ex1053.htm


    Exhibit 10.53

     

     

    SECURITIES
PURCHASE AGREEMENT

     

    This
Securities Purchase Agreement (this “Agreement”)
is dated as of April 2, 2008, among eMagin Corporation, a Delaware
corporation (the “Company”),
and each purchaser identified on the signature pages 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, 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.

     

    “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.

     

    “Closing”
means the closing of the purchase and sale of the Securities 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.

     

    “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.

     

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

     

    
      
        
        

      

      
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    “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.

     

    “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
Counsel” means Sichenzia Ross Friedman Ference LLP.

     

    “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.

     

    “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.

     

    “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, 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 in a business
similar or related to the business of the Company, provided any such
issuance shall only be to a Person which is, 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).

     

    “Intellectual
Property Rights” shall have the meaning ascribed to such term in Section
3.1(o).

     

    “Investor”
shall have the meaning ascribed to such term in Section 3.1(v).

     

    “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.

     

    
      
        
        

      

      
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    “Material Adverse
Effect” shall have the meaning assigned to such term in Section
3.1(b).

      

    “Material
Permits” shall have the meaning ascribed to such term in Section
3.1(m).

     

    “Per Share
Purchase Price” equals $1.04.

     

    “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.

     

    “Pro Rata
Share” means with respect to each capital raising transaction to which
Section 4.16 applies an amount equal to the product obtained by multiplying (a)
an amount equal to one-half of the securities being issued in such capital
raising transaction times (b) a fraction
of which the numerator is the sum of (i) the Purchaser’s Warrant Shares plus (ii) the number
of outstanding Shares beneficially owned by the Purchaser at the time the Pro
Rata Share is being determined, and the denominator is the sum of (iii) the
number of Warrant Shares at the time of original issuance thereof plus (iv) all of the
Shares issued under this Agreement, subject to adjustment of the amounts
specified in the immediately preceding clauses (iii) and (iv) for stock splits,
stock dividends and similar capital changes affecting the Common Stock that
occur on or after the Closing Date and on or prior to the date Pro Rata Share is
being determined.

     

    “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
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 A 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 and the Warrant Shares.

     

    “Required
Approvals” shall have the meaning ascribed to such term in
Section 3.1(e).

     

    “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 Shares, the Warrants and the Warrant Shares.

     

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

     

    “Shares”
means the shares of Common Stock issued or issuable to each Purchaser pursuant
to this Agreement.

     

    “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. 

     

    “Subscription
Amount” means, as to each Purchaser, the aggregate amount to be paid for
Shares and Warrants purchased hereunder as specified below such Purchaser’s name
on the signature page of this Agreement and next to the heading “Subscription
Amount”, in United States Dollars and in immediately available
funds.

     

    
      
        
        

      

      
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    “Subsidiary”
means any subsidiary of the Company as set forth on Schedule
3.1(a).

     

    “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 Warrants, the Registration Rights
Agreement, and any other documents or agreements executed in connection with the
transactions contemplated hereunder.

     

    “Warrants”
means collectively the Common Stock purchase warrants, in the form of Exhibit C 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 $2,500,000 of Shares and Warrants.
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 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.  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.

     

    Section 2.2 Deliveries.

     

    (a) On
the Closing Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:

     

    (i) this
Agreement duly executed by the Company;

     

    (ii) a
legal opinion of Company Counsel, in the form of Exhibit B attached
hereto;

     

    (iii) a
copy of the irrevocable instructions to the Company’s transfer agent instructing
the transfer agent to deliver, on an expedited basis, a certificate evidencing a
number of Shares equal to such Purchaser’s Subscription Amount divided by the
Per Share Purchase Price, registered in the name of such Purchaser;

     

    
      
        
        

      

      
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    (iv) a
Warrant registered in the name of such Purchaser to purchase up to a number of
shares of Common Stock equal to 50% of the number of Shares purchased, with an
exercise price equal to $1.29 per share subject to
adjustment therein;

     

