ex1082.htm


    Exhibit
10.82

    
 

    


    LOAN
AND SECURITY AGREEMENT

    


    by and
between

    


    MORIAH
CAPITAL, L.P.,

    


    as
Lender,

    


    and

    


    EMAGIN
CORPORATION,

    


    as
Borrower

    


    


    


    


    Dated:
August 7, 2007

    


    
      
        
        

      

      
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    LOAN AND SECURITY
AGREEMENT

    


    


    THIS LOAN AND SECURITY AGREEMENT
dated this 7th day of August 2007 by and between EMAGIN CORPORATION, a Delaware
corporation, with its principal place of business located at 10500 N.E. 8th Street,
Suite 1400, Bellevue, Washington 98004 (the "Borrower"), and MORIAH CAPITAL, L.P., a
Delaware limited partnership with offices at 685 Fifth Avenue, New York, New
York 10022 (as further defined below, the "Lender").

    


    R E C I T A L
S:

    


    WHEREAS, Borrower desires to
enter into an accounts receivable and inventory-based revolving loan credit
facility with Lender pursuant to which Lender may make loans to Borrower;
and

    


    WHEREAS, Lender is willing to
make such loans on the terms and conditions hereinafter set forth;
and

    


    WHEREAS, Borrower is willing
to agree to the terms and conditions hereinafter set forth;

    


    NOW, THEREFORE, in
consideration of the foregoing, the mutual covenants and agreements herein
contained and other good and valuable consideration, Lender and Borrower
mutually covenant, warrant and agree as follows:

    


    SECTION
1. DEFINITIONS AND RULES OF INTERPRETATION
AND CONSTRUCTION

    


    Specific Terms
Defined.  The following terms (including both the singular and
plurals thereof) shall have the following meanings unless the context indicates
otherwise:

    


    1.1 "Account Debtor" or "account debtor" shall have
the meaning ascribed to such term in the UCC and shall also include a Person
obligated for payment of an Account.

     

    1.2 "Accounts" shall mean all
"accounts" as defined in the UCC, and, in addition, any and all obligations of
any kind at any time due and/or owing to Borrower, whether now existing or
hereafter arising, and all rights of Borrower to receive payment or any other
consideration (whether classified under the UCC of the State of New York or any other state as
accounts, accounts receivable, contract rights, chattel paper, general
intangibles or otherwise) including, without limitation, invoices, contract
rights, accounts receivable, general intangibles, choses-in-action, notes,
drafts, acceptances, instruments and all other debts, obligations and
liabilities in whatever form owing to Borrower from any person, firm,
governmental authority, corporation or any other entity, all security therefor,
and all Borrower's rights to goods sold (whether delivered, undelivered, in
transit or returned), which may be represented thereby, or with respect thereto,
including, but not limited to, all rights as an unpaid vendor (including
stoppage in transit, replevin or reclamation), all additional amounts due from
any Account Debtor together with all Proceeds and products of any and all of the
foregoing.

     

    
      
        
        

      

      
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    1.3 “Advance” shall have the
meaning as set forth in Section 2.2
hereof.

     

    1.4 "Affiliate" shall mean, means,
with respect to any Person, (a) any other Person that, directly or indirectly,
is in control of, is controlled by, or is under common control with such Person
or (b) any other Person who is a director or officer (i) of such Person, (ii) of
any Subsidiary of such Person or (iii) of any Person described in clause (a)
above.  For the purposes of this definition, control of a Person shall
mean the power (direct or indirect) to direct or cause the direction of the
management or the policies of such Person whether through the ownership of any
class of stock or equity of such person or by contract or
otherwise.

     

    1.5 "Agreement" shall mean this
Loan and Security Agreement (including all Exhibits annexed hereto and the
Borrower’s Disclosure Schedule) as originally executed or, if amended, modified,
supplemented, renewed or extended from time to time, as so amended, modified,
supplemented, renewed or extended.

     

    1.6 “Base Rate” shall have the
meaning as set forth in Section 3.1 hereof.

     

    1.7 "Borrower" shall mean eMagin
Corporation and its successors.

     

    1.8 “Borrower’s Disclosure
Schedule” means the Disclosure Schedule prepared by Borrower that is
being delivered to Lender concurrently herewith.

     

    1.9 “Borrowing Base” shall be
calculated at any time as the sum of (i) the product obtained by
multiplying the outstanding amount of Eligible Accounts, net of all taxes,
discounts, allowances and credits given or claimed, by 90%, plus (ii) the
lesser of (A) Six Hundred Thousand Dollars ($600,000) or (B) the product(s)
obtained by multiplying 50% by the values of Eligible Inventory as determined by
Lender in good faith in its reasonably commercial judgment, based on the lower
of cost or market.

     

    1.10 “Borrowing Certificate” shall
have the meaning as set forth in Section 2.1 hereof.

     

    1.11 "Business Day" shall mean any
day other than a Saturday, Sunday or any other day on which banks located in the
State of New York are authorized or required to close under applicable banking
laws.

     

    1.12 "Capital Assets" shall mean,
in accordance with GAAP, fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and goodwill); provided, that
Capital Assets shall not include any item depreciated or amortized over a useful
life of twelve (12) months or less.

     

    1.13  “Chattel Paper” shall mean all
“chattel paper,” as such term is defined in the UCC, including electronic
chattel paper

     

    1.14 "Collateral" shall have the
meaning as set forth in Section 5.1 hereof.

     

    1.15 “Closing Date” shall mean the
date of this Agreement.

     

    
      
        
        

      

      
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    1.16 “Common Stock” shall mean the
Common Stock, par value $.001 per share, of the Borrower.

     

    1.17 “Convertible Noteholders”
shall mean the holders of Convertible Notes.

     

    1.18  “Convertible Notes”
shall mean the Company’s 6% Senior Secured Convertible Notes due
2007-2008 issued by the Borrower to the Convertible Noteholders.

     

    1.19 “Convertible Notes
Documentation” shall mean all agreements and instruments entered into by
the Borrower in connection with the issuance of the Convertible
Notes.

     

    1.20 “Default Rate” shall have the
meaning as set forth in Section 3.1 hereof.

     

    1.21 “Deposit Accounts” means all
“deposit accounts” as such term is defined in the UCC.

