warrants at Initial
Closing.  The completion of the
purchase and sale of the Shares and the Performance Warrants (the “Initial
Closing”) shall occur on the date hereof or such later time as the Company and
the Investors purchasing a majority of the Shares being purchased in the
Initial Closing shall mutually agree

 

6

 

(the “Initial Closing Date”), at the offices of Sheppard, Mullin,
Richter & Hampton LLP, the Company’s counsel.  At the Initial Closing, the Company shall
deliver to each Investor, against payment in full of the purchase price
therefor, stock certificates evidencing the number of Series A Shares and
Series A-1 Shares set forth beside the Investor’s name on Schedule I
and Performance Warrants for the purchase of the number of shares of Common
Stock set forth beside the Investor’s name on Schedule I.  The certificates and Performance Warrants so
issued shall be duly executed by the officers of the Company and registered in
the name of the Investor or, if so indicated on Schedule I, in the name of
a nominee designated by the Investor.  If
neither an Investor nor the Investor’s representative is present at the Initial
Closing to take physical delivery of the certificates and Performance Warrants,
then delivery shall be deemed made at the Initial Closing by the transmission
of a facsimile of the certificates to the Investor (or nominee designated by
the Investor) followed by delivery by a nationally recognized overnight express
courier.

 

2.4                                 Subsequent
Closings.  The Company
may sell, within sixty (60) days of the Initial Closing Date, any Series A
Shares and Series A-1 Shares not purchased at the Initial Closing (the “Additional
Shares”) to such persons as the Company and Investor Growth Capital (together
with Investor AB and its other affiliates, “IGC”) shall mutually determine at a
price per share that is equal to or greater than the price per share of the
Series A Shares and Series A-1 Shares purchased and sold at the Initial Closing
(as set forth in Section 2.2 above).  Any such sale shall be upon the same terms
and conditions as those contained herein, subject to Section 5.2(l),
and such persons or entities shall become parties to this Agreement, that
certain Investors’ Rights Agreement, dated as of the date hereof, by and among
the Company and the Investors, the form of which is attached hereto as Exhibit C
(the “Rights Agreement”), that certain Right of First Refusal and Co-Sale
Agreement, dated as of the date hereof, by and among the Company, the Investors
and certain stockholders named therein, the form of which agreement is attached
hereto as Exhibit D (the “Co-Sale Agreement”) and that certain
Voting Agreement, dated as of the date hereof, by and among the Company, the
Investors and certain stockholders of the Company, the form of which agreement
is attached hereto as Exhibit E (the “Voting Agreement” and
together with the Rights Agreement and the Co-Sale Agreement, the “Ancillary
Agreements”) and such persons and entities shall have the rights and
obligations of an Investor hereunder and thereunder.  If a subsequent Closing under this Section 2.4
takes place, the Additional Shares sold and issued therein shall be deemed “Shares”
for all purposes under this Agreement. 
Any such Closing occurring under this Section 2.4 shall be a
“Subsequent Closing,” and the date of any such Subsequent Closing shall be a “Subsequent
Closing Date.”

 

ARTICLE 3

Representations and Warranties of the Company

 

The Company represents and
warrants to the Investors as follows:

 

3.1                                 Corporate
Status.

 

(a)                                  The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with full corporate power and authority to carry
on its business and to own or lease and to operate its properties, and to
conduct its business as presently conducted where its properties are leased or
owned.  The Company is duly qualified

 

7

 

or licensed to do business in California and is in good standing in
each jurisdiction where the character of its properties owned or leased or the
nature of its activities would require it to be so qualified or registered,
except where the failure to do so would not have a Material Adverse Effect on
the Company.

 

(b)                                 The Company has
delivered to the Investors or their representatives true and complete copies of
the Company’s certificate of incorporation and bylaws, as amended and in effect
on the date hereof and on the Closing Date. 
The Company is not in violation of its certificate of incorporation or
bylaws.  The minute books of the Company,
as previously made available to Investor, contain accurate records of all
meetings of and resolutions of, or written consents by, the stockholders or
Board of Directors of the Company since November 16, 2001.

 

3.2                                 Authority.

 

(a)                                  The Company has
all requisite power and authority (corporate or otherwise) to execute and
deliver this Agreement, to perform fully its obligations under this Agreement,
and to consummate the transactions contemplated by this Agreement and the
Ancillary Agreements.  The execution and
delivery by the Company of this Agreement and the Ancillary Agreements, and the
consummation of the transactions contemplated hereby and thereby, have been
duly authorized by all requisite corporate action of the Company, its officers,
directors and stockholders.  The Company
has duly executed and delivered this Agreement. 
This Agreement is a legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors’ rights and to general
principles of equity.

 

3.3                                 Capital Stock of
the Company.

 

(a)                                  Authorized and
Outstanding Shares.  Immediately
prior to the Initial Closing, the authorized capital stock of the Company is
27,500,000 shares consisting of:

 

(i)                                     Common Stock.  25,000,000 shares
of common stock, $0.0001 par value per share (the “Common Stock”), of which 6,437,443
shares are issued and outstanding, and 500,000 shares are reserved for issuance
as vested shares of restricted stock pursuant to the Incentive Plan, which are issuable
on satisfaction of certain conditions.

 

(ii)                                  Preferred Stock.    2,500,000 shares of preferred stock,
par value $0.0001 per share of which 1,000,000 shares have been designated
Series A Redeemable Preferred Stock and 1,000,000 shares have been
designated Series A-1 Convertible Preferred Stock, and of which no shares
are issued and outstanding.

 

(b)                                 Rights to
Purchase Securities.  Immediately
prior to the Closing, the following rights to purchase securities of the
Company are outstanding:

 

(i)                                     Options to
purchase 1,723,652 shares of Common Stock pursuant to the Incentive Plan,
having a weighted average exercise price of $5.10, and none of

 

8

 

such options has an exercise price below
$3.00 per share.  An additional 776,348 shares
of Common Stock are reserved for issuance under the Incentive Plan.

 

(ii)                                  Warrants to
purchase an aggregate of 1,218,714 shares of Common Stock, at a weighted
average exercise price of $7.13 per share, for each of which warrants the
holder, the number of underlying shares of Common Stock, the exercise price and
the expiration date is set forth on Schedule 3.3(b) to this
Agreement.

 

(c)                                  No Common Stock
constitutes treasury stock.

 

(d)                                 Except as
provided in Section 3.3(b) and Schedule 3.3, there are no
outstanding subscriptions, options, rights, warrants, stock-based or
stock-related awards, convertible, exercisable or exchangeable securities, or
other agreements or commitments obligating the Company to issue, grant, award,
purchase, acquire, sell or transfer any shares of the Company’s capital stock
of any class, or other securities of the Company (including any agreement or
commitment obligating the Company to enter into any employee compensation
arrangement based on any valuation or transaction price of, or change of
ownership in, shares of its capital stock). 
There are no voting trusts, proxies or other agreements or
understandings to which the Company or any of its management or affiliates is a
party with respect to the voting of capital stock.

 

(e)                                  All of the
issued and outstanding shares of Common Stock of the Company are validly
issued, fully paid and nonassessable.

 

(f)                                    When issued to
the Investors against payment in full of the aggregate Purchase Price, the
Shares will be validly issued, fully paid and non-assessable and will have the
rights, preferences and privileges described in the Certificate of Designation;
the Conversion Shares have been duly and validly reserved and, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable; and the Shares and Conversion Shares will be free of
any liens or encumbrances; provided, however, that the Shares and
Conversion Shares may be subject to restrictions on transfer under state and/or
federal securities laws and as set forth herein and in the Ancillary
Agreements.  The Shares are not subject
to any preemptive rights or rights of first refusal except as set forth in this
Agreement

 

3.4                                 No
Conflicts.  The execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby, do not and will not conflict with or result
in a violation of or a default under (with or without the giving of notice or
the lapse of time or both), or result in the acceleration of or give rise in
any party the right to terminate, modify or cancel, or result in the loss of
any rights, privileges, options or alternatives, or result in the creation of
any Lien on any of the material properties or assets of the Company, under any
of the following: (i) the certificate of incorporation or bylaws of the
Company, (ii) any Applicable Law applicable to the Company or any of its
properties or assets, or (iii) any material Contract to which the Company is
a party or by which the Company or any of its material property is bound.  Except for securities notice filings that
have been made prior to the date hereof or that will be made by the Company
promptly hereafter, no Governmental Approval or other Consent is required to be
obtained or made by the Company in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated by this
Agreement.

