UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 18, 2008

eMagin Corporation
(Exact name of registrant as specified in its charter)
 
 

 
Delaware  
 
000-24757    
 
56-1764501    
(State or other jurisdiction   
 
(Commission File Number)  
 
(IRS Employer  
 

10500 N.E. 8 th Street, Suite 1400, Bellevue, WA 98004
(Address of principal executive offices and Zip Code)

Registrant's telephone number, including area code (425)-749-3600

Copies to:
Richard A. Friedman, Esq.
Sichenzia Ross Friedman Ference LLP
61 Broadway, 32 nd Floor
New York, New York 10006
Phone: (212) 930-9700
Fax: (212) 930-9725

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




 
Item 1.01 Entry into a Material Definitive Agreement.
 
Pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”) entered into on December 18, 2008 between eMagin Corporation (the “Company”) and  an accredited investor (the “Investor”), on December 22, 2008 (the “Closing”), the Company sold the Investor for an aggregate purchase price of $4,033,000 an aggregate of 4,033 shares of its Series B Convertible Preferred Stock (the “Preferred Stock”), which have a stated value of $1,000 per share, a conversion price of $.75 per share and have the rights and preferences set forth in the Certificate of Designations of Series B Convertible Preferred Stock filed with the Secretary of State for the State of Delaware on December 19, 2008 (the “Certificate of Designations”), and warrants to purchase 1,875,467 shares of common stock at $1.03 per share (the “Warrants”),.  The Warrants terminate on December 22, 2013.

Pursuant to the terms of the Securities Purchase Agreement, the Company used the proceeds from the sale of the Preferred Stock to exclusively to repay $4,033,000 of its Amended and Restated 8% Senior Secured Convertible Notes Due 2008 (the “Notes”) which matured on December 22, 2008.

Pursuant to the Securities Purchase Agreement, the members of the Company’s board of directors, and certain executive officers executed lockup agreements pursuant to which, subject to the terms of the lockup agreement, they are restricted from selling the stock of the Company that they beneficially own for 180 days from the Closing.

On December 22, 2008, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with three holders (“Holders”) of its outstanding Notes.  Pursuant to the Exchange Agreement, on December 22, 2008, the Holders exchanged $1,700,000 of their outstanding Notes and unpaid interest thereon and received 1,706 shares of the Preferred Stock (the amount of the outstanding principal and interest due on the Notes exchanged divided by $1,000).

Pursuant to the Securities Purchase Agreement, the Company filed the Certificate of Designations with the State of Delaware on December 19, 2008.  The Certificate of Designations designates 10,000 shares of the Company’s preferred stock as Series B Convertible Preferred Stock.  The Preferred Stock has a stated value of $1,000 and has a conversion price of $.75 per share.  The Preferred Stock does not pay interest.  The holders of the Preferred Stock are not entitled to receive dividends unless the Company’s Board of Directors declared a dividend for holders of the Company’s common stock and then the dividend shall be equal to the amount that such holder would have been entitled to receive if the holder converted its Preferred Stock into shares of the Company’s common stock.  Each share of Preferred Stock has voting rights equal to (i) the number of shares of Common Stock issuable upon conversion of such shares of Preferred Stock at such time (determined without regard to the shares of Common Stock so issuable upon such conversion in respect of accrued and unpaid dividends on such share of Preferred Stock) when the Preferred Stock votes together with the Company’s Common Stock or any other class or series of stock of the Company and (ii) one vote per share of Preferred Stock when such vote is not covered by the immediately preceding clause.  The Company may at its option redeem the Preferred Stock by providing the required notice to the holders of the Preferred Stock and paying an amount equal to $1,000 multiplied by the number of shares for all of such holder’s shares of outstanding Preferred Stock to be redeemed.

The Company entered into a Registration Rights Agreement with the Investor to register the resale of the shares of the Company’s common stock issuable upon conversion of the Preferred Stock sold in the offering and the shares of common stock issuable upon exercise of the warrants.  Subject to the terms of the Registration Rights Agreement, the Company is required to file a registration statement (the “Registration Statement”) on Form S-1 with the Securities and Exchange Commission (the “SEC”) within 30 days following the date that the Company is permitted to file a registration statement by (i) the rules and regulations of the Securities and Exchange Commission and (ii) the agreements set forth on Schedule B to the Registration Rights Agreement, which as of December 18, 2008 prohibit the Company from filing the initial Registration Statement until certain other registration statements are filed. After filing the Registration Statement, the Company is to cause such Registration Statement to be declared effective under the Securities Act of 1933 (the “Act”) as promptly as possible after the filing thereof, but in no event later than 90 days after the filing date (or no later than 120 days after the filing date in the event of SEC “full review” of the Registration Statement). The holders of Notes that exchanged their Notes pursuant to the Exchange Agreement received the same registration rights as the Investor.
 
Pursuant to the Securities Purchase Agreement, the Company claims an exemption from the registration requirements of the Act for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated thereunder since, among other things, the transaction did not involve a public offering, the investors were accredited investors and/or qualified institutional buyers, the investors had access to information about the Company and their investment, the investors took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

The foregoing descriptions of the Securities Purchase Agreement, Registration Rights Agreement, Certificate of Designations, Warrant and Exchange Agreement do not purport to be complete and is qualified in its entirety by reference to the respective agreements which are attached as exhibits to this Current Report and is incorporated into this Item by reference. 

  
Item 3.02 Unregistered Sales of Equity Securities.

See Item 1.01 above.
 
Item 9.01 Financial Statements and Exhibits.

 
(a)
Financial statements of business acquired.

Not applicable.

 
(b)
Pro forma financial information.

Not applicable.

 
(c)
Exhibits.

Exhibit Number
 
Description
4.1
 
Form of Common Stock Purchase Warrant of the Company.
     
4.2   Certificate of Designations of Series B Convertible Preferred Stock
     
99.1
 
Securities Purchase Agreement dated December 18, 2008, by and among the Company and the investor named on Schedule A thereto.
     
99.2
 
Registration Rights Agreement dated December 18, 2008, by and among the Company and the investor named on Schedule A thereto.
     
99.3
 
Exchange Agreement between the Company and the parties named on Schedule A thereto dated December 18, 2008.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
     
 
eMagin Corporation
     
Date: December 22, 2008      
By:  
/s/  Paul Campbell    
 
Paul Campbell    
 
Interim Chief Financial Officer


NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT.
 
eMagin Corporation
 
Warrant
 
Warrant No. 1
 
Original Issue Date:  December 22, 2008
 

 
eMagin Corporation , a Delaware corporation (the “ Company ”), hereby certifies that, for value received, STILLWATER LLC or its registered assigns (the “ Holder ”), is entitled to purchase from the Company up to a total of 1,875,467 Shares of Common Stock (each such share, a “ Warrant Share ” and all such shares, the “ Warrant Shares ”), at any time and from time to time from and after December 22, 2008 and through and including December 22, 2013 (the “ Expiration Date ”), and subject to the following terms and conditions:
 
Section 1.   Definitions .  As used in this Warrant, the following terms shall have the respective definitions set forth in this Section 1.  Capitalized terms that are used but not defined in this Warrant that are defined in the Securities Purchase Agreement (as defined below) shall have the respective definitions set forth in the Securities Purchase Agreement.
 
Alternate Consideration ” shall have the meaning ascribed to it in Section 9(b).
 
Below Market Issuance ” shall have the meaning ascribed to it in Section 9(c)(ii).
 
Business Day ” means any day except Saturday, Sunday and any day that is a federal legal holiday in the United States or a day on which banking institutions in the State of New York or the State of Washington are authorized or required by law or other government action to close.
 
Buy-In ” shall have the meaning ascribed to it in Section 5(c).
 
Common Stock ” means the common stock of the Company, par value $0.001 per share, and any securities into which such common stock may hereafter be reclassified.
 
Company ” shall have the meaning ascribed to it in the first paragraph.
 
Convertible Securities ” shall have the meaning ascribed to it in Section 9(c)(i).
 
 
 
1

 
 
Date of Exercise “ means the date on which the Holder shall have delivered to the Company: (i) the Exercise Notice (with the Warrant Shares Exercise Log attached to it), appropriately completed and duly signed and (ii) if such Holder is not utilizing the cashless exercise provisions set forth in this Warrant, payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder to be purchased.
 
Dilutive Issuance ” shall have the meaning ascribed to it in Section 9(c)(i).
 
Disregarded Securities ” shall have the meaning ascribed to it in Section 9(c)(iii)(D).
 
Excluded Securities ” shall have the meaning ascribed to it in Section 9(c)(iv).
 
Exercise Notice ” is the form of Exercise Notice attached hereto.
 
Exercise Price ” means $ 1.03 subject to adjustment in accordance with Section 9.
 
Expiration Date ” shall have the meaning ascribed to it in the first paragraph.
 
Fair Market Value ” shall equal the closing price for the Trading Day immediately prior to (but not including) the Exercise Date.  For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued.
 
Form of Assignment ” is the form of Form of Assignment attached hereto.
 
Fundamental Transaction ” means any of the following: (1) the Company effects any merger or consolidation of the Company with or into another Person, (2) the Company effects any sale of all or substantially all of its shares or assets in one or a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (4) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property.
 
Holder shall have the meaning ascribed to it in the first paragraph.
 
Market Price ” shall have the meaning ascribed to it in Section 9(c)(ii).
 
New Warrant ” shall have the meaning ascribed to it in Section 3.
 
New York Courts ” means the state and federal courts sitting in the City of New York, Borough of Manhattan.
 
Original Issue Date ” means the Original Issue Date first set forth on the first page of this Warrant.
 
Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
 
 
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Proceedings ” shall have the meaning ascribed to it in Section 15(b).
 
Purchase Rights ” shall have the meaning ascribed to it in Section 9(c)(i).
 
Securities Purchase Agreement ” means the Securities Purchase Agreement, dated December 18, 2008, to which the Company and the original holder of the Warrant are parties.
 
Trading Day ” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not quoted or listed on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market; provided , that in the event that the Common Stock is not listed or quoted as set forth in (i) and (ii) hereof, then Trading Day shall mean a Business Day.
 
Trading Market ” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.
 
Variable Rate Convertible Security ” shall have the meaning ascribed to it in Section 9(c)(iii)(B).
 
Warrant Shares Exercise Log ” is the form of Warrant Shares Exercise Log attached hereto.
 
Warrant Register ” shall have the meaning ascribed to it in Section 2.
 
Warrant Shares ” shall have the meaning ascribed to it in the first paragraph.
 
Section 2.   Registration of Warrant .  The Company shall register this Warrant upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
 
Section 3.   Registration of Transfers .  Subject to the Holder’s compliance with any applicable securities laws, including the Holder providing the Company with an opinion of counsel reasonably acceptable to the Company that the proposed assignment does not violate any applicable securities laws and any other supporting documentation that the Company may reasonably require, the Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment duly completed and signed, to the Company at its address specified herein.  Upon any such registration or transfer, a new Warrant to purchase Common Stock, in substantially the form of this Warrant (any such new Warrant, a “ New Warrant” ), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder.  The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.  The rights of the original Holder under the Registration Rights Agreement shall be transferred with such transfer of Warrant.
 
Section 4.   Exercise and Duration of Warrants .  This Warrant shall be exercisable by the registered Holder at any time and from time to time for which this Warrant is exercisable through and including the Expiration Date.  At 6:30 p.m., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value.  The Company may not call or redeem any portion of this Warrant without the prior written consent of the Holder.
 
Section 5.   Delivery of Warrant Shares .
 
(a)   To effect exercises hereunder, the Holder shall not be required to physically surrender this Warrant unless the aggregate Warrant Shares represented by this Warrant is being exercised.  Upon delivery of the Exercise Notice to the Company (with the Warrant Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the Company shall promptly (but in no event later than three Trading Days after the Date of Exercise) issue and deliver to the Holder, a certificate for the Warrant Shares issuable upon such exercise.
 
(b)   If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder will have the right to rescind such exercise.
 
 
 
3

 
 
(c)   If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after such third Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall (i) pay in cash to the Holder the amount by which (A) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue by (2) the closing bid price of the Common Stock on the Date of Exercise and (ii) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.
 
(d)   The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.
 
Section 6.   Charges, Taxes and Expenses .  Issuance and delivery of Warrant Shares upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided , however , that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
 
Section 7.   Replacement of Warrant .  If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity (which shall not include a surety bond), if requested.  Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe.  If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.
 
Section 8.   Reservation of Warrant Shares .  The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided , the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of Persons other than the Holder (taking into account the adjustments and restrictions of Section 9).  The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.
 
Section 9.   Certain Adjustments .  The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9 .
 
(a)   Stock Dividends and Splits .  If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then, in each such case, the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to such event by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the product so obtained shall thereafter be the Exercise Price then in effect. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.
 
 
 
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(b)   Fundamental Transactions .  If, at any time while this Warrant is outstanding there is a Fundamental Transaction, then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the “ Alternate Consideration ”).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  In the event of a Fundamental Change, the Company or the successor or purchasing Person, as the case may be, shall execute with the Holder a written agreement providing that:
 
 
(i)   this Warrant shall thereafter entitle the Holder to purchase the Alternate Consideration in accordance with this Section 9(b),
 
 
(ii)   in the case of any such successor or purchasing Person, upon such consolidation, merger, statutory exchange, combination, sale or conveyance such successor or purchasing Person shall be jointly and severally liable with the Company for the performance of all of the Company’s obligations under this Warrant, the Securities Purchase Agreement and the Registration Rights Agreement, and
 
 
(iii)   if registration or qualification is required under the Exchange Act or applicable state law for the public resale by the Holder of shares of stock and other securities so issuable upon exercise of this Warrant, such registration or qualification shall be completed prior to such reclassification, change, consolidation, merger, statutory exchange, combination or sale.
 
If, in the case of any Fundamental Change, the Alternate Consideration includes shares of stock, other securities, other property or assets of a Person other than the Company or any such successor or purchasing Person, as the case may be, in such Fundamental Change, then such written agreement shall also be executed by such other Person and shall contain such additional provisions to protect the interests of the Holder as the Board of Directors of the Company shall reasonably consider necessary by reason of the foregoing. At the Holder’s option and request, any successor to the Company or surviving entity in such Fundamental Transaction shall, either (i) issue to the Holder a new warrant substantially in the form of this Warrant and consistent with the foregoing provisions and evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof, or (ii) purchase the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this  paragraph (b)  and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
 
(c)   Dilutive Issuances .
 
 
(i)   Adjustment Upon Dilutive Issuance .  If, at any time after the date hereof, the Company issues or sells, or in accordance with subparagraph (iii) of this paragraph (c), is deemed to have issued or sold, any shares of Common Stock for per share consideration less than the Exercise Price on the date of such issuance or sale (a “ Dilutive Issuance ”), then the Exercise Price shall be adjusted so as to equal an amount determined by multiplying such Exercise Price by the following fraction:
 
N0 + N1
-----------
N0 + N2
where:
 
N0 = the number of shares of Common Stock outstanding immediately prior to the issuance, sale or deemed issuance or sale of such additional shares of Common Stock in such Dilutive Issuance (without taking into account any shares of Common Stock issuable upon conversion, exchange or exercise of any securities or other instruments which are convertible into or exercisable or exchangeable for Common Stock (“ Convertible Securities ”) or options, warrants or other rights to purchase or subscribe for Common Stock or Convertible Securities (“ Purchase Rights ”);
 
N1 = the number of shares of Common Stock which the aggregate consideration, if any, received or receivable by the Company for the total number of such additional shares of Common Stock so issued, sold or deemed issued or sold in such Dilutive Issuance (which, in the case of a deemed issuance or sale, shall be calculated in accordance with subparagraph (iii) below) would purchase at the Exercise   Price in effect immediately prior to such Dilutive Issuance; and
 
N2 = the number of such additional shares of Common Stock so issued, sold or deemed issued or sold in such Dilutive Issuance.
 
Notwithstanding the foregoing, no adjustment shall be made pursuant hereto if such adjustment would result in an increase in the Exercise Price.
 
 
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(ii)   Adjustment Upon Below Market Issuance .  If, at any time after the Closing Date, the Company issues or sells, or in accordance with subparagraph (iii) of this paragraph (c), is deemed to have issued or sold, any shares of Common Stock for per share consideration less than the Market Price on the date of such issuance or sale (or deemed issuance or sale) (a “ Below Market Issuance ”), then the Exercise Price shall be adjusted so as to equal an amount determined by multiplying such Exercise Price by the following fraction:
 
N0 + N1
-----------
N0 + N2
where:
 
N0 = the number of shares of Common Stock outstanding immediately prior to the issuance, sale or deemed issuance or sale of such additional shares of Common Stock in such Below Market Issuance (without taking into account any shares of Common Stock issuable upon conversion, exchange or exercise of any Convertible Securities or Purchase Rights);
 
N1 = the number of shares of Common Stock which the aggregate consideration, if any, received or receivable by the Company for the total number of such additional shares of Common Stock so issued, sold or deemed issued or sold in such Below Market Issuance (which, in the case of a deemed issuance or sale, shall be calculated in accordance with subparagraph (iii) below) would purchase at the Market Price in effect on the date of such Below Market Issuance; and
 
N2 = the number of such additional shares of Common Stock so issued, sold or deemed issued or sold in such Below Market Issuance.
 
Notwithstanding the foregoing, no adjustment shall be made pursuant to this paragraph (c)(ii) if such adjustment would result in an increase in the Exercise Price.  In the event that the Company issues or is deemed to issue Common Stock in a transaction that is both a Dilutive Issuance and a Below Market Issuance, the Exercise Price will be adjusted to the lower of the prices calculated pursuant to subparagraphs (i) and (ii) of this paragraph (c).  For purposes hereof, “ Market Price ” as of a particular date means the average closing price for the Common Stock on the five (5) Trading Days occurring immediately prior to such date.
 
 
(iii)   Effect On Exercise Price Of Certain Events .  For purposes of determining the adjusted Exercise Price under subparagraph (i) or (ii) of this paragraph (c), the following will be applicable:
 
 
(A)   Issuance Of Purchase Rights .  If the Company issues or sells any Purchase Rights, whether or not immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Purchase Rights (and the price of any conversion of Convertible Securities, if applicable) is less than the Market Price or Exercise Price in effect on the date of the issuance or sale of such Purchase Rights, then the maximum total number of shares of Common Stock issuable upon the exercise of all such Purchase Rights(assuming full conversion,  exercise or exchange of Convertible Securities, if applicable) shall, as of the date of the issuance or sale of such Purchase Rights, be deemed to be outstanding and to have been issued and sold by the Company for such price per share.  For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Purchase Rights” shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Purchase Rights, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Purchase Rights, plus, in the case of Convertible Securities issuable upon the exercise of such Purchase Rights, the minimum aggregate amount of additional consideration payable upon the conversion, exercise or exchange thereof (determined in accordance with the calculation method set forth in subparagraph (iii)(B) below)at the time such Convertible Securities first become convertible, exercisable or exchangeable, by (y) the maximum total number of shares of Common Stock issuable upon the exercise of all such Purchase Rights(assuming full conversion,  exercise or exchange of Convertible Securities, if applicable).  No further adjustment to the Exercise Price shall be made upon the actual issuance of such Common Stock upon the exercise of such Purchase Rights or upon the conversion, exercise or exchange of Convertible Securities issuable upon exercise of such Purchase Rights.  To the extent that shares of Common Stock or Convertible Securities are not delivered pursuant to such Purchase Rights, upon the expiration or termination of such Purchase Rights, the Exercise Price shall be readjusted to the Exercise Price that would then be in effect had the adjustments made upon the issuance of such Purchase Rights been made on the basis of delivery of only the number of shares of Common Stock actually delivered.
 
(B)   Issuance Of Convertible Securities .  If the Company issues or sells any  Convertible  Securities,  whether or not immediately convertible, exercisable or exchangeable, and the price per share for which Common Stock is issuable upon such conversion, exercise or exchange is less than the Market Price or Exercise Price in effect on the date of issuance or sale of such Convertible Securities, then the maximum total number of shares of Common Stock issuable upon the conversion, exercise or exchange of all such Convertible Securities shall, as of the date of the issuance or sale of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Company for such price per share.  If the Convertible Securities so issued or sold do not have a fluctuating conversion or exercise price or exchange ratio, then for the purposes of the immediately preceding sentence, the “price per share for which Common Stock is issuable upon such conversion, exercise or exchange” shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion, exercise or exchange thereof (determined in accordance with the calculation method set forth in this subparagraph (iii)(B)),by (y) the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities.  If the Convertible Securities so issued or sold have a fluctuating  conversion or exercise price or exchange ratio (a “ Variable Rate Convertible Security ”) ( provided , however , that if the conversion or exercise price or exchange ratio of a Convertible Security may fluctuate solely as a result of provisions designed to protect against dilution, such Convertible Security shall not be deemed to be a Variable Rate Convertible Security), then for purposes of the first sentence of this subparagraph (B), the “price per share for which Common Stock is issuable upon such conversion, exercise or exchange” shall be deemed to be the lowest price per share which would be applicable (assuming all holding period and other conditions to any discounts contained in such Variable Rate Convertible Security have been satisfied) if the conversion price of such Variable Rate Convertible Security on the date of issuance or sale thereof were seventy-five percent (75%) of the actual conversion price on such date(the “Assumed Variable Market Price”), and, further, if the conversion price of such Variable Rate Convertible Security at any time or times thereafter is less than or equal to the Assumed Variable Market Price last used for making any adjustment under this paragraph (c) with respect to any Variable Rate Convertible Security, the Exercise Price in effect at such time shall be readjusted to equal the Exercise Price which would have resulted if the Assumed Variable Market Price at the time of issuance of the Variable Rate Convertible Security had been seventy-five percent (75%) of the actual conversion price of such Variable Rate Convertible Security existing at the time of the adjustment required by this sentence.  No further adjustment to the Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities.  To the extent that shares of Common Stock are not delivered pursuant to conversion of such Convertible Securities into Common Stock, the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the issuance of such Convertible Securities been made on the basis of delivery of only the number of shares of Common Stock actually delivered.
 
 
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(C)   Change In Option Price Or Conversion Rate .  If, following an adjustment to the Exercise Price upon the issuance of Purchase Rights or Convertible Securities pursuant to a Below Market Issuance or a Dilutive Issuance, there is a change at any time in (x) the amount of additional consideration payable to the Company upon the exercise of any Purchase Rights; (y) the amount of additional consideration, if any, payable to the Company upon the conversion, exercise or exchange of any Convertible Securities; or (z) the rate at which any Convertible  Securities are convertible  into or exercisable or exchangeable for Common Stock (in each such case, other than under or by reason of provisions designed to protect against dilution), then in any such case, the Exercise Price in effect at the time of such change shall be readjusted to the Exercise Price which would have been in effect at such time had such Purchase Rights or Convertible Securities still outstanding provided for such changed additional consideration or changed conversion, exercise or exchange rate, as the case may be, at the time initially issued or sold.
 
(D)   Calculation Of Consideration Received .  If any Common Stock, Purchase Rights or Convertible Securities are issued or sold for cash, the consideration received for such rights or securities will be the amount actually received by the Company.  In case any Common Stock, Purchase Rights or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, including in the case of a strategic or similar arrangement in which the other entity will provide services to the Company, purchase services from the Company or otherwise provide intangible consideration to the Company, the amount of the consideration other than cash received by the Company (including the net present value of the consideration expected by the Company for the provided or purchased services) shall be the fair market value of such consideration as agreed between the parties.  In case any Common Stock, Purchase Rights or Convertible Securities are issued in connection with any merger or consolidation in which the Company is the surviving corporation, the amount of consideration therefor will be deemed to be the fair market value of such portion of the net assets and business of the  non-surviving corporation as is attributable to such Common Stock, Purchase Rights or Convertible Securities, as the case may be.  Notwithstanding anything else hereinto the contrary, if Common Stock Purchase Rights or Convertible Securities are issued or sold in conjunction with each other as part of a single transaction or in a series of related transactions, the Holder may elect to determine the amount of consideration deemed to be received by the Company therefor by deducting the fair market value of any type of securities (the “ Disregarded Securities ”) issued or sold in such transaction or series of transactions.  If the Holder makes an election pursuant to the immediately preceding sentence, no adjustment to the Exercise Price shall be made pursuant to this paragraph (c) for the issuance of the Disregarded Securities or upon any conversion, exercise or exchange thereof.
 
(E)   Issuances Without Consideration Pursuant to Existing Securities .  If the Company issues (or becomes obligated to issue)shares of Common Stock pursuant to any anti-dilution or similar adjustments (other than as a result of stock splits, stock dividends and the like) contained in any Convertible Securities or Purchase Rights outstanding as of the date hereof but not included in the Disclosure Schedule to the Securities Purchase Agreement, whether as a result of the issuance of the Warrants or otherwise, then all shares of Common Stock so issued shall be deemed to have been issued for no consideration.  If the Company issues (or becomes obligated to issue)shares of Common Stock pursuant to any anti-dilution or similar adjustments contained in any Convertible Securities or Purchase Rights disclosed in a schedule to the Securities Purchase Agreement as a result of the issuance of the Warrants and the number of shares that the Company issues (or is obligated to issue) as a result of such initial issuance exceeds the amount specified in such schedule, such excess shares shall be deemed to have been issued for no consideration.
 
(iv)   Exceptions To Adjustment Of Exercise Price .  Notwithstanding the foregoing, no adjustment to the Exercise Price shall be made pursuant to this paragraph (c) upon the issuance of any Exempt Issuances.
 
(d)   Number of Warrant Shares .  Simultaneously with any adjustment to the Exercise Price pursuant to this Section 9, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.
 
(e)   Calculations .  All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
 
(f)   Notice of Adjustments .  Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s Transfer Agent.
 
 
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(g)   Notice of Corporate Events .  If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction (but only to the extent such disclosure would not result in the dissemination of material, non-public information to the Holder) at least 10 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided , however , that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.
 
Section 10.   Payment of Exercise Price .  The Holder may pay the Exercise Price in one of the following manners:
 
(a)   Cash Exercise .  The Holder may deliver immediately available funds; or
 
(b)   Cashless Exercise .  If an Exercise Notice is delivered at a time when (i) a registration statement covering the issuance and sale of all of the Warrant Shares issuable under this Warrant (without giving effect to any restrictions on such exercise contained herein) is not effective and available for such issuance and sale, and (ii) the Fair Market Value is greater than the Exercise Price, then the Holder may notify the Company in an Exercise Notice of its election to utilize cashless exercise, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:
 
X = Y [(A - B)/A]
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this Warrant is being exercised.
A = the Fair Market Value
B = the Exercise Price.
Section 11.   No Fractional Shares .  No fractional shares of Warrant Shares will be issued in connection with any exercise of this Warrant.  In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the closing price of one Warrant Share as reported by the applicable Trading Market on the date of exercise.
 
Section 12.   Notices .  Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section 12 prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section 12 on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, (d) the fifth day after such notice is deposited in the U.S. mail, certified, return receipt requested and postage prepaid, or (e) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Company, to 2070 Route 52, Hopewell Junction, NY 12533, Attn: Chief Executive Officer, or to facsimile no.: (425) 749-3601 (or such other address as the Company shall indicate in writing in accordance with this Section 12), along with a copy to Richard Friedman, Esq., Sichenzia Ross Friedman Ference LLP 61 Broadway, New York, New York 10006, or to facsimile no. (212) 930-9725, or (ii) if to the Holder, to the address set forth in the Securities Purchase Agreement (or the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section 12).
 
Section 13.   Warrant Agent .  The Company shall serve as warrant agent under this Warrant. Upon 10 calendar days’ notice to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.
 
Section 14.   Compliance with Securities Laws .  The Holder of this Warrant, by acceptance hereof, acknowledges and agrees as follows:
 
(a)   The Warrant and the Warrant Shares to be issued upon exercise hereof are being acquired solely for the Holder’s own account and not as a nominee for any other party, and that the Holder will not offer, sell, or otherwise dispose of this Warrant or Warrant Shares to be issued upon exercise hereof or conversion thereof except under circumstances that will not result in a violation of the Securities Act or any state securities laws.  Upon exercise of this Warrant, the Holder shall, if reasonably requested by the Company, confirm in writing, in a form reasonably satisfactory to the Company, that the shares of Warrant Shares so purchased are being acquired solely for the Holder’s own account and not as a nominee for any other party, and not with a view toward distribution or resale unless there is then an effective registration statement permitting the resale of the Warrant Shares by the Holder.
 