     

    1.22 “Eligible Accounts” are
accounts created by Borrower in the ordinary course of its business which
satisfy the following criteria:

     

    (1)           such
accounts arise from bona fide completed transactions and have not remained
unpaid for more than ninety (90) days after the invoice date
thereof;

     

    (2)           
the amounts of the accounts reported to Lender are absolutely owing to Borrower
and do not arise from sales on consignment, guaranteed sales or other terms
under which payment by the account debtors may be conditional or
contingent;

     

    (3)           the
account debtor’s chief executive office or principal place of business is
located in the United States, unless payment of any such account debtor’s
accounts is backed by a letter of credit or credit insurance acceptable to, and
approved by, Lender in its sole discretion);

     

    (4)           such
accounts do not arise from any unearned portions of fees derived from progress
billings, as determined by Lender in its sole and absolute discretion, or from
any retainages or bill and hold sales;

     

    (5)           
there are no contra relationships, setoffs, counterclaims or disputes existing
with respect thereto;

     

    (6)           the
goods giving rise thereto were not at the time of the sale subject to any Liens
except for Permitted Encumbrances, and such accounts are free and clear of all
Liens except for Permitted Encumbrances;

     

    (7)           such
accounts are not accounts with respect to which the account debtor or any
officer or employee thereof is an officer, employee or agent of or is affiliated
with Borrower, directly or indirectly, whether by virtue of family membership,
ownership, control, management or otherwise;

     

    
      
        
        

      

      
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    (8)           such
accounts are not accounts with respect to which the account debtor is the United
States or any state or political subdivision thereof or any department, agency
or instrumentality of the United States, any state or political subdivision,
unless there has been compliance with the Assignment of Claims Act or any
similar state or local law, if applicable;

     

    (9)           Borrower
has delivered to Lender or Lender’s representative such documents as Lender may
have requested in connection with such accounts and Lender shall have received a
verification of such account, satisfactory to it, if sent to the account debtor
or any other obligor or any bailee;

     

    (10)           there
are no facts existing or threatened which might result in any material adverse
change in the account debtor’s financial condition, except for the state of
facts in existence on March 27, 2007 that caused Borrower’s accountants, Eisner
LLP, to issue a “going concern” qualification in their opinion of that date to
Borrower, as set forth in Borrower’s Annual Report on Form 10-K for the year
ended December 31, 2006;

     

    (11)           such
accounts owed by a single account debtor or its affiliates do not represent more
than thirty percent
(30%) of all otherwise Eligible Accounts (accounts excluded from Eligible
Accounts solely by reason of this subsection (11) shall nevertheless be
considered Eligible Accounts to the extent of the amount of such accounts which
does not exceed such percentage of all otherwise Eligible Accounts);
and

     

    (12)           such
accounts are not owed by an account debtor who is or whose affiliates are past
due upon other accounts owed to Borrower comprising more than fifty percent
(50%) of the accounts of such account debtor or its affiliates owed to
Borrower.

     

    1.23  “Eligible Inventory”
shall mean all Inventory of the Borrower, excluding any Inventory having
any of the following characteristics:

     

    (i)           Inventory
that is: in-transit; located at any warehouse or other premises not approved by
Lender in writing or as to which Lender has not received a landlord or mortgagee
waiver in form and substance acceptable to Lender; not subject to a duly
perfected first priority security interest in Lender's favor; subject to any
lien or encumbrance that is not subordinate to Lender's first priority security
interest; covered by any negotiable or non-negotiable warehouse receipt, bill of
lading or other  document of title; on consignment from any Person; on
consignment to any Person or subject to any bailment unless such consignee or
bailee has executed an agreement with Lender;

    


    (ii)           Work-in-process
Inventory;

    


    (iii)           Inventory
that is damaged, defective, obsolete, discontinued, tainted, slow moving or not
currently saleable in the normal course of the Borrower's operations, or the
amount of such Inventory that has been reduced by shrinkage;

     

    
      
        
        

      

      
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    (iv)           Inventory
that the Borrower has returned, has attempted to return, is in the process of
returning or intends to return to the vendor thereof;

    


    (v)           Inventory
manufactured by the Borrower pursuant to a license unless the applicable
licensor has rights adverse to Lender that would interfere
with  Lender’s  exercise of its rights and remedies against
such Inventory;

    


    (vi)           Inventory
that is subject to a Lien in favor of any Person other than Lender;

    


    (vii)           Inventory
stored at locations holding less than ten (10%) of the aggregate value of
Borrower’s Inventory; and

    


    (viii)                      Inventory
not covered by a casualty insurance policy acceptable to Lender and under which
Lender has been named as a loss payee and additional insured.

    


    1.24 "Environment" means all air,
surface water, groundwater or land, including, without limitation, land surface
or subsurface, including, without limitation, all fish, wildlife, biota and all
other natural resources.

     

    1.25 "Environmental Law" or "Environmental Laws" shall
mean all federal, state and local laws, statutes, ordinances and regulations now
or hereafter in effect, and in each case as amended or supplemented from time to
time, and any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment relating to the
regulation and protection of human health, safety, the environment and natural
resources (including ambient air, surface water, groundwater, wetlands, land
surface or subsurface strata, wildlife, aquatic species and
vegetation).

     

    1.26 "Environmental Liabilities and
Costs" shall mean, as to any Person, all liabilities, obligations,
responsibilities, remedial actions, losses, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all fees,
disbursements and expenses of counsel, experts and consultants and costs of
investigation and feasibility studies), fines, penalties, sanctions and interest
incurred as a result of any claim or demand by any other Person, whether based
in contract, tort, implied or express warranty, strict liability, criminal or
civil statute, including any Environmental Law, permit, order or agreement with
any Governmental Authority or other Person, and which arise from any
environmental, health or safety conditions, or a Release or conditions that are
reasonably likely to result in a Release, and result from the past, present or
future operations of such Person or any of its Affiliates.

     

    1.27 "Environmental Lien" shall
mean any Lien in favor of any Governmental Authority for Environmental
Liabilities and Costs.

     

    1.28 "ERISA" shall mean the
Employee Retirement Income Security Act of 1974, as the same now exists or may
from time to time hereafter be amended, modified, recodified or supplemented,
together with all rules, regulations and interpretations thereunder or related
thereto.

     

    
      
        
        

      

      
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    1.29 "Equipment" shall mean
"equipment", as such term is defined in the UCC, now owned or hereafter acquired
by Borrower and, wherever located, and shall include, without limitation, all
equipment, machinery, furniture, fixtures, computer equipment, telephone
equipment, molds, tools, dies, partitions, tooling, transportation equipment,
all other tangible assets used in connection with the manufacture, sale or lease
of goods or rendition of services, and Borrower's interests in any leased
equipment, and all repairs, modifications, alterations, additions, controls and
operating accessories thereof or thereto, and all substitutions and replacements
therefor.

     

    1.30 "Event of Default" shall mean
the occurrence or existence of any event or condition described in Section 11 of
this Agreement which is not remedied within any applicable grace or cure
period.

     

    1.31 “Financial Statements” shall
have the meaning as set forth in Section 8.9 hereof.

     

    1.32 "Financing Statements" shall
mean the Uniform Commercial Code UCC-1 Financing Statements to be filed with
applicable Governmental Authorities of each State or Commonwealth or political
subdivisions thereof pursuant to which Lender shall perfect its security
interest in the Collateral.