 

9

 

3.5                                 Reporting
Status.  Except as set forth
in Schedule 3.5, the Company has filed all documents that the
Company was required to file under the Exchange Act during the 12 months up to
the date of this Agreement (such filings, including all exhibits, supplements
and amendments thereto, the “SEC Documents”). 
The SEC Documents and all other materials filed with the SEC during such
period complied in all material respects with the requirements of the Exchange
Act, and the applicable rules and regulations of the SEC thereunder, as of
their respective filing dates, and the information contained therein as of the
date thereof did not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading

 

3.6                                 Financial
Statements.  The Company has
delivered to each Investor the audited balance sheet and the statements of
income, cash flows and stockholders’ equity of the Company as of, and for the
fiscal year ended, October 2, 2004 (collectively, the “Financial
Statements”).  The Financial Statements
have been prepared in accordance with GAAP consistently applied and fairly
present the financial condition and results of operations of the Company as at
and for the periods specified therein.

 

3.7                                 Absence of
Undisclosed Liabilities. 
Except as set forth in the Financial Statements or Schedule 3.7,
the Company has no debts, claims, liabilities or obligations of any nature,
whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due, asserted or unasserted, the enforcement of which
would cause a Material Adverse Effect.

 

3.8                                 Subsidiaries.  The Company does not presently own or
control, directly or indirectly, any equity interest in any corporation,
association or business entity.

 

3.9                                 Taxes.  Except as set forth in Schedule 3.9:

 

(a)                                  The Company has
duly and timely filed all Tax Returns with respect to Taxes required to be
filed on or before the Closing Date.  All
such tax returns are true and complete in all material respects.  All other taxes owed by the Company (whether
or not shown on any Tax Return) have been duly paid.  The Company has not extended or otherwise
waived the benefit of any applicable statute of limitations or agreed to any
extension of time with respect to a Tax assessment or deficiency.

 

(b)                                 The Company has
withheld all required amounts in respect of Taxes from its employees, agents,
contractors and nonresidents and, to the extent required, has remitted such
amounts to the proper agencies.

 

(c)                                  There is no
dispute or claim concerning any Tax Liability of the Company either
(i) claimed or raised by any Governmental Authority in writing, or
(ii) as to which the Company has Knowledge.  The Company has delivered to Investor correct
and complete copies of all federal, state, local and foreign income Tax
Returns, examination reports, and statements of deficiencies assessed against
or agreed to by the Company since the date of the formation of the Company.

 

10

 

(d)                                 The Company is
not a “foreign person” within the meaning of Section 1445(b)(2) of the
Code.

 

3.10                           Absence
of Changes.

 

Except as set forth in Schedule 3.10,
since October 2, 2004, the Company has not:

 

(a)                                  suffered any
Material Adverse Effect or obtained Knowledge of any event that might
reasonably be expected to cause the Company to suffer a Material Adverse Effect
in the future;

 

(b)                                 incurred,
assumed, guaranteed or discharged any additional, obligation or liability,
absolute, accrued, contingent or otherwise, whether due or to become due, or
any additional indebtedness (including any Debt), except current liabilities
for trade or business obligations incurred in connection with the purchase of
goods or services in the ordinary course of business consistent (in amount and
kind) with prior practice, any of which exceeds $50,000 (counting obligations
or liabilities arising from a series of related transactions as a single
obligation or liability);

 

(c)                                  mortgaged,
pledged or subjected to any other Lien, any property, business or assets of the
Company, tangible or intangible;

 

(d)                                 sold,
transferred, leased to others or otherwise disposed of any material assets,
except for products of the Company sold in the ordinary course of business
(consistent with past practice), or canceled or compromised any debt or claim,
or waived or released any right of substantial value;

 

(e)                                  received any
notice of termination of any Contract;

 

(f)                                    suffered any
damage, destruction or loss (whether or not covered by insurance) that exceeds,
either in any case or in the aggregate of $50,000;

 

(g)                                 transferred or
granted any rights under, or entered into any settlement regarding the breach
or infringement of, any Intellectual Property, or modified any existing rights
with respect thereto;

 

(h)                                 made any change
in the rate of compensation, commission, bonus or other direct or indirect
remuneration payable, or paid or agreed or orally promised to pay,
conditionally or otherwise, any bonus, incentive, retention or other
compensation, retirement, welfare, fringe or severance benefit or vacation pay,
to or in respect of any employee, director, consultant, distributor or agent of
the Company;

 

(i)                                     made any change
in the accounting or auditing methods, practices or principles of the Company;

 

(j)                                     revalued in any
material respect any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable, other than in the
ordinary course of business consistent with past practice;

 

11

 

(k)                                  permitted any
insurance policy naming it as a beneficiary or a loss payable payee to be
cancelled or terminated;

 

(l)                                     encountered any
labor union organizing activity, had any actual or threatened employee strikes,
work stoppages, slowdowns or lockouts, or had any material change in its
relations with its employees, distributors, agents, customers or suppliers;

 

(m)                               except as
expressly required by this Agreement, entered into any Contract (as defined
below).

 

(n)                                 paid or agreed
to pay any legal, accounting, brokerage, finder’s fee, Taxes or other expenses
in connection with, or incurred any severance pay obligations by reason of,
this Agreement or the transactions contemplated by this Agreement;

 

(o)                                 made any grant
of credit to any customer or distributor on terms or in amounts more favorable
than in the ordinary course of business;

 

(p)                                 amended its
charter or bylaws or merged with or into or consolidated with any other Person,
subdivided, combined or in any way reclassified any shares of its capital stock
or changed or agreed to change in any manner the rights of its outstanding
capital stock or the character of its business;

 

(q)                                 made any
declaration of, or set aside or paid, any dividend or other distribution
(whether in cash, stock or other property) with respect to the capital stock of
the Company, or issued, pledged or sold any shares of capital stock of the
Company, or any other securities or rights, convertible into or exchangeable
for or conferring the right to purchase shares of capital stock of the Company
(or entered into any agreement, arrangement or other understanding to do the
same) or directly or indirectly purchased, redeemed, retired or otherwise acquired
any shares of capital stock of the Company or other securities convertible
into, exchangeable for or conferring the right to purchase shares of capital
stock of the Company (or entered into any agreement, arrangement or other
understanding to do the same), other than options granted pursuant to the
Incentive Plan;

 

(r)                                    terminated the
employment of any officer or key employee, or received any resignation or
notice of resignation from any officer or key employee; or

 

(s)                                  taken any
action or omitted to take any action that would result in the occurrence of any
of the foregoing.

 

3.11                           Litigation.  Except as set forth in Schedule 3.11:

 

(a)                                  There is no
action, claim, demand, suit, proceeding, arbitration, grievance, citation,
summons, subpoena, inquiry or investigation, civil, criminal, regulatory or
otherwise, in law or in equity, pending and served or threatened against or
relating to the Company.

 

(b)                                 There are no
material judgments unsatisfied against the Company or consent decrees or
injunctions to which the Company is subject.

 

12

 

(c)                                  There is no
action, claim, suit or proceeding pending, or, to the Company’s Knowledge,
threatened, by or against or affecting the Company in connection with or
relating to the transactions contemplated by this Agreement or of any action
taken or to be taken in connection herewith or the consummation of the
transactions contemplated by this Agreement.