(b)   Holder is familiar with the definition of “accredited investor” in Rule 501 of Regulation D promulgated under the Securities Act and certifies that Holder is an accredited investor as defined in such rule.
 
 
 
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(c)   Holder understands that neither this Warrant nor the Warrant Shares have been registered under the Securities Act, and therefore they may not be sold, assigned or transferred unless (i) a registration statement under the Securities Act is in effect with respect thereto or (ii) an exemption from registration is found to be available to the satisfaction of the Company.
 
(d)   Subject the provisions of the Securities Purchase Agreement, Holder acknowledges and agrees that the stock certificates evidencing the Warrant Shares shall bear a restrictive legend, substantially in the following form (in addition to such other restrictive legends as are required or deemed advisable under the provisions of this Warrant, any applicable law or regulation or any other agreement to which Holder is a party):
 
“THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.”
 
Section 15.   Miscellaneous .
 
(a)   This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns.
 
(b)   All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York (except for matters governed by corporate law in the State of Delaware), without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of this Warrant and the transactions herein contemplated (“ Proceedings ”) (whether brought against a party hereto or its respective affiliates, employees or agents) shall be commenced exclusively in the New York Courts.  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Warrant or the transactions contemplated hereby.  If either party shall commence a Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.
 
(c)   The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.
 
(d)   In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.
 
(e)   Prior to exercise of this Warrant, the Holder hereof shall not, by reason of being a Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares.
 
 
 
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.
 
  eMAGIN CORPORATION  
       
 
By:
   
    Paul Campbell  
    Interim Chief Financial Officer  
       

 
 
 
10


EMAGIN CORPORATION
WARRANT DATED DECEMBER 22, 2008
 
EXERCISE NOTICE
 
The undersigned Holder hereby irrevocably elects to purchase _____________ shares of Common Stock of eMagin Corporation (the “ Company ”) pursuant to the above referenced Warrant. Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.
 
(1) The undersigned Holder hereby exercises its right to purchase _________________ Warrant Shares pursuant to the Warrant.
 
(2) The Holder intends that payment of the Exercise Price shall be made as (check one):
 
[ ]
Cash Exercise . The undersigned has paid or delivered to the Company $__________, the aggregate Exercise Price for ___________ shares of the Company’s Common Stock purchased herewith, in full in cash or by certified or official bank check or wire transfer.
[ ]
Cashless Exercise . In exchange for the issuance of _______ shares of the Company’s Common Stock, the undersigned hereby agrees to surrender the right to purchase _______ shares of Common Stock pursuant to the cashless exercise provisions set forth in  Section 10(b) of the Warrant.
(3) Please deliver to the undersigned Holder _______________ Warrant Shares in accordance with the terms of the Warrant.
 
Dated:
Name of Holder:________________________________________
 
(Print)
   
 
 
Signature:_____________________________________________
 
(Signature must conform in all respects to name of holder
as specified on the face of the Warrant)
 
Print Name:____________________________________________
 
Title: ___________________________________________________

 
 
 
 
 
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EMAGIN CORPORATION
 
WARRANT DATED DECEMBER 22, 2008
 
WARRANT NO. 1
 
WARRANT SHARES EXERCISE LOG
 

 
Date
Number of Warrant Shares Available to be Exercised
Number of Warrant Shares Exercised
Number of Warrant Shares Remaining to be Exercised
       
       
       
       
       

 

 
[ continue as necessary ]
 
EMAGIN CORPORATION
 

 
 
12

 

WARRANT ORIGINALLY ISSUED DECEMBER 22, 2008
 
WARRANT NO. 1
 
FORM OF ASSIGNMENT
 
[To be completed and signed only upon transfer of Warrant]
 
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto the transferee indicated below the right represented by the above-captioned Warrant to purchase ____________ shares of Common Stock of eMagin Corporation (the “ Company ”) to which such Warrant relates and appoints _____________________ attorney to transfer said right on the books of the Company with full power of substitution in the premises.
 
Dated: _______________, ____
 
 
Holder:____________________________________
(Print Name)
   
 
___________________________________________
(Signature must conform in all respects to name of holder as specified on the face of the Warrant. Indicate title if signing on behalf of an entity.)
   
 
Transferee Information:
 
Name:_____________________________________
 
Address:
 
___________________________________________
 
___________________________________________
 
Fax No.:____________________________________

 
 
 
 
 

13
 
 



EMAGIN CORPORATION

CERTIFICATE OF DESIGNATIONS OF
SERIES B CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)

                                                 

eMagin Corporation, a Delaware corporation (the “ Corporation ”), in accordance with the provisions of Section 103 of the General Corporation Law of the State of Delaware (the “ DGCL ”), DOES HEREBY CERTIFY:
 
That pursuant to authority vested in the Board of Directors of the Corporation by the Certificate of Incorporation, as amended, of the Corporation, the Board of Directors of the Corporation, at a meeting duly called and held on   December 15, 2008 adopted a resolution providing for the creation of a series of the Corporation’s Preferred Stock, $.001 par value, which series is designated as “Series B Convertible Preferred Stock,” which resolution is as follows:
 
RESOLVED, that pursuant to authority vested in the Board of Directors by the Certificate of Incorporation, as amended, of the Corporation, the Board of Directors does hereby provide for the creation of a series of Preferred Stock, $.001 par value (hereinafter called the “ Preferred Stock ”), of the Corporation, and to the extent that the voting powers and the designations, preferences and relative, participating, optional or other special rights thereof and the qualifications, limitations or restrictions of such rights have not been set forth in the Certificate of Incorporation, as amended, of the Corporation, does hereby fix the same as follows:
 
SERIES B CONVERTIBLE PREFERRED STOCK

Section 1.   Definitions .
 
(a)   All the agreements or instruments defined in this Certificate of Designations shall mean such agreements or instruments as the same may from time to time be supplemented or amended or the terms thereof waived or modified to the extent permitted by, and in accordance with, the terms thereof and of this Certificate of Designations.
 
(b)   The following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
 
Accrual Amount ” means with respect to any share of Series B Convertible Preferred Stock on any date the amount of all accrued but unpaid dividends on such share from the Issuance Date to the date of determination.
 
Affiliate ” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the subject Person; for purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.
 
Aggregation Parties ” shall have the meaning set forth in Section 10(g).
 
AMEX ” means the American Stock Exchange, Inc.
 
Average Market Price ” for any date means the arithmetic average of the Market Price for each of the Trading Days during the applicable Measurement Period.
 
Board of Directors ” or “ Board ” means the Board of Directors of the Corporation.
 
Board Resolution ” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Corporation to have been duly adopted by the Board of Directors, or duly authorized committee thereof (to the extent permitted by applicable law), and to be in full force and effect on the date of such certification, and delivered to the Holders.
 
Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.
 
Common Stock ” includes the Common Stock, $.001 par value, of the Corporation as authorized on the date hereof, and any other securities into which or for which the Common Stock may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise and any stock (other than Common Stock) and other securities of the Corporation or any other Person which any Holder at any time shall be entitled to receive, or shall have received, on the exercise of conversion rights of the Series B Convertible Preferred Stock, in lieu of or in addition to Common Stock.
 
 
1

 
 
Common Stock Equivalent   means any warrant, option, subscription or purchase right with respect to shares of Common Stock, any security convertible into, exchangeable for, or otherwise entitling the holder thereof to acquire, shares of Common Stock or any warrant, option, subscription or purchase right with respect to any such convertible, exchangeable or other security.
 
Computed Market Price ” shall mean the arithmetic average of the daily VWAPs for each of the three Trading Days immediately preceding the applicable Measurement Date (such VWAPs being appropriately and equitably adjusted for any stock splits, stock dividends, recapitalizations and the like occurring or for which the record date occurs during such three Trading Days).
 
Conversion Date ” means the date on which a Conversion Notice is given by a Holder, whether by mail, courier, personal service, telephone line facsimile transmission or other means, as provided in Section 10(b).
 
Conversion Notice ” means a written notice, duly signed by or on behalf of a Holder substantially in the form set forth in Section 14(a).
 
Conversion Price ” means $0.75 per share; provided, however, that the Conversion Price shall be subject to further adjustment as provided in Section 10.
 
Converted Market Price ” means, for any share of Series B Convertible Preferred Stock as of any date of determination, an amount equal to the product obtained by multiplying (x) the number of shares of Common Stock which would, at the time of such determination, be issuable on conversion in accordance with Section 10(a) of one share of Series B Convertible Preferred Stock if a Conversion Notice were given by the Holder of such share of Series B Convertible Preferred Stock on the date of such determination (determined without regard to any limitation on conversion based on beneficial ownership contained in Section 10(g)) times (y) the Average Market Price of the Common Stock during the Measurement Period for the date of such determination.
 
Corporation Notice ” means a Corporation Notice substantially in the form set forth in Section 14(c).
 
Current Fair Market Value ” when used with respect to the Common Stock as of a specified date means with respect to each share of Common Stock the average of the closing prices of the Common Stock sold on all securities exchanges (including the OTCBB, the NYSE, the AMEX, the Nasdaq and the Nasdaq Capital Market) on which the Common Stock may at the time be listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of regular trading such day, or, if on such day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m., New York City time, or, if on such day the Common Stock is not quoted in the NASDAQ System, the average of the highest bid and lowest asked price on such day in the domestic over-the-counter market as reported by the Pink Sheets, LLC, or any similar successor organization, in each such case averaged over a period of five Trading Days consisting of the day as of which the Current Fair Market Value of Common Stock is being determined (or if such day is not a Trading Day, the Trading Day next preceding such day) and the four consecutive Trading Days prior to such day. If on the date for which Current Fair Market Value is to be determined the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the Current Fair Market Value of Common Stock shall be the greater of (i) the highest price per share of Common Stock at which the Corporation has sold shares of Common Stock or Common Stock Equivalents during the 365 days prior to the date of such determination and (ii) the highest price per share which the Corporation could then obtain from a willing buyer (not an employee or director of the Corporation at the time of determination) for shares of Common Stock sold by the Corporation, from authorized but unissued shares, as determined in good faith by the Board of Directors.
 
Current Market Price   shall mean the arithmetic average of the daily Market Prices per share of Common Stock for the five consecutive Trading Days immediately prior to the date in question; provided, however, that (1) if the “ex” date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 10(c)(1), (2), (3), (4), (5), (6) or (7), occurs during such five consecutive Trading Days, the Market Price for each Trading Day prior to the “ex” date for such other event shall be adjusted by multiplying such Market Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (2) if the “ex” date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 10(c)(1), (2), (3), (4), (5), (6) or (7), occurs on or after the “ex” date for the issuance or distribution requiring such computation and prior to the day in question, the Market Price for each Trading Day on and after the “ex” date for such other event shall be adjusted by multiplying such Market Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event, and (3) if the “ex” date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Market Price for each Trading Day on or after such “ex” date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 10(c)(4) or (6), whose determination shall be conclusive and described in a Board Resolution) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such “ex” date.  Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to Section 10(c), such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of Section 10(c) and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.
 
 
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DTC ” shall have the meaning provided in Section 10(b)(2).
 
Eligible Bank ” means a corporation organized or existing under the laws of the United States or any other state, having combined capital and surplus of at least $100 million and subject to supervision by federal or state authority and which has a branch located in New York, New York.
 
Exchange Act ” means the Securities Exchange Act of 1934, as amended.
 
Excluded Shares ” shall have the meaning provided in Section 10(g).
 
Expiration Time ” shall have the meaning provided in Section 10(c)(6).
 
FAST ” shall have the meaning provided in Section 10(b)(2).
 
Fundamental Change   means
 
(1)   Any consolidation or merger of the Corporation or any Subsidiary with or into another entity (other than a merger or consolidation of a Subsidiary into the Corporation or a wholly-owned Subsidiary in connection with which no change in outstanding Common Stock occurs) where the stockholders of the Corporation immediately prior to such transaction do not collectively own at least 51% of the outstanding voting securities of the surviving corporation of such consolidation or merger immediately following such transaction; or the sale of all or substantially all of the assets of the Corporation and the Subsidiaries in a single transaction or a series of related transactions; or
 
(2)   The occurrence of any transaction or event in connection with which all or substantially all the Common Stock shall be exchanged for, converted into, acquired for or constitute the right to receive consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) which is not all or substantially all common stock which is (or will, upon consummation of or immediately following such transaction or event, will be) listed on a national securities exchange or approved for quotation on Nasdaq or any similar United States system of automated dissemination of transaction reporting of securities prices; or
 
(3)   The acquisition by a Person or entity or group of Persons or entities acting in concert as a partnership, limited partnership, syndicate or group, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, of beneficial ownership of securities of the Corporation representing 50% or more of the combined voting power of the outstanding voting securities of the Corporation ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, provided, however, that (A) an acquisition by a group of unrelated and unaffiliated Persons comprised solely of newly issued equity securities of the Corporation which issuance results in the pro rata dilution of the equity interests of the Persons who are holders of Common Stock immediately prior to such acquisition and for which no consideration is paid to or for the benefit of any holders of Common Stock or the Affiliates of such holders of Common Stock and (B) the issuance of shares of Common Stock upon conversion, exercise or exchange of Common Stock Equivalents outstanding as of the date hereof (including shares issuable upon  or exercise of the Warrants) in accordance with the terms of such Common Stock Equivalents in effect on the date hereof, shall not constitute a Fundamental Change.
 
Generally Accepted Accounting Principles ” for any person means the generally accepted accounting principles and practices applied by such person from time to time in the preparation of its audited financial statements.
 
Holder ” means at any time with respect to any share of Series B Convertible Preferred Stock the Person shown as the holder of record of such share of Series B Convertible Preferred Stock on the records of the Corporation relating to the Series B Convertible Preferred Stock which records are maintained in accordance with applicable law.
 
Indebtedness ” means, when used with respect to any Person, without duplication:
 
(1)   all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of such Person in respect of overdrafts, foreign exchange contracts, currency exchange agreements, currency purchase or similar agreements, Interest Rate Protection Agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or other instruments for the payment of money, or incurred in connection with the acquisition of any property, services or assets (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof), other than any account payable or other accrued current liability or obligation to trade creditors incurred in the ordinary course of business in connection with the obtaining of materials or services;
 
(2)   all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees, bankers’ acceptances, surety bonds, performance bonds or other guaranty of contractual performance;
 
(3)   all obligations and liabilities (contingent or otherwise) in respect of (A) leases of such Person required, in conformity with Generally Accepted Accounting Principles, to be accounted for as capitalized lease obligations on the balance sheet of such Person and (B) any lease or related documents (including a purchase agreement) in connection with the lease of real property which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the landlord and the obligations of such Person under such lease or related document to purchase or to cause a third party to purchase the leased property;
 
(4)   all direct or indirect guaranties or similar agreements by such Person in respect of, and obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (1) through (3);
 
(5)   any indebtedness or other obligations described in clauses (1) through (4) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall be payable by or shall have been assumed by such Person; and
 
(6)   any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (1) through (5).
 
 
 
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Interest Rate Protection Agreement ” means, with respect to any Person, any interest rate swap agreement, interest rate cap or collar agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates, as in effect from time to time.
 
Issuance Date ” means the first date of original issuance of any shares of Series B  Convertible Preferred Stock.
 
Junior Dividend Stock ” means, collectively, the Common Stock and any other class or series of capital stock of the Corporation ranking junior as to dividends to the Series B Convertible Preferred Stock.
 
Junior Liquidation Stock ” means the Common Stock or any other class or series of the Corporation’s capital stock ranking junior as to liquidation rights to the Series B Convertible Preferred Stock.
 
Lien ” means any mortgage, lien, pledge, security interest or other charge or encumbrance, including, without limitation, the lien or retained security title of a conditional vendor.
 
Liquidation Preference ” means, for each share of Series B Convertible Preferred Stock, the sum of (i) an amount equal to the Accrual Amount thereon to the date of final distribution to such Holders and (ii) $1,000.00.
 
Majority Holders ” means, at any time, the Holders of a majority of the outstanding shares of Series B Convertible Preferred Stock.
 
Market Price ” with respect to any security on any day shall mean the closing price of such security on such day on the Nasdaq, the Nasdaq Capital Market, the NYSE, the AMEX or the OTCBB, as applicable, or, if such security is not listed or admitted to trading on the Nasdaq, the Nasdaq Capital Market, the NYSE, the AMEX or the OTCBB, on the principal national securities exchange or quotation system on which such security is quoted or listed or admitted to trading, in any such case as reported by Bloomberg, L.P. (or if such source ceases to be available, comparable source selected by the Holder and acceptable to the Corporation in its reasonable judgment) or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question, as reported by Pink Sheets, LLC, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any NYSE member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution.
 
Measurement Period ” means, with respect to any date, the period of ten consecutive Trading Days ending on the Trading Day prior to such date.
 
Nasdaq ” means the Nasdaq Global Market.
 
Newly Issued Shares ” shall have the meaning provided in Section 10(c)(6)(A).
 
1933 Act ” means the Securities Act of 1933, as amended.
 
NYSE ” means the New York Stock Exchange, Inc.
 
Optional Redemption Date ” shall have the meaning set forth in Section 7(a).
 
Optional Redemption Notice ” shall have the meaning set forth in Section 7(a).
 
Optional Redemption Price ” shall have the meaning set forth in Section 7(b).
 
OTCBB ” means the Over-The-Counter Bulletin Board.
 
Parity Dividend Stock ” means any class or series of the Corporation’s capital stock ranking, as to dividends, on parity with the Series B Convertible Preferred Stock.
 
Parity Liquidation Stock ” means any class or series of the Corporation’s capital stock having parity as to liquidation rights with the Series B Convertible Preferred Stock.
 
Permitted Indebtedness ” shall mean the following, which in the aggregate amount does not exceed $4,500,000 at any one time outstanding:
 
(1)   Indebtedness outstanding on the Issuance Date and reflected in the Company’s financial statements included in the filings with the SEC;
 
 
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(2)   Indebtedness outstanding on, or incurred after, the Issuance Date so long as (A) such Indebtedness (x) is incurred for the purpose of acquiring equipment owned or used or to be owned or used by the Company or any Subsidiary (or for the purpose of acquiring the capital stock or similar equity interests of a Subsidiary that is formed for the limited purpose of owning same and does not own or hold any other material assets) and does not exceed the purchase price of the equipment, capital stock or other equity interest so acquired plus reasonable transaction expenses and (y) if secured, is secured solely by the interest of the Company or one of its Subsidiaries in the equipment so acquired and rights related thereto, or (B) the reimbursement obligations and other liabilities (contingent or otherwise) of the Company or any Subsidiary with respect to letters of credit issued in lieu of cash security deposits for leases of real property or equipment used by the Company or any Subsidiary, or commercial or standby letters of credit issued in the ordinary course of the business of the Company and its Subsidiaries (the amount of which shall for this purpose be deemed to be the maximum reimbursement obligations and other liabilities (contingent or otherwise) with respect to such letters of credit, whether or not a drawing thereunder has been made);
 
(3)   Indebtedness incurred after the Issuance Date that is secured solely by raw materials, works in progress and finished goods inventory and accounts receivable in a financing by a bank, finance company or other institutional lender providing receivables or inventory financing;
 
(4)   endorsements for collection or deposit in the ordinary course of business;
 
(5)   in the case of any Subsidiary, Indebtedness owed by such Subsidiary to the Company;
 
(6)   Indebtedness incurred pursuant to working capital lines of credit, including, without limitation, the line of credit with Moriah Capital, L.P.; and
 
(7)   Indebtedness incurred pursuant to capital leases;
 
so long as in the case of such Indebtedness referred to in the preceding clauses, incurrence of such Indebtedness shall have been approved by the Board of Directors prior to the incurrence thereof.
 
Permitted Liens ” shall mean the following, which in the aggregate amount does not exceed $4,500,000 at any one time outstanding
 
(1)   Liens upon any property of any Subsidiary or Subsidiaries as security for indebtedness owing by such Subsidiary to the Company;
 
(2)   purchase money Liens upon any property acquired by the Company or any Subsidiary or Liens existing on such property at the time of acquisition and in any such case securing Permitted Indebtedness described in clause (2) of the definition of the term Permitted Indebtedness; provided that (A) no such Lien shall extend to or cover any other property of the Company or any Subsidiary, (B) the principal amount of Indebtedness secured by each such Lien on any such property shall not exceed the cost (including such principal amount of the Indebtedness secured thereby) to the Company or the Subsidiary of the property subject thereto, and (C) the aggregate principal amount of all Indebtedness of the Company and all Subsidiaries secured by all Liens described in this subsection (2) and any extensions, renewals or replacements thereof, at any one time outstanding, shall not exceed $4,500,000 for the Company and the Subsidiaries; and any Lien securing Indebtedness that extends, renews or replaces any Indebtedness secured by any Lien permitted by this subsection (2); provided, however, that in any such case the Lien securing any Indebtedness so extended, renewed or replaced shall not extend to or cover any other property of the Company or any Subsidiary and the principal amount of such Indebtedness extended, renewed or replaced shall not be increased;
 
(3)   Liens securing Indebtedness permitted under clause (3) of the definition of the term Permitted Indebtedness so long as in each such case such Lien does not extend to any property of the Company or the Subsidiaries other than the accounts receivables or inventory of the Company and the Subsidiaries so financed;
 
(4)   Liens for taxes or assessments or governmental charges or levies on its property if such taxes or assessments or charges or levies shall not at the time be due and payable or if the amount, applicability, or validity of any such tax, assessment, charge or levy shall currently be contested in good faith by appropriate proceedings or necessary preliminary steps are being taken to contest, compromise or settle the amount thereof or to determine the applicability or validity thereof and if the Company or such Subsidiary, as the case may be, shall have set aside on its books reserves (segregated to the extent required by sound accounting practice) deemed by it adequate with respect thereto; deposits or pledges to secure payment of worker’s compensation, unemployment insurance, old age pensions or other social security; deposits or pledges to secure performance of bids, tenders, contracts (other than contracts for the payment of money borrowed or credit extended), leases, public or statutory obligations, surety or appeal bonds, or other deposits or pledges for purposes of like general nature in the ordinary course of business; mechanics’, carriers’, workers’, repairmen’s or other like Liens arising in the ordinary course of business securing obligations which are not overdue for a period of 60 days, or which are in good faith being contested or litigated, or deposits to obtain the release of such Liens; Liens created by or resulting from any litigation or legal proceedings or proceedings being contested in good faith by appropriate proceedings, provided any execution levied thereon shall be stayed; leases made, or existing on property acquired, in the ordinary course of business; landlords’ Liens under leases to which the Company or any Subsidiary is a party; and zoning restrictions, easements, licenses or restrictions on the use of real property or minor irregularities in title thereto; provided that all such Liens described in this subsection (4) do not, in the aggregate, materially impair the use of such property in the operations of the business of the Company or any Subsidiary or the value of such property for the purpose of such business;
 
(5)   Liens existing on the Issuance Date and listed in Schedule 3.1(n) to the Securities Purchase Agreement;
 
(6)   Liens incurred pursuant to working capital lines of credit; and
 
(7)   Liens incurred pursuant to capital leases.
 
Person ” means any natural person, partnership, corporation, limited liability company, trust, incorporated organization, unincorporated association or similar entity or any government, governmental agency or political subdivision.
 
Principal Market ” means, at any time, whichever of the Nasdaq, Nasdaq Capital Market, AMEX, NYSE, OTCBB or such other U.S. market or exchange is at the time the principal market on which the Common Stock is then listed for trading.
 
Record Date   shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise).
 
Registration Statement ” shall have the meaning provided in the Securities Purchase Agreement.
 
Restricted Ownership Percentage ” shall have the meaning provided in Section 10(g).
 
SEC ” means the United States Securities and Exchange Commission.
 
SEC Effective Date ” means the date the Registration Statement is first declared effective by the SEC.
 
Securities Purchase Agreement ” means the Agreement between the Company and the purchasers named therein, dated the date hereof.
 
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Senior Dividend Stock ” means any class or series of capital stock of the Corporation ranking senior as to dividends to the Series B Convertible Preferred Stock, including, without limitation, the Corporation’s Series A Convertible Preferred Stock.
 
Senior Liquidation Stock ” means any class or series of capital stock of the Corporation ranking senior as to liquidation rights to the Series B Convertible Preferred Stock, including, without limitation, the Corporation’s Series A Convertible Preferred Stock.
 
Series A Convertible Preferred Stock ” means the Company’s Preferred Stock having the rights and preferences set forth on the Certificate of Designations of Series A Senior Secured Convertible Preferred Stock filed with the Secretary of State for the State of Delaware on July 25, 2007.
 
Series B Convertible Preferred Stock ” means the Series B Convertible Preferred Stock, $.001 par value, of the Corporation.
 
Stated Value ” means $1,000 per share of Series B Convertible Preferred Stock.
 
Subsidiary ” means any corporation or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Corporation.
 
Tender Offer ” means a tender offer or exchange offer.
 
Trading Day ” means at any time a day on which the Principal Market is open for general trading of securities.
 
Transaction Documents ” shall have the meaning provided in the Securities Purchase Agreement.
 
Transfer Agent ” Continental Stock Transfer & Trust Company, or its successor as transfer agent and registrar for the Common Stock.
 
Trigger Event ” shall have the meaning provided in Section 10(c)(4)(B).
 
VWAP ” of any security on any Trading Day means the volume-weighted average price of such security on such Trading Day on the Principal Market, as reported by Bloomberg Financial, L.P., based on a Trading Day from 9:30 a.m., Eastern Time, to 4:00 p.m., Eastern Time, using the AQR Function, for such Trading Day; provided, however, that during any period the VWAP is being determined, the VWAP shall be subject to equitable adjustments from time to time on terms consistent with Section 10(c) and otherwise reasonably acceptable to the Majority Holders for (i) stock splits, (ii) stock dividends, (iii) combinations, (iv) capital reorganizations, (v) issuance to all holders of Common Stock of rights or warrants to purchase shares of Common Stock, (vi) distribution by the Corporation to all holders of Common Stock of evidences of indebtedness of the Corporation or cash (other than regular quarterly cash dividends), and (vii) similar events relating to the Common Stock, in each case which occur, or with respect to which the “ex” date occurs, during such period.
 
Warrants ” means the Common Stock Purchase Warrants issued by the Corporation pursuant to the Securities Purchase Agreement.
 
Section 2.   Designation and Amount . The shares of such series shall be designated as “Series B Convertible Preferred Stock”, par value $.001 per share, and the maximum number of shares constituting the Series B Convertible Preferred Stock shall be 10,000, and shall not be subject to increase.  So long as there are Holders of at least 577 outstanding shares of Series B Convertible Preferred Stock, the Corporation shall not issue any shares of Series B Convertible Preferred Stock unless such issuance shall have been approved by the Majority Holders.  Any shares of Series B Convertible Preferred Stock which are redeemed by the Corporation and retired and any shares of Series B Convertible Preferred Stock which are converted in accordance with Section 10 shall be restored to the status of authorized, unissued and undesignated shares of the Corporation’s class of Preferred Stock and shall not be subject to issuance, and may not thereafter be outstanding, as shares of Series B Convertible Preferred Stock.
 
Section 3.   Series B Convertible Preferred Stock Capital .   The amount to be represented in stated capital at all times for each share of Series B Convertible Preferred Stock shall be an amount equal to the sum of $1,000.
 
Section 4.   Rank .   Subject to Section 12(b), all  Series B Convertible Preferred Stock shall rank (i) senior to the Common Stock, now or hereafter issued, as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, (ii) junior to the Corporation’s Series A Convertible Preferred Stock, as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up on the Corporation, whether voluntary or involuntary, (iii) senior to any additional series of the class of Preferred Stock (other than the Series A Convertible Preferred Stock) which series the Board of Directors may from time to time authorize, both as to payment of dividends and as to distributions of assets upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, and (iii) senior to any additional class of preferred stock or series of preferred stock of such class (other than the Series A Convertible Preferred Stock) which the Board of Directors or the stockholders may from time to time authorize in accordance herewith.
 