     

    1.33 "Fiscal Year" shall mean that
twelve (12) month period commencing on January 1 and ending on December
31.

     

    1.34 “GAAP” means generally
accepted accounting principles in effect in the United States of America at the
time of any determination, and which are applied on a consistent
basis.  All accounting terms used in this Agreement which are not
expressly defined in this Agreement shall have the meanings given to those terms
by GAAP, unless the context of this Agreement otherwise requires.

     

    1.35 "Governmental Authority" or
"Governmental
Authorities" shall mean any federal, state, county or municipal
governmental agency, board, commission, officer, official or entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

     

    1.36 “Indebtedness" shall mean,
with respect to any Person, all of the obligations of such Person which, in
accordance with GAAP, should be classified upon such Person’s balance sheet as
liabilities, or to which reference should be made by footnotes thereto,
including without limitation, with respect to Borrower, in any event and whether
or not so classified:

     

    (a)           all
debt and similar monetary obligations of Borrower, whether direct or indirect,
including, without limitation, Subordinated Debt;

    


    (b)           all
obligations of Borrower arising or incurred under or in respect of any
guaranties (whether direct or indirect) by Borrower of the indebtedness,
obligations or liabilities of any other Person; and

     

    
      
        
        

      

      
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    (c)           all
obligations of Borrower arising or incurred under or in respect of any Lien upon
or in any property owned by such Person, even though such Person has not assumed
or become liable for the payment of such obligations.

    


    1.37 “Intellectual Property” shall
mean all franchises, patents, trademarks, service marks, trade names (whether
registered or unregistered), copyrights, corporate names, licenses, trade
secrets, proprietary software or hardware, proprietary technology, technical
information, discoveries, designs and other proprietary rights, whether or not
patentable, and confidential information (including, without limitation,
know-how, processes and technology) used in the conduct of the business of the
Borrower or any Subsidiary.

     

    1.38 “Intercreditor Agreement"
shall mean the Intercreditor Agreement, dated of even date herewith,
among the Lender, Alexandra Global Master Fund Ltd., in its capacity as
Collateral Agent for the Convertible Noteholders, and Borrower, in the form
annexed hereto as Exhibit
[_].

     

    1.39 "Inventory" shall mean any
"inventory," as such term is defined in the UCC, now owned or hereafter acquired
by Borrower, wherever located, and, in any event, shall include, without
limitation, all raw materials, work-in-process, finished and semi-finished
Inventory including, without limitation, all materials, parts, components and
supplies relating to the manufacture or assembly thereof, packaging and shipping
supplies relating thereto, and all other inventory, merchandise, goods and other
personal property now or hereafter owned by Borrower, which are held for sale,
exchange or lease or are furnished or are to be furnished under a contract of
service or an exchange arrangement or which constitute raw materials,
work-in-process or materials used or consumed or to be used or consumed in
Borrower's business, or the processing, packaging, delivery or shipping of the
same, and all finished goods and the products of the foregoing, whatever form
and wherever located; and all names or marks affixed to or to be affixed thereto
for purposes of selling same by the seller, manufacturer, lessor or licensor
thereof and all right, title and interest of Borrower therein and
thereto.

     

    1.40 “Interest” shall have the
meaning as set forth in Section 3.1 hereof.

     

    1.41 “Investment Property” means all
“investment property”, as such term is defined in the UCC, now owned or
hereafter acquired by any Person, wherever located.

     

    1.42 “Landlord Agreements” shall
mean (i) the
agreement, of even date herewith,  between Capgemeni U.S. LLC, as
sublandlord, Lender and the Borrower, as tenant, as consented to by Bellevue
Place Office Building Limited Partnership, with respect to the leased premises
at 10500 N.E. 8th Street,
Bellevue, Washington 98004, in the form of Exhibit
F-1 annexed hereto, and (ii) the agreement, of even date herewith, among
International Business Machines Corporation, as landlord, Lender and the
Borrower, as tenant, with respect to the leased premises at 2070 Route 52,
Hopewell Junction, NY 12533, in the form of Exhibit
F-2 annexed hereto .

     

    1.43 “Letter-of-Credit Rights” means
“letter-of-credit rights” as such term is defined in the UCC, now owned or
hereafter acquired by any Person, including rights to payment or performance
under a letter of credit, whether or not such Person, as beneficiary, has
demanded or is entitled to demand payment or performance.

     

    
      
        
        

      

      
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    1.44  "Lien" or "lien" shall mean any
mortgage, deed of trust, pledge, security interest, hypothecation, assignment,
lien (statutory or other), charge, or other encumbrance of any kind or nature
whatsoever (including, without limitation, pursuant to any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under the UCC or comparable law of any jurisdiction to evidence any of
the foregoing) on personal or real property or fixtures.

     

    1.45 "Loan" and “Loans” shall respectively
mean the principal amounts outstanding from time to time respecting any and all
Advances.

     

    1.46 "Loan Documents" shall mean
this Agreement and any and all other agreements, notes, documents, mortgages,
financing statements, guaranties, intercreditor agreements, subordination
agreements,  certificates and instruments executed and/or delivered by
Borrower or any other Person to Lender pursuant to and in connection with the
Loan and this Agreement, including, without limitation the Note, the
Intercreditor Agreement, the Securities Issuance Agreement, the Lockbox
Agreement, the Landlord Agreements, the Note Conversion Agreement and the
Registration Rights Agreement.

     

    1.47 “Lockbox” shall have the
meaning assigned to such term in the Lockbox Agreement.

     

    1.48 “Lockbox Agent” means the
person serving from time to time as the Lockbox Agent under the Lockbox
Agreement.

     

    1.49 “Lockbox Agreement” means that
certain Lockbox Agreement dated as of the date hereof, among Lender, the
Borrower and the Lockbox Agent.

     

    1.50 "Material Adverse Effect" means
a materially adverse effect on (a) the business, assets, liabilities,
financial condition, results of operations or business prospects of the
Borrower, (b) the ability of the Borrower to perform its obligations under
any Loan Document to which it is a party, (c) the value of the Collateral
or the rights of Lender therein, (d) the validity or enforceability of any of
the Loan Documents, (e) the rights and remedies of Lender under any of such
Loan Documents or (f) the timely payment of the principal of or interest on
the Loans or other amounts payable in connection therewith.  Except
with respect to representations made or deemed made by Borrower in any of the
other Loan Documents to which it is a party, all determinations of materiality
shall be made by the Lender in its reasonable judgment unless expressly provided
otherwise.

     

    1.51 "Material Contract" means any
contract or other arrangement (other than Loan Documents), whether written or
oral, to which the Borrower is a party as to which the breach, nonperformance,
cancellation or failure to renew by any party thereto could have a Material
Adverse Effect.