 

(d)                                 Since November 16,
2001, the Company has received no notice of any product liability claims,
suits, actions or proceedings, or any written threats related to any of the
foregoing involving the Company, relating to products or services manufactured,
sold or provided by the Company.

 

3.12                           Compliance with Laws;
Governmental Approvals and Consents.  Except as set forth in Schedule 3.12:

 

(a)                                  The Company has
complied in all material respects with federal and California securities laws.

 

(b)                                 The Company has
complied in all material respects with all other Applicable Laws.

 

(c)                                  No Governmental
Approvals and other Consents are necessary for, or otherwise material to, the
conduct of the business of the Company, except as have been obtained.

 

(d)                                 No consent,
approval or authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Shares (and the Conversion Shares), or the consummation of any other
transaction contemplated hereby, except (a) filing of the Certificate of
Designation, (b) qualification (or taking such action as may be necessary
to secure an exemption from qualification, if available) of the offer and sale
of the Shares (and the Conversion Shares) under applicable Blue Sky laws, and
(c) filing of Form 8-K and such other filings as may be required
under the Exchange Act, which filings and qualifications, if required, will be
accomplished in a timely manner.

 

3.13                           Assets.

 

(a)                                  Owned Real
Property.  Schedule 3.13(a)
sets forth a complete list of the real property owned by the Company (the “Owned
Real Property”).

 

(b)                                 Leases.  (i)  The Leases are in full force and
effect and constitute legal and binding obligations of the Company and the
other parties thereto, enforceable according to their terms; (ii) the
Company is not in default under any of the Leases; (iii) to the Knowledge
of the Company, no other party to any of the Leases is in default thereunder;
and (iii) there exist no conditions which, with notice or lapse of time,
or both, would constitute a default under any of the Leases.

 

(c)                                  Title to Assets.  Except for the liens set forth on Schedule 3.13(c)
(the “Permitted Liens”), the Company has good, marketable and valid
title to all of its assets and interests in assets, whether real, personal,
mixed, tangible, and intangible, and all the assets and interests in the assets
of the Company are free of any Liens.

 

13

 

(d)                                 Business.  The assets owned by the Company are
sufficient for the continued conduct of the business by the Company after the
Closing as such business is presently conducted.

 

3.14                           Contracts.

 

(a)                                  Except for the
agreements expressly contemplated hereby, and except as set forth in Schedule 3.14,
there are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company is a
party or, to its Knowledge, by which it is bound which may involve (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $20,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business),
(ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company, (iii) the grant of rights to manufacture,
produce, assemble, license, market or sell the Company’s products or affect the
Company’s exclusive right to develop, manufacture, assemble, distribute, market
or sell its products, or (iv) any agreements understandings or proposed
transactions between the Company and any of its officers, directors, affiliates
or any affiliate (including relatives) thereof (each agreement falling under
(i) through (iv) above, a “Contract”, and collectively the “Contracts”). Schedule 3.14 sets
forth a list of all such Contracts, and all of the Contracts are in full force
and effect.

 

(b)                                 The Company has
delivered or made available to Investor true and complete copies of all
Contracts material to the business or properties of the Company, together with
all amendments thereto.

 

(c)                                  There does not
exist under any Contract any event of default or event or condition that, after
notice or lapse of time or both, would constitute a material violation, breach
or event of default thereunder by any party to any of such Contract.  Each Contract is a legal, valid, binding and
enforceable obligation of the Company and, to the Knowledge of the Company, the
other parties thereto, subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors’ rights and general principles of equity.

 

3.15                           Product
Warranties.  Except as set
forth on Schedule 3.15, (i) there are no warranties express or
implied, written or oral, with respect to the products or services of the
Company, and there are no pending, or to the Knowledge of the Company,
threatened claims with respect to any such warranty; (ii) during the past
three years, the Company has not had a claim against it for a product it has
warranted and does not reserve for such warranty claims; and (iii) the
Company has no Knowledge of any facts that might lead to an increase in
warranty claims in the future.

 

3.16                           Intellectual
Property.  Except as set forth
in Schedule 3.16:

 

(a)                                  All
Intellectual Property necessary for the business of the Company as presently
conducted and as presently proposed to be conducted is either owned by the
Company or used pursuant to a valid license, which is not currently terminable
due to any breach or noncompliance by the Company, and which shall not be
adversely affected by the transactions

 

14

 

contemplated herein.  No
Intellectual Property owned by the Company is subject to any Lien in favor of
any third party and the Company owns all right, title and interest therein and
thereto.  Schedule 3.16 contains a
complete list of the Company’s patents, copyrights and trademarks.

 

(b)                                 No claims with
respect to any Intellectual Property have been asserted or threatened by any
Person (i) against the Company, or (ii) against any other Person
based on its permitted use of any of the Company’s Intellectual Property which,
in either case, could result in a Material Adverse Effect if determined
adversely to the Company.  The Company
has not made use of, or permitted use of, its Intellectual Property by any
Person in violation of the Intellectual Property of any other Person, and no
valid grounds exist for any bona  fide claims against the Company
or any Person permitted by the Company to use its Intellectual Property with
respect to any Intellectual Property. 
Without limiting the generality of the foregoing, no Person employed or
otherwise engaged by the Company has asserted or threatened any claim against
the Company relating to any Intellectual Property.  All granted and issued patents, copyright
registrations, and registered trademarks and service marks and all copyrights
held by the Company are valid, enforceable and subsisting.  There has not been, nor is there presently,
any unauthorized use, infringement or misappropriation of any of its
Intellectual Property by any Person.

 

(c)                                  No Intellectual
Property of the Company is subject to any outstanding order, award, decision,
injunction, judgment, decree, stipulation or agreement in any manner
restricting the transfer, use, enforcement or licensing thereof by the
Company.  The Company has not entered
into any agreement to indemnify any other Person against any charge of infringement
of any Intellectual Property.  The
Company has not entered into any agreement granting any third party the right
to bring infringement actions with respect to, or otherwise to enforce rights
with respect to, any Intellectual Property. 
The Company has the exclusive right to file, prosecute and maintain all
applications and registrations with respect to the Intellectual Property.

 

(d)                                 The Company has
taken all reasonable and necessary steps to protect its material Intellectual
Property and its rights thereunder, and no rights to material Intellectual
Property have been lost or are in jeopardy of being lost.  The Company has paid all fees, annuities and
all other payments which have heretofore become due to any governmental or
regional authority with respect to its Intellectual Property and has taken all
steps reasonable and necessary to prosecute and maintain the same.

 

(e)                                  The Company has
not transferred its title in or to any Intellectual Property.  No Intellectual Property has been supplied by
the Company to any Person except pursuant to a binding license prohibiting
further distribution and disclosure.  A
list of all such license agreements is provided in Schedule 3.16.

 

(f)                                    Each employee
and consultant of the Company has executed a form of employee’s or consultant’s
invention and proprietary information agreement, as the case may be,
substantially the same as one of the forms provided to Investor.  The Company is not aware that any employees
or consultants are in violation thereof, and the Company will use its
commercially reasonable efforts to prevent any such violation.

 

15

 

(g)                                 No current or
former employee, independent contractor or consultant has asserted any interest
in any Intellectual Property of the Company, nor, to the Knowledge of the
Company, does any such person or any other Person have such an interest.  To the Knowledge of the Company, none of the
Company’s employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company’s business as presently
conducted.  To the Knowledge of the
Company, neither the execution nor delivery of this Agreement or the Ancillary
Agreements, nor the carrying on of the Company’s business by the employees of
the Company, will conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated.

 

(h)                                 The execution,
delivery and performance by the Company of this Agreement and the consummation
of the transactions contemplated hereby, will not result in the loss or
impairment of, or give rise to any right of any third party to terminate or
materially alter, any of the Company’s material rights to own any of its
Intellectual Property or its material rights to use the Intellectual Property
of others.