    (v) the
Lockup Agreement in the form of Exhibit D hereto
executed by each director and each of the senior executive officers named as
such on Schedule
2.2(a) attached hereto;

     

    (vi) the
Registration Rights Agreement duly executed by the Company; and

     

    (vii) the
executed waivers from all of the outstanding Holders of the Amended and Restated
8% Senior Secured Convertible Notes Due 2008 waiving Section 3.12 of the Notes,
Section 12(d)(11) of the Certificate of the Designations, and Sections 5(m) and
8(a)(2) from the Note Purchase Agreement, dated July 21, 2006, as amended by the
Amendment Agreement, dated July 23, 2007.

     

    (b) On
the Closing Date, each Purchaser shall deliver or cause to be delivered to the
Company the following:

     

    (i) this
Agreement duly executed by such Purchaser;

     

    (ii) 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;
and

     

    (iii) the
Registration Rights Agreement duly executed by such Purchaser.

     

    Section 2.3 Closing
Conditions.

     

    (a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:

     

    (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) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:

     

    (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;

     

    (iv) there
shall have been no Material Adverse Effect with respect to the Company since the
date hereof; and

     

    
      
        
        

      

      
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    (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 Shares 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 (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 (any of (i), (ii) or (iii), 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.

     

    
      
        
        

      

      
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    (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)
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, (iii) application(s) to each
applicable Trading Market for the listing of the Shares and Warrant Shares for
trading thereon in the time and manner required thereby, and (iv) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws (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 Warrant 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. 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.

     

    
      
        
        

      

      
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    (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.

     

    (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.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (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.  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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (q) Transactions With Affiliates
and Employees.  Except as set forth in the SEC Reports, 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, 2008.  The
Company shall thereafter comply in all material respects with all applicable
provisions of the Sarbanes-Oxley Act. 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.  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.

     

    (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.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (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  each of the Purchasers, no Person has any right to cause the
Company to effect the registration under the Securities Act of any securities of
the Company.  The Company has received valid waivers from all of the
outstanding Holders of the Amended and Restated 8% Senior Secured Convertible
Notes Due 2008 waiving their rights to allow for the filling of the
Registration Statement before the effectiveness of their registration
statement. The Company is not in default under any agreement or other
arrangement related to registration rights of any investor (the “Investor”)
who was a party to the Note Purchase Agreement dated as of July 21, 2006 as
amended by the Amendment  Agreement dated as of July 23, 2007 and the
Company does not owe any liquidated damages to any Investor 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.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (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.

     

    (bb) Form S-1
Eligibility.  The Company is eligible to register the resale of
the Securities 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.

     

    
      
        
        

      

      
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    (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, 2007, 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, including, without limitation, during the periods that the value of
the Warrant Shares deliverable with respect to Securities are being determined
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.

     

    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.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (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.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

      

    (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 February 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), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act.  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 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.

     

    
      
        
        

      

      
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    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 and Warrant 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 or
Warrant Shares pursuant to a registration statement or Rule 144 (assuming the
transferor is not an Affiliate of the Company), or (iii) if such Shares or
Warrant 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 Warrant is exercised at a time
when there is an effective registration statement to cover the resale of the
Warrant Shares, such Warrant 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
or Warrant Shares, as the case may be, 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 or Warrant 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 Purchasers holding a then majority in interest
of the Shares.

     

    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 second Trading Day following the date hereof, 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 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.

     

    
      
        
        

      

      
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    Section 4.7 Use of
Proceeds.  The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company’s debt (other than payment of trade
payables in the ordinary course of the Company’s business and prior practices),
to redeem any Common Stock or Common Stock Equivalents or to settle any
outstanding litigation.

      

    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 Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the
Warrants.

     

    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, and as soon as
reasonably practicable following the Closing (but not later than the earlier of
the Effective Date and the first anniversary of the Closing Date) to list all of
the Shares and Warrant Shares on such 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
Warrant Shares, and will take such other action as is necessary to cause all of
the Shares and Warrant 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) 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; 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 and
Warrant 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 and Warrant Shares; provided, further, that such
issuance shares must be registered after the registration of the
Securities.