 
 
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Section 5.   Distributions .
 
(a)   The Holders of shares of Series B Convertible Preferred Stock shall not be entitled to receive dividends unless the Board of Directors declares a dividend for holders of the Corporation’s Common Stock and then the dividend shall be equal to the amount that such Holder would have been entitled to receive if such Holder converted its shares of Series B Convertible Preferred to shares of the Common Stock.  No dividends or other distributions, shall be paid to the Series B Convertible Preferred Stock unless and until such amounts owed to the Series A Convertible Preferred Stock have been paid.  The Series B Convertible Stock shall not be entitled to interest payments.
 
(b)   Any references to “distribution” contained in this Section 5 shall not be deemed to include any stock dividend or distributions made in connection with any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary.
 
(c)   RESERVED
 
(d)   Neither the Corporation nor any Subsidiary shall (1) make any Tender Offer for outstanding shares of Common Stock, unless the Corporation contemporaneously therewith makes an offer, or (2) enter into an agreement regarding such a Tender Offer for outstanding shares of Common Stock by any person other than the Corporation or any Subsidiary, unless such person agrees with the Corporation to make an offer, in either such case to each Holder of outstanding shares of Series B Convertible Preferred Stock to purchase for cash at the time of purchase in such Tender Offer the same percentage of shares of Series B Convertible Preferred Stock held by such holder as the percentage of outstanding shares of Common Stock actually purchased in such Tender Offer at a price per share of Series B Convertible Preferred Stock equal to the greater of (i) (A) the Stated Value plus (B) an amount equal to the Accrual Amount plus (C) an amount equal to any accrued and unpaid interest on cash dividends in arrears and (ii) the Converted Market Price on the date of purchase pursuant to this Section 5(c).
 
Section 6.   Liquidation Preference .   In the event of a liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, the Holders of Series B Convertible Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets constitute stated capital or surplus of any nature, after payment to the Series A Convertible Preferred Stock, an amount per share of Series B Convertible Preferred Stock equal to the Liquidation Preference, and no more, before any payment shall be made or any assets distributed to the holders of Junior Liquidation Stock; provided, however, that such rights shall accrue to the Holders of Series B Convertible Preferred Stock only in the event that the Corporation’s payments with respect to the liquidation preference of the holders of Senior Liquidation Stock are fully met.  After the liquidation preferences of the Senior Liquidation Stock are fully met, the entire assets of the Corporation available for distribution shall be distributed ratably among the Holders of the Series B Convertible Preferred Stock and any Parity Liquidation Stock in proportion to the respective preferential amounts to which each is entitled (but only to the extent of such preferential amounts).  After payment in full of the liquidation price of the shares of the Series B Convertible Preferred Stock and the Parity Liquidation Stock, the Holders of such shares shall not be entitled to any further participation in any distribution of assets by the Corporation.  Neither a consolidation or merger of the Corporation with another corporation nor a sale or transfer of all or part of the Corporation’s assets for cash, securities, or other property in and of itself will be considered a liquidation, dissolution or winding up of the Corporation.
 
Section 7.   Optional Redemption .
 
(a)   The Corporation may redeem all outstanding shares of Series B Convertible Preferred Stock.  The Corporation shall give notice of such optional redemption (the “ Optional Redemption Notice ”) to the Holders not less than 20 or more than 35 Business Days prior to the optional redemption date (“ Optional Redemption Date ”).  Any failure or defect in the giving of the Optional Redemption Notice shall not affect the Corporation’s obligation to redeem the shares of Series B Convertible Preferred Stock pursuant to this Section 7.
 
(b)   On the Optional Redemption Date (or such later date as a particular Holder shall surrender to the Corporation the certificate(s) for the shares of Series B Convertible Preferred Stock redeemed), the Corporation shall pay to or upon the order of each Holder by wire transfer of immediately available funds to such account as shall be specified for such purpose by such Holder an amount equal to the Stated Value multiplied by the number of shares (the “ Optional Redemption Price ”) for all of such Holder’s shares of Series B Convertible Preferred Stock to be redeemed that are outstanding on the Optional Redemption Date.  A Holder of such shares of Series B Convertible Preferred Stock shall not be entitled to payment of the Optional  Redemption Price of such shares of Series B Convertible Preferred Stock until such Holder shall have surrendered the certificate(s) for such shares of Series B Convertible Preferred Stock to the Corporation or, in the case of the loss, theft or destruction of any such certificate, given indemnity in accordance with Section 15(b).
 
(c)   The Corporation shall not be entitled to give the Optional Redemption Notice with respect to, or to redeem, any shares of Series B Convertible Preferred Stock with respect to which a Conversion Notice has been given on a Conversion Date which is on or prior to the Optional Redemption Date.  If an Optional Redemption Notice has been given, thereafter the proceedings for such redemption shall not affect the rights of the Holders to convert in accordance with Section 10 any shares of Series B Convertible Preferred Stock called for redemption at any time prior to the Optional Redemption Date.  If on the applicable Optional Redemption Date the Corporation fails to pay the Optional Redemption Price of any outstanding shares of Series B Convertible  Preferred Stock to be redeemed in full to such Holder or to deposit the same with an Eligible Bank in accordance with Section 15(c), such Holder shall be entitled to convert in accordance with Section 10 the shares of Series B Convertible Preferred Stock of such Holder so called for redemption at any time after the Optional Redemption Date and prior to the date on which the Corporation pays the Optional Redemption Price in full to such Holder for all shares of Series B Convertible Preferred Stock to be redeemed from such Holder (together with any amount due to such Holder pursuant to Section 15(d)) or so deposits the same (together with any amount due to such Holder pursuant to Section 15(d)) and gives notice to such Holder of such deposit and in the case of any such conversion of any share of Series B Convertible Preferred Stock, upon delivery to the converting Holder of the shares of Common Stock issuable upon such conversion the Corporation shall have no further liability in respect of the Optional Redemption Price of such share of Series B Convertible Preferred Stock other than payment of the amount payable pursuant to Section 15(d) in respect of the period from the Optional  Redemption Date to the Conversion Date for such conversion.
 
Section 8.   No Sinking Fund .   The shares of Series B Convertible Preferred Stock shall not be entitled to the benefits of any sinking fund for the redemption or repurchase of shares of Series B Convertible Preferred Stock.
 
Section 9.   RESERVED
 
Section 10.   Conversion .
 
(a)   Conversion at Option of Holder .  Subject to and upon compliance with the provisions of this Section 10, each Holder shall have the right, at such Holder’s option, at any time to convert the outstanding shares of Series B Convertible Preferred Stock held by such Holder, or from time to time any portion of such shares, plus an amount equal to accrued and unpaid dividends, if any, on such shares, into that number of fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing (1) the sum of (x) the aggregate Stated Value of all shares of Series B Convertible Preferred Stock being converted by such Holder on the same Conversion Date plus (y) accrued and unpaid dividends, if any, on the shares of Series B Convertible Preferred Stock being converted to the applicable Conversion Date by (2) the Conversion Price in effect on the applicable Conversion Date, by giving a Conversion Notice in the manner provided in Section 10(b); provided, however, that, if at any time any share of Series B Convertible Preferred Stock is converted in whole or in part pursuant to this Section 10(a), the Corporation does not have available for issuance upon such conversion as authorized and unissued shares or in its treasury at least the number of shares of Common Stock required to be issued pursuant hereto, then, at the election of such Holder made by notice from such Holder to the Corporation, such share of Series B Convertible Preferred Stock, to the extent that sufficient shares of Common Stock are not then available for issuance upon conversion, shall be converted into the right to receive from the Corporation, in lieu of the shares of Common Stock into which such share of Series B Convertible Preferred Stock would otherwise be converted and which the Corporation is unable to issue, payment in an amount equal to the product obtained by multiplying (x) the number of shares of Common Stock which the Corporation is unable to issue times (y) the arithmetic average of the Market Price of the Common Stock during the five consecutive Trading Days immediately prior to the applicable Conversion Date. Any such payment shall, for all purposes of this Certificate of Designations, be deemed to be satisfaction in full of the Corporation’s obligation to issue upon such conversion shares of Common Stock that are not then available for issuance upon such conversion.  A Holder is not entitled to any rights of a holder of Common Stock until such Holder has converted one or more shares of Series B Convertible Preferred Stock to Common Stock, and only to the extent any such shares of Series B Convertible Preferred Stock are deemed to have been converted to Common Stock under this Section 10.  For purposes of Sections 10(e) and 10(f), whenever a provision references the shares of Common Stock into which any share of Series B Convertible Preferred Stock is convertible or the shares of Common Stock issuable upon conversion of any share of Series B Convertible Preferred Stock or words of similar import, any determination required by such provision shall be made as if a sufficient number of shares of Common Stock were then available for issuance upon conversion in full of all outstanding shares of Series B Convertible Preferred Stock.
 
 
 
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           (b)   Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends .
 
(1)   In order to exercise the conversion privilege with respect to the Series B Convertible Preferred Stock, a Holder shall give a Conversion Notice (or such other notice which is acceptable to the Corporation) to the Corporation and the Transfer Agent or to the office or agency designated by the Corporation for such purpose by notice to the Holders.  A Conversion Notice may be given by telephone line facsimile transmission to the numbers set forth on the form of Conversion Notice.
 
(2)   As promptly as practicable, but in no event later than three Trading Days, after a Conversion Notice is given, the Corporation shall issue and shall deliver to the Holder giving such Conversion Notice or such Holder’s designee the number of full shares of Common Stock issuable upon such conversion of shares of Series B Convertible Preferred Stock in accordance with the provisions of this Section 10 and make payment by wire transfer of immediately available funds to such account as shall be specified from time to time by such Holder or deliver a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 10(b)(6) and, if applicable, any cash payment required pursuant to the proviso to the first sentence of Section 10(a) (which payment, if any, shall be paid no later than three Trading Days after the applicable Conversion Date).  In lieu of delivering physical certificates for the shares of Common Stock issuable upon any conversion of shares of Series B Convertible Preferred Stock, provided the Corporation’s transfer agent is participating in the Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer (“ FAST ”) program, upon request of the Holder, the Corporation shall use commercially reasonable efforts to cause its transfer agent electronically to transmit such shares of Common Stock issuable upon conversion to the Holder (or its designee), by crediting the account of the Holder’s (or such designee’s) broker with DTC through its Deposit Withdrawal Agent Commission system (provided that the same time periods herein as for stock certificates shall apply).
 
(3)   Each conversion of shares of Series B Convertible Preferred Stock shall be deemed to have been effected on the applicable Conversion Date, and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on such Conversion Date the holder of record of the shares represented thereby; provided, however, that if a Conversion Date is a date on which the stock transfer books of the Corporation shall be closed such conversion shall constitute the person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the applicable Conversion Date.  Upon conversion of any shares of Series B Convertible Preferred Stock, the accrued and unpaid dividends on such shares of Series B Convertible Preferred Stock to (but excluding) the applicable Conversion Date shall be deemed to be paid to the Holder through receipt of such number of shares of Common Stock issued upon conversion of such shares of Series B Convertible Preferred Stock as shall have an aggregate Current Fair Market Value on the Trading Day immediately preceding such Conversion Date equal to the amount of such accrued and unpaid dividends.
 
(4)   A Conversion Notice shall be deemed for all purposes to be in proper form absent timely notice from the Corporation to the Holder of manifest error therein.  The Corporation shall notify the Holder of any claim by the Corporation of manifest error in a Conversion Notice within two Trading Days after the Holder gives such Conversion Notice (which notice from the Corporation shall specify all defects in the Conversion Notice) and no such claim of error shall limit or delay performance of the Corporation’s obligation to issue upon such conversion the number of shares of Common Stock which are not in dispute.  Time shall be of the essence in the giving of any such notice by the Corporation.  Any Conversion Notice containing any such defect shall nonetheless be effective on the date given if the Holder promptly undertakes to correct all such defects. The Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock or other securities or property on conversion of shares of Series B Convertible Preferred Stock in a name other than that of such Holder, and the Corporation shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of any such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The converting Holder shall be responsible for the amount of any withholding tax payable in connection with any conversion of shares of Series B Convertible Preferred Stock.
 
 
 
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(5)  
 
(A)   If a Holder shall have given a Conversion Notice in accordance with the terms of this Certificate of Designations, the Corporation’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of any action or inaction by such Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Corporation to any Holder, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by any Holder or any other person of any obligation to the Corporation or any violation or alleged violation of law by any Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with such conversion; provided, however, that nothing herein shall limit or prejudice the right of the Corporation to pursue any such claim in any other manner permitted by applicable law. The occurrence of an event which requires an adjustment of the Conversion Price as contemplated by Section 10(c) shall in no way restrict or delay the right of any Holder to receive certificates for Common Stock upon conversion of shares of Series B Convertible Preferred Stock and the Corporation shall use its best efforts to implement such adjustment on terms reasonably acceptable to the Holder within two Trading Days after such occurrence.
 
(B)   If the Corporation fails to issue and deliver the shares of Common Stock to a converting Holder in connection with a particular conversion of shares of Series B Convertible Preferred Stock within five Trading Days after such Holder gives the Conversion Notice for such conversion, in addition to any other liabilities the Corporation may have hereunder and under applicable law (i) the Corporation shall pay or reimburse such Holder on demand for all out-of-pocket expenses, including, without limitation, reasonable fees and expenses of legal counsel, incurred by the Holder as a result of such failure, (ii) if as a result of such failure such Holder shall suffer any direct damages or liabilities from such failure (including, without limitation, margin interest and the cost of purchasing securities to cover a sale (whether by such Holder or such Holder’s securities broker) or borrowing of shares of Common Stock by such Holder for purposes of settling any trade involving a sale of shares of Common Stock made by such Holder during the period beginning on the Issuance Date and ending on the date the Corporation delivers or causes to be delivered to such Holder such shares of Common Stock, then the Corporation shall upon demand of such Holder pay to the Holder an amount equal to the actual direct, out-of-pocket damages and liabilities suffered by such Holder by reason thereof which such Holder documents to the reasonable satisfaction of the Corporation, and (iii) the Holder may by written notice (which may be given by mail, courier, personal service or telephone line facsimile transmission) or oral notice (promptly confirmed in writing), given at any time prior to delivery to such Holder of the shares of Common Stock issuable in connection with such exercise of the Holder’s conversion right, rescind such exercise and the Conversion Notice relating thereto, in which case such Holder shall thereafter be entitled to convert, in accordance with this Section 10 that portion of such shares of Series B Convertible Preferred Stock as to which such exercise is so rescinded. Notwithstanding the foregoing, the Corporation shall not be liable to such Holder under clause (ii) of the immediately preceding sentence to the extent the failure of the Corporation to deliver or to cause to be delivered such shares of Common Stock results from fire, flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving facilities of a common carrier, acts of God, or any similar event outside the control of the Corporation (it being understood that the action or failure to act of the Transfer Agent shall not be deemed an event outside the control of the Corporation except to the extent resulting from fire, flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving facilities of a common carrier, acts of God, the bankruptcy, liquidation or reorganization of the Transfer Agent under any bankruptcy, insolvency or other similar law or any similar event outside the control of the Transfer Agent). A converting Holder shall notify the Corporation in writing (or by telephone conversation, confirmed in writing) as promptly as practicable following the third Trading Day after such Holder gives a Conversion Notice if such Holder becomes aware that such shares of Common Stock so issuable have not been received as provided herein, but any failure so to give such notice shall not affect the Holder’s rights under this Certificate of Designations or otherwise.  If the Holder shall have exercised the conversion right in any particular instance and either (1) the Corporation shall notify the Holder on or after the date the Holder gives such Conversion Notice that the shares of Common Stock issuable upon such conversion might not be delivered within three Trading Days after the date the Holder gives such Conversion Notice or (2) the Holder learns after the date which is three Trading Days after the date the Holder gives such Conversion Notice that the Holder has not received such shares of Common Stock, then, without releasing the Corporation of its obligations with respect thereto, from and after the Trading Day next succeeding the earlier of the events described in the preceding clauses (1) and (2) of this sentence the Holder shall make reasonable efforts not to sell shares of Common Stock in anticipation of receipt of such shares of Common Stock in a manner which is likely to increase materially the liability of the Corporation under clause (B) of the first sentence of this Section 10(b)(5).
 
(6)   No fractional shares of Common Stock shall be issued upon conversion of any shares of Series B Convertible Preferred Stock but, in lieu of any fraction of a share of Common Stock which would otherwise be issuable in respect of such conversion, the Corporation shall pay lawful money of the United States of America for such fractional share, based on a value of one share of Common Stock being equal to the Market Price of the Common Stock on the applicable Conversion Date.
 
(c)   Adjustment of Conversion Price .   S o long as there are outstanding Series B Convertible Preferred Stock, the Conversion Price shall be adjusted from time to time by the Corporation as follows:
 
(1)   Adjustments for Certain Dividends and Distributions in Common Stock.   In case the Corporation shall on or after the Issuance Date pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following such Record Date. If any dividend or distribution of the type described in this Section 10(c)(1) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared.
 
(2)   Weighted Adjustments for Certain Issuances of Rights or Warrants.   In case the Corporation shall on or after the Issuance Date issue rights or warrants (other than any rights or warrants referred to in Section 10(c)(4)) to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within 45 days after the date fixed for the determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price on the Record Date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such Record Date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the applicable Record Date plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and the denominator shall be the number of shares of Common Stock outstanding on the close of business on such Record Date plus the total number of additional shares of Common Stock so offered for subscription or purchase. Such adjustment shall become effective immediately after the opening of business on the day following the Record Date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such Record Date had not been fixed. In determining whether any rights or warrants entitle the holder to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors.
 
(3)   Adjustments for Certain Subdivisions of the Common Stock.   In case the outstanding shares of Common Stock shall on or after the Issuance Date be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the earlier of the day following the day upon which such subdivision becomes effective and the day on which “ex-” trading of the Common Stock begins with respect to such subdivision shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the earlier of the day following the day upon which such combination becomes effective and the day on which “ex-” trading of the Common Stock with respect to such combination begins shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the earlier of the day following the day upon which such subdivision or combination becomes effective and the day on which “ex-” trading of the Common Stock begins with respect to such subdivision or combination.
 
 
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(4)   Adjustments for Certain Dividends and Distributions.
 
(A)   In case the Corporation shall on or after the Issuance Date, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Corporation (other than any dividends or distributions to which Section 10(c)(1) applies) or evidences of its indebtedness, cash or other assets (including securities, but excluding any rights or warrants referred to in Section 10(c)(2) and dividends and distributions paid exclusively in cash and excluding any capital stock, evidences of indebtedness, cash or assets distributed upon a merger or consolidation to which Section 10(d) applies) (the foregoing hereinafter in this Section 10(c)(4) called the “ Securities ”)), then, in each such case, subject to the second paragraph of this Section 10(c)(4), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date with respect to such distribution by a fraction of which the numerator shall be the Current Market Price on such date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) on such date of the portion of the Securities so distributed applicable to one share of Common Stock and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following such Record Date; provided, however, that in the event the then fair market value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that the Holders shall have the right to receive upon conversion of shares of Series B Convertible Preferred Stock the amount of Securities such Holder would have received had such Holder converted such Holder’s shares of Series B Convertible Preferred Stock immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 10(c)(4) by reference to the actual or when issued trading market for any Securities comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price to the extent possible.
 
(B)   Rights or warrants distributed by the Corporation to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Corporation’s capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events (each, a “ Trigger Event ”): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall not be deemed to have been distributed for purposes of this Section 10(c) (and no adjustment to the Conversion Price under this Section 10(c) will be required) until the occurrence of the earliest Trigger Event. If any such rights or warrants, including any such existing rights or warrants distributed prior to the Issuance Date are subject to Trigger Events, upon the satisfaction of each of which such rights or warrants shall become exercisable to purchase different securities, evidences of indebtedness or other assets, then the occurrence of each such Trigger Event shall be deemed to be such date of issuance and record date with respect to new rights or warrants (and a termination or expiration of the existing rights or warrants without exercise by the holder thereof) (so that, by way of illustration and not limitation, the dates of issuance of any such rights shall be deemed to be the dates on which such rights become exercisable to purchase capital stock of the Corporation, and not the date on which such rights may be issued, or may become evidenced by separate certificates, if such rights are not then so exercisable). In addition, in the event of any distribution of rights or warrants, or any Trigger Event with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under this Section 10(c) was made (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued.
 
(C)   For purposes of this Section 10(c)(4) and Sections 10(c)(1) and (2), any dividend or distribution to which this Section 10(c)(4) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock to which Section 10(c)(2) applies (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets, shares of capital stock, rights or warrants other than such shares of Common Stock or rights or warrants to which Section 10(c)(2) applies (and any Conversion Price reduction required by this Section 10(c)(4) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 10(c)(1) and (2) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as “the date fixed for the determination of stockholders entitled to receive such dividend or other distribution”, “Record Date fixed for such determination” and “Record Date” within the meaning of Section 10(c)(1) and as “the date fixed for the determination of stockholders entitled to receive such rights or warrants”, “the Record Date fixed for the determination of the stockholders entitled to receive such rights or warrants” and “such Record Date” within the meaning of Section 10(c)(2) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed “outstanding at the close of business on the Record Date fixed for such determination” within the meaning of Section 10(c)(1).
 
(5)   Adjustments for Certain Cash Dividends.   In case the Corporation shall on or after the Issuance Date, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 10(d) applies or as part of a distribution referred to in Section 10(c)(4)) in an aggregate amount that, combined with (1) the aggregate amount of any other such distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 10(c)(5) has been made, and (2) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and set forth in a Board Resolution) of consideration payable in respect of any Tender Offer by the Corporation or any Subsidiary for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution, exceeds 1% of the product of (x) the Current Market Price on the Record Date with respect to such distribution times (y) the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date, unless the Corporation elects to reserve such cash for distribution to the Holders upon the conversion of shares of Series B Convertible Preferred Stock (and shall have made adequate provision) so that the Holders will receive upon such conversion, in addition to the shares of Common Stock to which the Holders are entitled, the amount of cash which the Holders would have received if the Holders had, immediately prior to the Record Date for such distribution of cash, converted their shares of Series B Convertible Preferred Stock into Common Stock, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such Record Date by a fraction (i) the numerator of which shall be equal to the Current Market Price on such Record Date less an amount equal to the quotient of (x) the excess of such combined amount over such 1% and (y) the number of shares of Common Stock outstanding on such Record Date and (ii) the denominator of which shall be equal to the Current Market Price on such Record Date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on such Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that the Holders shall have the right to receive upon conversion of shares of Series B Convertible Preferred Stock the amount of cash the Holders would have received had the Holders converted all of their shares of Series B Convertible Preferred Stock immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared.
 
(6)   Adjustments for Certain Issuances of Newly Issued Shares.
 
(A)   In case at any time on or before after the Issuance Date the Corporation issues shares of Common Stock or Common Stock Equivalents (collectively, the “ Newly Issued Shares ”) at a price per share at which the Corporation sells such shares of Common Stock or the price per share at which the holders of such Common Stock Equivalents are entitled to acquire shares of Common Stock upon conversion or exercise thereof which is less than the Conversion Price in effect at the time of such issuance, then following such issuance the Conversion Price shall be reduced to the lowest price per share at which such shares of Common Stock are issued or at which such Common Stock Equivalents may be exercised, if the same is lower than the Conversion Price in effect immediately prior to such issuance.
 
 
 
 
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(B)   Notwithstanding the foregoing, no adjustment shall be made under this Section 10(c)(6) by reason of:
 
 
(i)   the issuance of shares of Common Stock or options to employees, officers, directors or consultants of the Corporation pursuant to (i) any existing stock or option plan, or (ii) any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose;
 
 
(ii)   the issuance of shares of Common Stock under the Corporation’s existing Non-Employee Stock Compensation Plan;
 
 
(iii)   options issued to new employees;
 
 
(iv)   securities upon the exercise or exchange of or conversion of any Securities (as defined in the Securities Purchase Agreement) issued hereunder and/or securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date hereof, provided that such securities have not been amended since the date hereof to increase the number of such securities or to decrease the exercise, exchange or conversion price of any such securities without the Majority Holder’s prior written consent; or
 
 
(v)   securities issued pursuant to acquisitions or strategic transactions or in connection with a strategic alliance collaboration, joint venture, partnership, manufacturing, marketing, distributing or similar arrangement of the Corporation with another Person which strategic alliance, collaboration, joint venture, partnership manufacturing, marketing, distributing or similar arrangement relates to the Corporation’s business as conducted immediately prior thereto and which Person is engaged, or proposes to be engaged, in a business similar or related to the business of the Corporation, provided any such issuance shall only be to a Person which is, or proposes to be, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Corporation and in which the Corporation receives benefits in addition to the investment of funds, but shall not include a transaction in which the Corporation is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
 
(7)   RESERVED
 
(8)   Additional Reductions in Conversion Price.   The Corporation may make such reductions in the Conversion Price, in addition to those required by Sections 10(c)(1), (2), (3), (4), (5) or (6) as the Board of Directors considers to be advisable.
 
(9)   De Minimus Adjustments.   No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this Section 10(c)(9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 10 shall be made by the Corporation and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be.  No adjustment need be made for a change in the par value of the Common Stock or from par value to no par value or from no par value to par value.
 
(10)   Corporation Notice of Adjustments.   Whenever the Conversion Price is adjusted as herein provided, the Corporation shall promptly, but in no event later than five days thereafter, give notice to the Holders setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, but which statement shall not include any information which would be material non-public information for purposes of the 1934 Act. Failure to deliver such notice shall not affect the legality or validity of any such adjustment.
 
(11)   Effectiveness of Certain Adjustments. In any case in which this Section 10(c) provides that an adjustment shall become effective immediately after a Record Date for an event, the Corporation may defer until the occurrence of such event (i) issuing to the Holders in connection with any conversion of shares of Series B Convertible Preferred Stock after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such Holders any amount in cash in lieu of any fraction pursuant to Section 10(b)(6).
 
(12)   Outstanding Shares.   For purposes of this Section 10(c), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Corporation but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Corporation will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Corporation other than dividends or distributions payable only in shares of Common Stock.
 
 
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(d)   Effect of Reclassification, Consolidation, Merger or Sale .
 
(1)   If any of the following events occur, namely:
 
(A) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination),
 
(B) any consolidation, merger or combination of the Corporation with another corporation or other entity as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or
 
(C) any sale or conveyance of the properties and assets of the Corporation as, or substantially as, an entirety to any other corporation or other entity as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock,
 
then the Corporation or the successor or purchasing corporation or other entity, as the case may be, shall prior to such transaction:

(w)           amend its certificate of incorporation or comparable instrument to provide that the shares of Series B Convertible Preferred Stock shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by the holder of a number of shares of Common Stock issuable upon conversion of shares of Series B Convertible Preferred Stock immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise such holder’s rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance ( provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised (“non-electing share”), then for the purposes of this Section 10(d) the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares);
 
(x)           the Conversion Price shall, upon such consolidation, merger, statutory exchange, combination, sale or conveyance, thereafter be the lower of (1) the Conversion Price then in effect and (2) the price paid or deemed to have been paid for one share of Common Stock in such consolidation, merger, statutory exchange, combination, sale or conveyance (subject to further adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 10),
 
(y)           in the case of any such successor or purchasing Person, such Person shall execute with each Holder a written agreement providing that upon such consolidation, merger, combination, sale or conveyance such successor or purchasing Person shall be jointly and severally liable with the Corporation for the performance of all of the Corporation’s obligations under this Certificate of Designations and the other Transaction Documents; and
 
(z)           if registration or qualification is required under the 1933 Act or applicable state law for the public resale by the Holder of such shares of stock and other securities so issuable upon conversion of shares of Series B Convertible Preferred Stock, such registration or qualification shall be completed prior to such reclassification, change, consolidation, merger, combination or sale.
 