 

3.17                           Insurance.  Schedule 3.17 contains a true and
complete list of all insurance policies maintained by the Company.  No notice of cancellation, termination, or
reduction of coverage, and no notice of intention to cancel, terminate or
reduce coverage, under any of such policies has been received.  Such policies are in full force and effect,
and all premiums due thereon have been paid.

 

3.18                           Environmental
Matters.

 

(a)                                  Compliance with
Environmental Law.  Except as
described on Schedule 3.18(a) or where failure to comply would not have a
Material Adverse Effect, the Company is and has been in compliance with all
applicable Environmental Laws and no violation by the Company of any applicable
Environmental Law has been alleged.

 

(b)                                 Other
Environmental Matters. 
Except as described on Schedule 3.18(b) or  where such action or condition would not
cause a Material Adverse Effect, the Company has not caused or taken any action
that resulted in, and the Company is not subject to, any liability or
obligation relating to (i) the environmental conditions on, under, or
about the Owned Real Property or other properties or assets owned, leased,
operated or used by the Company, including the air, soil and groundwater
conditions at such properties, or (ii) the use, management, handling,
transport, treatment, generation, storage, disposal or Release of any Hazardous
Substances by the Company.

 

(c)                                  No Hazardous
Substances.  The Company
has not purchased, stored or used Hazardous Substances other than those
associated with normal operations.

 

(d)                                 No Proceedings.  Except as described in Schedule 3.18(d),
the Company has not received notice or other communication concerning any
alleged liability for Environmental Liabilities and Costs in connection with
any Owned Real Property or, to the

 

16

 

Company’s Knowledge, other property used by the Company in the course
of its operations, and there exists no writ, injunction, decree, order,
judgment, lawsuit, claim, proceeding, citation, directive, or summons, pending
or threatened, relating to any environmental matters with respect to any Owned
Real Property.

 

3.19                           Employees,
Labor Matters, etc.  Except
as set forth in Schedule 3.19:

 

(a)                                  The Company is
not a party to or bound by any collective bargaining agreement and there are no
labor unions or other organizations representing, purporting to represent or
attempting to represent any employees of the Company.  During the past three years, no material
strike, slowdown, picketing, work stoppage, concerted refusal to work overtime
or other similar labor activity by employees of the Company has occurred nor,
to the Knowledge of the Company, is any such action threatened.  The Company has no Knowledge of any labor
disputes currently subject to any grievance procedure, arbitration or
litigation or any representation petition pending or threatened with respect to
any employee of the Company.  The Company
has no Knowledge that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing.

 

(b)                                 The employment
of all employees of the Company is terminable at will, with or without cause,
and without the Company thereby incurring liability for severance or otherwise.

 

3.20                           Investors’
Percentage Ownership. 
Immediately following the Initial Closing, the Investors’ aggregate, fully
diluted ownership interest in the Company’s capital stock on a fully diluted
basis, treating as exercised or converted all outstanding options, warrants (including
the Warrant to be issued to W.R. Hambrecht + Co.) and convertible securities, and
treating all shares authorized for grants under the Incentive Plan as
outstanding, but excluding the Performance Warrants (the “Ownership Percentage”)
shall be thirty-four and 48/100ths percent (34.48%).  If a Subsequent Closing occurs, Schedule 3.20
shall set forth the Ownership Percentage of the Additional Investors and all
Investors immediately following such Subsequent Closing.

 

3.21                           Brokers,
Finders, etc.   Other than the
Company’s engagement of W.R. Hambrecht + Co., the Company has not engaged
a broker, dealer or finder in connection with negotiations relating to this
Agreement, and the transactions contemplated by this Agreement have been
carried on without the participation of any Person acting on behalf of the
Company in a manner that would give rise to any material, valid claim against
an Investor for any brokerage or finder’s commission, fee or similar
compensation.  The Company’s liability to
W.R. Hambrecht + Co. is as set forth in their engagement letter with the
Company, dated April 16, 2004, a copy of which has been provided to the
Investors.

 

3.22                           Dealings
with Affiliates. 
Except as set forth in Schedule 3.22, the Company is not a
party to any contracts, arrangements or other agreements (written or oral)
involving an annual receipt or expenditure of $60,000 or more between the
Company and any stockholder, employee, consultant, officer or director of the
Company, any partnership, corporation or other entity owned or operated by any
such party or any relative(s) of any such party or any Affiliates to be now in
effect.  The Company heretofore has
delivered or made available to Investor true

 

17

 

and complete copies (or a detailed summary in the case of an oral
agreement) of each such contract, arrangement or other agreement.

 

3.23                           Territorial Restrictions.  Except as set forth in Schedule 3.23,
the Company is not restricted by any agreement or understanding with any other
Person from carrying on its business anywhere in the world.

 

3.24                           Effect
of Transaction.  Except
as set forth in Schedule 3.24, no creditor, employee, consultant or
customer or other Person having a business relationship with the Company has
informed the Company that such Person intends to change the relationship
because of the purchase and sale of the Shares, nor is the Company aware of any
such intent.

 

3.25                           Antitakeover
Provisions.  Neither
the Company’s execution, delivery and performance of this Agreement and the
Investors’ Rights Agreement, nor the terms of the Certificate of Designation,
violates any “fair price,” “moratorium,” “control share acquisition” or other
form of antitakeover statute, regulation, charter provision or Contract.

 

3.26                           No
Retention Agreements. 
Except as set forth on Schedule 3.26, there are no retention
agreements, severance agreements, change of control agreements and similar
arrangements to which the Company, on the one hand, and any employee,
consultant or other Person, on the other hand, is a party and none of such
agreements will be violated or have any severance or retention clauses
triggered by the consummation of the transactions contemplated in this
Agreement.

 

3.27                           Real
Property Holding Company. 
The Company is not a real property holding company within the meaning of
Section 897 of the Code.

 

3.28                           Affiliated
Group Liability.  The
Company (a) has not been a member of an affiliated group filing a
consolidated income tax return; and (b) has no liability for the Taxes of
any person under Treasury Regulations section 1.1502-6(a) (or any
analogous or similar provision of any state, local or foreign law or
regulation), as a transferee or successor, by contract, or otherwise.

 

3.29                           Registration
Rights.  Except as set
forth in Schedule 3.29, and as provided under this Agreement and the
Ancillary Agreements, the Company has not granted or agreed to grant any
registration rights, including piggy-back rights, to any person or entity.

 

3.30                           Stockholders.  Schedule 3.30 includes a list of
record holders of the Company’s Common Stock (and their respective
shareholdings), at the date of this Agreement.

 

3.31                           No
Intervention.  Except
as set forth in Schedule 3.31, the Company has not received notice
that a third party has taken any action that prevents or may prevent the
Company from continuing its operations or from further developing the
technology contemplated by this Agreement.

 

3.32                           Disclosure.  The Company has provided the Investor with
all of the information that the Investors have requested in writing for
deciding whether to purchase the Shares and all information that the Company
believes is reasonably necessary to enable the Investors to make

 

18

 

such decision.  None of this
Agreement (including all of the exhibits and schedules hereto), any of the
Ancillary Agreements or any other statements or certificates made or delivered
in connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading in light of the circumstances under which they were
made.  Except as set forth in this
Agreement, to the Knowledge of the Company, there is no fact that the Company
has not disclosed to the Investors and of which any of its officers, directors
or executive employees is aware and that has had or would reasonably be
expected to have a Material Adverse Effect. 
In addition, the Company’s most recent financial and revenue plan, a
copy of which has been provided to and reviewed with the Investors, was
prepared in good faith based on the Knowledge of the Company at that time and
as of the date of this Agreement; provided, however, that the Company does not
warrant that it will, in fact, achieve any projections included therein, and, except
as provided in the Performance Warrants, the Company shall have no liability for
any failure to achieve its projected results. 
As of the Closing, to the Company’s Knowledge there are no facts that
would cause, in the Company’s opinion, any modifications in the assumptions
underlying the projections contained in such plans.