     

    1.52 “Maturity Date” shall mean
August 7, 2008, or such earlier date by which the maturity of the Obligations
shall have been accelerated pursuant to the terms hereof; provided, however, that the
Maturity Date may be extended by the Lender in its sole and absolute discretion
for one (1) additional year to August 7, 2009 in accordance with Section 4.1
hereof.

     

    
      
        
        

      

      
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    1.53 "Maximum Credit" shall mean
the amount of Two Million Five Hundred Thousand Dollars
($2,500,000.00.)

     

    1.54 “1934 Act” shall mean the
Securities Exchange Act of 1934, as amended.

     

    1.55 “Note” shall have the meaning
as set forth in Section 2.1.

     

    1.56 “Note Conversion Agreement”
shall mean the Note Conversion Agreement, of even date herewith, between Lender
and Borrower with respect to the terms of conversion of the Note.

     

    1.57 "Obligations" shall mean any
and all Loans and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Lender and/or its Affiliates,
including, without limitation, principal, interest, repurchase obligations,
charges, fees, costs and expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, whether arising under this Agreement,
the other Loan Documents or otherwise, whether now existing or hereafter
arising, whether arising before, during or after the initial or any renewal term
of this Agreement or after the commencement of any case with respect to Borrower
under the United States Bankruptcy Code or any similar statute (including,
without limitation, the payment of interest and other amounts which would accrue
and become due but for the commencement of such case), whether direct or
indirect, absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, and however
acquired by Lender.

     

    1.58 "Permitted Encumbrances" shall
mean the following:  (a) security interests and Liens granted to
Lender or its Affiliates; (b) purchase money security interests in favor of
equipment vendors upon any Capital Assets hereafter acquired (including, without
limitation, capitalized or finance leases); provided that, (i) no such
purchase money or other mortgage, Lien or security interest (or capitalized or
finance lease, as the case may be) with respect to specific future Capital
Assets or as refinanced shall extend to or cover any other property, other than
the specific Capital Assets so acquired, and the proceeds thereof, (ii) such
mortgage, Lien or security interest only secures the cost or obligation to pay
the purchase price of such specific Capital Assets only (or the obligations
under the capitalized or finance lease) and (iii) the principal amount secured
thereby shall not exceed one hundred (100%) percent of the lesser of the cost or
the fair market value (at the time of the acquisition of the Capital Assets) of
the Capital Assets so acquired; (c) Liens of carriers, warehousemen, artisans,
bailees, mechanics and materialmen incurred in the ordinary course of business
securing sums not overdue; (d) Liens incurred in the ordinary course of business
in connection with worker’s compensation, unemployment insurance or other forms
of governmental insurance or benefits, relating to employees, securing sums (i)
not overdue or (ii) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of the
Borrower in conformity with GAAP; (e) Liens for taxes (i) not yet due or (ii)
being diligently contested in good faith by appropriate proceedings, provided
that adequate reserves with respect thereto are maintained on the books of the
Borrower in conformity with GAAP; and which have no effect on the priority of
Liens in favor of Lender or the value of the assets in which Lender has a
Lien;  (f) subject to the terms of the Intercreditor  Agreement,
the Liens in favor of the Convertible Noteholders described
therein  and (g) such other Liens as are set forth on Exhibit
A annexed hereto and made a part hereof.

     

    
      
        
        

      

      
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    1.59 "Person" or "person" shall mean, as
applicable, any individual, sole proprietorship, partnership, corporation,
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.

     

    1.60 "Proceeds" shall have the
meaning ascribed to such term in the UCC and shall also include, but not be
limited to, (a) any and all proceeds of any and all insurance (including,
without limitation, life insurance, business interruption insurance and credit
insurance), indemnity, warranty or guaranty payable to Borrower from time to
time with respect to any of the Collateral or otherwise, (b) any and all
payments (in any form whatsoever) made or due and payable to Borrower from time
to time in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency or any other Person (whether or not acting under
color of Governmental Authority) and (c) any and all other amounts from time to
time paid or payable under or in connection with any of the
Collateral.

     

    1.61 “Registration Rights Agreement”
shall mean the Registration Rights Agreement, of even date herewith,
between Borrower and Lender, in the form of Exhibit H
annexed hereto.

     

    1.62 "Release" means any spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, or disposing of a Hazardous Substance into the
Environment.

     

    1.63 "Reserves" shall mean, as of
any date of determination, such amounts as Lender may from time to time
establish and revise in good faith reducing the amount of the Maximum Credit
which would otherwise be available to Borrower (a) to reflect events,
conditions, contingencies or risks which, as determined by Lender in good faith,
do or may adversely affect either (i) the Collateral or any other property which
is security for the Obligations or its value, (ii) the assets, business or
prospects of Borrower or any Obligor or (iii) the security interests and other
rights of Lender in the Collateral (including the enforceability, perfection and
priority thereof); or (b) in respect of any state of facts which Lender
determines in good faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default.

     

    1.64 “Responsible Officer” shall
mean the Chief Executive Officer or the Chief Financial Officer of the
Borrower.

     

    1.65 “Revolving Loan Commitment”
shall mean the commitment to make Revolving Loans to Borrower in the
aggregate principal amount outstanding not to exceed the lesser of (a) the
Maximum Credit or (b) the Borrowing Base, as such Revolving Loan Commitment may
be adjusted pursuant to the terms of this Agreement.

     

    1.66 “Revolving Loans” shall have
the meaning as set forth in Section 2.1 hereof.

     

    1.67 “SEC” shall mean the United
States Securities and Exchange Commission.

     

    1.68 “SEC Reports” shall mean the
Borrower’s (1) Annual Report on Form 10-K for the year ended December 31, 2006,
(2) Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, and (3) all other
periodic and other reports filed by the Borrower with the SEC pursuant to the
1934 Act subsequent to December 31, 2006, and prior to the date hereof, in each
case as filed with the SEC and including the information and documents (other
than exhibits) incorporated therein by reference.

     

    
      
        
        

      

      
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    1.69 “Securities Issuance
Agreement” shall have the meaning set forth in Section 6.9.

     

    1.70 “Servicing Fee” shall have the
meaning as set forth in Section 3.2 hereof.

     

    1.71 "Subordinated Debt" shall
mean, at any particular time, Indebtedness of Borrower that shall be expressly
subordinated upon written terms and conditions, satisfactory to Lender, in right
of payment to the prior payment in full of all of the Obligations.

     

    1.72 "Subsidiary" shall mean, as to
any Person, a corporation, limited liability company or other entity with
respect to which more than fifty (50%) percent of the outstanding equity
interests of each class having voting power is at the time owned by such Person
or by one or more Subsidiaries of such Person or by such Person.