Such amendment shall provide for, among other things, adjustments in the conversion rights of the Holders which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 10.  If, in the case of any such reclassification, change, consolidation, merger, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock includes shares of stock or other securities and assets of a corporation or other entity other than the successor or purchasing corporation or other entity, as the case may be, in such reclassification, change, consolidation, merger, combination, sale or conveyance, then such other corporation or other entity shall also so amend its certificate of incorporation or comparable instrument   and enter into such written agreement with each Holder.  The certificate(s) of incorporation or comparable instruments so amended and such written agreement(s) of each such corporation or other entity shall also contain such additional provisions to protect the interests of the Holders as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including the provisions providing for the redemption rights set forth in Section 11.
 
(2)   The provisions of this Section 10(d) shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances.
 
(3)   If this Section 10(d) applies to any event or occurrence, Section 10(c) shall not apply.
 
(e)   Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock .
 
 
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(1)   The Corporation shall reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock or shares of Common Stock held in treasury, solely for issuance upon conversion of the Series B Convertible Preferred Stock, sufficient shares to provide for the conversion of the Series B Convertible Preferred Stock from time to time as shares of Series B Convertible Preferred Stock are converted.
 
(2)   Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Series B Convertible Preferred Stock, the Corporation shall take all corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue shares of such Common Stock at such adjusted Conversion Price.
 
(3)   The Corporation covenants that all shares of Common Stock issued upon conversion of the Series B Convertible Preferred Stock will be fully paid and non-assessable by the Corporation and free from all taxes, liens and charges with respect to the issue thereof.
 
(4)   The Corporation covenants that if any shares of Common Stock to be provided for the purpose of conversion of the Series B Convertible Preferred Stock require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Corporation will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be.
 
(5)   The Corporation covenants that, so long as the Common Stock shall be listed on the AMEX, the NYSE or any other national securities exchange or Nasdaq or Nasdaq Capital Market or the OTCBB, the Corporation shall obtain and, so long as the Common Stock shall be so listed on such market or exchange, maintain approval for listing thereon of all Common Stock issuable upon conversion of the Series B Convertible Preferred Stock.
 
(f)   Notice to Holders Prior to Certain Actions .   In case on or after the Issuance Date:
 
(1)   the Corporation shall declare a dividend (or any other distribution) on the Common Stock (other than in cash out of retained earnings); or
 
(2)   the Corporation shall authorize the granting to the holders of the Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or
 
(3)   the Board of Directors shall authorize any reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or any consolidation or merger or other business combination transaction to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or the sale or transfer of all or substantially all of the assets of the Corporation; or
 
(4)   there shall be pending the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation;
 
the Corporation shall give the Holders of record of the Series B Convertible Preferred Stock, as promptly as possible but in any event at least ten Trading Days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, other business combination transaction, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record who shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, other business combination transaction, sale, transfer, dissolution, liquidation or winding-up shall be determined. Such notice shall not include any information which would be material non-public information for purposes of the 1934 Act. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. In the case of any such action of which the Corporation gives such notice to the Holders of record of the Series B Convertible Preferred Stock or is required to give such notice to such Holders, such Holders shall be entitled to give a Conversion Notice which is contingent on the completion of such action.
 
 
 
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(g)   Restricted Ownership Percentage Limitation .
 
(1)   Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired at any time by a Holder upon conversion of shares of Series B Convertible Preferred Stock shall not exceed a number that, when added to the total number of shares of Common Stock deemed beneficially owned by such Holder (other than by virtue of the ownership of securities or rights to acquire securities (including the  Warrants) that have limitations on the Holder’s right to convert, exercise or purchase similar to the limitation set forth herein (the “ Excluded Shares ”)), together with all shares of Common Stock beneficially owned at such time (other than by virtue of the ownership of Excluded Shares) by Persons whose beneficial ownership of Common Stock would be aggregated with the beneficial ownership by such Holder for purposes of determining whether a group exists or for purposes of determining the Holder’s beneficial ownership (the “ Aggregation Parties ”), in either such case for purposes of Section 13(d) of the 1934 Act and Regulation 13D-G thereunder (including, without limitation, as the same is made applicable to Section 16 of the 1934 Act and the rules promulgated thereunder), would result in beneficial ownership by such Holder or such group of more than 9.9% of the shares of  Common Stock for purposes of Section 13(d) or Section 16 of the 1934 Act and the rules promulgated thereunder (as the same may be modified by a particular Holder as provided herein, the “ Restricted Ownership Percentage ”).  A Holder shall have the right (x) at any time and from time to time to reduce its Restricted Ownership Percentage immediately upon notice to the Corporation in the event and only to the extent that Section 16 of the 1934 Act or the rules promulgated thereunder (or any successor statute or rules) is changed to reduce the beneficial ownership percentage threshold thereunder to a percentage less than 9.9% and (y) at any time and from time to time, but in no event less than 61 days’ prior notice, to increase its Restricted Ownership Percentage unless such Holder shall have, by written instrument delivered to the Corporation, irrevocably waived its rights to so increase its Restricted Ownership Percentage.  If at any time the limits in this Section 10(g) make the shares of Series B Convertible Preferred Stock held by any Holder inconvertible in whole or in part, the Corporation shall not by reason thereof be relieved of its obligation to issue shares of Common Stock at any time or from time to time thereafter upon conversion of such shares of Series B Convertible Preferred Stock as and when shares of Common Stock may be issued in compliance with such restrictions.
 
(2)   For purposes of this Section 10(g), in determining the number of outstanding shares of Common Stock at any time a Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Corporation’s then most recent Form 10-Q, Form 10-K or other public filing with the SEC, as the case may be, (2) a public announcement by the Corporation that is later than any such filing referred to in the preceding clause (1) or (3) any other notice by the Corporation or its transfer agent setting forth the number of shares of Common Stock outstanding and knowledge the Holder may have about the number of shares of Common Stock issued upon conversions or exercises of Series B Convertible Preferred Stock or other Common Stock Equivalents by any Person, including such Holder, which are not reflected in the information referred to in the preceding clauses (1) through (3).  Upon the written request of any Holder, the Corporation shall within three Business Days confirm in writing to such Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of Common Stock Equivalents, including the shares of Series B Convertible Preferred Stock, the  Warrants, by the Holder or its affiliates, in each such case subsequent to, the date as of which such number of outstanding shares of Common Stock was reported.
 
Section 11.   RESERVED
 
Section 12.   Voting Rights; Certain Restrictions and Covenants .
 
(a)   Voting Rights.   The Holder of each share of Series B Convertible Preferred Stock shall be entitled to a number of votes per share at any time equal to (1) in any case in which the Series B Convertible Preferred Stock votes together with the Common Stock or any other class or series of stock of the Corporation, the number of shares of Common Stock issuable upon conversion of such share of Series B Convertible Preferred Stock at such time (determined without regard to the shares of Common Stock so issuable upon such conversion in respect of accrued and unpaid dividends, if any, on such share of Series B Convertible Preferred Stock) and (2) in any case not covered by the immediately preceding clause (1), one vote per share of Series B Convertible Preferred Stock.  Each Holder shall be entitled to notice of any shareholders’ meeting in accordance with the bylaws of the Corporation and shall vote with holders of Common Stock upon the election of directors and upon any other matter submitted to a vote of shareholders, except those matters required by law to be submitted to a vote of holders of Preferred Stock or Series B Convertible Preferred Stock voting separately as a class or series, and except as provided in this Certificate of Designations.  Fractional votes shall not, however, be permitted.
 
(b)   Certificate of Incorporation; Certain Stock .   The affirmative vote or consent of the Majority Holders, voting separately as a class, will be required for (1) any amendment, alteration, or repeal, whether by merger or consolidation or otherwise, of the Corporation’s Certificate of Incorporation if the amendment, alteration, or repeal materially and adversely affects the powers, preferences, or special rights of the Series B Convertible Preferred Stock, (2) the creation and issuance of any Senior Dividend Stock or Senior Liquidation Stock (other than the Series A Convertible Preferred Stock), (3) the redemption of or payment of dividends on, any class or series of capital stock of the Corporation (other than the Series A Convertible Preferred Stock) or (4) any sale, lease or conveyance of all or substantially all of the assets of the Corporation, or any merger, consolidation, or business combination with any other Person or any liquidation, dissolution or winding up of the Corporation; provided, howeve r, that any increase in the authorized Preferred Stock of the Corporation or the creation and issuance of any stock which is both Junior Dividend Stock and Junior Liquidation Stock shall not be deemed to affect materially and adversely such powers, preferences, or special rights and any such increase or creation and issuance may be made without any such vote by the Holders of Series B Convertible Preferred Stock except as otherwise required by law; and provided further, however, that no such amendment, alteration or repeal shall (i) reduce the Optional Redemption Price or the amount payable to a Holder pursuant to Section 5, (ii) change the definition of Majority Holders, (iii) change the method of calculating the Conversion Price in a manner adverse to the Holders or reduce the number of shares of Common Stock issuable upon any conversion of shares of Series B Convertible Preferred Stock (other than any reduction in the number of shares of Common Stock so issuable pursuant to an amendment of the Certificate of Incorporation which effects a combination of the outstanding shares of Common Stock and results in an adjustment in the Conversion Price pursuant to Section 10(c)(3)), or (iv) amend, modify or repeal any provision of this Section 12(b), unless in each such case referred to in the preceding clauses (i) through (iv) such amendment, modification or repeal has been approved by the affirmative vote or written consent of all Holders, voting separately as a class.
 
 
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(c)   Repurchases of Series B Convertible Preferred Stock .  The Corporation shall not repurchase or otherwise acquire any shares of Series B Convertible Preferred Stock (other than pursuant to Section 7) unless the Corporation offers to repurchase or otherwise acquire simultaneously a pro rata portion of each Holder’s shares of Series B Convertible Preferred Stock for cash at the same price per share.
 
(d)   Other .   So long as any shares of Series B Convertible Preferred Stock are outstanding the Corporation shall comply with the following unless otherwise agreed in writing by the Majority Holders:
 
(1)   Limitation on Certain Indebtedness. The Corporation will not itself, and will not permit any Subsidiary to, create, assume, incur, in any manner become liable in respect of, including, without limitation, by reason of any business combination transaction, or suffer to exist (all of which are referred to herein as “incur” or “incurring”), any Indebtedness other than Permitted Indebtedness.
 
(2)   Payment of Obligations.   The Corporation will pay and discharge, and will cause each Subsidiary of the Corporation to pay and discharge, when due all their respective obligations and liabilities which are material to the Corporation and its subsidiaries taken as a whole, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings and the Corporation shall have established adequate reserves therefor on its books.
 
(3)   Maintenance of Property; Insurance.
 
(A)   The Corporation will keep, and will cause each Subsidiary to keep, all material property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted.
 
(B)   The Corporation will maintain, and will cause each Subsidiary to maintain, with financially sound and responsible insurance companies, insurance in at least such amounts and covering such risks as is reasonably adequate for the conduct of their respective businesses and the value of their respective properties.
 
(4)   Conduct of Business and Maintenance of Existence.   The Corporation will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as conducted by the Corporation and its operating subsidiaries at the time this Certificate of Designations is filed with the Secretary of State of the State of Delaware, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect, their respective corporate existence and their respective material rights, privileges and franchises necessary or desirable in the normal conduct of business except, in the case of any such matter other than maintenance of the Corporation’s corporate existence, where the failure to do so would not have a material adverse effect on (i) the business, properties, operations, condition (financial or other), results of operation or prospects of the Corporation and the Subsidiaries, taken as a whole, (ii) the ability of the Corporation to pay and perform its obligations under the Transaction Documents or (iii) the rights and remedies of the Holders or the Collateral Agent under or in connection with the Transaction Documents.
 
(5)   Compliance with Laws.   The Corporation will comply, and will cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, decisions, orders and requirements of governmental authorities and courts (including, without limitation, environmental laws) except (i) where compliance therewith is contested in good faith by appropriate proceedings or (ii) where non-compliance therewith could not reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Corporation and the Subsidiaries taken as a whole.
 
(6)   Investment Company Act.   The Corporation will not be or become an open-end investment trust, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended, or any successor provision.
 
(7)   Limitations on Asset Sales, Liquidations, Etc.; Certain Matters.   The Corporation shall not, and shall not permit any Subsidiary to:
 
 
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(A)   sell, convey or otherwise dispose of all or substantially all of its assets as an entirety or substantially as an entirety in a single transaction or in a series of related transactions; or
 
(B)   sell one or more Subsidiaries, or permit any one or more Subsidiaries to sell their respective assets, if such sale individually or in the aggregate is material to the Corporation and the Subsidiaries taken as a whole, other than any such sale or sales which individually or in the aggregate could not reasonably be expected to have a material adverse effect on (i) the business, properties, operations, condition (financial or other), results of operation or financial prospects of the Corporation and the Subsidiaries, taken as a whole, (ii) the validity or enforceability of, or the ability of the Corporation to perform its obligations under, the Transaction Documents, or (iii) the rights and remedies of the Holders under the terms of the Transaction Documents; or
 
(C)   liquidate, dissolve or otherwise wind up its affairs.
 
(8)   Limitation on Liens.   The Corporation will not itself, and will not permit any Subsidiary to create, assume or suffer to exist any Lien upon all or any part of its property of any character, whether owned at the date hereof or thereafter acquired, except Permitted Liens.
 
(9)   Transactions with Affiliates.   The Corporation will not, and will not permit any Subsidiary, directly or indirectly, to pay any funds to or for the account of, make any investment (whether by acquisition of stock or Indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with, any joint enterprise or other joint arrangement with, any Affiliate of the Corporation, except, on terms to the Corporation or such Subsidiary no less favorable than terms that could be obtained by the Corporation or such Subsidiary from a Person that is not an Affiliate of the Corporation, as determined in good faith by the Board of Directors.
 
(10)   Rule 144A Information Requirement.   Within the period prior to the expiration of the holding period applicable to sales of shares of Series B Convertible Preferred Stock under Rule 144 under the 1933 Act (or any successor provision), the Corporation shall, during any period in which it is not subject to Section 13 or 15(d) under the 1934 Act, make available to the Holders or any holder of shares of Common Stock issued upon conversion of shares of Series B Convertible Preferred Stock which continue to be Restricted Securities in connection with any sale thereof and any prospective purchaser of Series B Convertible Preferred Stock from any Holder, the information required pursuant to Rule 144A(d)(4) under the 1933 Act upon the request of such Holder and it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell the shares of Series B Convertible Preferred Stock held by it without registration under the 1933 Act within the limitation of the exemption provided by Rule 144A, as Rule 144A may be amended from time to time. Upon the request of any Holder, the Corporation will deliver to such Holder a written statement as to whether it has complied with such requirements.
 
(11)   Limitation on Certain Issuances.   While the Series B Convertible Preferred Stock is outstanding the Corporation shall not offer, sell or issue, or enter into any agreement, arrangement or understanding to offer, sell or issue, any Common Stock or Common Stock Equivalent (A) that is convertible into, exchangeable or exercisable for, or includes the right to receive additional shares of Common Stock either (x) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the Common Stock at any time after the initial issuance of such Common Stock or Common Stock Equivalent, or (y) with a fixed conversion, exercise, exchange or purchase price that is subject to being reset at some future date after the initial issuance of such Common Stock or Common Stock Equivalent or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Corporation or the market for the Common Stock (but excluding customary stock split, reverse stock split, stock dividend and similar anti-dilution provisions substantially similar to those set forth in clauses (1) through (6) of Section 10(c)), or (B) pursuant to an “equity line” structure in which one or more Persons commits to provide capital to the Corporation by the purchase of securities of the Corporation from time to time, whether at specified times, times determined by the Corporation or by such Person(s) or by mutual agreement between the Corporation and such Person(s), at prices based on the market prices of the Common Stock at or near the time of each purchase, which securities are registered for sale or resale pursuant to the 1933 Act; provided, however, that nothing in this Section 12(c)(11) shall prohibit the Corporation from issuing shares of Common Stock for cash for the account of the Corporation in an offering that is underwritten on a firm commitment basis and registered with the SEC under the 1933 Act.
 
(12)   RESERVED
 
(13)   RESERVED
 
(14)   Listing Eligibility Reporting.   The Corporation shall notify the Holders from time to time within five Business Days after the Corporation first learns that it does not meet any of the applicable requirements for the continued listing of the Common Stock on the Principal Market and shall make appropriate public announcement thereof so that the content of such notice shall not constitute material non-public information for purposes of the 1934 Act.
 
(e)   Concerning the Majority Holders .   The Corporation shall not take any action or engage in any transaction, or enter into any agreement, arrangement or understanding to take any action or engage in any transaction, which would constitute a Fundamental Change without the advance written consent of the Majority Holders.
 
(f)   Amendment .  This Certificate of Designations may only be amended with the prior written consent of the Majority Holders.  The Corporation may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Corporation shall have obtained the written consent to such action or omission to act, of the Majority Holders.
 
Section 13.   Outstanding Shares .   For purposes of this Certificate of Designations, all authorized and issued shares of Series B Convertible Preferred Stock shall be deemed outstanding except (i) from the applicable Conversion Date, each share of Series B Convertible Preferred Stock converted into Common Stock, unless the Corporation shall default in its obligation to issue and deliver shares of Common Stock upon such conversion as and when required by Section 10; (ii) from the date of registration of transfer, all shares of Series B Convertible Preferred Stock held of record by the Corporation or any subsidiary or Affiliate of the Corporation (other than an Affiliate of the Corporation who is a natural person or any original holder of shares of Series B Convertible Preferred Stock) and (iii) from the Optional Redemption Date, all shares of Series B Convertible Preferred Stock which are redeemed or repurchased, so long as in each case the Optional Redemption Price or other repurchase price, as the case may be, of such shares of Series B Convertible Preferred Stock shall have been paid by the Corporation as and when due hereunder.
 
Section 14.   Forms of Notices .   The forms of certain of the notices required or permitted under this Certificate of Designations shall be as provided in this Section 14 or as otherwise agreed by the Corporation and Majority Holders.
 
(a)   Form of Notice of Conversion of Series B Convertible Preferred Stock .
 
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NOTICE OF CONVERSION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
EMAGIN CORPORATION

TO:        eMagin Corporation
10500 N.E. 8 th Street
Suite 1400
Seattle, Washington 98004
Attention:  Chief Executive Officer
Facsimile No.:  (425) 749-3601

(1)           Pursuant to the terms of the Series B Convertible Preferred Stock (the “ Preferred Stock ”), of eMagin Corporation, a Delaware corporation (the “ Corporation ”), the undersigned (the “ Holder ”) hereby elects to convert                      shares of the Preferred Stock into shares of Common Stock, $.001 par value (the “ Common Stock ”), of the Corporation, at a Conversion Price per share of Common Stock of $ ___________ , or such other securities into which the Preferred Stock is currently convertible.  Capitalized terms used in this Notice and not otherwise defined herein have the respective meanings provided in the Certificate of Designations of Series B Convertible Preferred Stock.
 
(2)           The number of shares of Common Stock issuable upon the conversion of the shares of Preferred Stock to which this Notice relates is                             .
 
(3)           Please issue certificates for the number of shares of Common Stock or other securities into which such number of shares of Preferred Stock is convertible in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:
 

     
Name
 
Name
     
     
     
Address
 
Address
     
     
     
SS or Tax ID Number
 
SS or Tax ID Number


Delivery Instructions
for Common Stock:                                                                                      
                                                                      
                                                                      

(4)           If the shares of Common Stock issuable upon conversion of the Preferred Stock have not been registered for resale under the 1933 Act, the Holder represents and warrants that (i) the shares of Common Stock not so registered are being acquired for the account of the Holder for investment, and not with a view to, or for resale in connection with, the public distribution thereof other than pursuant to registration under the 1933 Act or an exemption from registration under the 1933 Act, and that the Holder has no present intention of distributing or reselling the shares of Common Stock not so registered other than pursuant to registration under the 1933 Act or an exemption from registration under the 1933 Act and (ii) the Holder is an “accredited investor” as defined in Regulation D under the 1933 Act.  If the provisions of Rule 144 under the 1933 Act are inapplicable to the Holder with respect to the Conversion Shares to which this Notice relates, the Holder further agrees that (A) the shares of Common Stock not so registered shall not be sold or transferred unless either (i) such shares first shall have been registered under the 1933 Act or (ii) the Corporation first shall have been furnished with an opinion of legal counsel reasonably satisfactory to the Corporation to the effect that such sale or transfer is exempt from the registration requirements of the 1933 Act and (B) until such shares are registered for resale under the 1933 Act, the Corporation may place a legend on the certificate(s) for the shares of Common Stock not so registered to that effect and place a stop-transfer restriction in its records relating to the shares of Common Stock not so registered, all in accordance with the Securities Purchase Agreement by which the Holder is bound.
 

Date
     
     
Signature of Holder
(Must be signed exactly as name
appears on the Preferred Stock Certificate.)

(b)   Form of Optional Redemption Notice .
 
 
 
 
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OPTIONAL REDEMPTION NOTICE
(Section 7 of Certificate of Designations of
Series B Convertible Preferred Stock)

TO:                                                                           
(Name of Holder)

(1)           Pursuant to the terms of the Series B Convertible Preferred Stock (the “ Preferred Stock ”), eMagin Corporation, a Delaware corporation (the “ Corporation ”), hereby notifies the above-named holder (the “ Holder ”) that the Corporation is redeeming                  shares of Preferred Stock held by the Holder in accordance with Section 7 of the Certificate of Designations of the Series B Senior Secured Convertible Preferred Stock (the “ Certificate of Designations ”).
 
(2)           The Optional Redemption Date is December _________.
 
(3)           The Optional Redemption Price per share of Preferred Stock is $_________.
 
(4)           Upon surrender to the Corporation of the certificate(s) for the shares of Preferred Stock to be redeemed (but in no event earlier than the Optional Redemption Date), the Corporation will make payment of the Optional Redemption Price in accordance with the Certificate of Designations.
 
(5)           Capitalized terms used herein and not otherwise defined herein have the respective meanings provided in the Certificate of Designations.
 

Date:
   
EMAGIN CORPORATION
       
       
     
By
 
       
Title:


Section 15.   Miscellaneous .
 
(a)   Notices .  Any notices required or permitted to be given under the terms of this Certificate of Designations shall be in writing and shall be delivered personally (which shall include telephone line facsimile transmission) or by courier and shall be deemed given upon receipt, if delivered personally or by courier (a) in the case of the Corporation, addressed to the Corporation at 10500 N.E. 8 th Street, Suite 1400, Bellevue, Washington 98004, Attention:  Chief Executive Officer (telephone line facsimile transmission number (425) 749-3601), or (b) in the case of any Holder of shares of Series B Convertible Preferred Stock, at such Holder’s address or telephone line facsimile transmission number shown on the stock books maintained by the Corporation with respect to the Series B Convertible Preferred Stock or such other address as the Corporation shall have provided by notice to the Holders of shares of Series B Convertible Preferred Stock in accordance with this Section or any Holder of shares of Series B Convertible Preferred Stock shall have provided to the Corporation in accordance with this Section.
 
(b)   Replacement of Certificates .  Upon receipt by the Corporation of evidence reasonably satisfactory to the Corporation of the ownership of and the loss, theft, destruction or mutilation of any certificate for shares of Series B Convertible Preferred Stock and (1) in the case of loss, theft or destruction, of indemnity from the record Holder of the certificate for such shares of Series B Convertible Preferred Stock reasonably satisfactory in form to the Corporation (and without the requirement to post any bond or other security if such Holder has and agrees to maintain reasonably sufficient assets to support the indemnity) or (2) in the case of mutilation, upon surrender and cancellation of the certificate for such shares of Series B Convertible Preferred Stock, the Corporation will execute and deliver to such Holder a new certificate for such shares of Series B Convertible Preferred Stock without charge to such Holder.
 
(c)   Payment on Redemption; Deposit of Redemption Price .  If any share of Series B Convertible Preferred Stock is to be redeemed as provided in Section 7 or 11 and any notice required in connection therewith shall have been timely given as provided therein, the applicable redemption price of such share of Series B Convertible Preferred Stock to be so redeemed and with respect to which any such notice has been given shall become due and payable on the applicable redemption date.  On and after such redemption date, provided that the Corporation shall have paid such redemption price to the respective Holders who are entitled thereto on or prior to the applicable redemption date or shall have deposited with an Eligible Bank on or prior to such redemption date, to be held in trust for the respective Holders entitled thereto, an amount sufficient to pay the applicable redemption price, then on such redemption date the dividends on such share of Series B Convertible Preferred Stock shall cease to accrue, and such share of Series B Convertible Preferred Stock shall be deemed not to be outstanding and the Holder thereof shall not be entitled to any rights of a Holder except to receive payment of the applicable redemption price and all other rights hereunder with respect to such share of Series B Convertible Preferred Stock shall cease.  So long as the Corporation shall have so paid or deposited the full amount of the applicable redemption price on a timely basis, no Holder shall be entitled to interest on the amount so held by such Eligible Bank and, so long as the Corporation shall be in compliance in all material respects with its obligations to the Holders (including, without limitation, its obligations under the Transaction Documents), the Corporation shall be entitled to any interest paid by such Eligible Bank on the funds so deposited, subject to applicable abandoned property and escheat laws.  On presentation and surrender of the certificate for such share of Series B Convertible Preferred Stock, such share shall be redeemed at the applicable redemption price.
 
(d)   Overdue Amounts .  Except as otherwise specifically provided in Section 5 with respect to dividends in arrears on the Series B Convertible Preferred Stock, whenever any amount which is due to any Holder of shares of Series B Convertible Preferred Stock is not paid to such Holder when due, such amount shall bear interest at the rate of 12% per annum (or such other rate as shall be the maximum rate allowable by applicable law) until paid in full.
 
[Signature Page Follows]
 
 
18


 
IN WITNESS WHEREOF , eMagin Corporation has caused this Certificate of Designations to be signed by Andrew G. Sculley, its Chief Executive Officer, and Paul Campbell, its Interim Chief Financial Officer, as of the 18 th day of December, 2008.
 
 
EMAGIN CORPORATION
 
       
 
By:
/s/ Andrew G. Sculley  
    Name: Andrew G. Sculley  
    Title:  Chief Executive Officer  
       
 
     
       
 
By:
/s/ Paul Campbell  
    Name: Paul Campbell  
    Title:  Interim Chief Financial Officer  
       
 


 
 
 
 
 
 

SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “ Agreement ”) is dated as of December 18, 2008, among eMagin Corporation, a Delaware corporation (the “ Company ”), and each of the purchasers named on Schedule A hereto (each, including its successors and assigns, a “ Purchaser ” and collectively the “ Purchasers ”).
 
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser to the extent required to enable the Company to repay any of its unconverted Amended and Restated 8% Senior Secured Convertible Note Due 2008 (the “ Notes ”) and/or redeem any of its outstanding Series A Senior Secured Convertible Preferred Stock $0.001 par value (the “ Series A Preferred Stock ”), if any, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:
 
 
ARTICLE I
DEFINITIONS
 
Section 1.1   Definitions .  In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings indicated in this Section 1.1:
 
Action ” shall have the meaning ascribed to such term in Section 3.1(j).
 
Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.
 
Agreement ” means this Agreement, together with all appendices, exhibits and schedules attached hereto and the Disclosure Schedule, as the same may be amended or supplemented from time to time, by written agreement of the Company and the Purchasers.
 
Business Day   means any day except Saturday, Sunday and any day which is a federal legal holiday or a day on which banking institutions in the State of New York or State of Washington are authorized or required by law or other governmental action to close.
 
Certificate of Designations ” means the Certificate of Designations of Series B Convertible Preferred Stock as filed with the Secretary of State of the State of Delaware in the form of Exhibit A attached hereto.
 
Closing ” means the closing of the purchase and sale of the Preferred Shares and Warrants pursuant to Section 2.1.
 
Closing Date ” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions set forth in Sections 2.3 hereof are satisfied, or such other date as the parties may agree, but in no event later than December 22, 2008.
 