 

ARTICLE 4

Representations and Warranties of Investors

 

Each Investor represents and
warrants to the Company as follows:

 

4.1                                 Authorization,
etc.  The Investor has the corporate
power and authority to execute and deliver this Agreement, to perform fully its
obligations hereunder, and to consummate the transactions contemplated by this
Agreement.  The execution and delivery by
Investor of this Agreement, and the consummation of the transactions
contemplated by this Agreement, have been duly authorized by all requisite
corporate action of Investor.  The
Investor has duly executed and delivered this Agreement.  This Agreement is a legal, valid and binding
obligation of Investor, enforceable against it in accordance with its terms,
subject, as to enforceability, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors’ rights
and to general principles of equity.

 

4.2                                 Brokers,
Finders, etc.  All
negotiations relating to this Agreement and the transactions contemplated by
this Agreement have been carried on without the participation of any Person
acting on behalf of the Investor, and no person has participated in such
transactions on behalf of the Investors in such manner as to give rise to any
valid claim against the Company for any brokerage or finder’s commission, fee
or similar compensation.

 

4.3                                 Purchase Entirely
for Own Account.  The
Investor is purchasing the Shares entirely for its own account, not as nominee
or agent, and not with a view to the resale or distribution of any part
thereof, and Investor has no present intention of selling, granting any
participation in, subdividing or otherwise distributing the Shares.

 

4.4                                 Investment
Experience.  The
Investor is an investor in companies in the development stage, can bear the
economic risk of total loss its investment and has such knowledge and
experience in financial or business matters that it is capable of fending for
itself and evaluating the merits and risks of the investment in the Securities.

 

19

 

4.5                                 Disclosure of
Information.  The Investor
believes it has received all the information it considers necessary or
appropriate for deciding whether to purchase the Shares.  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 Shares and the
business, properties, prospects and financial condition of the Company.  The foregoing, however, does not limit or
modify the representations and warranties of the Company set forth in Section 3
of this Agreement or the Investors’ right to rely thereon.

 

4.6                                 Projections.  The Investor recognizes that, except as
provided expressly in this Agreement, neither the Company nor any of its
Affiliates or agents or consultants, including W.R. Hambrecht + Co., has
made any representation or warranty with respect to the future operation of the
Company, its future business or its future financial results upon which the
Investor is relying in entering into this Agreement, or will be relying
subsequent to the Closing Date.  The
Investor further acknowledges, agrees and recognizes that, except as provided
expressly in this Agreement, any projections or other forecasts contained or
referred to in any document provided to the Investor or any of its Affiliates,
or its or their employees, agents or representatives, were prepared for
internal planning purposes only and are not and shall not be deemed to be
representations or warranties of the Company, any of its Affiliates, or any of
their respective agents or consultants.

 

4.7                                 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.

 

4.8                                 Restricted
Securities.  The Investor
understands that because the Investor is acquiring the Shares from the Company
in a transaction not involving a public offering, the Shares will be “restricted
securities” as defined in Rule 144 under the Securities Act.  The Investor also understands that it may
resell restricted securities only pursuant to registration under the Securities
Act or in a transaction exempt from registration under the Securities Act.  In this regard, Investor represents that it
is familiar with Rule 144 under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act, and that the Investor is able, without materially impairing its
financial condition, to hold the Shares for an indefinite period of time.  The Investor acknowledges that all
certificates evidencing the Shares and Conversion Shares will bear restrictive
legends until they may be removed in accordance with Section 6.2(b).

 

ARTICLE 5

Conditions Precedent

 

5.1                                 Conditions to
Obligations of Each Party. 
The obligations of the parties to consummate the transactions at each
Closing shall be subject to the fulfillment on or prior to the relevant Closing
Date of the following conditions:

 

(a)                                  No Injunction, etc.  Consummation of the transactions contemplated
hereby shall not have been restrained, enjoined or otherwise prohibited by any
Applicable Law, including any order, injunction, decree or judgment of any
court or other Governmental Authority. 
No court or other Governmental Authority shall have determined that any
Applicable Law makes illegal the consummation of the transactions contemplated
hereby, and no

 

20

 

proceeding with respect to the application of any such Applicable Law
to such effect shall be pending.

 

(b)                                 Government
Approvals.  All requisite
governmental approvals and authorizations necessary for the consummations of
the transactions contemplated hereby shall have been duly issued or granted and
all applicable waiting periods shall have expired or otherwise been terminated.

 

5.2                                 Conditions to
Obligations of Investors. 
The obligation of each Investor to consummate the transactions at each
Closing shall be subject to the fulfillment (or waiver by the Investor) on or
prior to the Date of such Closing of the following additional conditions:

 

(a)                                  Representations;
Performance.  Subject to Section 5.2(l),
each of the representations and warranties of the Company contained in this
Agreement shall be true in all material respects, in each case on the date
hereof and at and as of each Closing Date, as though made on and as of such
Closing Date. The Company shall have duly performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement and the Ancillary Agreements to be performed or complied with by
it prior to each Closing Date.

 

(b)                                 Consents.  The Company shall have obtained and shall
have delivered to the Investors or their representatives copies of all
Governmental Approvals and Consents required to be obtained by the Company in
connection with the execution and delivery of the Agreement and the
consummation of the transactions contemplated hereby, including any consents,
waivers or approvals of existing stockholders.

 

(c)                                  Certificate of
Designation.  The
Certificate of Designation in the form attached hereto as Exhibit A shall
have been filed with and accepted by the Secretary of State of the State of
Delaware.

 

(d)                                 Corporate
Proceedings.  All
corporate and other proceedings of the Company in connection with this
Agreement, the Ancillary Agreements and the transactions contemplated hereby
and thereby, and all documents and instruments incident thereto, shall be
satisfactory in form and substance to Investors and their counsel, and the
Investors and their counsel shall have received all such documents and
instruments, or copies thereof, certified if requested, as may be reasonably
requested at least 24 hours prior to any Closing.

 

(e)                                  Certificate of
Status.  The Investors or their
representatives shall have received copies of (i) the Certificate of
Incorporation, as amended through the Closing Date, of the Company, certified
as of a recent date by the Secretary of State of the State of Delaware,
(ii) a certificate of good standing for the Company from the Secretary of
State of the State of Delaware, as of a recent date, (iii) certificates of good
standing for the Company from the Secretary of State of the State of California
and the California Franchise Tax Board and (iv) a copy of the bylaws of
the Company, as in effect on the Closing Date, certified by the Secretary of
the Company.

 

(f)                                    Certificates
for Shares.  The Company
shall have provided to the Investors or their representatives for inspection
certificates representing the Shares, registered in the names and the numbers
set forth on Schedule I or Schedule II, duly executed by the Company.

 

21

 

(g)                                 No Material
Adverse Change.  Except as
set forth in Schedule 3.11, since October 2, 2004, there shall not
have occurred any Material Adverse Effect.

 

(h)                                 Officer’s
Certificates.  The Company
shall have delivered to the Investors certificates, dated the Closing Date and
signed by its chief executive officer and secretary, in the form of Exhibit B
hereto, certifying the facts set forth in Section 5.2(a), Section 5.2(b)
and Section 5.2(d) and certifying the fulfillment of the other
conditions precedent.

 

(i)                                     Opinion of
Counsel.  The Company shall have
delivered to the Investors an opinion of counsel to the Company in a form
reasonably acceptable to the Investors.

 

(j)                                     Ancillary
Agreements. The Company shall have executed and delivered the
Ancillary Agreements and indemnification agreements on the Company’s standard
form for the three persons designated by the Investors to serve as the Series A
and Series A-1 Directors.