     

    1.73 "Term" shall have the meaning
set forth in Section 4.1.

     

    1.74 "UCC" shall mean the Uniform
Commercial Code as presently enacted in New York (or any
successor legislation thereto), and as the same may be amended from time to
time, and the state counterparts thereof as may be enacted in such states or
jurisdictions where any of the Collateral is located or held.

     

    1.75 Rules of Interpretation and
Construction.  In this Agreement unless the context otherwise
requires:

     

    (a) All terms
used herein which are defined in the UCC (as presently in effect in the State of
New York) shall have the meanings given therein unless otherwise defined in this
Agreement;

     

    (b) Sections
mentioned by number only are the respective Sections of this Agreement as so
numbered;

     

    (c) Words
importing a particular gender shall mean and include the other gender and words
importing the singular number mean and include the plural number and vice
versa;

     

    (d) Words
importing persons shall mean and include firms, associations, partnerships
(including limited partnerships), societies, trusts, corporations or other legal
entities, including public or governmental bodies, as well as natural
persons;

     

    (e) Each
reference in this Agreement to a particular person shall be deemed to include a
reference to such person's successors and permitted assigns;

     

    (f) Any
headings preceding the texts of any Section of this Agreement, and any table of
contents or marginal notes appended to copies hereof are intended, solely for
convenience of reference and shall not constitute a part of this Agreement, nor
shall they affect its meaning, construction or effect;

     

    
      
        
        

      

      
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    (g) If any
clause, provision or section of this Agreement shall be ruled invalid or
unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any of the remaining provisions
thereof;

     

    (h) The terms
"herein", "hereunder", "hereby", "hereto", and any similar terms as used in this
Agreement refer to this Agreement; the term "heretofore: means before the date
of execution of this Agreement; and the term "hereafter" shall mean after the
date of execution of this Agreement;

     

    (i) If any
clause, provision or section of this Agreement shall be determined to be
apparently contrary to or conflicting with any other clause, provision or
section of this Agreement, then the clause, provision or section containing the
more specific provisions shall control and govern with respect to such apparent
conflict;

     

    (j) Unless
otherwise specified, (i) all accounting terms used herein or in any Loan
Document shall be interpreted in accordance with GAAP, (ii) all accounting
determinations and computations hereunder or thereunder shall be made in
accordance with GAAP, and (iii) all financial statements required to be
delivered hereunder or thereunder shall be prepared in accordance with
GAAP;

     

    (k) An Event
of Default that occurs shall exist or continue or be continuing unless such
Event of Default is waived by Lender in accordance with the terms of this
Agreement; and

     

    (l) The word
"and" when used from time to time herein shall mean "or" or "and/or" if such
meaning is expansive of the rights or interests of Lender in the given
context.

     

    SECTION
2. REVOLVING LOANS

    


    2.1 Revolving Loans.

     

    (a)     Lender
shall, subject to the terms and conditions contained herein and the satisfaction
of the closing and funding conditions set forth herein, make revolving loans to
Borrower (“Revolving
Loans”) during the Term in amounts requested by Borrower from time to
time, provided
that the requested Revolving Loan would not cause the outstanding Revolving
Loans to exceed the lesser of the Maximum Credit or the Borrower
Base  existing immediately prior to the making of the requested
Revolving Loan.  Subject to the terms and conditions hereof, Borrower
may borrow, repay and reborrow Revolving Loans, as set forth in this
Agreement.

     

    (b)       Revolving
Loans may be drawn in tranches of not less than Twenty-Five Thousand Dollars
($25,000) no more than 5 (five) times each month  (each drawing, an
“Advance” and
collectively, the “Advances”). The obligation of
Borrower to repay the Advances shall be evidenced by a note (the "Note") in the form of Exhibit
B hereto and
dated the date hereof.

     

    
      
        
        

      

      
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(c)     Subject to mandatory payment of Advances as set
forth in Section 2.1(d) below,  the principal amount of the Revolving
Loans shall be payable on the Maturity Date.

     

                    
(d)    Notwithstanding any provision herein to the contrary,
Borrower shall repay the Advances immediately at any time and from time to time
in an amount by which the outstanding principal balance of the Advances exceeds
the Maximum Credit, as determined by Lender, based on the most recent monthly
Inventory reconciliation report delivered by Borrower to Lender in accordance
with Section 9.5 hereof.

     

                    
(e)    Whenever Borrower desires an Advance, but no more
frequently than  five (5) times every thirty (30) days, Borrower will
notify Lender by delivery of a borrowing certificate certified by a Responsible
Officer (“Borrowing
Certificate”) setting forth in reasonable detail a schedule of Eligible
Accounts and Eligible Inventory, and the calculation of the Advance requested in
connection therewith, which shall in all respects be subject to Lender’s review
and approval. Lender shall be entitled to rely on any facsimile transmission of
a Borrowing Certificate given by a person who Lender reasonably believes to be a
Responsible Officer, and Borrower shall indemnify and hold Lender harmless for
any damages or loss suffered by Lender as a result of such reliance. The funding
of each Advance shall be made in accordance with the applicable Borrowing
Certificate as approved by Lender.

     

                             
(f)      Until the Revolving Loans have been
repaid and this Agreement has been terminated, remittances and all other
proceeds of Borrower’s accounts receivable  shall be sent to a lockbox
designated by and/or maintained in the name of Lender, and deposited into a bank
account now or hereafter selected by Lender and maintained in the name of Lender
under arrangements with the depository bank under which all funds deposited to
such bank account are required to be transferred solely to
Lender.  Once instituted, such lockbox system shall remain in effect
until the sooner of the termination of this Agreement or such time as Lender
directs otherwise.  Borrower shall bear all risk of loss of any funds
deposited into such account except to the extent such loss is covered by the
gross negligence or the willful misconduct of Lender.  In connection
therewith, Borrower shall execute such lockbox and bank account agreements as
Lender shall reasonably specify to effect the transactions contemplated hereby,
including the Lockbox Agreement.  Until this Agreement is terminated,
any collections or other proceeds received by Borrower from sales of Eligible
Inventory and the proceeds from the receipt of the Borrower’s accounts
receivables shall be held in trust for Lender and immediately remitted to Lender
in kind.

     

    2.2 Maximum Credit.  The
aggregate principal amount of the Revolving Loans shall not exceed the Maximum
Credit.

    


    2.3 Reserves.  Without
limiting any other rights and remedies of Lender hereunder or under the other
Loan Documents, the Maximum Credit shall be subject to Lender's continuing
right, in its sole discretion, to withhold a Reserve from Borrower's
availability under the Maximum Credit.

    


    2.4 Use of
Proceeds.  Borrower shall use the proceeds of each Advance
solely for working capital purposes and such other purposes as are set forth
in  Section 2.4 of the Borrower’s Disclosure Schedule, or as otherwise
agreed in writing by Lender prior to the release of such Advance under Section
2.1 hereunder.