     

    (b) From
the date hereof until all the Securities 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.  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.

     

    
      
        
        

      

      
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    Section 4.14 Short
Sales and Confidentiality After The Date Hereof.  Such 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 February 2008 by the Company or any other Person
regarding an investment in 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).

      

    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.

     

    Section 4.16 Right of
Purchaser to Participate in Future Transactions.  Purchaser
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 Warrant, 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.

     

    
      
        
        

      

      
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    Section 4.17 Limitation
on Certain Transactions.  From the date of this Agreement until
after the date all the Securities become eligible for resale under Rule 144
without volume restrictions or the Effective Date, without the prior written
consent of the Purchaser (which consent may be withheld in the Purchaser’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.

      

    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 April 7, 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.  At the Closing, the Company has agreed to reimburse
the following Purchasers the following amounts for the legal fees and expenses
of its counsel:  Stillwater LLC for $30,000; Kettle Hill Partners,
LP for $2,300; Kettle Hill Partners II, LP for $4,100; and Kettle Hill
Offshore, Ltd. for $3,600.  Accordingly, in lieu of the foregoing
payments, the Subscription Amount that each of the foregoing Purchasers is to
pay at the Closing shall be reduced by the amount of such reimbursement in lieu
thereof.  The Company shall deliver, prior to the Closing, a completed
and executed copy of the Closing Statement, attached hereto as Annex
A.  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 2nd 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.

     

    
      
        
        

      

      
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    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.

     

    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.

     

    
      
        
        

      

      
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    Section 5.10 Survival.  The
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery of the Shares and Warrant
Shares.

     

    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.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    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.

     

    Section 5.19 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)

     


    
      
         


      

      
        24

        
          

        

      

      
         


      

    


    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

                	 
      
	 
      	 
      	 
      	 
      
	 
      	
                  By:

                	
                  /s/ Michael D.
      Fowler 

                	 
      
	 
      	 
      	
                  Michael
      D. Fowler

                	 
      
	 
      	 
      	
                  Interim
      Chief Financial Officer

                	 
      


        

      

    

     

    Address
for Notice:

    2070
Route 52

    Hopewell
Junction, New York 12533

     

    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

    1065
Avenue of the Americas, 21st Floor

    New York,
New York 10018

    Attn:
Richard A. Friedman

     

     

     

    


     

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

     

    SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

     

    [PURCHASER
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

     


    
      
         


      

      
        25

        
          

        

      

      
         


      

    


    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.

     

    [Name of
Purchaser]

     

    


    ____________________________________

     

    [By:]

     

    [Title:]

     

    


     

    Address
for Notice of Purchaser:

     

    


     

    


     

    Address
for Delivery of Securities for Purchaser (if not same as above):

     

    


     

    Subscription
Amount:

     

    Shares:

     

    Warrant
Shares:

     

    EIN
Number:

     

     

    
      
         


      

      
        26

        
          

        

      

      
         


      

    


    


     ANNEX
A

    CLOSING
STATEMENT

    Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto, the
purchasers shall purchase up to $___________ of Common Stock and Warrants from
eMagin Corporation, a Delaware corporation (the “Company”).
All funds will be wired into a trust account maintained by ____________, counsel
to the Company. All funds will be disbursed in accordance with this Closing
Statement.