 

(k)                                  Resignation of
Directors.  Prior to
the Initial Closing, Michael Andrews II, Daniel E. Armel and William Howard
shall have signed and delivered to the Board of Directors of the Company letters
of resignation, to be effective on the business day following the Company’s
filing with the SEC of its Annual Report on Form 10-KSB.

 

(l)                                     Appointment of
Directors.  Effective on
the business day following the Company’s filing with the SEC of its Annual Report
on Form 10-KSB, and subsequent to the effective time of the resignation of the
directors listed in Section 5.2(l) above, Jose Suarez (the Series A-1
Director), Barry Waite and Eric Sigler (each a Series A Director) shall have
been appointed to the Board of Directors.

 

(m)                               Amendment to
Bylaws.  The Board of Directors of the
Company shall have amended the Bylaws of the Company, and the Secretary shall
have certified the same, to read substantially in the form attached hereto as Exhibit G.

 

(n)                                 Amendment to
Amended and Restated Certificate of Incorporation.  The Board of Directors of the Company shall
have adopted (and not rescinded) a resolution that (a) approves the amendment
of the Company’s Amended and Restated Certificate of Incorporation (the “Certificate”)
to add a new sentence to the end of Article 5 thereof reading as follows, “Any
director may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote for the election of such director,” and (b)
directs the officers and management of the Company to include the amendment as
a proposal in the Company’s Proxy Statement for the 2005 Annual Meeting of
Stockholders.

 

(o)                                 Updated
Disclosure Schedules at Subsequent Closing.  On the date of any Subsequent Closing, the
Company shall deliver updated disclosure schedules to make the representations
and warranties of the Company true and complete as of the date of such
Subsequent Closing (the “Bringdown Schedules”). 
The consummation by an Investor of the Subsequent Closing shall
constitute the Investor’s acceptance of the representations and warranties as
modified by the Bringdown Schedules, and the Investor’s waiver of any remedy
for changes in the representations and warranties from those made on the date
hereof to those made on the date of such Subsequent Closing.

 

22

 

5.3                                 Conditions to
Obligations of Company. 
The obligation of Company to deliver the Shares and to consummate the
transactions at each Closing shall be subject to the fulfillment (or waiver by
the Company), on or prior to the Closing Date, of the following additional
conditions:

 

(a)                                  Payment of
Consideration.  The
Investors shall have delivered the full Purchase Price for the Shares.

 

(b)                                 Representations;
Performance.  Each of the
representations and warranties of Investor contained in this Agreement shall be
true, in each case on the date hereof and at and as of the Closing Date as
though made on and as of the Closing Date. 
The Investors shall have duly performed and complied in all material
respects with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or on the Closing Date.

 

ARTICLE 6

Covenants

 

6.1                                 Mutual Covenant,  Public Announcements.  The Company and the Investors shall cooperate
in making a public announcement of the transactions contemplated by this
Agreement.  Neither the Company nor any
Investor shall make any public announcement of this Agreement, or the
transactions contemplated by this Agreement, without the consent of IGC and
BAVP VII, L.P. (“BAVP”) and the Company, which consent shall not be
unreasonably withheld.  Notwithstanding
the foregoing, any party hereto may make such disclosures concerning the
transactions contemplated by this Agreement as may be required by Applicable
Law, provided the other parties receive a description of the disclosures and a
reasonable time to comment prior to public dissemination.  In this regard, each Investor acknowledges
that promptly after the Initial Closing the Exchange Act and the rules
promulgated thereunder will require the Company to file with the SEC, and make
publicly available, the Transaction Documents, including all exhibits and
schedules thereto, as an Exhibit to a Current Report on Form 8-K.  The Company acknowledges that the Investors
may make comparable filings on Schedule 13D or Schedule 13G, as
appropriate.

 

6.2                                 Covenants
of the Company.

 

(a)                                  Further
Assurances.  Following
the Closing, the Company shall, from time to time, execute and deliver such
additional instruments, documents, conveyances or assurances and take such
other actions as shall be necessary, or otherwise reasonably requested by an
Investor, to confirm and assure the rights and obligations provided for in this
Agreement and the Ancillary Agreements and render effective the consummation of
the transactions contemplated by this Agreement and the Ancillary Agreements.

 

(b)                                 Removal of
Legends.  Any legend endorsed on a
certificate pursuant to Section 6.3(b) hereof shall be removed upon
transfer (i) if the Shares or Conversion Shares evidenced by the
certificate have been sold pursuant to registration under the Securities Act or
otherwise lawfully sold in a public transaction, or (ii) if the holder of
such securities shall have provided the Company with an opinion of counsel, in
form and substance acceptable to the Company and from attorneys reasonably
acceptable to the Company, stating that a public sale, transfer or assignment
of such securities may be made without registration.  In addition, the 

 

23

 

Company will remove any such Legend upon request of an investor if Rule
144(k) is applicable to such securities.

 

(c)                                  Amendment of
Certificate of Incorporation.  The Company shall include the amendment to
the Certificate of Incorporation described in Section 5.2(n) in its Proxy
Statement for the 2005 Annual Meeting of Stockholders, shall solicit proxies
for the approval thereof, and shall promptly file the amendment with the
Delaware Secretary of State following approval.

 

6.3                                 Covenants
of Investor.

 

(a)                                  Further
Assurances.  Following
the Closing, each Investor shall, from time to time, execute and deliver such
additional instruments, documents, conveyances or assurances and take such
other actions as shall be necessary, or otherwise reasonably requested by the
Company, to confirm and assure the rights and obligations provided for in this
Agreement and the Ancillary Agreements and render effective the consummation of
the transactions contemplated by this Agreement and the Ancillary Agreements.

 

(b)                                 Legends.  Each certificate evidencing any of the Shares
or Conversion Shares shall be endorsed with legends substantially as set forth
below, and Investor covenants that, except to the extent such restrictions are
waived by the Company or the legends may be removed under Section 6.2(b),
Investor shall not transfer such securities without complying with the
restrictions on transfer described in the legends endorsed thereon:

 

(i)                                     The following
legend under the Securities Act:

 

“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.”

 

(ii)                                  If required by
the authorities of any state in connection with the issuance or sale of the
Shares or Conversion Shares, the legend required by such state authority.

 

(c)                                  At the Company’s
expense, each Investor agrees to file in a timely manner any Schedule 13D
or 13G required under Section 13(d) of the Exchange Act and any report
required under Section 16(a) of the Exchange Act.

 

24

 

ARTICLE 7

Indemnification

 

7.1                                 Company
Indemnification.

 

(a)                                  The Company hereby agrees to hold harmless and indemnify the Investors,
the Investors’ direct and indirect subsidiaries, affiliated entities and
corporations, and each of their partners, officers, directors, employees,
stockholders, agents, affiliates and representatives (individually an “Indemnified
Party” and, collectively, the “Indemnified Parties”) against any and all
reasonable expenses (including reasonable attorneys’ fees, to be reimbursed
promptly as incurred), damages, judgments, fines, amounts paid in settlements,
or any other amounts that an Indemnified Party incurs as a result of any claim
or claims made against it in connection with any threatened, pending or
completed action, suit, arbitration, investigation or other proceeding arising
out of, or relating to the Investors’ actions in connection with the purchase
by the Investors, or any of them, of Shares or in connection with any other
transactions consummated or contemplated hereunder; provided, however, that no
Indemnified Party shall be entitled to be held harmless or indemnified by the
Company for acts, conduct or omissions as to which there has been a final
adjudication that such Indemnified Party engaged in intentional misconduct or
in knowing and culpable violation of the law. 
The parties acknowledge that the undertakings made by the Company in
this Section 7.1 are a material inducement to the Investors who would not
purchase any Shares hereunder without such an undertaking on behalf of the
Company.  Each Indemnified Party is an
intended third party beneficiary of this Section 7.1 and may enforce it
against the Company as if a party hereto.