Closing Price ” means on any particular date (a) the last reported closing bid price per share of Common Stock on such date on the Trading Market (as reported by Bloomberg L.P. at 4:15 PM (Eastern Time)), or (b) if there is no such price on such date, then the closing bid price on the Trading Market on the date nearest preceding such date (as reported by Bloomberg L.P. at 4:15 PM (Eastern Time)), or (c) if the Common Stock is not then listed or quoted on the Trading Market and if prices for the Common Stock are then reported in the “pink sheets” published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined by an appraiser selected in good faith by the Purchasers of a majority in interest of the Shares then outstanding.
 
Closing Statement ” means the closing statement in the form attached hereto as Schedule B .
 
Commission ” means the United States Securities and Exchange Commission.
 
Common Stock ” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter have been reclassified or changed into.
 
 
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Common Stock Equivalents ” means any securities of the Company or the Subsidiaries which entitle the holder thereof to acquire Common Stock at any time, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
 
Company ” shall have the meaning set forth in the preamble of this Agreement.
 
Company Counsel ” means Sichenzia Ross Friedman Ference LLP.
 
Company Obligation ” shall have the meaning set forth in Section 2.1.
 
Disclosure Schedules ” means the Disclosure Schedules of the Company delivered concurrently herewith.
 
Effective Date ” means the date that the initial Registration Statement filed by the Company pursuant to the Registration Rights Agreement is first declared effective by the Commission.
 
Escrow Agreement ” means the Escrow Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit B attached hereto.
 
Evaluation Date ” shall have the meaning ascribed to such term in Section 3.1(r).
 
Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
 
Exchange Agreement ” means the Exchange Agreement, dated the date hereof, among the Company, Ginola Limited, Rainbow Gate Corporation and Navacorp III LLC, in the form of Exhibit C attached hereto.
 
Exempt Issuance ” means the issuance of (a) shares of Common Stock or options to employees, officers, directors or consultants of the Company pursuant to (i) any existing stock or option plan, or (ii) any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) the issuance of shares of Common Stock under the Company’s existing Non-Employee Stock Compensation Plan, (c) options issued to new employees, (d) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of any such securities without the Majority Holder’s prior written consent, and (e) securities issued pursuant to acquisitions or strategic transactions or in connection with a strategic alliance collaboration, joint venture, partnership, manufacturing, marketing, distributing or similar arrangement of the Company with another Person which strategic alliance, collaboration, joint venture, partnership manufacturing, marketing, distributing or similar arrangement relates to the Company’s business as conducted immediately prior thereto and which Person is engaged, or proposes to be engaged, in a business similar or related to the business of the Company, provided any such issuance shall only be to a Person which is, or proposes to be, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
 
GAAP ” shall have the meaning ascribed to such term in Section 3.1(h).
 
Holder ” means at any time with respect to any share of Preferred Stock the Person shown as the holder of record of such share of Preferred Stock on the records of the Company relating to the Preferred Stock which records are maintained in accordance with applicable law.
 
Intellectual Property Rights ” shall have the meaning ascribed to such term in Section 3.1(o).
 
Legend Removal Date ” shall have the meaning ascribed to such term in Section 4.1(c).
 
Liens ” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
 
Majority Holder ” means, at any time, the Holders of a majority of the Preferred Shares outstanding at such time.
 
Material Adverse Effect ” means (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document.
 
Material Permits ” shall have the meaning ascribed to such term in Section 3.1(m).
 
Notes ” shall have the meaning set forth in the preamble of this Agreement.
 
NPA ” means the Note Purchase Agreement, dated July 21, 2006, as amended on March 28, 2007 and July 23, 2007, between the Company and the purchased named therein.
 
 
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NPA Pro Rata Share ’ shall have the meaning ascribed to the term “Pro Rata Share” in the NPA and/or SPA, as applicable.
 
Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
 
Preferred Shares ” means the shares of Series B Preferred Stock issued or issuable to (i) each Purchaser pursuant to this Agreement, and (ii) Ginola Limited, Rainbow Gate Corporation and Navacorp III LLC   pursuant   to the Exchange Agreement.
 
Pro Rata Share ” means with respect to each capital raising transaction to which Section 4.16 applies, an amount equal to the product obtained from multiplying (a) an amount equal to one-half of the securities being issued in such capital raising transaction, and (b) a fraction of which the numerator is the sum of the Underlying Shares and Warrant Shares issued to a Purchaser under this Agreement, and the denominator is the sum of all Warrant Shares and Underlying Shares issued under this Agreement.
 
Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.
 
Purchaser ” and “ Purchasers ” shall have the meanings set forth in the preamble of this Agreement.
 
Purchaser Party ” shall have the meaning ascribed to such term in Section 4.9.
 
Registration Rights Agreement ” means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchasers in the form of Exhibit D attached hereto.
 
Registration Statement ” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchasers of the Shares.
 
Required Approvals ” shall have the meaning ascribed to such term in Section 3.1(e).
 
Revised Subscription Amount ” shall have the meaning ascribed to such term in Section 4.22.
 
Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
 
SEC Reports ” shall have the meaning ascribed to such term in Section 3.1(h).
 
Securities ” means the Preferred Shares, the Underlying Shares, the Warrants and the Warrant Shares.
 
Securities Act ” means the Securities Act of 1933, as amended.
 
Series A Preferred Stock ” means the Company’s Series A Preferred Stock having the rights and preferences set forth on the Certificate of Designations of Series A Senior Secured Convertible Preferred Stock filed with the Secretary of State for the State of Delaware on July 25, 2007.
 
Series B Preferred Stock ” means the Company’s Series B Convertible Preferred Stock, $0.001 par value, having the rights and preferences set forth on the Certificate of Designations.
 
Shares ” means the Underlying Shares and the Warrant Shares issued and outstanding.
 
Short Sales ” shall include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers. 
 
SPA ” means the Securities Purchase Agreement, dated April 2, 2008, between the Company and the purchasers named therein.
 
Subscription Amount ” means, as to each Purchaser, the aggregate amount to be paid for Preferred Shares and Warrants purchased hereunder as specified next to each Purchaser’s name on Schedule A hereto under the heading “Subscription Amount,” in United States Dollars and in immediately available funds.
 
Subsidiary ” means any subsidiary of the Company as set forth on Schedule 3.1(a) .
 
 
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Trading Day ” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink Sheets, LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided , that in the event that the Common Stock is not listed or quoted as set forth in (i) and (ii) hereof, then Trading Day shall mean a Business Day.
 
Trading Market ” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.
 
Transaction Documents ” means this Agreement, the Certificate of Designations, the Escrow Agreement, the Registration Rights Agreement, the Warrants, the Exchange Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.
 
Underlying Shares ” means the shares of Common Stock issued or issuable upon conversion of the Preferred Shares.
 
Warrants ” means collectively the Common Stock purchase warrants, in the form of Exhibit E delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof.
 
Warrant Shares ” means the shares of Common Stock issuable upon exercise of the Warrants.
 
 
ARTICLE II
PURCHASE AND SALE
 
Section 2.1   Closing .  On the Closing Date, upon the terms and subject to the conditions set forth herein, concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and each Purchaser agrees to purchase in the aggregate, severally and not jointly, up to $6,020,000 of Preferred Shares and Warrants so that the Company will use the proceeds exclusively to (i) repay on the Closing Date any principal and interest on any outstanding Notes not converted pursuant to the terms of the Notes, and (ii) redeem on the Closing Date all Series A Preferred Stock, if any (collectively, the “ Company Obligation ”).  Subject to the terms and conditions set forth in this Agreement, each Purchaser shall deliver to the Company via wire transfer or a certified check immediately available funds equal to their Subscription Amount, subject to adjustment pursuant to Section 5.2, and the Company shall deliver to each Purchaser their respective Preferred Shares and Warrants as determined pursuant to Section 2.2(a) and the other items set forth in Section 2.2 issuable at the Closing.  Notwithstanding anything to the contrary herein, if, as of the Closing Date, the aggregate Subscription Amount equals more than the Company Obligation, then excess funds shall be returned to such Purchaser pursuant Section 4.22 and the terms of the Escrow Agreement.  Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of Sichenzia Ross Friedman Ference LLP, or such other location as the parties shall mutually agree, including remotely via the exchange of signatures and documents.
 
Section 2.2   Deliveries .
 
(a)   On or before the Closing Date, the Company shall deliver, or have delivered, to each Purchaser the following:
 
(i)   this Agreement duly executed by the Company;
 
(ii)   the Escrow Agreement duly executed by the Company;
 
(iii)   the Registration Rights Agreement duly executed by the Company;
 
(iv)   a legal opinion of Company Counsel, in the form of Exhibit F attached hereto;
 
(v)   the Lockup Agreement in the form of Exhibit G attached hereto executed by each director and each of the senior executive officers named as such on Schedule 2.2(a) ;
 
(vi)   evidence reasonably satisfactory to the Purchasers of the filling of the Certificate of Designations with the Secretary of State of the State of Delaware;
 
(vii)   a copy of the executed Warrants for the number of Warrant Shares as specified next to each Purchaser’s name on Schedule A hereto under the heading “Warrant Shares”, registered in the name of such Purchaser, duly executed by the Company; provided that as soon as possible following the Closing, but in no later than two Business Days following the Closing Date, the Company will deliver by overnight mail the original Warrants to such Purchaser;
 
 
 
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(viii)   a copy of the signed stock certificate for the number of Preferred Shares as specified next to each Purchaser’s name on Schedule A hereto under the heading “Preferred Shares”, registered in the name of such Purchaser; provided that as soon as possible following the Closing Date, but in no later than two Business Days, the Company will deliver by overnight mail, the original certificate representing the Preferred Shares to such Purchaser;
 
(ix)   an officer’s certificate, executed on behalf of the Company by its Chief Executive Officer or its Chief Financial Officer, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in Section 2.3(b);
 
(x)   a secretary’s certificate, executed on behalf of the Company by its Secretary, dated as of the Closing Date, certifying the resolutions adopted by the Board of Directors of the Company approving the transactions contemplated by this Agreement and the other Transaction Documents and the issuance and sale of the Securities, certifying the current versions of the Certificate of Incorporation and Bylaws of the Company and certifying as to the signatures and authority of persons signing the Transaction Documents and all related documents on behalf of the Company;
 
(xi)   the executed waivers from all of the purchasers to the SPA consenting to the Company entering into the transactions contemplated by this Agreement and the Transaction Documents;
 
(xii)   the executed waivers from Moriah Capital, L.P. consenting to the Company entering into the transactions contemplated by this Agreement and the Transaction Documents;
 
(xiii)   the Exchange Agreement duly executed by the Company, Ginola Limited, Rainbow Gate Corporation and Navacorp III LLC; and
 
(xiv)   the list of warrants with anti-dilution provisions and the new conversion price for such warrants described in Schedule 3.1(g) in paragraph 4.
 
(b)   On or before the Closing Date, each Purchaser shall deliver, or have delivered, to the Company the following:
 
(i)   this Agreement duly executed by such Purchaser;
 
(ii)   the Escrow Agreement duly executed by such Purchaser;
 
(iii)   the Registration Rights Agreement duly executed by such Purchaser; and
 
(iv)   in no event later than December 19, 2008, such Purchaser’s Subscription Amount, subject to adjustment pursuant to Section 5.2, by wire transfer to the account as specified in writing by the Company.
 
Section 2.3   Closing Conditions .  The obligations of the Company and the Purchasers to consummate the transactions contemplated to occur at Closing shall be subject to the satisfaction prior to the Closing of each of the following conditions, each of which may be waived only if legally permissible to do so:
 
(a)   Conditions to the Obligations of the Company .  The obligations of the Company hereunder in connection with the Closing are subject to the satisfaction or waiver thereof prior to the Closing of each of the following conditions:
 
(i)   the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Purchasers contained herein;
 
(ii)   all obligations, covenants and agreements of the Purchasers required to be performed at or prior to the Closing Date shall have been performed; and
 
(iii)   the delivery by the Purchasers of the items set forth in Section 2.2(b) of this Agreement.
 
(b)   Conditions to the Obligations of the Purchaser .  The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the satisfaction or waiver thereof prior to Closing of each of the following conditions:
 
(i)   the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;
 
(ii)   all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;
 
(iii)   the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;
 
 
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(iv)   there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and
 
(v)   from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg Financial Markets shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.
 
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
Section 3.1   Representations and Warranties of the Company .  Except as set forth under the corresponding section of the Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the representations and warranties set forth below to each Purchaser:
 
(a)   Subsidiaries .  All direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a) .  Except as set forth on Schedule 3.1(a) , the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.
 
(b)   Organization and Qualification .  The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to conduct its respective business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in a Material Adverse Effect and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
 
(c)   Authorization; Enforcement .  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
 
(d)   No Conflicts .  The execution, delivery and performance of the Transaction Documents by the Company, the issuance and sale of the Securities and the consummation by the Company of the other transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) subject to the Required Approvals, conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
 
(e)   Filings, Consents and Approvals .  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission of the Registration Statement(s) and the declaration of effectiveness by the Commission of such Registration Statement(s), (iii) application(s) to each applicable Trading Market for the listing of the Shares for trading thereon in the time and manner required thereby, (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, (v) the filing of the Certificate of Designations with the Secretary of State of the State of Delaware, (vi) consent from the purchasers to the SPA, (vii) consent from Moriah Capital, L.P., and (viii) notice to the holders of the Notes pursuant to the NPA (collectively, the “ Required Approvals ”).
 
(f)   Issuance of the Securities .  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  The Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company.  As of the Closing, the Company will have reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants.
 
(g)   Capitalization .  The capitalization of the Company is as set forth on Schedule 3.1(g) .  The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plan, the issuance of shares of Common Stock pursuant to the Company’s existing Non-Employee Stock Compensation Plan, and pursuant to the conversion or exercise of outstanding Common Stock Equivalents.  Other than as set forth on Schedule 3.1(g) , no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.  Other than as disclosed on Schedule 3.1(g) , except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents.  Except as set forth on Schedule 3.1(g) , the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities.  All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Other than the Required Approvals, no further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
 
(h)   SEC Reports; Financial Statements .  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “ SEC Reports ”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension other than Current Reports on Form 8-K.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
 
 
 
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(i)   Material Changes .  Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option or stock plans. The Company does not have pending before the Commission any request for confidential treatment of information.
 
(j)   Litigation .  There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened in writing against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “ Action ”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.  There has not been and, to the knowledge of the Company, is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.
 
(k)   Labor Relations .  No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.
 
(l)   Compliance .  Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business except in each case as could not have a Material Adverse Effect.
 
(m)   Regulatory Permits .  The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect (“ Material Permits ”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
 
(n)   Title to Assets .  Other than as set forth on Schedule 3.1(n) , the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance, except as could not have or reasonably be expected to result in a Material Adverse Effect.
 
(o)   Patents and Trademarks .  The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have or reasonably be expected to result in a Material Adverse Effect (collectively, the “ Intellectual Property Rights ”). Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person.  All such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights of others.
 
(p)   Insurance .  The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount.  Such insurance contracts and policies are accurate and complete.  Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business on terms consistent with market for the Company’s and such Subsidiaries respective lines of business.
 
(q)   Transactions With Affiliates and Employees .  Except as set forth in the SEC Reports or Schedule 3.1(q) , none of the officers, directors or employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as officers, directors and employees), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company, and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company.
 
(r)   Sarbanes-Oxley; Internal Accounting Controls .  Except as set forth on Schedule 3.1(r) , the Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date.  The Company is actively taking steps to ensure that it cures all of the items set forth on Schedule 3.1(r) and the Company agrees that such items shall be cured by no later than December 31, 2009.   The Company shall thereafter comply in all material respects with all applicable provisions of the Sarbanes-Oxley Act.  Except as set forth on Schedule 3.1(r) , the Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  Except as set forth on Schedule 3.1(r) , the Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s most recently filed periodic report under the Exchange Act, as the case may be, is being prepared.  The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures as of the date prior to the filing date of the most recently filed periodic report under the Exchange Act (such date, the “ Evaluation Date ”).  The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the knowledge of the Company, in other factors that could significantly affect the Company’s internal controls.
 
 
 
 
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(s)   Certain Fees .  No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.  The Purchasers shall have no obligation with respect to any fees or with respect to any claims (other than such fees or commissions owed by an Purchaser pursuant to written agreements executed by such Purchaser which fees or commissions shall be the sole responsibility of such Purchaser) made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
 
(t)   Private Placement .  Assuming the accuracy of the Purchasers representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby.  The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.
 
(u)   Investment Company .  The Company is not, and is not an Affiliate   of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.
 
(v)   Registration Rights . Other than as set forth on Schedule 3.1(v)   and in the Transaction Documents, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.  Other than as set forth on Schedule 3.1(v) , the Company is not in default under any agreement or other arrangement related to the registration rights of any Person and does not owe any liquidated damages to any Person related to any registration obligation.
 
(w)   Listing and Maintenance Requirements .  The Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.  The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market.  The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.
 
(x)   Application of Takeover Protections .  The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.
 
(y)   Disclosure .  The Company confirms that, neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that the Company believes constitutes or might constitute material, non-public information, except insofar as the existence and terms of the proposed transactions hereunder may constitute such information.  The Company understands and confirms that the Purchasers will rely on the foregoing representations and covenants in effecting transactions in securities of the Company.  All disclosure provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, furnished by or on behalf of the Company with respect to the representations and warranties made herein are true and correct with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.  The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.
 
(z)   No Integrated Offering .  Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act, which would require the registration of any such securities under the Securities Act or under the rules and regulations of any Trading Market on which any of the securities of the Company are listed or designated, if such integration would cause this Agreement or the transactions contemplated herein to require shareholder approval.
 
(aa)   Solvency .  Based on the financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).  The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.  The SEC Reports set forth as of the dates thereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments.  For the purposes of this Agreement, “ Indebtedness ” shall mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
 
 
 
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(bb)   Form S-1 Eligibility .  The Company is eligible to register the resale of the Shares for resale by the Purchaser on Form S-1 promulgated under the Securities Act.
 
(cc)   Tax Status .  Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.
 
(dd)   No General Solicitation .  Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising.  The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.
 
(ee)   Foreign Corrupt Practices .  Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.
 
(ff)   Accountants .  The Company’s accountants are set forth in the SEC Reports.  To the knowledge of the Company, such accountants, who the Company expects will express their opinion with respect to the financial statements to be included in the Company’s Annual Report on Form 10-K for the year ending December 31, 2008, are a registered public accounting firm as required by the Securities Act.
 
(gg)   Acknowledgment Regarding Purchasers’ Purchase of Securities .  The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby.  The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Purchasers’ purchase of the Securities.  The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
 
(hh)   Acknowledgement Regarding Purchasers’ Trading Activity .  Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Section 4.14 hereof), it is understood and agreed by the Company (i) that none of the Purchasers have been asked to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or derivative securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) that past or future open market or other transactions by any Purchaser, including Short Sales, and specifically including, without limitation, Short Sales or derivative transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities; (iii) that any Purchaser, and counter parties in derivative transactions to which any such Purchaser is a party, directly or indirectly, presently may have a short position in the Common Stock, and (iv) that each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any derivative transaction.  The Company further understands and acknowledges that (a) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding and (b) such hedging activities (if any) could reduce the value of the existing stockholders’ equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.
 
(ii)   Manipulation of Price .  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Securities (other than for the placement agent’s placement of the Securities), or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.
 
(jj)   Outstanding Series A Preferred Stock .  As of the Closing Date, no shares of Series A Preferred Stock are issued and outstanding.
 
(kk)   Outstanding Notes .  As of the Closing Date, no Notes are issued and outstanding, except those Notes being converted into Series B Preferred Stock pursuant to the Exchange Agreement, which shall be cancelled pursuant to the terms of the Exchange Agreement.
 
(ll)   Pledge and Security Agreement .  As of the Closing Date, the Pledge and Security Agreement between the Company and Alexandra Global Master Fund, dated July 21, 2006, as amended on July 23, 2007, is terminated pursuant to its terms due to the repayment in full of all principal and interest on the Notes.
 
(mm)   Patent and Security Agreement .  As of the Closing Date, the Patent and Security Agreement between the Company and Alexandra Global Master Fund, dated July 21, 2006, as amended on July 23, 2007, is terminated pursuant to its terms due to the repayment in full of all principal and interest on the Notes.
 
Section 3.2   Representations and Warranties of the Purchasers .  Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:
 
(a)   Organization; Authority .  Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of such Purchaser.  Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as such enforceability may be limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
 
(b)   Own Account .  Such Purchaser understands that the Securities are restricted securities and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no arrangement or understanding with any other persons regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.  Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.
 
(c)   Purchaser Status .  At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises any Warrants, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.
 
(d)   Experience of Such Purchaser .  Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
 
(e)   General Solicitation .  Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
 
(f)   Access to Information .  Such Purchaser acknowledges that it has reviewed the Disclosure Schedules and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of such Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser’s right to rely on the truth, accuracy and completeness of the Disclosure Schedules and the Company’s representations and warranties contained in the Transaction Documents.
 
 
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(g)   Certain Trading Activities .  Such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, engaged in any transactions in the securities of the Company (including, without limitations, any Short Sales involving the Company’s securities) since it was contacted by the Company in November 2008 regarding this transaction.  Such Purchaser covenants that neither it nor any Person acting on its behalf or pursuant to any understanding with it will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed by the Company.  Such Purchaser has maintained, and covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company such Purchaser will maintain, the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.  Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).
 
(h)   Independent Investment Decision .  Such Purchaser has independently evaluated the merits of its decision to purchase Securities pursuant to the Transaction Documents, and such Purchaser confirms that it has not relied on the advice of any other Purchaser’s business and/or legal counsel in making such decision.
 
The Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2.
 
 
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
 
Section 4.1   Transfer Restrictions .
 
(a)   The Securities may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of the Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), and subject to compliance with any applicable securities laws and conditions set forth in this Section 4.1, if a Purchaser wishes to transfer Securities, at such Purchaser’s request, and subject to the delivery by such Purchaser of such documentation as may be reasonably requested by the Company or its counsel, the Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent if required by the Company’s transfer agent to effect a transfer of any of the Securities.  As a condition of such transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement.
 
(b)   The Purchasers agree to the imprinting, so long as is required by this Section 4.1(b), of a legend on any of the Securities in the following form:
 
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.
 
The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder.
 
(c)   Certificates evidencing the Shares shall not contain any legend (including the legend set forth in Section 4.1(b)), (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Shares pursuant to a registration statement or Rule 144 (assuming the transferor is not an Affiliate of the Company), or (iii) if such Shares are eligible for sale under Rule 144 without volume restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act and the rules and regulations promulgated thereunder (including judicial interpretations and pronouncements issued by the staff of the Commission).  The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the Effective Date if required by the Company’s transfer agent to effect the removal of the legend hereunder.  If all or any portion of a Preferred Share or Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Shares, such Shares shall be issued free of all legends.  The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Company’s transfer agent of a certificate representing Shares issued with a restrictive legend (such third Trading Day, the “ Legend Removal Date ”), deliver or cause to be delivered to such Purchaser a certificate representing such Shares that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section.  Certificates for Securities subject to legend removal hereunder shall be transmitted by the transfer agent of the Company to the Purchasers by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System.
 
(d)   In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Shares (based on the Closing Price of the Common Stock on the date such Securities are submitted to the Company’s transfer agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend.  Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.
 
 
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(e)   Each Purchaser, severally and not jointly with the other Purchasers, agrees, and represent and covenants to the Company, that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance that the Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom.
 
(f)   Until the six month anniversary of the date hereof, the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the then outstanding Majority Holder.
 
Section 4.2   Furnishing of Information .  As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.  As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144.  The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.
 
Section 4.3   Integration .  The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require stockholder approval of the sale of the Securities to the Purchasers unless stockholder approval is obtained before the closing of such subsequent transaction.
 
Section 4.4   Securities Laws Disclosure; Publicity .  The Company shall, by 8:30 a.m. Eastern time on the next Trading Day following the Closing Date, issue a Current Report on Form 8-K, disclosing the material terms of the transactions contemplated hereby, and shall attach the Transaction Documents thereto.  In addition, the Company will make such other filings and notices in the manner and time required by the Commission and the Trading Market on which the Common Stock is listed. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission (other than the 8-K filed by the Company pursuant to this Section 4.4, including the exhibits and any amendments thereto, the Registration Statement and any exhibits to filings made in respect of this transaction in accordance with periodic filing requirements under the Exchange Act) or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except to the extent such disclosure is required by law or Trading Market regulations.
 
Section 4.5   Stockholder Rights Plan .  No claim will be made or enforced by the Company or, to the knowledge of the Company, any other Person that any Purchaser is an “ Acquiring Person ” under any stockholder rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents.  The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.
 
Section 4.6   Non-Public Information .  The Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information.  The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company.
 
Section 4.7   Use of Proceeds .  The Company shall use the proceeds from the sale of the Securities hereunder solely to repay the Company Obligation on the Closing Date.  Any surplus funds will be returned to the Purchasers pursuant to Section 4.22.
 
Section 4.8   Reimbursement .  If any Purchaser becomes involved in any capacity in any Proceeding by or against any Person who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by such Purchaser to or with any current stockholder), solely as a result of such Purchaser’s acquisition of the Securities under this Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred.  The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchasers and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such Affiliate and any such Person.  The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement, except to the extent that such claims are based on a breach of any representations and warranties or covenants made by the Purchasers in Transaction Documents.
 
Section 4.9   Indemnification of Purchasers .  Subject to the provisions of this Section 4.9, the Company will indemnify and hold the Purchasers and their directors, officers, stockholders, members, partners, employees and agents (each, a “ Purchaser Party ”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing.  Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party.  The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by the Purchasers in this Agreement or in the other Transaction Documents.
 
 
 
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Section 4.10   Reservation of Common Stock .  As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue the Underlying Shares and Warrant Shares upon conversion of the Preferred Shares and Warrant, respectively.
 
Section 4.11   Listing of Common Stock .  The Company hereby agrees to use best efforts to maintain the listing of the Common Stock on a Trading Market.  The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will include in such application all of the Shares, and will take such other action as is necessary to cause all of the Shares to be listed on such other Trading Market as promptly as possible.  The Company will take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market.
 
Section 4.12   Equal Treatment of Purchasers .  No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents.  For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended to treat for the Company the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.
 
Section 4.13   Subsequent Equity Sales .
 
(a)   So long as Holders own in the aggregate at least 577 outstanding shares of Preferred Stock, from the date hereof until the earlier of one year from the date hereof or 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents without the Majority Holder’s prior written consent; provided , however , the period set forth in this Section 4.13 shall be extended for the number of Trading Days during such period in which (i) trading in the Common Stock is suspended by any Trading Market, or (ii) following the Effective Date, unless such Shares may be sold pursuant to Rule 144 without volume restrictions, the Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Shares; provided , further , that such subsequent issuance of shares must be registered after the registration of the Securities.
 
(b)   So long as Holders own in the aggregate at least 577 outstanding shares of Preferred Stock, from the date hereof until all the Shares become eligible for resale under the Rule 144 without volume restrictions, the Company shall be prohibited from effecting or entering into an agreement to effect any subsequent financing involving a Variable Rate Transaction without the Majority Holder’s prior written consent.  The term “ Variable Rate Transaction ” shall mean a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price.  Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
 
(c)   Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.
 
Section 4.14   Short Sales and Confidentiality After The Date Hereof .  Such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, engaged in any transactions in the securities of the Company (including, without limitations, any Short Sales involving the Company’s securities) since the time that such Purchaser was contacted in November 2008 by the Company or any other Person regarding an investment in the Company.  Such Purchaser covenants that neither it nor any Person acting on behalf of or pursuant to any understanding with such Purchaser will engage in any transactions in the securities of the Company (including Short Sales) within 30 days of Closing Date.  Such Purchaser has maintained, and covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company such Purchaser will maintain, the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).
 
Section 4.15   Delivery of Securities After Closing .  The Company shall deliver, or cause to be delivered, the respective Securities purchased by each Purchaser to such Purchaser within three (3) Trading Days of the Closing Date.
 