    Disbursement
Date: ________ ___, 2008

    


    
      
        
          	
                  I.           PURCHASE
      PRICE

                	 
      
	
                  Gross
      Proceeds to be Received in Trust

                	
                  $

                
	 
      	 
      
	
                  II.         DISBURSEMENTS

                	 
      
	 
      	
                  $

                
	 
      	
                  $

                
	 
      	
                  $

                
	 
      	
                  $

                
	 
      	 
      
	
                  Total
      Amount Disbursed:

                	
                  $

                
	 
      	 
      
	 
      	 
      
	 
      	 
      
	
                  WIRE INSTRUCTIONS:

                	 
      
	
                  To:
      _____________________________________

                	 
      
	
                  To:
      _____________________________________

                	 
      


        

      

    

    


    



    
      
         


      

      
        27

        
          

        

      

      
         


      

    


    Schedule
B

     

    April 2,
2008

     

    


    To the
Investors 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 April 2, 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 Registration Rights 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 Articles
of Incorporation, as amended and restated, as in effect on the date hereof (the
“Articles
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;

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    (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;

     

    (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;

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    (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; and

     

    (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.

     

    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 March 7,
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:

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    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, 2006, as filed with the Securities and Exchange Commission on
April 2, 2007; (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.

     

    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
Shares have been duly authorized and, when paid for and issued in accordance
with the terms of the Purchase Agreement 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.

     

    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
Articles of Incorporation or Bylaws, (ii) 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 SEC Reports, (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.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    6. To the
best of our knowledge, other than the declaration of effectiveness by the
Securities and Exchange Commission of the registration statement to be filed
pursuant to the Transaction Documents, 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 other than as provided in Sections
5(m) and 8(a)(2) of the Note Purchase Agreement, dated July 21, 2006, as amended
by the Amendment Agreement, dated July 23, 2007; Section 12(d)(11) of the
Certificate of Designations; or Section 3.12 of the Amended and Restated 8%
Senior Secured Convertible Notes Due 2008, in connection with the execution,
delivery and performance by the Company of the Transaction Documents or the
consummation of the other transactions contemplated thereby.

     

    7. To the
best of our knowledge, 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 Investors set forth in
Section 3.2(b)-(e) of the Purchase Agreement, the offer, issuance and sale
of the Shares and Warrants and the offer, sale and issuance of the Warrant
Shares to the Investors 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,	 
	 	 	 	 
	 	 	 	 
	 	 	Sichenzia
      Ross Friedman Ference LLP	 


        

      

    

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
A

     

    


     

    
      
        	
                INVESTOR

              
	
                Stillwater
      LLC

              
	
                Ginola
      Limited

              
	
                Crestflower
      Corporation

              
	
                Kettle
      Hill Partners, LP

              
	
                Kettle
      Hill Partners II, LP

              
	
                Kettle
      Hill Offshore, Ltd.

              
	
                Iroquois
      Master Fund Ltd.

              
	
                Total

              


      

    

    


     


    
      
         


      

      
        33

        
          

        

      

      
         


      

    


    Schedule
D

     

    April 2,
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 Common Stock and/or securities convertible into
or exchangeable or exercisable for 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 for its operations.  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 210 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. 

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    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.

     

    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
210 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 shall be null and void on the sooner of 210 days from the date hereof of
the date on which the  Investors no longer beneficially own any Shares
or Warrant Shares (as defined in the Securities Purchase Agreement between the
Company and the Investors dated the date hereof).

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    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,

              	 
	 	 	 	 
	 	
                 

              	 	 
	 	 	
                (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.)	 
	 	 	 	 


      

    

     


    
      
         


      

      
        36

        
          

        

      

      
         


      

    


    SCHEDULE
A

     

    
      
        	
                INVESTOR

              
	
                Stillwater
      LLC

              
	
                Ginola
      Limited

              
	
                Crestflower
      Corporation

              
	
                Kettle
      Hill Partners, LP

              
	
                Kettle
      Hill Partners II, LP

              
	
                Kettle
      Hill Offshore, Ltd.   

              
	
                Iroquois
      Master Fund Ltd. 