     

    
      
        
        

      

      
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    2.5 Repayment. Except as
otherwise set forth herein, Borrower shall repay the aggregate outstanding
principal amount of the Loans and all accrued and unpaid Interest, as calculated
in Section 3.1, on or prior to the Maturity Date.

    


    SECTION
3. INTEREST, FEES AND CHARGES

    


    3.1 Interest.

    


    (a)             Interest
(“Interest”) on all
Loans shall be computed on the basis of the actual number of days elapsed and a
year of 360 days. Interest shall accrue at a rate per annum equal to the greater
of (i) the sum of (A) the Base Rate plus (B) Two Percent (2.0%), or (ii) Ten
Percent (10%), and shall be payable by Borrower in arrears (x) prior to the
Maturity Date, on the first Business Day of each calendar month, (y) in full on
the Maturity Date and (z) on demand after the Maturity Date. Should Borrower
fail to fully repay the Loans and/or all accrued Interest on the Maturity Date,
then interest on all outstanding Loans, including principal and Interest, shall
accrue at the Default Rate, compounded quarterly.

    


    (b)             For
the purposes of this Section 3.1,

    


    (i)             “Base Rate” means a rate per
annum equal to the “Prime Rate” as reported  in the “Money Rates”
column of The Wall
Street Journal, adjusted as and when such Prime Rate
changes.

    


    (ii)             “Default Rate” means a rate
per annum equal to fifteen percent (15%).

    


    3.2 Servicing
Fee.  Borrower shall pay Moriah Capital Partners LLC a
servicing fee (“Servicing
Fee”) of $82,500.00 on the date hereof. Such fee shall be deemed fully
earned on the date hereof and shall not be subject to rebate or proration for
any reason.

    


    3.3 Late Charges. If the
payment of any Obligation due hereunder is more than  fifteen
(15)  days overdue, then, in addition to any interest charges payable
by Borrower  in connection therewith, Lender may charge Borrow a late
fee of two and one-half  percent (2.5%) of such overdue
payment.

     

    
      
        
        

      

      
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    3.4 Fees and
Expenses.  Borrower shall pay, on Lender's demand, all costs,
expenses, filing fees and taxes payable in connection with the preparation,
execution, delivery, recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in the Collateral,
this Agreement, the other Loan Documents, and all other existing and future
agreements or documents contemplated herein or related hereto, including any
amendments, waivers, supplements or consents which may now or hereafter be made
or entered into in respect hereof, or in any way involving claims or defenses
asserted by Lender or claims or defenses against Lender asserted by Borrower or
any third party directly or indirectly arising out of or related to the
relationship between Borrower and Lender, including, but not limited to the
following, whether incurred before, during or after the Term or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar or successor statute: (a) all costs and expenses
of filing or recording (including UCC Financing Statement and mortgage filing
fees; (b) all title insurance and other insurance premiums, appraisal fees, fees
incurred in connection with any environmental report and audit, survey and
search fees and charges; (c) all fees relating to lockbox charges and fees, the
wire transfer of loan proceeds and other funds and fees for returned checks; ;
and (d) all costs, fees and disbursements of counsel to Lender; provided,
however, and notwithstanding anything to the contrary herein, with respect to
any due diligence conducted by the Lender in connection with the transactions
contemplated by this Agreement, Borrower shall pay the Lender up to $15,000, of
which $10,000 has already been paid, and with respect to any legal fees incurred
by the Lender in connection with this Agreement as of the date hereof, the
Borrower shall pay up to $20,000 of Lender’s actual legal fees. If any fees,
costs or charges payable to Lender hereunder are not paid when due, Borrower
shall thereby be deemed to have requested, and Lender is hereby authorized at
its discretion to make and charge to Borrower’s account, a Loan as of such date
in an amount equal to such unpaid fees, costs or charges. For the avoidance of
doubt, Borrower shall not be obligated to pay Lender more than $35,000 pursuant
to this Section for pre-closing due diligence of Lender and pre-closing legal
fees, excluding filing and recording fees and
expenses.  Notwithstanding anything to the contrary herein, unless an
Event of Default shall have occurred and is continuing, Borrower shall not pay
(i) any out-of-pocket expenses and costs hereinafter incurred by Lender during
the course of its periodic field examinations of the Collateral and Borrower’s
operations and (ii) any out-of-pocket expenses of any appraiser appointed by
Lender to value the Inventory. 

    


    3.5 Savings Clause.  The
Note and the obligations of Borrower hereunder are subject to the express
condition that at no time shall Borrower be obligated or required to pay
interest on the principal balance due hereunder at a rate which could subject
Lender to either civil or criminal liability as a result of being in excess of
the maximum interest rate which Borrower is permitted by applicable law to
contract or agree to pay.  If by the terms hereof, Borrower is at any
time required or obligated to pay interest on the principal balance due
hereunder at a rate in excess of such maximum rate, the Interest Rate or the
Default Rate, as the case may be, shall be deemed to be immediately reduced to
such maximum rate and all previous payments in excess of the maximum rate shall
be deemed to have been payments in reduction of principal and not on account of
the interest due hereunder.  All sums paid or agreed to be paid to
Lender for the use or forbearance of the Loans, shall, to the extent permitted
by applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount of
interest on account of the Loans does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Loans for so long as
any Loan is outstanding.

    


    SECTION
4. TERM.

    


    4.1       Term.

     

    (a)              This
Agreement shall continue in full force and effect for a term ( as the same may
hereafter be extended, the “Term”) from the Closing Date
through and until August 7, 2008 (the “Initial Term”), or such
earlier date by which the maturity of the Obligations shall have been
accelerated pursuant to the terms hereof; provided, however, that upon
the satisfaction of the conditions set forth in Section 4.1(b) below, the Term
may be extended by Borrower for one (1) additional year to August 7, 2009 (the
“Term Extension”) by
written notice delivered to Lender no earlier than May 7, 2008 and no later than
June 7, 2008, with time being of the essence with respect thereto (the date of
delivery of such notice referred to as the “Extension Notice
Date”).

     

    
      
        
        

      

      
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    (b)              Notwithstanding
the foregoing, the Term Extension shall be subject to Borrower’s satisfaction
of, and compliance with, all of the following conditions, as determined by
Lender  (collectively, the “Extension
Conditions”):

     

    (i)           Representations and
Warranties.  Each of the representations and warranties made by
or on behalf of Borrower to Lender in this Agreement or in other Loan Documents
shall be true and correct in all material respects when made at all times during
the period from the Extension Notice Date through the expiration of the Initial
Term (provided that any such representation or warranty that is qualified as to
materiality shall be true and correct in all respects), and Lender shall have
received a certification from a Responsible Officer with respect to the
foregoing  in form and substance satisfactory to Lender.