 
 
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Section 4.16   Right of Purchaser to Participate in Future Transactions .  So long as Holders own in the aggregate at least 577 outstanding shares of Preferred Stock, the Purchasers will have a right to participate, on the terms and conditions set forth in this Section 4.16, in all sales by the Company of any of Common Stock or Common Stock Equivalents in each capital raising transaction, if any, that occurs at any time when the Securities, or any instrument issued upon transfer or split up thereof, remains outstanding (in whole or in part), other than any such sale that is a public offering underwritten on a firm commitment basis and registered with the Commission under the Securities Act and other than a Exempt Issuance; provided , however , that if under legal requirements applicable to a particular transaction the only Persons eligible to purchase securities in such transaction are “accredited investors,” within the meaning of Rule 501 under the Securities Act, then the Purchaser must be an accredited investor in order to purchase securities in such transaction.  For any such transaction during such period, the Company shall give at least four Business Days advance written notice to the Purchaser prior to any offer or sale of any of the Company’s securities in such transaction by providing to the Purchaser a term sheet which (i) contains all significant business terms of such proposed transaction, (ii) is sufficiently detailed so as to reasonably permit the Purchaser the opportunity to determine whether or not to exercise its rights under this Section 4.16 and (iii) is at least as detailed as the term sheet or summary of such transaction as the Company shall furnish to any offeree or broker in such transaction.  The Purchaser shall have the right to participate in such proposed transaction and to purchase its Pro Rata Share   of such securities which are the subject of such proposed transaction for the same consideration and on the same terms and conditions as contemplated for sales to third parties in such transaction (or such lesser portion thereof as specified by the Purchaser).  If the Purchaser elects to exercise its rights hereunder for a particular transaction, it shall deliver written notice to the Company within four Business Days following receipt from the Company of the notice and term sheet meeting the requirements of this Section 4.16, which notice from the Purchaser shall be conditional upon (i) the Purchaser’s receipt of satisfactory definitive documents for such transaction from the Company if the Company has not furnished final, definitive documents for such transaction to the Purchaser at or before the time the Company gives such notice of such transaction to the Purchaser, and (ii) the satisfaction of the other conditions precedent to the obligations of purchasers generally in such transaction to complete such transaction.  If, subsequent to the Company giving notice to the Purchaser hereunder but prior to any of (i) the Purchaser exercising its right to participate, (ii) the expiration of the four Business Day period without response from the Purchaser or (iii) the rejection of such offer for such financing by the Purchaser, the terms and conditions of the proposed sale to third parties in such transaction are changed from those disclosed in the term sheet provided to the Purchaser, the Company shall be required to provide a new notice and term sheet meeting the requirements of this Section 4.16, reflecting such revised terms, to the Purchaser hereunder and the Purchaser shall have the right, which must be exercised within four Business Days of the date the Purchaser receives such new notice and such revised term sheet, to exercise its rights to purchase the securities on such changed terms and conditions and otherwise as provided hereunder.  If the Purchaser does not exercise its rights hereunder with respect to a proposed transaction within the period or periods provided, or affirmatively declines to engage in such proposed transaction with the Company, then the Company may proceed with such proposed transaction on the same terms and conditions as noticed to the Purchaser (assuming the Purchaser has consented to the transaction, if required, pursuant to this Agreement and such transaction does not violate any other term or provision of the Transaction Documents), provided that if such proposed transaction is not consummated within 75 days following the Company’s notice hereunder, then the rights hereunder shall again be afforded to the Purchaser for such proposed transaction.  The rights and obligations of this Section 4.16 shall in no way limit or restrict the other rights of the Purchaser pursuant to this Agreement.  Notwithstanding anything herein to the contrary, failure of the Purchaser to affirmatively elect in writing to participate in any proposed transaction within the required time frames shall be deemed to be the equivalent of Purchaser’s decision not to participate in such proposed transaction.  Notwithstanding the foregoing, this Section 4.16 shall not apply in respect of an Exempt Issuance.  The rights of the Purchaser under this Section 4.16 shall apply to all capital raising transactions described in Section 4.16 that occur during the period specified in this Section 4.16.
 
Section 4.17   Limitation on Certain Transactions .  So long as Holders own in the aggregate at least 577 outstanding shares of Preferred Stock, from the date of this Agreement until after the date all the Shares become eligible for resale under Rule 144 without volume restrictions or the Effective Date, without the prior written consent of the Majority Holder (which consent may be withheld in the Majority Holder’s sole discretion), the Company shall not issue or sell or agree to issue or sell any securities in a capital raising transaction, unless such securities will not be, and are not, registered for sale or resale under the Securities Act until on or after such Effective Date; provided , however , that the limitation of this Section 4.17 shall not apply to Exempt Issuances.
 
Section 4.18   Company Obligation .  Except for the Notes being converted into Series B Preferred Stock pursuant to the Exchange Agreement, the Company agrees that following the Closing Date, there shall be no outstanding Notes (or interest thereon) or Series A Preferred Stock and that the Company Obligation will be fulfilled in its entirety.  The Company agrees that the Notes being converted into Series B Preferred Stock shall be cancelled pursuant to the terms of the Exchange Agreement.
 
 
 
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Section 4.19   Series A Preferred Stock .  The Company agrees that it will not issue any Series A Preferred Stock after the Closing Date and that it will retire the Series A Preferred Stock within five Business Days following Closing.
 
Section 4.20   Certificate of Designations .   On the Closing Date, the Company shall file the Certificate of Designations with the Secretary of State of the State of Delaware.
 
Section 4.21   Original Preferred Stock Certificates and Warrants .  As soon as possible following the Closing, but in no later than two Business Days following the Closing Date, the Company will deliver by overnight mail, the original certificates representing the Preferred Shares and the original Warrants to the Purchasers.
 
Section 4.22   Over Subscription .  If, as of the Closing Date, the aggregate Subscription Amount equals more than the Company Obligation, then (i) each Purchaser’s Subscription Amount that exceeds the NPA Pro Rata Share will be reduced to its NPA Pro Rata Share, and then, if necessary, each Purchaser’s NPA Pro Rata Share will be proportionately increased until the earlier of (A) such Purchaser’s Subscription Amount is met, and (B) the aggregate Subscription Amount equals the Company Obligation the (“ Revised Subscription Amount ”), and (ii) the difference between the Revised Subscription Amount and the Subscription Amount shall be returned to such Purchaser pursuant to the calculation in (i) above and the terms of the Escrow Agreement.
 
 
ARTICLE V
MISCELLANEOUS
 
Section 5.1   Termination .  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before December 31, 2008; provided , however , that no such termination will affect the right of any party to sue for any breach by the other party (or parties).
 
Section 5.2   Fees and Expenses .  The Company shall deliver to the Purchasers, prior to the Closing, a completed and executed copy of the Closing Statement.  Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities.
 
Section 5.3   Entire Agreement .  The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
 
Section 5.4   Notices .  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (Eastern Time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (Eastern Time) on any Trading Day, (c) the 2 nd Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature pages attached hereto until changed by notice given in accordance with this Section.
 
Section 5.5   Amendments; Waivers .  No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and each Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.
 
 
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Section 5.6   Headings .  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
 
Section 5.7   Successors and Assigns .  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser.  Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the “Purchasers”.
 
Section 5.8   No Third-Party Beneficiaries .  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.9.
 
Section 5.9   Governing Law .  All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of choice of law and conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, stockholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding has been commenced in an improper or inconvenient venue for such proceeding.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.  If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
 
Section 5.10   Survival .  The representations, warranties, agreements and covenants contained herein shall survive the Closing.
 
Section 5.11   Execution .  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by electronic or facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.
 
Section 5.12   Severability .  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.
 
Section 5.13   Rescission and Withdrawal Right .  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, such demand or election in whole or in part without prejudice to its future actions and rights.
 
Section 5.14   Replacement of Securities .  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested.  The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.  If a replacement certificate or instrument evidencing any Securities is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.
 
Section 5.15   Remedies .  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
 
Section 5.16   Payment Set Aside .  To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
 
Section 5.17   Independent Nature of Purchasers’ Obligations and Rights .  The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.  Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents.  The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.
 
Section 5.18   Liquidated Damages .  The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.
 
 
15

 
 
 
Section 5.19   Notices .  All communications, notices, instructions and consents provided for herein or in connection herewith will be in writing and be sent to the address below and will be (a) given in person, (b) sent by registered or certified mail, return receipt requested, postage prepaid, (c) sent by means of telex, facsimile or other means of wire transmission (with request for assurance of receipt in a manner typical with respect to communications of that type), or (d) sent by a reputable nationwide overnight courier service.  Any such communication, notice, instruction or consent will be deemed to have been delivered: (w) on receipt if given in person; (x) three Business Days after it is sent by registered or certified mail, return receipt requested, postage prepaid, (y) on the date of transmission if sent by telex, facsimile or other means of wire transmission (if such transmission is on a Business Day, otherwise on the next Business Day following such transmission), or (z) one Business Day after it is sent via a reputable nationwide overnight courier service.  Notices will be addressed as follows; provided , however , that if the Company designates a different address by notice to the Purchasers or a Purchaser designates a different address by notice to the Company, then to the last address so designated:
 
To the Company :
 
eMagin Corporation
10500 NE 8th Street, Suite 1400
Bellevue, WA  98004
Attention:  Chief Financial Officer
 
with a copy to:
 
Richard Friedman, Esq.  
Sichenzia Ross Friedman Ference LLP
61 Broadway
New York, New York  10006
(212) 930-9700 telephone
(212) 930-9725 fax
 
To the Purchasers :  To the address listed on Schedule A
 
Section 5.20   Construction .  The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.
 
 
 
(Signature Pages Follow)
 
16


 
 
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
 
 
 
eMAGIN CORPORATION        
         
/s/  Paul Campbell
   
 
 
Paul Campbell
   
 
 
Interim Chief Financial Officer
   
 
 
 

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
 
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
 
 
17

 
 

 
[PURCHASER SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
 
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
 
  STILLWATER LLC  
       
 
By:
/s/ Mortimer D.A. Sackler  
    Mortimer D.A. Sackler  
    President  
       
       
       
    Address for Delivery of Securities for Purchaser (if not the same address listed on Schedule A):
    Subscription Amount:
    Preferred Shares:
    Warrant Shares:
    EIN Number:
 
 
 
 
 
 
 
 

 
18


SCHEDULE A
 
LIST OF PURCHASERS
 
 
Purchaser
 
Preferred Shares
 
Warrant Shares
Subscription Amount
Stillwater LLC
c/o The Acorn Foundation for the
Arts and Sciences, Inc.
15 East 62nd Street
New York, New York  10012
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York  10112
Attention: Stuart D. Baker
Facsimile No.: 212-541-5369
4,033
1,875,467
 
$4,033,000

 
19


SCHEDULE B
 
 
CLOSING STATEMENT
 
Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the purchasers shall purchase $4,033,000 of Series B Preferred Stock from eMagin Corporation, a Delaware corporation (the “ Company ”). All funds will be wired into a trust account maintained by Sichenzia Ross Friedman Ference LLP, counsel to the Company. All funds will be disbursed in accordance with this Closing Statement.
 
Disbursement Date:  December 22, 2008
 

 
I.            PURCHASE PRICE
     
Gross Proceeds Received in Trust
  $ 4,033,000  
         
II.            DISBURSEMENTS
       
 Alexandra Global Master Fund Ltd.
  $ 3,014,000.00  
 Rainbow Gate Corporation
  $ 266.67  
 Ginola Limited
  $ 733.33  
 David M. Gottfried
  $ 251,166.67  
 Iroquois Master Fund, Ltd.
  $ 142,972.10  
 HU Investments, LLC
  $
200,933.33
 
 Navacorp III, LLC
  $
933.33
 
 BTG Investments
  $ 200,933.33  
 David A. Kincade
  $ 100,466.67  
 Thomas G. Wales
  $ 50,233.33  
  John Darst Atherly
  $ 40,186.67  
 Olivier F. Prache
  $ 10,046.67  
 Roth Capital Partners   $ 20,093.33  
         
Total Amount Disbursed:
  $
4,032,965.43
 
 
20


SCHEDULE 2.2(a)
 
LIST OF LOCKUP AGREEMENT SIGNATORIES
 
Name
Capacity
Andrew Sculley
Chief Executive Officer, Director
Paul Campbell
Interim Chief Financial Officer
Claude Charles
Director
Paul Cronson
Director
Irwin Engelman
Director
Jacob Goldman
Director
Stephen Seay
Director
Thomas Paulsen
Director

 
21


SCHEDULE 3.1(a)
 
DIRECT AND INDIRECT SUBSIDIARIES
 

 
eMagin Corporation has one direct subsidiary and indirect subsidiaries as indicated below:
 

 
Direct Subsidiaries
 
Virtual Vision, Inc.                                                                A dormant subsidiary incorporated in the State of Delaware
 

 
Indirect Subsidiaries
 
None
 
22


SCHEDULE 3.1(g)
 
Capitalization Summary
 

 
Common Stock shares issued and outstanding   15,018,839 shares  
Shares issuable upon option exercise 1,607,673 shares   (1)  
Shares issuable upon warrant exercise 10,403,772 shares   (2), (4)  
Shares issuable upon conversion of debt 8,330,689 shares   (3), (5), (6)  
Total shares outstanding and issuable   35,360,973 shares  
                                                                                                                                                                                                         

 
Note:  Closing price of the Company’s Common Stock as of December 5, 2008 was $0.44 per share.
 
1.   The Company has a total of 1,607,673 options outstanding of which approximately 467,543 of these options have an exercise price of $2.60 per share or greater.

2.   The Company has a total of 10,403,772 warrants outstanding with an average strike price of $2.10 per share.  Approximately 107,052 of these warrants are in the money with a strike price of $0.35 per share or less.

3.   The Company has convertible debt with an aggregate principal balance of $5,962,309 outstanding that is convertible into 8,330,689 shares of common stock.

4.   Pursuant to anti-dilution provisions contained in warrant agreements the Company has previously issued, the purchase price associated with those warrants is to be adjusted when common stock or common stock equivalents are issued at a price per share that is less than the purchase price contained in respective warrants.

5.  Pursuant to Section 6.3 of the Amended and Restated 8% Senior Secured Convertible Notes Due 2008, anti-dilutive adjustments to the conversion price per share can occur in the event the Company sells common shares or issues common stock equivalents at a price per share that is less than the $0.75 per share note conversion price that is currently available to such note holders.

6.   Pursuant to the Loan and Security Agreement by and between Moriah Capital, L.P. (“ Moriah ”) and the Company dated August 7, 2007, as amended as of January 30, 2008 by Amendment No.1, as further amended as of March 18, 2008 by Amendment No.2, as further amended by Amendment No.3 and effective as of August 7, 2008, the Company is required to have the written consent of Moriah to repay its outstanding 8% Senior Secured Notes and redeem any outstanding Shares of its Series A Senior Secured Convertible Preferred Stock, which consent has been obtained.

7.   8% Senior Secured Convertible Note holders have a right of participation in financings of the Company.  Notice of the proposed financing was provided to all such note holders on December 8, 2008 and they had until December 12, 2008 to notify the Company if they intended to participate in the proposed transaction.

8.   Pursuant to Section 4.16 of the Securities Purchase Agreement, among the Company and the purchasers to such agreement (the “ April 2008 Purchasers ”), dated as of April 2, 2008 (the “ April 2008 Securities Purchase Agreement ”), the April 2008 Purchasers have the right to participate in the transaction contemplated by the Transaction Documents.  On December 8, 2008, the Company sent the April 2008 Purchasers the notice of participation required by Section 4.16.  The April 2008 Purchasers had until December 12, 2008 to notify the Company of their intent to participate in the proposed transaction.

9.   Pursuant to Section 4.13   of the April 2008 Securities Purchase Agreement, until the earlier of April 2, 2009 or ninety days from the Effective Date (as defined in the April 2008 Securities Purchase Agreement), the Company cannot issue shares of its common stock or Common Stock Equivalents (as defined in the April 2008 Securities Purchase Agreement).  As of the Closing Date, the Company has received all of the consents of the April 2008 Purchasers to issue the Securities as required by the Transaction Documents or such consent has been waived by the Purchasers.

10.   Pursuant to anti-dilution provisions contained in warrant agreements the Company has issued to the April 2008 Purchasers, the purchase price associated with those warrants is be adjusted when common stock or common stock equivalents are issued at a price per share that is less than the purchase price contained in such warrants.


 
23


SCHEDULE 3.1(n)
 

Pursuant to the certain Pledge and Security Agreement, between the Company and Alexandra Global Master Fund (“ Collateral Agent ”), as collateral agent dated July 21, 2006, as amended on July 23, 2007 (collectively, the “ Pledge and Security Agreement ”), the Company gave the Collateral Agent a security interest in all of its Collateral (as defined in the Pledge and Security Agreement), including all of the Company’s assets (subject to the Intercreditor Agreement between the Company, Moriah Capital, L.P. and Alexandra Global Master Fund LTD (in its capacity as collateral agent), dated August 7, 2007 (the “ Intercreditor Agreement ”)).  However, as of the Closing Date, the Pledge and Security Agreement will be terminated pursuant to its terms due to the repayment in full of all principal of any premium, if any, and interest on the Notes and the payment in full of all other amounts for Obligations (as defined in the Pledge and Security Agreement) pending on the Closing Date.
 
Pursuant to the Loan and Security Agreement (“ Loan and Security Agreement ”) between the Company and Moriah Capital, L.P. dated August 7, 2007, as amended as of January 30, 2008 by Amendment No.1, as further amended as of March 18, 2008 by Amendment No.2, as further amended by Amendment No.3 effective as of August 7, 2008,   the Company granted Moriah Capital, L.P. a security interest in the Company’s assets subject to the terms of the Intercreditor Agreement.  In connection with the Loan and Security Agreement, the Company executed a Patent and Trademark Security Agreement, pursuant to which the Company granted a security interest in its intellectual property.
 
24


SCHEDULE 3.1(q)
 

 
Paul Cronson, a member of the Company’s Board of Directors, is a representative of Navacorp II LLC, a holder of a $200,000 Note and Navacorp II LLC will be a party to the Exchange Agreement.
 
Olivier Prache an employee of the Company is a holder of a $10,000 Note and will have his note repaid.

25


SCHEDULE 3.1(r)

 
Sarbanes-Oxley: Internal Accounting Controls
 
In connection with the Company management’s report on internal control over financial reporting filed in the Company’s annual report as of December 31, 2007, the Company disclosed certain “material weaknesses” and/or “significant deficiencies”, as such terms are defined under standards established by the Public Company Accounting Oversight Board, with respect to its compliance with Section 404 of the Sarbanes-Oxley Act.  For the year ended December 31, 2008, the Company expects to have made substantial improvements in the areas where the material weaknesses were identified however it anticipates it will continue to have “material weaknesses” and/or “significant deficiencies”.
 
26


SCHEDULE 3.1(v)
 
Registration Rights
 
Pursuant to Section 8 of the Note Purchase Agreement, dated July 21, 2006 and amended July 23, 2007 (collectively, the “ Note Purchase Agreement ”), with respect to the Notes and related warrants, the Company is obligated to file (subject to the terms and conditions of the Note Purchase Agreement) registration statements with respect to 6,908,864 note conversion shares and 4,831,859 warrant shares.  As of the Closing Date, the foregoing registration rights related to the note conversion shares only will be terminated since there will be no outstanding Notes on such date.  However, subject to the terms of the Note Purchase Agreement, the Company is still obligated to seek registration of shares of the Company’s common stock underlying the warrants and for those shares which were issued upon previous conversions of the Notes.
 
Pursuant to the (i) Registration Rights Agreement, dated August 7, 2007, between the Company and Moriah Capital, L.P, as amended by the Amendment dated August 20, 2008 and effective as of August 7, 2008, and (ii) Warrant Issuance Agreement dated January 30, 2008, as amended on February 28, 2008 by Amendment No.1, and further amended by Amendment No. 2 dated August 20, 2008 and effective as of August 7, 2008, the Company is obligated to file a registration statement (subject to the terms of the such agreements) with respect to 1,370,000 shares issuable upon exercise of warrants  and 791,500 common shares.
 
In connection with the Securities Purchase Agreement dated as of April 2, 2008, among the Company and the purchasers signatories to such agreement (the “ April 2008 Purchasers ”), the Company executed a Registration Rights Agreement with the April 2008 Purchasers pursuant to which the Company is required to file a registration statement with respect to 1,586,539 shares of the Company’s common stock and 793,273 shares issuable upon exercise of warrants.
 
27


EXHIBIT A
 
FORM OF CERTIFICATE OF DESIGNATIONS OF
 
SERIES B CONVERTIBLE PREFERRED STOCK
 
 
 
 
 
 
28


EXHIBIT B
 
FORM OF ESCROW AGREEMENT
 
ESCROW AGREEMENT
 
THIS ESCROW AGREEMENT (this “ Agreement ”) is made as of December 18, 2008, by and among eMagin Corporation, a Delaware corporation (the “ Company ”), each purchaser of the purchasers named on Schedule A hereto (each, including its successors and assigns, a “ Purchaser ” and collectively the “ Purchasers ”), and Sichenzia Ross Friedman Ference LLP, with an address at 61 Broadway, New York, New York 10006 (the “ Escrow Agent ”).   Capitalized terms used but not defined herein shall have the meanings set forth in the Purchase Agreement (as defined in the first recital herein).
 
W I T N E S S E T H:
 
WHEREAS, the Purchasers will be purchasing from the Company, severally and not jointly with the other Purchasers, in the aggregate, up to $6,020,000 of shares of the Company’s Series B Convertible Preferred Stock on the Closing Date to the extent required to enable the Company to use the proceeds exclusively to repay any of its unconverted Amended and Restated 8% Senior Secured Convertible Note Due 2008 and/or redeem any of its outstanding Series A Convertible Preferred, if any, as set forth in the Securities Purchase Agreement, dated the date hereof, between the Purchasers and the Company (the “ Purchase Agreement ”); and
 
WHEREAS, it is intended that the purchase of the securities be consummated in accordance with the requirements set forth in Regulation D promulgated under the Securities Act and pursuant to the terms of the Transaction Documents; and
 
WHEREAS, the Company and the Purchasers have requested that the Escrow Agent hold the Subscription Amounts in escrow upon the terms set forth herein;
 
NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties agree as follows:
 
ARTICLE VI        ARTICLE I
 
ARTICLE VII   TERMS OF THE ESCROW
 
Section 7.1   1.1           The parties hereby agree to establish an escrow account with the Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of up to $6,020,000 (the “ Funds ”) of shares of the Company’s Series B Convertible Preferred Stock as contemplated by the Purchase Agreement.
 
Section 7.2   1.2           Upon the Escrow Agent’s receipt of the Funds from the Purchasers for the Closing into its master escrow, it shall telephonically advise the Company, or the Company’s designated attorney or agent, of the amount of Funds it has received into its master escrow account.
 
Section 7.3   1.3           Wire transfers to the Escrow Agent shall be made as follows:
 
                                                Citibank
New York, NY
A/C of Sichenzia Ross Friedman Ference LLP (IOLA Account)
A/C#:    92883436
ABA#:       021000089
SWIFT Code:   CITIUS33
REMARK:   EMAGIN CORPORATION

1.4   Once the Escrow Agent receives all Release Notices, in the form attached hereto as Exhibit A (the “ Release Notice ”), executed by the Company and each Purchaser, the Escrow Agent shall wire the aggregate Funds in accordance with the Closing Statement .   In the event that within five Business Days of the Escrow Agent notifying the Company that it has custody of the Funds, the Escrow Agent has not received the Release Notice executed by the Company and each Purchaser, then each Purchaser shall have the right to demand the return of their portion of the Funds.  In the event that after the Closing Date any Funds remain in the Escrow Agent’s master escrow account, within three Business Days of the Closing Date, the Escrow Agent shall return to such Purchaser their portion of those Funds, if any, pursuant to Section 4.22 of the Purchase Agreement.
 
1.5   Wire transfers to the Company shall be made pursuant to written instructions from the Company provided to the Escrow Agent on the Closing Date.
 
1.6   At the Closing, the Company shall pay the Escrow Agent a $2,500 fee.
 
(a)  
 
ARTICLE VIII         ARTICLE II
ARTICLE IX         MISCELLANEOUS
 
2.1   No waiver or any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained.  No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act.
 
 
29

 
 
2.2   All notices or other communications required or permitted hereunder shall be in writing, and shall be sent as set forth in the Purchase Agreement.
 
2.3   This Escrow Agreement shall be binding upon and shall inure to the benefit of the permitted successors and permitted assigns of the parties hereto.
 
2.4   This Escrow Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto.  This Escrow Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the parties to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein.
 
2.5   Whenever required by the context of this Escrow Agreement, the singular shall include the plural and masculine shall include the feminine.  This Escrow Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if all parties had prepared the same.  Unless otherwise indicated, all references to Articles are to this Escrow Agreement.
 
2.6   The parties hereto expressly agree that this Escrow Agreement shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of New York.  Any action to enforce, arising out of, or relating in any way to, any provisions of this Escrow Agreement shall only be brought in a state or Federal court sitting in New York City.
 
2.7   The Escrow Agent’s duties hereunder may be altered, amended, modified or revoked only by a writing signed by the Company, each Purchaser and the Escrow Agent.
 
2.8   The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be personally liable for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting in good faith and in the absence of gross negligence, fraud and willful misconduct, and any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent’s attorneys-at-law shall be conclusive evidence of such good faith, in the absence of gross negligence, fraud and willful misconduct.
 
2.9   The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court.  In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.
 
2.10   The Escrow Agent shall not be liable in any respect on account of the identity, authorization or rights of the parties executing or delivering or purporting to execute or deliver the Purchase Agreement or any documents or papers deposited or called for thereunder in the absence of gross negligence, fraud and willful misconduct.
 
2.11   The Escrow Agent shall be entitled to employ such legal counsel and other experts as the Escrow Agent may deem necessary properly to advise the Escrow Agent in connection with the Escrow Agent’s duties hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation; provided that the costs of such compensation shall be borne by the Escrow Agent.
 
2.12   The Escrow Agent’s responsibilities as escrow agent hereunder shall terminate if the Escrow Agent shall resign by giving written notice to the Company and the Purchasers.  In the event of any such resignation, the Purchasers and the Company shall appoint a successor Escrow Agent and the Escrow Agent shall deliver to such successor Escrow Agent any escrow funds and other documents held by the Escrow Agent.
 
2.13   If the Escrow Agent reasonably requires other or further instruments in connection with this Escrow Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.
 
2.14   It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the documents or the escrow funds held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed in the Escrow Agent’s sole discretion (1) to retain in the Escrow Agent’s possession without liability to anyone all or any part of said documents or the escrow funds until such disputes shall have been settled either by mutual written agreement of the parties concerned by a final order, decree or judgment or a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings or (2) to deliver the escrow funds and any other property and documents held by the Escrow Agent hereunder to a state or Federal court having competent subject matter jurisdiction and located in the City of New York in accordance with the applicable procedure therefore
 
2.15   The Company and each Purchaser agree jointly and severally to indemnify and hold harmless the Escrow Agent and its partners, employees, agents and representatives from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent hereunder or the transactions contemplated hereby or by the Purchase Agreement other than any such claim, liability, cost or expense to the extent the same shall have been determined by final, unappealable judgment of a court of competent jurisdiction to have resulted from the gross negligence, fraud or willful misconduct of the Escrow Agent.
 
2.16   The Escrow Agent shall be permitted to act as counsel for the Company in any transaction and/or dispute including any dispute between the Company and the Purchasers, whether or not the Escrow Agent is then holding the documents or escrow funds held by the Escrow Agent hereunder.
 
************************
 
30



 
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of date first written above.
 
EMAGIN CORPORATION
By:__________________________________________
     Name:
     Title:
 
With a copy to (which shall not constitute notice):
Sichenzia Ross Friedman Ference LLP
61 Broadway, New York 10006.
 