              
	
                Total

              


      

    

    


     


    
      
         


      

      
        37

        
          

        

      

      
         


      

    

    
 

    SCHEDULE
2.2(a)

    List of Lockup Agreement
Signatories

    
 

    
      
        
          
            
              
                
                  
                    	
                            Name

                          	 
      	 
      	 
      	Capacity
	
                            Thomas
      Paulsen

                          	 
      	 
      	 
      	
                            Interim
      Chief Executive Officer, Director

                          
	
                            Michael
      D. Fowler

                          	 
      	 
      	 
      	
                            Interim
      Chief Financial Officer

                          
	
                            Claude
      Charles

                          	 
      	 
      	 
      	
                            Director

                          
	
                            Paul
      Cronson

                          	 
      	 
      	 
      	
                            Director

                          
	
                            Irwin
      Engelman

                          	 
      	 
      	 
      	
                            Director

                          
	
                            Jacob
      Goldman

                          	 
      	 
      	 
      	
                            Director

                          
	
                            Stephen
      Seay

                          	 
      	 
      	 
      	
                            Director

                          


                  

                

              

            

          

        

      

    

    



    
      
         


      

      
        38

        
          

        

      

      
         


      

    


    SCHEDULE
3.1(a)

    eMagin Corporation Direct
and Indirect Subsidiaries

    


    eMagin
Corporation has one direct subsidiary and no indirect subsidiaries as indicated
below:

    


    Direct
Subsidiaries

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

    


    Indirect
Subsidiaries

    None


    
      
         


      

      
        39

        
          

        

      

      
         


      

    


    SCHEDULE
3.1(g)

    Capitalization
Summary

     

    

      
        
          
            
              
                
                  
                    
                      
                        
                          	
                                  Common
      shares issued and outstanding

                                	 
      	
                                  12,620,900
      shares

                                
	
                                  Shares
      issuable upon option exercise

                                	 
      	    
      879,323
      shares   (1)
	
                                  Shares
      issuable upon warrant exercise

                                	 
      	
                                    9,340,509
      shares   (2), (4)

                                
	
                                  Shares
      issuable upon conversion of debt

                                	 
      	
                                    8,330,689 shares   (3), (5),
      (6)

                                
	
                                  Total
      shares outstanding and issuable

                                	 
      	31,171,421
      shares


                        

                      

                    

                  

                

              

            

          

        

      

    

     

    Note:  Closing
price of eMagin’s common stock as of March 10, 2008 was $0.96 per
share.

    1. The
Company has a total of 879,323 options outstanding of which approximately
640,746 of these options have an exercise price of $2.60 per share or
greater.

    


    2. The
Company has a total of 9,340,509 warrants outstanding with an average strike
price of $2.65 per share.  Approximately 1,107,052 of these warrants
are in the money with a strike price of $0.48 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 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. 8% Senior
Secured Convertible Note holders have a right of in financings of the
Company.  Notice of the proposed financing was provided to all such
note holders on February 29, 2008.  With the exception of one note
holder (in addition to Stillwater LLC) no notification of participation was
received by the Company or its counsel within the prescribed four trading day
period for such notification, which expired March 6, 2008.


    
      
         


      

      
        40

        
          

        

      

      
         


      

    


    SCHEDULE
3.1(r)

    Sarbanes-Oxley: Internal
Accounting Controls

    In
connection with Company management’s annual report on internal control over
financial reporting now in preparation, the Company anticipates that it will
disclose 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.  Concurrently with identification of any items
of this nature, the Company expects to present detailed plans for remediating
any such weaknesses or deficiencies with a timetable for
completion.

     

     

     

     

     

     

     


    
      
         


      

      
        41

        
          

        

      

      
         


      

    


    SCHEDULE
3.1(v)

    Registration
Rights

    Pursuant
to Section 8 of the Note Purchase Agreement dated July 21, 2006 and amended July
23, 2007 with respect to the 8% Senior Secured Convertible Notes and related
warrants, the Company is obligated to file a registration statement with respect
to 6,908,864 note conversion shares and 4,831,859 warrant shares.

     

    Pursuant
to the Warrant Issuance Agreement dated January 30, 2008 as amended February 28,
2008 between the Company and Moriah Capital, L.P., the Company is obligated to
file a registration statement with respect to 1,000,000 warrant shares and
162,500 common shares no later than April 29, 2008.

     

    


     

     

     

     

     

    42