    


    (ii)           Performance,
etc.  Borrower shall have duly and properly performed, complied
with and observed each of its covenants, agreements and obligations contained in
this Agreement, and shall have duly and properly performed, complied with and
observed in all respects its covenants, agreements and obligations in all other
articles of this Agreement and any of the Loan Documents to which it is a party
or by which it is bound, as of the Extension Notice Date through the expiration
of the Initial Term, and Lender shall have received a certification from a
Responsible Officer with respect to the foregoing  in form and
substance satisfactory to Lender.

    


    (iii)           No Default. No event shall
have occurred on or prior to the Notice Extension Date or at any time thereafter
and be continuing as of the Notice Extension Date through the expiration of the
Initial Term, and no condition shall exist on the Notice Extension Date or at
any time thereafter and be continuing as of the Notice Extension Date through
the expiration of the Initial Term, which constitutes an Event of Default or
which would, with notice or the lapse of time, or both, constitute an Event of
Default under this Agreement or any of the Loan Documents, and Lender shall have
received a certification from a Responsible Officer with respect to the
foregoing  in form and substance satisfactory to Lender.

    


    (iv)           Share Issuance. Borrower shall
have issued to Lender additional shares of Common Stock valued at $195,000, in
accordance with the terms of the Securities Issuance Agreement, all of which
shares shall be registered in accordance with the terms of the Registration
Rights Agreement.

     

    (v)           Financial
Condition.  Borrower shall have had positive earnings before
interest, taxes, depreciation and amortization for the three months ended June
30, 2008, and Lender shall have received a certification from a Responsible
Officer with respect to the foregoing in form and substance satisfactory to
Lender.

     

    
      
        
        

      

      
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    (c)              In
the event that the Extension Conditions are not satisfied, then  this
Agreement shall terminate upon the expiration of the Initial Term, or such
earlier date by which the maturity of the Obligations shall have been
accelerated pursuant to the terms hereof.

     

    4.2 Early
Termination.

    


    (a)              Lender
shall have the right to terminate this Agreement at any time upon or after the
occurrence of an Event of Default.

    


    (b)              This
Agreement shall not be terminable by Borrower without Lender’s prior written
consent, which consent may be withheld by Lender in its sole
discretion.

    Notwithstanding
the foregoing, if Lender accelerates the Loans due to an Event of Default,
Borrower shall pay to Lender an early payment fee in an amount equal to (i) two
percent (2%) of the Maximum Credit  if such acceleration occurs prior
to the first anniversary of the Closing Date, and (ii) one percent (1%) of the
Maximum Credit if such acceleration occurs on or after the first anniversary of
the Closing Date; such fee being intended to compensate Lender for its costs and
expenses incurred in initially approving this Agreement or extending same. Such
early payment fee shall be due and payable by Borrower to Lender upon
termination by acceleration of this Agreement by Lender due to the occurrence
and continuance of an Event of Default.

    


    4.3 Effect of
Termination.  Upon termination of this Agreement by Lender upon
or after the occurrence of an Event of Default, in addition to payment of all
Obligations which are not contingent, Borrower shall deposit such amount of cash
collateral as Lender determines is reasonably necessary to secure Lender from
loss, cost, damage or expense in connection with any remittance items or other
payments provisionally credited to the Obligations and/or to which Lender has
not yet received final and indefeasible payment.

    


    SECTION
5. COLLATERAL.

    


    5.1 Security Interests in Borrower's
Assets.  As collateral security for the payment and performance
of the Obligations, subject to the last paragraph of this Section 5.1, Borrower
hereby grants and conveys to Lender a first priority continuing security
interest in and Lien upon all now owned and hereafter acquired property
(including, without limitation, real property) and assets of Borrower and the
Proceeds and products thereof (which property, assets together with all other
collateral security for the Obligations now or hereafter granted to or otherwise
acquired by Lender, are referred to herein collectively as the "Collateral"), including,
without limitation, all property of Borrower now or hereafter held or possessed
by Lender and including the following:

     

    (a) All now
owned and hereafter acquired:  Accounts; contract rights; chattel
paper (including, but not limited to, rentals and other amounts payable under
leases of equipment to customers pursuant to which Borrower is the lessor or
assignee of any lessor); general intangibles (including, but not limited to, tax
and duty refunds, patents, patent applications, trademarks, trademark
applications, tradenames and tradestyles, copyrights, copyright applications,
trade rights (whether or not registered), discoveries, improvements, processes,
know-how, formulas, trade secrets, service marks, other rights in intellectual
property (whether patentable or not), goodwill, customer and mailing lists, life
insurance policies, licenses (whether as licensor or licensee), franchises and
permits); documents (including, without limitation, all warehouse receipts);
instruments; all guaranties, letters of credit, steamship guaranties, airway
releases or other similar guaranties, agreements or property securing or
relating to any of the items referred to above (including, but not limited to,
purchase money security interests granted by Account Debtors in connection with
installment sales); all cash monies, investment properties, deposits,
securities, bank accounts, deposit accounts, credits and other property now or
hereafter held in any capacity by Lender;

     

    
      
        
        

      

      
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    (b) Inventory;

     

    (c) Equipment
and fixtures;

     

    (d) All now
owned and hereafter acquired right, title and interests of Borrower in, to and
in respect of any real or other personal property in or upon which Lender has or
may hereafter have a security interest, Lien or right of setoff;

     

    (e) All of
Borrower's existing and future leasehold interests in premises or facilities
leased from third parties by Borrower;

     

    (f) All
present and future books and records relating to any of the above including,
without limitation, all present and future books of account of every kind or
nature, purchase and sale agreements, invoices, ledger cards, bills of lading
and other shipping evidence, statements, correspondence, memoranda, credit files
and other data relating to the Collateral or any account debtor, together with
the tapes, disks, diskettes and other data and software storage media and
devices, file cabinets or containers in or on which the foregoing are stored
(including any rights of Borrower with respect to any of the foregoing
maintained with or by any other Person); and

     

    (g) Any and
all products and Proceeds of the foregoing in any form including, without
limitation, all insurance claims, warranty claims and proceeds and claims
against third parties for loss or destruction of or damage to any or the
foregoing.

     

    Notwithstanding
the foregoing, Lender’s Lien upon Borrower’s Collateral other than Accounts and
Inventory shall be subject to the prior Lien of the Convertible Noteholders in
accordance with the terms of, and subject to the conditions set forth in, the
Intercreditor Agreement.