 
 
 
ESCROW AGENT:
 
SICHENZIA ROSS FRIEDMAN FERENCE LLP
 
 
By:__________________________________________
     Name:
     Title:
 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
 
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
 
31


[SIGNATURE PAGE OF PURCHASERS TO ESCROW AGREEMENT]
 

 

 
[Name of Purchaser]
 
 
____________________________________
 
[By:]
 
[Title:]
 

 

 

 

 
[SIGNATURE PAGE OF PURCHASERS FOLLOWS]
 
32


SCHEDULE A
 

 

 
LIST OF PURCHASERS
 
Purchaser
Subscription Amount
Stillwater LLC
c/o The Acorn Foundation for the Arts and Sciences, Inc.
15 East 62nd Street
New York, New York  10012
 

 

 
33


EXHIBIT A
RELEASE NOTICE
 
The UNDERSIGNED, pursuant to the Escrow Agreement, dated as of December ___, 2008, among eMagin Corporation, the Purchasers signatory thereto and Sichenzia Ross Friedman Ference LLP, as Escrow Agent (the “ Escrow Agreement ”; capitalized terms used herein and not defined shall have the meaning ascribed to such terms in the Escrow Agreement), hereby notify the Escrow Agent that each of the conditions precedent to the purchase and sale of the Securities set forth in the Purchase Agreement have been satisfied.  The Company acknowledges that the Closing Statement has been delivered by the Company to the Escrow Agent. The Company and the undersigned Purchaser hereby confirm that all of their respective representations and warranties contained in the Purchase Agreement remain true and correct and authorize the release by the Escrow Agent of the Funds to be released as described in the Escrow Agreement. This Release Notice shall not be effective until executed by the Company and the Purchaser.
 
This Release Notice may be signed in one or more counterparts, each of which shall be deemed an original.
 
IN WITNESS WHEREOF, the undersigned have caused this Release Notice to be duly executed and delivered as of this __ day of December 2008.
 
 
 
 
EMAGIN CORPORATION
 
 
By:__________________________________________
     Name:
     Title:
 

 
[SIGNATURE PAGE OF PURCHASERS FOLLOWS]
34


[SIGNATURE PAGE OF PURCHASERS TO RELEASE NOTICE]
 

 
[Name of Purchaser]
 
____________________________________
 
[By:]
 
[Title:]
 

 

 

 
Address:
 

35


EXHIBIT C
 
FORM OF EXCHANGE AGREEMENT
 
 
 
 
 
36


EXHIBIT D
 
FORM OF REGISTRATION RIGHTS AGREEMENT
 

 
37


EXHIBIT E
 
FORM OF WARRANTS
 
 
 
 
 
38


EXHIBIT F
 
FORM OF LEGAL OPINION
 
December 22, 2008
 
To the Purchasers listed on
 
Schedule A attached hereto
 

 
 
Re:            eMagin Corporation Legal Opinion
 
 
Ladies and Gentlemen:
 
We have acted as counsel to eMagin Corporation, a Delaware corporation (the “ Company ”), in connection with the Securities Purchase Agreement, dated as of December 18, 2008, between you and the Company (the “ Purchase Agreement ”) and the transactions contemplated therein.  Capitalized terms used herein and not otherwise defined herein shall have the respective meanings assigned to such terms in the Purchase Agreement.  The Purchase Agreement, the Certificate of Designations, the Registration Rights Agreement, the Escrow Agreement, the Exchange Agreement and the Warrants are hereinafter referred to collectively as the “ Transaction Documents .”  As to other questions of fact relevant to our opinion, we have made no independent verification of the facts and we have relied upon statements or certificates of public officials and officers of the Company.
 
In connection with this opinion, we have examined originals or photostatic or certified copies of (i) the Transaction Documents, (ii) the Company’s Certificate of Incorporation, as amended and restated, as in effect on the date hereof (the “ Certificate of Incorporation ”), and (iii) the Company’s Bylaws, as in effect on the date hereof (the “ Bylaws ”), and we have examined and considered such corporate records, certificates and matters of law as we have deemed appropriate as a basis for our opinions set forth below.
 
In rendering the opinions set forth in this opinion letter, we assume the following:
 
(a)   the legal capacity of each natural person;
 
(b)   the legal existence of all parties to the transactions referred to in the Transaction Documents;
 
(c)   the power and authority of each person other than the Company or person(s) acting on behalf of the Company to execute, deliver and perform each document executed and delivered and to do each other act done or to be done by such person;
 
(d)   the authorization, execution and delivery by each person other than the Company or person(s) acting on behalf of the Company of each document executed and delivered or to be executed and delivered by such person;
 
(e)   the legality, validity, binding effect and enforceability as to each person other than the Company or person(s) acting on behalf of the Company of each document executed and delivered or to be executed or delivered and of each other act done or to be done by such person;
 
(f)   the transactions referred to in the Transaction Documents have been consummated;
 
(g)   the payment of all the required documentary stamps taxes and fees imposed upon the execution, filing or recording of the Transaction Documents;
 
(h)   that there have been no undisclosed modifications of any provision of any document reviewed by us in connection with the rendering of the opinions set forth in this opinion letter and no undisclosed prior waiver of any right or remedy contained in the Transaction Documents;
 
(i)   the genuineness of each signature (other than the signatures of the officers of the Company), the completeness of each document submitted to us other than the Transaction Documents, the authenticity of each document reviewed by us as an original, the conformity to the original of each document reviewed by us as a copy and the authenticity of the original of each document received by us as a copy;
 
(j)   the truthfulness of each statement as to all factual matters otherwise not known to us to be untruthful contained in any document encompassed within the due diligence review undertaken by us;
 
(k)   the accuracy on the date of this letter as well as on the date stated in all governmental certifications of each statement as to each factual matter contained in such governmental certifications;
 
 
 
39

 
 
(l)   that the addressee has acted in good faith, without notice of adverse claims, and has complied with all laws applicable to it that affect the transactions referred to in the Transaction Documents;
 
(m)   that the transactions referred to in the Transaction Documents comply with all tests of good faith, fairness and conscionability required by law;
 
(n)   that routine procedural matters such as service of process or qualification to do business in the relevant jurisdictions will be satisfied by the parties seeking to enforce the Transaction Documents;
 
(o)   that all statutes, judicial and administrative decisions, and rules and regulations of governmental agencies constituting the law for which we are assuming responsibility are published (e.g., reported court decisions and the specialized reporting services of bna, cch and prentice-hall) or otherwise generally accessible (e.g., lexis or westlaw) in each case in a manner generally available (i.e., in terms of access and distribution following publication) to lawyers practicing in our judicial circuit;
 
(p)   that agreements other than the Transaction Documents that are related to the transactions referred to in the Transaction Documents will be enforced as written;
 
(q)   that no action, discretionary or otherwise will be taken by or on behalf of the Company in the future that might result in a violation of law;
 
(r)   that there are no other agreements or understandings among the parties that would modify the terms of the Transaction Documents or the respective rights or obligations of the parties to the Transaction Documents;
 
(s)   that with respect to the Transaction Documents and to the transactions referred to therein, there has been no mutual mistake of fact and there exists no fraud or duress;
 
(t)   the constitutionality and validity of all relevant laws, regulations and agency actions unless a reported case has otherwise held or widespread concern has been expressed by commentators as reflected in materials which lawyers routinely consult;
 
(u)   no shares of the Series A Preferred were issued or outstanding; and
 
(v)   the Notes have been repaid, exchanged and/or converted and are not outstanding as of the date hereof.
 
Whenever a statement herein is qualified by “to our knowledge” or similar phrase, it means that, during the course of our representation of the Company for the purposes of this opinion letter, (a) no information that would give those lawyers who participated in the representation of the Company in connection with the Transaction Documents (collectively, the “ Transaction Participants ”) current actual knowledge of the inaccuracy of such statement has come to their attention; (b) we have not undertaken any independent investigation or inquiry to determine the accuracy of such statement; (c) any limited investigation or inquiry otherwise undertaken by the Transaction Participants during the preparation of this opinion letter should not be regarded as such an investigation or inquiry; and (d) no inference as to our knowledge of any matters bearing on the accuracy of any such statement should be drawn from the fact of our representation of the Company.  We also call to your attention to the fact that we are not general counsel to the Company and we are not familiar with all aspects of either the business affairs of the Company.  We have not conducted an independent audit of the Company or its files.  As to certain questions of fact material to this opinion, we have relied upon statements or certificates from the Company or person(s) acting on behalf of the Company.
 
The validity, binding effect and enforceability of the Transaction Documents may be limited or otherwise affected by (a) bankruptcy, moratorium, fraudulent conveyance or other similar statutes, rules, regulations or other laws affecting the enforcement of creditors’ rights and remedies generally and (b) the unavailability of, or limitation on the availability of, a particular right or remedy (whether in a proceeding in equity or at law) because of an equitable principle or a requirement as to commercial reasonableness, conscionability or good faith.  In addition, certain remedies, waivers and other provisions contained in the Transaction Documents might not be enforceable; nevertheless, such unenforceability will not render such agreements invalid as a whole or preclude the practical realization of the benefits to the Purchasers thereunder.
 
We are counsel admitted to practice in the State of New York and we do not express any opinion with respect to the effect or applicability of the laws of any jurisdiction, other than the laws of the State of New York, the corporate laws of the State of Delaware and the federal laws of the United States of America.  In furnishing the opinion regarding the valid existence and good standing of the Company, we have relied solely upon a good standing of the Company from the Secretary of State of Delaware dated December 5, 2008.
 
Based on the foregoing, and subject to the assumptions, qualifications, limitations and exceptions stated in this letter, we are of the opinion that as of the date hereof:
 
1.   The Company is a corporation duly authorized, validly existing, and in good standing in Delaware, its state of incorporation.  The Company has all requisite corporate power and authority to (i) conduct its business as presently conducted as described in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on April 14, 2008; (ii) own and operate its property; and (iii) lease the property its leases.
 
2.   The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder.  The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by its Board of Directors and no further consent or authorization of the Company’s Board of Directors or its stockholders are required.  Each of the Transaction Documents has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.
 
 
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3.   To our knowledge, except as specifically disclosed in the Purchase Agreement or the SEC Reports, no shares of Common Stock are entitled to preemptive or similar rights.  To our knowledge, except as specifically disclosed in the Purchase Agreement or the SEC Reports or as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, securities, rights or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings, or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock.
 
4.   The Series B Preferred Stock has been duly authorized and, when paid for and issued in accordance with the terms of the Purchase Agreement and Certificate of Designations shall have been validly issued, fully paid and nonassessable.  When issued by the Company in accordance with the terms of the Purchase Agreement and the Warrants, the Warrant Shares will be validly issued, fully paid and nonassessable.  When issued by the Company in accordance with the Certificate of Designations, the Underlying Shares will be validly issued, fully paid and non assessessable.
 
5.   The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated by such agreements do not and will not (i) conflict with or violate any provision of its Certificate  of Incorporation or Bylaws; (ii) provided that the Company obtains the Required Approvals (, conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or other written instrument of the Company or a Subsidiary thereof or other written agreement or understanding to which the Company or a Subsidiary thereof is a party, and which is attached as an exhibit to the Company’s Annual Report for the year ended December 31, 2007, filed with the Securities and Exchange Commission on April 14, 2008;  (iii) result in a violation of any law, rule or regulation of any governmental authority, regulatory body, stock market or trading facility to which the Company is subject, or by which any property or asset of the Company is bound or affected, or (iv) result in any violation of any order, judgment, injunction, decree or other restriction of any court or governmental authority of which we have knowledge.
 
6.   To the best of our knowledge and provided that the Company obtains the Required Approvals, no authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization or stock exchange or market, or the stockholders of the Company or any third party is required to be obtained by the Company in connection with the execution, delivery and performance by the Company of the Transaction Documents.
 
7.   To the best of our knowledge, other than as disclosed in the SEC Reports, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body or any governmental agency or self-regulatory organization pending or threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of or the authority or ability of the Company to perform its respective obligations under the Transaction Documents.
 
8.   The Company is not, and as a result of and immediately upon Closing will not be, an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

9.   Assuming the accuracy of the representations and warranties of the Company set forth in Section 3.1 of the Purchase Agreement and of the Purchasers set forth in Section 3.2 of the Purchase Agreement, the offer, issuance and sale of the Series B Preferred Stock and Warrants and the offer, sale and issuance of the Underlying Shares and the Warrant Shares to the Purchasers pursuant to the applicable Transaction Documents are exempt from the registration requirements of the Securities Act.
 
This opinion is furnished pursuant to the request of the addressees hereof and is rendered by us solely for the benefit of the addressees hereof in connection with the Transaction Documents.  We are not hereby assuming any professional responsibilities to any other person whatsoever. This opinion may be relied upon only in connection with the Transaction Documents.  This opinion may not be used, disseminated, circulated, quoted referred to or relied upon by any other person or for any other purpose without our prior written consent.  This opinion is rendered as of the date set forth above, and we express no opinion as to circumstances or events that may occur subsequent to such date.  We assume no duty to update or supplement this opinion to reflect any fact or circumstances that may hereafter come to our attention or reflect any changes in any law that may hereafter occur or become effective.

 
Sincerely,
 
DRAFT
 
Sichenzia Ross Friedman Ference LLP
 

41


SCHEDULE A
 

 
PURCHASERS
PURCHASE
PRICE
STILLWATER LLC
$4,033,000
   

 

42


EXHIBIT G
 
FORM OF LOCKUP AGREEMENT
 

 
December 18, 2008
 
 
To the Investors listed on
Schedule A attached hereto
 
Re:    eMagin Corporation Lockup Agreement
 
Ladies and Gentlemen:
 
The undersigned is an owner of record or a beneficial owner of shares of common stock (the “ Common Stock ”) of eMagin Corporation, a Delaware corporation (the “ Company ”) or securities convertible into or exchangeable or exercisable for shares of Common Stock.  The Company proposes to carry out a transaction involving the sale of shares of its Series B Convertible Preferred and/or securities convertible into or exchangeable or exercisable for the Company’s Common Stock (the “ Transaction ”).  The undersigned recognizes that the Transaction will be of benefit to the undersigned and will benefit the Company by, among other things, raising additional capital exclusively to enable the Company to repay its unconverted Amended and Restated 8% Senior Secured Convertible Notes Due December 22, 2008 and/or redeem any of its outstanding Series A Senior Secured Preferred Stock.  The undersigned acknowledges that the investors in the Transaction (the “ Investors ”) are or will be relying on the representations and agreements of the undersigned contained in this letter agreement (the “ Letter Agreement ”) in carrying out the Transaction and in entering into agreements with the Company.
 
To induce the Investors to continue their efforts in connection with the Transaction, the undersigned hereby agrees that, without the prior written consent of the majority of the Investors (as computed by the amount invested in this Transaction, the “ Majority Investors ”), which consent may be withheld in their sole discretion, the undersigned will not (and will cause the undersigned’s spouse, and the immediate family of such spouse or the undersigned living in the undersigned’s household, not to), during the period commencing on the date hereof and ending 180 days after the date hereof  (such period, the “ Restricted Period ”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exchangeable or exercisable for any shares of Common Stock (whether such shares or any such securities are now owned or are hereafter acquired by the undersigned, or the undersigned’s spouse or family member), or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise.  The undersigned further agrees not to announce an intention to do any of the foregoing during the Restricted Period.  If (i) during the last 17 days of the Restricted Period, the Company issues an earnings release or discloses material news or a material event relating to the Company occurs or (ii) prior to the expiration of the Restricted Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the Restricted Period, the restrictions imposed by this Letter Agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
 
Notwithstanding anything else herein, the restrictions contained in the foregoing paragraphs shall not apply to any of the following: (a) transfers of shares of Common Stock or any security convertible into or exchangeable or exercisable for Common Stock as a bona fide gift or gifts, by will or intestacy or to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, or (b) distributions by a trust to its beneficiaries of shares of Common Stock or any security convertible into or exchangeable or exercisable for Common Stock, or (c) the securities sold or issued in the Transaction; provided that in the case of any transfer or distribution pursuant to clauses (a) or (b), each donee, distributee, trustee or beneficiary shall sign and deliver a lock-up agreement in favor of the Investors substantially in the form of this Letter Agreement.
 
 
 
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In addition, with respect to the Transaction only (and any registration statement to be filed in connection therewith), the undersigned waives any rights, including any and all notice rights and requirements, relating to registration under the Securities Act of 1933, as amended (the “ Securities Act ”), of any shares of Common Stock (or any security convertible into or exchangeable or exercisable for Common Stock) owned either of record or beneficially by the undersigned.  The undersigned further agrees that, without the prior written consent of the Majority Investors, the undersigned will not, during the Restricted Period, make any demand for or exercise any right with respect to the registration under the Securities Act of any shares of Common Stock or any security convertible into or exchangeable or exercisable for Common Stock. Notwithstanding anything to the contrary herein, the undersigned may be included as a selling shareholder in any registration statement filed by the Company on Form S-8.
 
During the Restricted Period only, the undersigned agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer (except those in compliance with the restrictions set forth in this Letter Agreement) of shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock held by the undersigned, provided such instructions specifically state that they are null and void after 180 days from the date hereof.  This Letter Agreement is irrevocable and will be binding on the undersigned and the successors, heirs, personal representatives and assigns of the undersigned.
 
This Letter Agreement shall be null and void on the sooner of 180 days from the date hereof or the date on which the Investors no longer beneficially own any Securities (as defined in the Securities Purchase Agreement between the Company and the Investors dated the date hereof).
 
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In witness whereof, the undersigned has executed and delivered this Letter Agreement to be effective as of the date first set forth above.
 
 
  Very truly yours,  
       
 
By:
/s/   
    (Printed Name of Holder)  
       
       
    By:   
    (Signature)  
 



 


                                                                          
 


(If signing on behalf of an entity, print name of person signing and indicate title or capacity, including as a custodian or trustee.)
 
 
45


SCHEDULE A
 
INVESTOR
PURCHASE
PRICE
STILLWATER LLC
15 East 62nd Street
New York, New York  10021
$4,035,000
   
Total
$4,035,000

 


 

46



 
REGISTRATION RIGHTS AGREEMENT
 
THIS REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”) is made and entered into as of December 18, 2008, among eMagin Corporation, a Delaware corporation (the “ Company ”), and each of the purchasers named on Schedule A hereto (each, including its successors and assigns, a “ Purchaser ” and collectively, the “ Purchasers ”).
 
A.           This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof among the Company and the Purchasers (the “ Purchase Agreement ”).
 
B.           The Company and the Purchasers hereby agree as follows:
 
Section 1.   Definitions .  Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement.  As used in this Agreement, the following terms shall have the following meanings:
 
Advice ” shall have the meaning set forth in Section 6(d).
 
Commission ” shall mean the United States Securities and Exchange Commission.
 
Effectiveness Date ” means, with respect to the initial Registration Statement required to be filed hereunder, the 90 th   calendar day following the Filing Date (the 120 th calendar day in the case of a “full review” by the Commission) and, with respect to any additional Registration Statements following the Filing Date which may be required pursuant to Section 3(c), the 90 th   calendar day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required hereunder; provided , however , in the event the Company is notified by the Commission that one of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates required above.
 
Effectiveness Period ” shall have the meaning set forth in Section 2(a).
 

Event ” shall have the meaning set forth in Section 2(b).
 
Event Date ” shall have the meaning set forth in Section 2(b).
 
Filing Date ” means, with respect to the initial Registration Statement required hereunder, by the 30 th calendar day following the date that the Company is permitted to file a registration statement by (i) the rules and regulations of the Securities and Exchange Commission and (ii) the agreements set forth on Schedule B , which as of the date hereof prohibit the Company from filing the initial Registration Statement.  Without limiting the generality of the foregoing, the Registration Statement shall not be filed until the registration statements for the shares set forth on Schedule B have been filed, declared effective, withdrawn or when the Company is no longer contractually required to file such registration statements.
 
Holder ” or “ Holders ” means the holder or holders, as the case may be, from time to time of Registrable Securities.
 
Indemnified Party ” shall have the meaning set forth in Section 5(c).
 
Indemnifying Party ” shall have the meaning set forth in Section 5(c).
 
Losses ” shall have the meaning set forth in Section 5(a).
 
Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.
 
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Prospectus ” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
 
Registrable Securities ” means all of the Shares, together with any shares of Common Stock issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided , however , the aforementioned securities including the Shares shall cease being Registrable Securities once such shares are either registered on an effective Registration Statement or may be sold by a Purchaser without volume restrictions pursuant to Rule 144.
 
Registration Statement ” means the registration statements required to be filed hereunder and any additional registration statements contemplated by Section 3(c), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
 
Rule 415 ” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
 
Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
 
Selling Stockholder Questionnaire ” shall have the meaning set forth in Section 3(a).
 
SEC Guidance ” means (i) any publicly-available written or oral guidance, comments, requirements or requests of the Commission staff and (ii) the Securities Act.

Section 2.   Registration .
 
(a)   On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of such maximum portion of the Registrable Securities as permitted by the SEC Guidance that are not then registered on an effective Registration Statement on such Filing Date for an offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form S-1 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-1, in which case such registration shall be on another appropriate form in accordance herewith) and shall contain substantially the “Plan of Distribution” attached hereto as Annex A.  Subject to the terms of this Agreement, the Company shall use its best efforts to cause a Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof prior to the applicable Effectiveness Date and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144, and, if required by the Company’s transfer agent, to cause its counsel to issue a legal opinion to the Company’s transfer agent to effect a transfer of Registrable Securities (the “ Effectiveness Period ”).  The Company shall immediately notify the Holders via facsimile or e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of a Registration Statement.  The Company shall, by 9:30 am Eastern Time on the Trading Day after the Effective Date (as defined in the Purchase Agreement), file a Form 424(b)(5) with the Commission.  Failure to so notify the Holder within two Trading Days of such notification shall be deemed an Event under Section 2(b).
 
 
2

 
 
(b)   If: (i) a Registration Statement is not filed on or prior to its Filing Date (if the Company files a Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a), the Company shall not be deemed to have satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be “reviewed,” or not subject to further review, or (iii) prior to its Effectiveness Date, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within ten Trading Days after the receipt of comments by or notice from the Commission that such amendment is required in order for a Registration Statement to be declared effective; provided that to the extent that the Company is not permitted to file a Registration Statement because it must include current financial statements in the Company’s Form 10-K or Form 10-Q, such filing deadline shall be within 30 Trading Days after the receipt of comments by or notice from the Commission that such amendment is required in order for a Registration Statement to be declared effective, or (iv) after the Effectiveness Date, a Registration Statement ceases to remain continuously effective as to all Registrable Securities for which it is required to be effective due solely to the of the Company, or the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities for ten consecutive Trading Days but no more than an aggregate of 25 Trading Days during any 12-month period (which need not be consecutive Trading Days) due solely to the of the Company (any such failure or breach being referred to as an “ Event ”, and for purposes of clause (i) the date on which such Event occurs, or for purposes of clause (ii) the date on which such five Trading Day period is exceeded, or for purposes of clause (iii) the date which such ten or 30 Trading Day period, as applicable, is exceeded, or for purposes of clause (iv) date on which such ten or 25 Trading Day period, as applicable, is exceeded being referred to as “ Event Date ”), then in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 2% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities then held by such Holder, provided, however, the maximum aggregate liquidated damages payable to a Holder under this Agreement shall be 36% of the aggregate purchase price paid by such Holder pursuant to this Purchase Agreement.  The parties hereto agree that (x) the Company shall not be liable for liquidated damages under this Agreement with respect to any Warrants or Warrant Shares, (y) the Company will not be liable for liquidated damages or penalties for any delay in registration of Registrable Securities for any excluded Registrable Securities due to the Commission issuing written or verbal comments to the Company with respect to the number of shares that may be included and sold by any selling security holder in the Registration Statement pursuant to Rule 415 and (z) the Company will not be liable for liquidated damages or penalties if the shares covered by such Registration Statement can be sold pursuant to Rule144 without volume restrictions.  If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 15% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full.  The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event.  Notwithstanding the foregoing, upon the Majority Holder’s prior written consent, in lieu of paying partial liquidated damages to each Holder in cash, the Company may issue to each Holder the amount of shares of restricted Common Stock with piggyback registration rights pursuant to Section 6(e) equal to the amount of partial liquidated damages due to each Holder divided by the Current Fair Market Value (as defined in the Certificate of Designations).
 
Section 3.   Registration Procedures .  In connection with the Company’s registration obligations hereunder, the Company shall:
 
(a)   Not less than four Trading Days prior to the filing of each Registration Statement or any related Prospectus or two Trading Days prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall, (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to conduct a reasonable investigation within the meaning of the Securities Act.  The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than two Trading Days after the Holders have been so furnished copies of such documents.  The Company shall be given a reasonable additional period of time after the receipt of any such objections to revise the Registration Statement to accommodate such Holders’ concerns, and such additional period shall not constitute an “Event” for purposes of Section 2(b). Each Holder agrees to furnish to the Company a completed Questionnaire in the form attached to this Agreement as Annex B (a “ Selling Stockholder Questionnaire ”) not less than two Trading Days prior to the Filing Date or by the end of the first Trading Day following the date on which such Holder receives draft materials in accordance with this Section.
 
 
 
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(b)   (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.
 

(c)   If for any reason the Commission does not permit the registration of all of the Registrable Securities in any Registration Statement, then the Company shall file as soon as reasonably practicable but in any by the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of any previously unregistered Registrable Securities on the first date after which the Commission will permit the filing of a Registration Statement covering any such remaining Registrable Securities.  Notwithstanding anything contained herein to the contrary, in the event that the Commission limits the amount of Registrable Securities that may be sold by selling security holders in a particular Registration Statement, the Company may scale back (i.e., remove) from such registration statement such number of Registrable Securities on behalf of all the selling security holders on a pro-rata basis based on the total number of Registrable Securities held by such selling security holders.  In such event the Company shall give the Holder prompt notice of the number of the Registrable Securities excluded. Further, in the event of any such delay, the Company shall use its best efforts to register such excluded Registrable Securities as promptly as practicable, but in any event no later than 30 days after the first opportunity that is permitted by the Commission to register for resale the Registrable Securities that have been cut back from being registered.
 
(d)   Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than three Trading Days prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one Trading Day following the day
 
(i)   (A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective;
 
(ii)   of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information;
 
(iii)   of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose;
 
(iv)   of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose;
 
(v)   of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any 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; and
 
(vi)   the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus;
 
provided that any and all of such information shall remain confidential to each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided , further , notwithstanding each Holder’s agreement to keep such information confidential, the Holders make no acknowledgement that any such information is material, non-public information.
 
(e)   Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.
 
(f)   Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission, which may be furnished in electronic format.
 
 
 
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(g)   Promptly deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request in connection with resales by the Holder of Registrable Securities. Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving on any notice pursuant to Section 3(d).
 
(h)   RESERVED.
 
(i)   Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided , that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.
 
(j)   If requested by the Holders, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request.
 
(k)   Upon the occurrence of any event contemplated by this Section 3, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will 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. If the Company notifies the Holders in accordance with clauses (ii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(k) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages pursuant to Section 2(b), for a period not to exceed 60 days (which need not be consecutive days) in any 12 month period.
 
(l)   Comply with all applicable rules and regulations of the Commission.
 
(m)   The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the person thereof that has voting and dispositive control over the Shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.
 
Section 4.   Registration Expenses .   All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation,
 
(i)   all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Trading Market on which the Common Stock is then listed for trading, (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders) and (C) if not previously paid by the Company in connection with an Issuer Filing, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with NASD Regulation, Inc. pursuant to the NASD Rule 2710, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale,
 
(ii)   printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities included in a Registration Statement),
 
(iii)   messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company,
 
(iv)   Securities Act liability insurance, if the Company so desires such insurance, and
 
(v)   fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.
 
In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.  Notwithstanding anything to the contrary, in no event shall the Company be responsible for any broker or similar commissions or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.
 
 
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Section 5.   Indemnification .
 
(a)   Indemnification by the Company .  The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “ Losses ”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that
 
(i)   such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or
 
(ii)   (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d).
 
The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.
 
(b)   Indemnification by Holders .  Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus or (ii) to the extent that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d).  In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.
 

(c)   Conduct of Indemnification Proceedings .
 
(i)   If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “ Indemnified Party ”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “ Indemnifying Party ”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided , that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party.
 