 

(b)                                 Each Indemnified Party shall notify the Company in writing of any
action against such Indemnified Party entitled to be indemnified pursuant to Section 7.1(a)
in respect of which the Company is or may be obligated to provide
indemnification on account of Section 7.1(a) promptly after the receipt of
notice of the commencement thereof.  The
omission of any Indemnified Party so to notify the Company of any such action
shall not relieve the Company from any liability which the Company may have to
such Indemnified Party except to the extent (and only the extent) the Company
shall have been materially prejudiced by the omission of such Indemnified Party
so to notify the Company pursuant to this Section 7.1(b).  In case any such action shall be brought
against any Indemnified Party of which such Indemnified Party shall have
notified the Company, the Company shall be entitled to participate therein and,
to the extent that the Company may wish, to assume the defense thereof, with
counsel selected by the Company and reasonably satisfactory to such Indemnified
Party.  After notice from the Company to
such Indemnified Party of its election so to assume the defense thereof, the
Company will not be liable to such Indemnified Party under Section 7.1(a)
for any legal or other expense subsequently incurred by such Indemnified Party
in connection with the defense thereof nor for any settlement thereof entered
into without the consent of the Company; provided, however, that (i) if
the Company does not elect, or otherwise fails, to assume the defense of such
claim or action or (ii) if the Indemnified Party reasonably determines
(x) that there may be a conflict between the positions of the Company and
of the Indemnified Party in defending such claim or action or (y) that
there may be legal defenses available to such Indemnified Party different from
or in addition to those available to the Company, then separate counsel for the
Indemnified Party shall be entitled to participate in and conduct the defense,
in the case of (i) and (ii)(x), or such different defenses, in the case of
(ii)(y), and the Company shall be liable for any

 

25

 

reasonable legal or other
expenses incurred by the Indemnified Party in connection with the defense, such
expenses to be reimbursed promptly as incurred. 
In the event the Company elects to assume the defense of any claim
tendered in accordance with this Section, the Company shall be solely and
unconditionally responsible for the resolution of such claim, it being
expressly understood that no such defense may be undertaken under a reservation
of rights or with similar limitations or conditions.

 

(c)                                  If for any reason the foregoing indemnification is held unenforceable,
then the Company shall contribute to the loss, claim, damage, liability or
expense for which such indemnification is held unenforceable to the fullest
extent permitted by applicable law.

 

(d)                                 The foregoing indemnification provisions are in addition to, and not in
derogation of, any statutory, equitable or common-law remedy any party may have
for breach of representation, warranty, covenant or agreement.  The Company agrees that, without the prior
consent of the related Investor, which will not be unreasonably withheld, the
Company will not settle, compromise or consent to the entry of any judgment in
any pending claim, threatened claim, action, proceeding or investigation in
respect of which indemnification or contribution could be sought under this Section 7.1
unless such settlement, compromise or consent includes an unconditional release
of each Indemnified Party from all liability arising out of such claim, action,
proceeding or investigation.

 

ARTICLE 8

Miscellaneous

 

8.1                                 Miscellaneous
Expenses.  The Company
share bear its own expenses, costs and fees (including attorneys’ and auditors’
fees and expenses) in connection with the transactions contemplated by this
Agreement, including the preparation, execution and delivery of this Agreement
and compliance herewith, which expenses, costs and fees shall not exceed
$100,000.  Whether or not the
transactions contemplated by this Agreement are consummated, the Company shall
pay the reasonable out-of-pocket expenses incurred by IGC and BAVP in connection
with negotiating the transactions contemplated by this Agreement (including
attorney’s fees and expenses) up to a maximum of $60,000 for IGC and $10,000
for BAVP.  Expenses incurred by IGC in
excess of $60,000 shall be borne exclusively by IGC.  Expenses incurred by BAVP in excess of
$10,000 shall be borne exclusively by BAVP.

 

8.2                                 Severability.  If any provision of this Agreement, including
any phrase, sentence, clause, section or subsection, is inoperative or
unenforceable for any reason, that circumstance shall not render the provision
in question inoperative or unenforceable in any other case or circumstance, and
shall not render any other provision or provisions herein contained invalid,
inoperative, or unenforceable to any extent whatsoever.

 

8.3                                 Notices.  All notices, requests, demands, approvals,
consents, waivers and other communications required or permitted to be given
under this Agreement (each, a “Notice”) shall be in writing and shall be
(a) delivered personally, (b) mailed by 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, in each case
addressed as follows:

 

26

 

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

 

(b)                                 if to the
Company, to:

 

Innovative Micro Technology,
Inc.

75 Robin Hill Rd.

Santa Barbara, CA 
93117

Facsimile:  805-967-2677

Attention:  John Foster, President

 

With a copy (which shall not
constitute notice):

 

Sheppard, Mullin,
Richter & Hampton LLP

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

Facsimile:  (213) 620-1398

Attention:  James J. Slaby, Esq.

 

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

 

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

 

8.5                                 Notification
of Certain Matters.  If
any Investor or the Company shall, prior to the Closing, obtain actual
knowledge of a breach of the representations and warranties made to that party
in this Agreement, then that party shall promptly notify the breaching party of
the breach.  Any party that does not give
notice of such known breach prior to Closing and that elects, notwithstanding
such knowledge, to complete the transactions contemplated in this Agreement,
shall be deemed to have waived any remedy for such breach.

 

8.6                                 Liability
for Transfer Taxes. 
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.

 

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

 

8.8                                 Entire
Agreement.  This
Agreement (including the Schedules and Exhibits hereto) constitutes the entire
agreement between the parties with respect to the subject matter hereof, and

 

27

 

supersedes all prior agreements and understandings, both written and
oral, between the parties with respect thereto.

 

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

 

8.10                           Governing
Law, Jurisdiction and Venue. 

 

(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. 
Each Investor and the Company hereby irrevocably submits to the
jurisdiction of the courts of the State of California, and the federal courts
of the United States of America located in the Central District of California,
in respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement, and hereby waive,
and agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or
is not maintainable in said courts or that the venue thereof may not be
appropriate or that this Agreement or any of such document may not be enforced
in or by those courts, and the parties hereto irrevocably agree that all claims
with respect to such action or proceeding shall be heard and determined in such
a California State Court or federal court. 
Each Investor and the Company hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of any
such dispute and agrees that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 8.3,
or in such other manner as may be permitted by law, shall be valid and
sufficient service thereof.

 

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

 

8.12                           Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns.  For purposes of this Agreement, a “permitted
assign” of an Investor shall mean any person who is a “Permitted Transferee”
under the Rights Agreement.

 

8.13                           No
Third Party Beneficiaries. 
Nothing in this Agreement shall confer any rights upon any Person other
than the parties hereto and their respective heirs, legal representatives,
successors and permitted assigns.

 

8.14                           Amendment;
Waivers, etc.  Any term of this
Agreement may be amended and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of at least a majority of the Common Stock not previously sold
to the public that is issued or issuable upon conversion of the
then-outstanding Shares.  Any amendment
or waiver effected in accordance with this section shall be binding upon
each holder of any securities

 

28

 

purchased under this Agreement at the time outstanding (including
securities into which such securities have been converted), each future holder
of all such securities and the Company. 
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.

 

8.15                           Exculpation
Among Investors.  Each 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.  Each
Investor agrees that no Investor, nor the respective controlling persons,
officers, directors, partners, agents, employees, attorneys or advisors of any
Investor, shall be liable to any other Investor for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the purchase
of the Shares and the transactions contemplated hereunder and under the
Ancillary Agreements.

 

The next page is the signature page.

 

29

 

IN WITNESS WHEREOF, the
parties have duly executed this Preferred Stock Purchase Agreement as of the
date first above written.

 

	
  Company:

  
	
   

  	
   

  
	
  INNOVATIVE
  MICRO TECHNOLOGY, INC.

  
	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ John Foster

  	
   

  
	
   

  	
  John Foster

  
	
   

  	
  President and Chief
  Executive Officer

  
	
   

  	
   

  
	
  Investors:

  
	
   

  	
   

  
	
  INVESTOR GROWTH
  CAPITAL LIMITED

  
	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Lisa Crawford

  	
  , its “A” Director

  
	
   

  	
  Name: Lisa Crawford

  
	
   

  	
  Title: “A” Director

  
	
   

  	
   

  
	
  By:

  	
  /s/ Robert de Heus

  	
  , its “B” Director

  
	
   

  	
  Name: Robert de Heus

  
	
   

  	
  Title: “B” Director

  
	
   

  	
   

  
	
  INVESTOR GROUP L.P.

  
	
   

  	
   

  
	
  By:  
  Investor Group GP LTD., its General Partner

  
	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Lisa Crawford

  	
  , its “A” Director

  
	
   

  	
  Name: Lisa Crawford

  
	
   

  	
  Title: “A” Director

  
	
   

  	
   

  
	
  By:

  	
  /s/ Robert de Heus

  	
  , its “B” Director

  
	
   

  	
  Name: Robert de Heus

  
	
   

  	
  Title: “B” Director

  
	
   

  	
   

  
	
  BAVP VII, L.P.

  
	
   

  	
   

  
	
  By:
  BA Venture Partners VII, LLC

  
	
  its
  General Partner

  
	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Eric M. Sigler

  	
   

  
	
   

  	
  Name: Eric M. Sigler

  
	
   

  	
  Title: Member

  
						

 

30

 

	
  MIRAMAR VENTURE PARTNERS,
  L.P.

  
	
   

  	
   

  
	
  By:

  	
   Miramar Venture Associates, LLC

  its general partner

  
	
   

  
	
  By:

  	
  /s/ Robert R. Holmen

  	
   

  
	
  Name: Robert R. Holmen

  
	
  Title: Member

  
					

 

31

 

Schedule I

 

Investors

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Shares,

  Common

  Stock

  Subject to

  Performance

  Warrant

  	
   

  	
  Paired

  Share

  Purchase

  Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Series A Redeemable

  Preferred Stock

  	
   

  	
  Series A-1 Convertible

  Preferred Stock

  	
   

  
	
  Name and Address for Notices

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Shares

  	
   

  	
  Purchase

  Price

  	
   

  
	
  Shares

  	
   

  	
  Purchase Price

  
	
  Investor Growth Capital Limited

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  National Westminster House

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Le Truchot, St. Peter Port

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GY1 4PW, Guernsey

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Channel Islands

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tel.: +44 1481 732 615

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Facsimile: +44 1481 732 616

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Attention: Wayne Tallowin

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  With a copy (which shall not

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  constitute notice) to:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Benjamin B. Quinones, Esq.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pillsbury Winthrop LLP

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2475 Hanover Street

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Palo Alto, CA 94304-1114

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Facsimile: (650) 233-4545

  	
   

  	
  329,412

  	
   

  	
  $

  	
  4,666,680.98

  	
   

  	
  329,412

  	
   

  	
  $

  	
  933,323.02

  	
   

  	
  164,706

  	
   

  	
  $

  	
  5,600,004

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Investor Group L.P.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  National Westminster House

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Le Truchot, St. Peter Port

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GY1 4PW, Guernsey

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Channel Islands

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tel.: +44 1481 732 615

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Facsimile: +44 1481 732 616

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Attention: Wayne Tallowin

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  With a copy (which shall not

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  constitute notice) to:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Benjamin B. Quinones, Esq.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (address as above) .

  	
   

  	
  141,176

  	
   

  	
  $

  	
  1,999,998.04

  	
   

  	
  141,176

  	
   

  	
  $

  	
  399,993.96

  	
   

  	
  70,588

  	
   

  	
  $

  	
  2,399,992

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BAVP VII, L.P.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  950 Tower Lane, Suite 700

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Foster City, CA. 94404

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [FACSIMILE]

  	
   

  	
  352,941

  	
   

  	
  $

  	
  5,000,009.26

  	
   

  	
  352,941

  	
   

  	
  $

  	
  999,987.74

  	
   

  	
  176,471

  	
   

  	
  $

  	
  5,999,997

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Miramar Venture Partners, L.P.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2101 East Coast Hwy., Ste. 300

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Corona del Mar, CA 92625

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Facsimile: (949) 760-4451

  	
   

  	
  176,471

  	
   

  	
  $

  	
  2,500,011.72

  	
   

  	
  176,471

  	
   

  	
  $

  	
  499,995.28

  	
   

  	
  88,235

  	
   

  	
  $

  	
  3,000,007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  1,000,000

  	
   

  	
  $

  	
  14,166,700.00

  	
   

  	
  1,000,000

  	
   

  	
  $

  	
  2,833,300.00

  	
   

  	
  500,000

  	
   

  	
  $

  	
  17,000,000

  	
   

  
																		

 

I-1

 

EXHIBITS

 

	
  Exhibit A

  	
  Form
  of Certificate of Designation

  
	
  Exhibit B

  	
  Form
  of Closing Certificates

  
	
  Exhibit C

  	
  Form
  of Investors’ Rights Agreement

  
	
  Exhibit D

  	
  Form
  of Right of First Refusal and Co-Sale Agreement

  
	
  Exhibit E

  	
  Form
  of Voting Agreement

  
	
  Exhibit F

  	
  Form
  of Performance Warrant

  
	
  Exhibit G

  	
  Form
  of Amendment to Company Bylaws

  

 

SCHEDULES

 

	
  Schedule I

  	
  Investors

  
	
  Schedule II

  	
  Investors
  at Subsequent Closing

  
	
  Schedule 3.3(b)

  	
  Outstanding
  Warrants

  
	
  Schedule 3.7

  	
  Undisclosed
  Liabilities

  
	
  Schedule 3.9

  	
  Taxes

  
	
  Schedule 3.10

  	
  Material
  Adverse Changes

  
	
  Schedule 3.11

  	
  Litigation

  
	
  Schedule 3.12

  	
  Compliance
  with Laws

  
	
  Schedule 3.13(a)

  	
  Real
  Property

  
	
  Schedule 3.13(c)

  	
  Permitted
  Liens

  
	
  Schedule 3.14

  	
  Contracts

  
	
  Schedule 3.15

  	
  Warranties

  
	
  Schedule 3.16

  	
  Intellectual
  Property

  
	
  Schedule 3.17

  	
  Insurance
  Policies

  
	
  Schedule 3.18(a)

  	
  Non-Compliance
  With Environmental Laws

  
	
  Schedule 3.18(b)

  	
  Other
  Environmental Matters

  
	
  Schedule 3.18(d)

  	
  Environmental
  Proceedings

  
	
  Schedule 3.19

  	
  Employees,
  Labor Matters

  
	
  Schedule 3.20

  	
  Investors’
  Ownership Percentage at Subsequent Closing

  
	
  Schedule 3.22

  	
  Dealings
  with Affiliates

  
	
  Schedule 3.23

  	
  Territorial
  Restrictions

  
	
  Schedule 3.24

  	
  Effect
  of Transaction

  
	
  Schedule 3.26

  	
  Retention
  Agreements

  
	
  Schedule 3.29

  	
  Registration
  Rights

  
	
  Schedule 3.30

  	
  Stockholders

  
	
  Schedule 3.31

  	
  No
  Intervention

  

 

I-2

 

EXHIBIT A

Form of Certificate of Designation

 

A-1

 

EXHIBIT B

Form of Closing Certificate

 

B-1

 

EXHIBIT C

Form of Investors’ Rights Agreement

 

C-1

 

EXHIBIT D

Form of Right of First Refusal and Co-Sale Agreement

 

D-1

 

EXHIBIT E

Form of Voting Agreement

 

E-1

 

EXHIBIT F

Form of Performance Warrant

 

F-1

 

EXHIBIT G

Form of Amendment to Company Bylaws

 

G-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00077-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00077-of-00352.parquet"}]]