(ii)   An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
 
 
 
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(iii)   Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided , that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties.
 
(d)   Contribution .
 
(i)   If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.
 
(ii)   The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by such Holder.
 
The indemnity and contribution agreements contained in this Section 5 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.
 
Section 6.   Miscellaneous .
 
(a)   Remedies . In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.  The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.
 
(b)   No Piggyback on Registrations .  Other than as set forth on Schedule 6(b) , neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the initial Registration Statement other than the Registrable Securities. Other than as set forth on Schedule 6(b) , no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.  Other than to register the shares of the Company’s common stock set forth on Schedule 6(b) , the Company shall not file any other registration statements, other than registration statements on Form S-8, until the initial Registration Statement required hereunder is declared effective by the Commission or such shares may be sold pursuant to Rule 144 without volume restrictions, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements already filed.
 
(c)   Compliance . Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement.
 
(d)   Discontinued Disposition .  Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “ Advice ”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.  The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(b).
 
(e)   Piggyback Registrations . If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within fifteen days after the date of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided , however , that, the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144 without volume restrictions promulgated under the Securities Act or that are the subject of a then effective Registration Statement.
 
 
 
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(f)   Exchange Agreement .  The Preferred Shares and Underlying Shares issued pursuant to the Exchange Agreement shall be registered pursuant to and subject to the terms of this Agreement.  The Purchasers, Holders and Company agree that each “Holder” in the Exchange Agreement shall be deemed a party to this Agreement and treated as a Purchaser and Holder in this Agreement in all respects, as applicable.  The Company agrees to be bound in all respects to each “Holder” in the Exchange Agreement  as if each party is a Purchaser and Holder in this Agreement, as applicable.  Notwithstanding the foregoing, in the event of liquidated damages to be paid to the Purchasers” pursuant to Section 2(b), the Company shall pay to each “Holder” in the Exchange Agreement an amount in cash, as partial liquidated damages and not as a penalty, equal to 2% of the aggregate amount of Notes and unpaid interest thereon converted into Preferred Shares pursuant to this Agreement for any Registrable Securities  then held by such “Holder”; provided , however , the maximum aggregate liquidated damages payable to a “Holder” in the Exchange Agreement under this Agreement shall be 36% of the aggregate amount of Notes and unpaid interest thereon converted into Preferred Stock pursuant to the Exchange Agreement.
 
(g)   Amendments and Waivers .  The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and each Holder of the then outstanding Registrable Securities.  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided , however , that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.
 
(h)   Notices .  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.
 
(i)   Successors and Assigns .  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder.  The Company may not assign its rights or obligations hereunder without the prior written consent of all of the Holders of the then-outstanding Registrable Securities.  Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.
 
(j)   No Inconsistent Agreements .  Except as set forth on Schedule 6(j) , neither the Company nor any of its subsidiaries has entered, as of the date hereof, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.  Except as set forth on Schedule 6(j) , neither the Company nor any of its subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.
 
(k)   Execution and Counterparts .  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.
 
(l)   Governing Law .  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined with the provisions of the Purchase Agreement.
 
(m)   Cumulative Remedies .  The remedies provided herein are cumulative and not exclusive of any remedies provided by law.
 
(n)   Severability .  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
 
 
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(o)   Headings .  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
 
(p)   Independent Nature of Holders’ Obligations and Rights .  The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder.  Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement.  Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose.
 
(q)   Termination of this Agreement .   Notwithstanding anything to the contrary herein, and other than with respect to the indemnification and contribution obligations hereunder, each party’s obligations and agreements under this Agreement shall terminate on the earliest to occur of (i) the date as of which the Holders may sell all of the Registrable Securities held by them without restriction pursuant to Rule 144 (or successor thereto) promulgated under the 1933 Act, or (ii) the date on which the Holders shall have sold all of the Registrable Securities.
 

 
*************************

9



IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.
 
eMAGIN CORPORATION        
         
         
By:  Paul Campbell
   
 
 
Paul Campbell
   
 
 
Interim Chief Financial Officer
   
 
 
 
 

[SIGNATURE PAGE OF PURCHASERS FOLLOWS]
 
 
 
 
10


[PURCHASER SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
 
 
  STILLWATER LLC  
       
 
By:
/s/ Martimer D. A. Sackler  
    Martimer D. A. Sackler  
    President  
       
       
    Address for Notice of Holder:  

 
 



 
11


SCHEDULE A

LIST OF PURCHASERS


Stillwater LLC
c/o The Acorn Foundation for the
Arts and Sciences, Inc.
15 East 62nd Street
New York, New York  10012

12


SCHEDULE B

LIST OF AGREEMENTS

Pursuant to Section 8 of the Note Purchase Agreement, dated July 21, 2006 and amended July 23, 2007 (collectively, the “ Note Purchase Agreement ”), with respect to the Notes and related warrants, the Company is obligated to file (subject to the terms and conditions of the Note Purchase Agreement) registration statements with respect to 6,908,864 note conversion shares and 4,831,859 warrant shares.  As of the Closing Date, the foregoing registration rights related to the note conversion shares only will be terminated since there will be no outstanding Notes on such date.  However, subject to the terms of the Note Purchase Agreement, the Company is still obligated to seek registration of shares of the Company’s common stock underlying the warrants and for those shares which were issued upon previous conversions of the Notes.
 
Pursuant to the (i) Registration Rights Agreement, dated August 7, 2007, between the Company and Moriah Capital, L.P, as amended by the Amendment dated August 20, 2008 and effective as of August 7, 2008, and (ii) Warrant Issuance Agreement dated January 30, 2008, as amended on February 28, 2008 by Amendment No.1, and further amended by Amendment No. 2 dated August 20, 2008 and effective as of August 7, 2008, the Company is obligated to file a registration statement (subject to the terms of the such agreements) with respect to 1,370,000 shares issuable upon exercise of warrants  and 791,500 common shares.
 
In connection with the Securities Purchase Agreement dated as of April 2, 2008, among the Company and the purchasers signatories to such agreement (the “ April 2008 Purchasers ”), the Company executed a Registration Rights Agreement with the April 2008 Purchasers pursuant to which the Company is required to file a registration statement with respect to 1,586,539 shares of the Company’s common stock and 793,273 shares issuable upon exercise of warrants.
 
13


SCHEDULE 6(b)

No Piggyback on Registrations Exceptions

Pursuant to Section 8 of the Note Purchase Agreement, dated July 21, 2006 and amended July 23, 2007 (collectively, the “ Note Purchase Agreement ”), with respect to the Notes and related warrants, the Company is obligated to file (subject to the terms and conditions of the Note Purchase Agreement) registration statements with respect to 6,908,864 note conversion shares and 4,831,859 warrant shares.  As of the Closing Date, the foregoing registration rights related to the note conversion shares only will be terminated since there will be no outstanding Notes on such date.  However, subject to the terms of the Note Purchase Agreement, the Company is still obligated to seek registration of shares of the Company’s common stock underlying the warrants and for those shares which were issued upon previous conversions of the Notes.
 
Pursuant to the (i) Registration Rights Agreement, dated August 7, 2007, between the Company and Moriah Capital, L.P, as amended by the Amendment dated August 20, 2008 and effective as of August 7, 2008, and (ii) Warrant Issuance Agreement dated January 30, 2008, as amended on February 28, 2008 by Amendment No.1, and further amended by Amendment No. 2 dated August 20, 2008 and effective as of August 7, 2008, the Company is obligated to file a registration statement (subject to the terms of the such agreements) with respect to 1,370,000 shares issuable upon exercise of warrants  and 791,500 common shares.
 
In connection with the Securities Purchase Agreement dated as of April 2, 2008, among the Company and the purchasers signatories to such agreement (the “ April 2008 Purchasers ”), the Company executed a Registration Rights Agreement with the April 2008 Purchasers pursuant to which the Company is required to file a registration statement with respect to 1,586,539 shares of the Company’s common stock and 793,273 shares issuable upon exercise of warrants.
 
14


SCHEDULE 6(j)

No Inconsistent Agreements Exceptions

Pursuant to Section 8 of the Note Purchase Agreement, dated July 21, 2006 and amended July 23, 2007 (collectively, the “ Note Purchase Agreement ”), with respect to the Notes and related warrants, the Company is obligated to file (subject to the terms and conditions of the Note Purchase Agreement) registration statements with respect to 6,908,864 note conversion shares and 4,831,859 warrant shares.  As of the Closing Date, the foregoing registration rights related to the note conversion shares only will be terminated since there will be no outstanding Notes on such date.  However, subject to the terms of the Note Purchase Agreement, the Company is still obligated to seek registration of shares of the Company’s common stock underlying the warrants and for those shares which were issued upon previous conversions of the Notes.
 
Pursuant to the (i) Registration Rights Agreement, dated August 7, 2007, between the Company and Moriah Capital, L.P, as amended by the Amendment dated August 20, 2008 and effective as of August 7, 2008, and (ii) Warrant Issuance Agreement dated January 30, 2008, as amended on February 28, 2008 by Amendment No.1, and further amended by Amendment No. 2 dated August 20, 2008 and effective as of August 7, 2008, the Company is obligated to file a registration statement (subject to the terms of the such agreements) with respect to 1,370,000 shares issuable upon exercise of warrants  and 791,500 common shares.
 
In connection with the Securities Purchase Agreement dated as of April 2, 2008, among the Company and the purchasers signatories to such agreement (the “ April 2008 Purchasers ”), the Company executed a Registration Rights Agreement with the April 2008 Purchasers pursuant to which the Company is required to file a registration statement with respect to 1,586,539 shares of the Company’s common stock and 793,273 shares issuable upon exercise of warrants.
 
 
15


 
ANNEX A
Plan of Distribution
 
Each Selling Stockholder (the “ Selling Stockholders ”) of the common stock (“ Common Stock ”) and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on the Trading Market or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling shares:
 
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
·
an exchange distribution in accordance with the rules of the applicable exchange;
·
privately negotiated transactions;
·
settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;
·
broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;
·
a combination of any such methods of sale;
·
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or
·
any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “ Securities Act ”), if available, rather than under this prospectus.
 
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.
 
In connection with the sale of the Common Stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging the positions they assume. The Selling Stockholders may also sell shares of the Common Stock short and deliver these securities to close out their short positions, or loan or pledge the Common Stock to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
 
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
 
Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. Each Selling Stockholder has advised us that they have not entered into any written or oral agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of the resale shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders.
 
We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason of Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
 
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the Common Stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.
 
 
16



ANNEX B
 
eMagin Corporation
 
Selling Securityholder Notice and Questionnaire
 
The undersigned beneficial owner of common stock, par value $0.001 per share (the “ Common Stock ”), of eMagin Corporation, a Delaware corporation (the “ Company ”), (the “ Registrable Securities ”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “ Commission ”) a registration statement on Form S-1 (the “ Registration Statement ”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “ Securities Act ”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement, dated as of December 18, 2008 (the “ Registration Rights Agreement ”), among the Company and the Purchasers named therein. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.
 
Certain legal consequences arise from being named as a selling securityholder in the Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Registration Statement and the related prospectus.
 
NOTICE
 
The undersigned beneficial owner (the “ Selling Securityholder ”) of Registrable Securities hereby elects to include the Registrable Securities owned by it and listed below in Item 3 (unless otherwise specified under such Item 3) in the Registration Statement.


The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:
 
17



 
QUESTIONNAIRE

 
1.           Name.
     
 
(a)
Full Legal Name of Selling Securityholder
     
____________________________________________________________________________________________________
     
 
(b)
Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities Listed in Item 3 below are held:
____________________________________________________________________________________________________
     
 
(c)
Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by the questionnaire):
     
___________________________________________________________________________
     
 
2.          Address for Notices to Selling Securityholder:
 
Fax:_____________________________________________________________________
 
Contact Person:____________________________________________________________
     
 
3.          Beneficial Ownership of Registrable Securities:
     
 
(a)
Type and Number of Registrable Securities beneficially owned:
     
 
4.          Broker-Dealer Status:
     
 
(a)
Are you a broker-dealer?
     
   
Yes  r
No r
     
 
(b)
If “yes” to Section 4(a), did you receive your Registrable Securities as compensation for investment banking services to the Company.
     
   
Yes  r
No r
     
 
Note:
If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.
     
 
(c)
Are you an affiliate of a broker-dealer?
     
   
Yes  r
No r
     
 
(d)
If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?
     
   
Yes  r
No r
     
 
Note:
If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.
     
 
5.          Beneficial Ownership of Other Securities of the Company Owned by the Selling Securityholder.
     
   
Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item 3.
     
 
(a)
Type and Amount of Other Securities beneficially owned by the Selling Securityholder:
     


6.           Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.
 
State any exceptions here:

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.
 
By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 6 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.
 

 
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
 
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IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.
 
 
Date:                                                                                Beneficial Owner:
 
 
                                                                               By:  ________________________ 
                                                                                      Name
                                                                                      Title 
 
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Floor
New York, New York 10018
Attn: Richard A. Friedman


 
 
 
19

EXCHANGE AGREEMENT

THIS EXCHANGE AGREEMENT (the “ Agreement ”), dated as of December 22, 2008,   is made by and between eMagin Corporation, a Delaware corporation (“ Company ”), and each of the holders named on Schedule A hereto (each, including its successors and assigns, a “ Holder ” and collectively the “ Holders ”).

WHEREAS, the Holders hold certain of the Company’s 8% Senior Convertible Notes due December 22, 2008 set forth on Schedule A attached hereto (the “ Notes ”); and

WHEREAS, the Company and the Holders wish to provide for the terms and conditions pursuant to which the Holders shall receive, in exchange for their Notes and unpaid interest thereon   shares of the Company’s Series B Convertible Preferred Stock, $0.001 par value (the “ Series B Preferred ”), having the rights and preferences set forth on the Certificate of Designations of Series B Convertible Preferred Stock as filed with the Secretary of State of the State of Delaware in the form set forth on Exhibit A attached hereto (the “ Certificate of Designations ”); and

WHEREAS, capitalized terms not used herein shall have the meanings ascribed to such terms in the Certificate of Designations.

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which the parties hereby acknowledge, the parties agree as follows:

1.   Exchange .  The Company and the Holders hereby agree that the Notes and unpaid interest thereon shall be exchanged for an amount of Series B Preferred equal to the amount of the outstanding principal and unpaid interest due on the Notes being exchanged, as indicated on Schedule A, divided by $1,000 (i.e., the Stated Value).

2.   Registration Rights .  The Series B Preferred and shares issuable upon conversion of the Series B Preferred (collectively the “ Securities ”) shall be registered pursuant to and subject to the terms of the Registration Rights Agreement (as defined in the Securities Purchase Agreement).  The Holders and the Company agree that each Holder shall be deemed a party to the Registration Rights Agreement and treated as a “Purchaser” and “Holder” in the Registration Rights Agreement in all respects, as applicable.  The Company agrees to be bound in all respects to each Holder as if each Holders is a “Purchaser” and “Holder” in the Registration Rights Agreement, as applicable.  Notwithstanding the foregoing, in the event of liquidated damages to be paid to the “Purchasers” pursuant to Section 2(b) of the Registration Rights Agreement, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 2% of the aggregate amount of Notes and unpaid interest thereon converted into Series B Preferred pursuant to this Agreement for any Registrable Securities (as defined in the Registration Rights Agreement) then held by such Holder; provided , however , the maximum aggregate liquidated damages payable to a Holder under the Registration Rights Agreement shall be 36% of the aggregate amount of Notes and unpaid interest thereon converted into Series B Preferred pursuant to this Agreement.  Pursuant to the terms of the Registration Rights Agreement, upon the Majority Holder’s prior written consent, in lieu of paying partial liquidated damages to each Holder in cash, the Company may issue to each Holder the amount of shares of restrictive Common Stock with piggyback registration rights pursuant to Section 6(e) of the Registration Rights Agreement equal to the amount of partial liquidated damages due to each Holder divided by the Current Fair Market Value.  Reference in the Registration Rights Agreement to the Securities Purchase Agreement shall apply to the Holders, as applicable.

3.   Securities Purchase Agreement .  The defined term “Majority Holders” used in the Securities Purchase Agreement shall apply to the Holders of outstanding Series B Preferred, as applicable, and any rights or provisions granted to the “Majority Holders” in the Securities Purchase Agreement shall be granted to each Holder as if each Holder was a “Purchaser” in the Securities Purchase Agreement.

4.   Closing .  On or before December 22, 2008 (the “ Closing Date ”), the Holders shall deliver, or have delivered, to the Company the duly executed Agreement.  On or before the Closing Date, the Company shall deliver, or have delivered, to the Holders (i) the duly executed Agreement, (ii) the duly executed Registration Rights Agreement, (iii) the duly executed Securities Purchase Agreement, (iv) evidence reasonably satisfactory to the Holders of the filling of the Certificate of Designations with the Secretary of State of the State of Delaware, and (v) a copy of the signed stock certificate for the number of Series B Preferred as specified next to each Holder’s name on Schedule A hereto under the heading “Number of shares of Series B Preferred upon conversion”, registered in the name of such Holder; provided that the Company will deliver the original certificate representing the Series B Preferred to such Holder pursuant to Section 5.

5.   Notes .  The Company and the Holders agree that as of the Closing Date, the Notes converted into Series B Preferred pursuant to this Agreement shall be cancelled and have no value.  Each Holder agrees to send to the Company as promptly as possible following the Closing Date its original Note or a certificate of destruction reasonably acceptable to the Company.  The Holder acknowledges and agrees that the Company will not send the original certificate representing the Series B Preferred to such Holder until the Company receives the original Note or certificate of destruction reasonably acceptable to the Company from such Holder; provided that the Company will deliver by overnight mail within two Business Days of receiving the original Note or certificate of destruction reasonably acceptable to the Company the original certificate representing the Series B Preferred to such Holder.
 
 
 
 
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6.   Further Assurances .  In connection with the exchange of the Notes and unpaid interest thereon, the Holder, by entering into this Agreement, agrees to execute all agreements and other documents as reasonably requested by the Company.

7.   Company Representations and Warranties and Covenants .  The Company represents, warrants and covenants to the Holder as follows:

a.   Organization .  The Company is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite corporate power and authority to own its properties and carry on its business as now being conducted.

b.   Authority; Enforceability .  The Company has the requisite corporate power and authority to execute and deliver this Agreement and to carry out its obligations hereunder.  The execution, delivery and performance of this Agreement, the Registration Rights Agreement, the Securities Purchase Agreement and Certificate of Designations, and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement, the Registration Rights Agreement, the Securities Purchase Agreement or Certificate of Designations, or to consummate the transactions so contemplated.  Each of the Agreement, the Registration Rights Agreement, the Securities Purchase Agreement and Certificate of Designations has been (or upon delivery will have been) duly executed by the Company, and when delivered in accordance with the terms hereof will constitute the valid and binding obligation of the Company, enforceable against it in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

c.   Common Stock .  All shares of the Company’s Common Stock issued upon conversion of the Series B Preferred pursuant to the Certificate of Designations will be, when issued, free from liens, duly authorized, validly issued, fully paid and non-assessable.

d.   No Other Representations or Warranties .  Except as set forth above in this Section 7, no other representations or warranties, express or implied, are made in this Agreement by the Company to the Holder.

8.   Holder Representations and Warranties and Covenants .  Each Holder hereby, for itself and for no other Holder, represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

a.   Organization; Authority .  Such Holder is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by this Agreement and the Registration Rights Agreement and otherwise to carry out its obligations hereunder and thereunder.  The execution, delivery and performance by such Holder of the transactions contemplated by this Agreement and the performance by such Holders of the transactions contemplated by the Registration Rights Agreement have been duly authorized by all necessary corporate or similar action on the part of such Holder.  The Agreement has been (or upon delivery will have been) duly executed by such Holder, and when delivered by such Holder in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Holder, enforceable against it in accordance with its terms, except (i) as such enforceability may be limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

b.   Own Account .  Such Holder understands that the Securities are restricted securities and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the 1933 Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the 1933 Act or any applicable state securities law and has no arrangement or understanding with any other persons regarding the distribution of such Securities in violation of the 1933 Act or any applicable state securities law.  Such Holder is acquiring the Securities hereunder in the ordinary course of its business.  Such Holder does not have any agreement or understanding, directly or indirectly, with any person or entity to distribute any of the Securities.

c.   Holder Status .  At the time such Holder was offered the Securities, it was, and at the date hereof it is, and on each date on which it converts the Series B Preferred, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the 1933 Act.  Such Holder is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.
 
 
2

 

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

e.   General Solicitation .  Such Holder is not acquiring the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

f.   Access to Information .  Such Holder acknowledges that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.

g.   Certain Trading Activities .  Such Holder has not directly or indirectly, nor has any person or entity acting on behalf of or pursuant to any understanding with such Holder, engaged in any transactions in the securities of the Company (including, without limitations, any Short Sales (as defined below) involving the Company’s securities) since it was contacted by the Company on December 8, 2008 regarding this transaction.  Such Holder covenants that neither it nor any person or entity acting on its behalf or pursuant to any understanding with it will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed by the Company.  Such Holder has maintained, and covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company such Holder will maintain, the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).  Notwithstanding the foregoing, in the case of a Holder that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Holder’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Holder’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.  Other than to other parties to this Agreement, such Holder has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).  As used herein, “ Short Shares ” shall include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers. 

h.   Independent Investment Decision .  Such Holder has independently evaluated the merits of its decision to exchange such Holder’s Notes for Series B Preferred pursuant to this Agreement, and such Holder confirms that it has not relied on the advice of any other Holder’s business and/or legal counsel in making such decision.

The Company acknowledges and agrees that each Holder does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 8.

9.   Miscellaneous .

a.   Survival of Representations, Warranties and Agreements . The representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Closing Date and shall not be limited or affected by any investigation by or on behalf of any party hereto.

b.   Further Assurances .  Each of the Company and Holder will use its, as the case may be, best reasonable efforts to take all action and to do all things necessary, proper or advisable on order to consummate and make effective the transactions contemplated by this Agreement.

c.   Entire Agreement; No Third Party Beneficiaries .  This Agreement (including the documents, exhibits and instruments referred to herein, including, without limitation, the Registration Rights Agreement, Securities Purchase Agreement and Certificate of Designations) (a) constitutes the entire agreement and supersedes all prior agreements, and understandings and communications, both written and oral, among the parties with respect to the subject matter hereof, and (b) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

d.   Governing Law .  This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to any applicable principles of conflicts of law.
 
 
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e.   Counterparts .  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same document.

f.   Amendment and Modification .  This Agreement may not be amended or modified except by an instrument in writing signed by each of the parties hereto.

g.   Notices .  All communications, notices, instructions and consents provided for herein or in connection herewith will be in writing and be sent to the address below and will be (a) given in person, (b) sent by registered or certified mail, return receipt requested, postage prepaid, (c) sent by means of telex, facsimile or other means of wire transmission (with request for assurance of receipt in a manner typical with respect to communications of that type), or (d) sent by a reputable nationwide overnight courier service.  Any such communication, notice, instruction or consent will be deemed to have been delivered: (w) on receipt if given in person; (x) three Business Days after it is sent by registered or certified mail, return receipt requested, postage prepaid, (y) on the date of transmission if sent by telex, facsimile or other means of wire transmission (if such transmission is on a Business Day, otherwise on the next Business Day following such transmission), or (z) one Business Day after it is sent via a reputable nationwide overnight courier service.  Notices will be addressed as follows; provided , however , that if the Company designates a different address by notice to the Holders or a Holder designates a different address by notice to the Company, then to the last address so designated:

To the Company :
 
eMagin Corporation
10500 NE 8th Street, Suite 1400
Bellevue, WA  98004
Attention:  Chief Financial Officer
 
with a copy to:
 
Richard Friedman, Esq.  
Sichenzia Ross Friedman Ference LLP
61 Broadway
New York, New York  10006
(212) 930-9700 telephone
(212) 930-9725 fax
 
To the Holders :  To the address listed on Schedule A
 


 
 
4

 


IN   WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.
 
  EMAGIN CORPORATION  
       
 
By:
/s/  Paul Campbell  
   
Paul Campbell
 
   
Interim Chief Financial Officer  
 
       

 

5


[HOLDERS SIGNATURE PAGE TO THE EXCHANGE AGREEMENT]

IN WITNESS WHEREOF, they undersigned have caused this Exchange Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
 
  GINOLA LIMITED  
       
 
By:
/s/ Jonathan White  
    Jonathan White  
    President  
 
Note Amount Converted:
  $ 800,000  
Unpaid Interest Converted:
  $ 3,000  
Series B Preferred Shares:
    803  
Unpaid Interest paid in Cash:
  $ 733.33  

Address for Delivery of Series B Preferred Shares for Holder (if not the same address listed on Schedule A):
 
Sumantha Sedor
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY  112
 
6

 
[HOLDERS SIGNATURE PAGE TO THE EXCHANGE AGREEMENT]
 
IN WITNESS WHEREOF, they undersigned have caused this Exchange Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
 
  RAINBOW GATE CORPORATION  
       
 
By:
/s/ Mortimer D.A. Sackler  
    Mortimer D.A. Sackler  
    Investment Manager  
 
Note Amount Converted:
  $ 700,000  
Unpaid Interest Converted:
  $ 3,000  
Series B Preferred Shares:
    703  
Unpaid Interest paid in Cash:
  $ 266.67  

Address for Delivery of Series B Preferred Shares for Holder (if not the same address listed on Schedule A):
 
Sumantha Sedor
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY  112
 
7

 
[HOLDERS SIGNATURE PAGE TO THE EXCHANGE AGREEMENT]

IN WITNESS WHEREOF, they undersigned have caused this Exchange Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
 
  GINOLA LIMITED  
       
 
By:
/s/ Jonathan White  
    Jonathan White  
    President  
 
Note Amount Converted:
  $ 800,000  
Unpaid Interest Converted:
  $ 3,000  
Series B Preferred Shares:
    803  
Unpaid Interest paid in Cash:
  $ 733.33  

Address for Delivery of Series B Preferred Shares for Holder (if not the same address listed on Schedule A):
 
Sumantha Sedor
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY  112
 
 
 
 

 
8

 
[HOLDERS SIGNATURE PAGE TO THE EXCHANGE AGREEMENT]
 
IN WITNESS WHEREOF, they undersigned have caused this Exchange Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
 
  Navacorp III LLC  
       
 
By:
/s/ Paul Cronson  
    Name: Paul Cronson  
    Title: Managing Member  
 
Note Amount Converted:
  $ 200,000  
 
[Unpaid Interest:]
 
Series B Preferred Shares:
 
Address for Delivery of Series B Preferred Shares for
Holder (if not the same address listed on Schedule A):

9


SCHEDULE A

Name and Address of Note Holder
Amount of Note to be exchanged for Series B Preferred
Amount of unpaid interest on Note to be exchanged for Series B Preferred
Number of shares of Series B Preferred upon conversion
Amount of unpaid interest on Note paid in cash on Closing Date
Ginola Limited
c/o Ogier
Whitely Chambers
Don Street
St. Helier, Jersey  JE4 9WG
Channel Islands
Attention:  Jonathan G. White
 
with a copy to:
 
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York  10112
Attention:  Stuart D. Baker, Esq.
Facsimile No.: 212-541-5369
 
$800,000
$3,000
803
$733.33
         
Rainbow Gate Corporation
c/o The Acorn Foundation for the
      Arts and Sciences, Inc.
15 East 62nd Street
New York, New York,  10021
 
with copies to:
 
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York  10112
Attention:  Stuart D. Baker, Esq.
Facsimile No.: 212-541-5369
 
Ogier
Whitely Chambers
Don Street
St. Helier, Jersey  JE4 9WG
Channel Islands
Attention:  Jonathan G. White
 
$700,000
$3,000
703
$266.67
         
Navacorp III LLC
$200,000
$0
200
$933.33
 
10


EXHIBIT A

CERTIFICATE OF DESIGNATIONS
 
 
 
 
 
 

11


EXHIBIT B

REGISTRATION RIGHTS AGREEMENT
 
 
 
 
 
 
 
 
 
 
 
 
9