     

    
      
        
        

      

      
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    5.2 Financing
Statements.  Borrower hereby authorizes Lender to file
Financing Statements with respect to the Collateral in form acceptable to Lender
and its counsel, and hereby ratifies any actions taken by Lender prior to the
date hereof to file such Financing Statements.  Borrower shall, at all
times, do, make, execute, deliver and record, register or file all Financing
Statements and other instruments, acts, pledges, leasehold or other mortgages,
amendments, modifications, assignments and transfers (or cause the same to be
done), and will deliver to Lender such instruments and/or documentation
evidencing items of Collateral, as may be requested by Lender to better secure
or perfect Lender's security interest in the Collateral or any security
interest, mortgage or Lien with respect thereto. Borrower acknowledges
that it is not authorized to file any financing statement or amendment or
termination statement with respect to any Financing Statement without the prior
written consent of Lender and agrees that it will not do so without the prior
written consent of Lender, subject to Borrower’s rights under Section
9-509(d)(2) of the UCC.

     

    


    SECTION
6. CONDITIONS TO EXTENSION OF
CREDIT

    


    The
obligation of Lender to make the initial Loans under this Agreement shall be
subject to the satisfaction or waiver by Lender, prior thereto or concurrently
therewith, of each of the following conditions precedent:

    


    6.1 Loan
Documents.  Each of the Loan Documents shall have been duly and
properly authorized, executed and delivered by Borrower and the other parties
thereto and shall be in full force and effect as of the date hereof and on the
date of the initial Loans.

    


    6.2 Representations and
Warranties.  Each of the representations and warranties made by
or on behalf of Borrower to Lender in this Agreement or in other Loan Documents
shall be true and correct in all material respects as of the date hereof and on
the date of the initial Loans, provided that any such representation or warranty
that is qualified by materiality shall be true and correct in all respects as of
the date hereof and on the date of the initial Loans.

    


    6.3 Certified Copies of Corporate
Documents.  Lender shall have received from Borrower, certified
by a duly authorized officer to be true and complete on and as of a date which
is not more than ten (10) Business Days prior to the date hereof, a copy of each
of (a) the certificate of incorporation or such other formation documents of
Borrower in effect on such date of certification, and (b) the by-laws of
Borrower in effect on such date.

    


    6.4 Proof of Corporate
Action.  Lender shall have received from Borrower a copy,
certified by a duly authorized officer to be true and complete on and as of the
date which is not more than ten (10) Business Days prior to the date hereof, of
the records of all corporate action taken by Borrower to authorize (a) its
execution and delivery of each of the Loan Documents to which it is or is to
become a party as contemplated or required by this Agreement, (b) its
performance of all of its agreements and obligations under each of such
documents, and (c) the incurring of the Obligations contemplated by this
Agreement.

     

    
      
        
        

      

      
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    6.5 Legal
Opinion.  Lender shall have received a written legal opinion,
addressed to Lender, dated the date hereof, from counsel for
Borrower.  Such legal opinion shall be acceptable to Lender and its
counsel.

    


    6.6 Collateral.

    


    (a)           All
of the Obligations of Borrower to Lender under or in respect of this Agreement
shall be entitled to all of the benefits of and be secured by this Agreement and
the Loan Documents, and Lender shall have obtained a first, perfected security
interest in the Collateral of Borrower, subject only to the Permitted
Encumbrances.

    


    (b)           The
Loan Documents and all other documents in respect thereto, which shall create
and maintain a first perfected security interest in favor of Lender and the
appropriate Financing Statements in respect thereto and necessary to enable
Lender to perfect its security interests thereunder, shall have been duly
executed and delivered by Borrower to Lender.

    


    6.7 Insurance.  Lender
shall have received evidence of insurance, additional insured and loss payee
endorsements required hereunder and under the other Loan Documents, in form and
substance satisfactory to Lender, and certificates of insurance policies and/or
endorsements naming Lender as loss payee as required hereunder.

    


    6.8 Intercreditor
Agreement.  Lender shall have received the Intercreditor
Agreement, duly executed
by or on behalf of the Convertible Noteholders.

    


    


    6.9 Equity Grant.  The
Borrower shall have issued to Lender Common Stock of the Borrower valued at
$195,000, on the terms set forth in the Securities Issuance Agreement, of even
date herewith, between the Borrower and Lender (the “Securities Issuance
Agreement”) in substantially the form annexed hereto as Exhibit
D.

    


    6.10 Pay Proceeds Letter. Borrower
shall have delivered to Lender a pay proceeds letter with respect to the
disbursement of the proceeds of the initial Loans in form and substance
satisfactory to Lender, which letter shall provide for, among other things, the
payment or reimbursement of all costs and expenses incurred by Lender in
connection with this Agreement and the other Loan Documents.

    


    SECTION
7. CONDITIONS TO MAKING FURTHER
LOANS.

    


    The
obligations of Lender to make further Loans to Borrower shall be subject to the
satisfaction or waiver by Lender, prior thereto or concurrently therewith, of
each of the following conditions precedent:

    


    7.1 Applications and
Compliance.  The application for such Loans shall have been
made by Borrower to Lender in accordance with the applicable provisions of this
Agreement and in compliance with all provisions of this Agreement.

     

    
      
        
        

      

      
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    7.2 Representations and
Warranties.  Each of the representations and warranties made by
or on behalf of Borrower to Lender in this Agreement or in other Loan Documents
shall have been true and correct in all material respects when made (provided
that any such representation or warranty that is qualified as to materiality
shall be true and correct in all respects), shall, for all purposes of this
Agreement, be deemed to be repeated on and as of the date of each Loan by Lender
hereunder and shall be true and correct in all respects on and as of each such
date, except to the extent that any of such representations and warranties
relate, by the express terms thereof, solely to a date prior to the date of each
Loan by Lender hereunder, and Lender shall have received a certification from a
Responsible Officer with respect to the foregoing  in form and
substance satisfactory to Lender.

    


    7.3 Performance,
etc.  Borrower shall have duly and properly performed, complied
with and observed each of its covenants, agreements and obligations contained in
this Agreement, and shall have duly and properly performed, complied with and
observed in all respects its covenants, agreements and obligations in all other
articles of this Agreement and any of the Loan Documents to which it is a party
or by which it is bound on the date of each Loan by Lender hereunder, and Lender
shall have received a certification from a Responsible Officer with respect to
the foregoing  in form and substance satisfactory to
Lender.  No event shall have occurred on or prior to the date of each
Loan by Lender hereunder and be continuing on the date of each Loan by Lender
hereunder, and no condition shall exist on the date of each Loan by Lender
hereunder, which constitutes an Event of Default or which would, with notice or
the lapse of time, or both, constitute an Event of Default under this Agreement
or any of the Loan Documents, and Lender shall have received a certification
from a Responsible Officer with respect to the foregoing  in form and
substance satisfactory to Lender.

    


    SECTION
8. REPRESENTATIONS AND
WARRANTIES.

    


    Borrower
hereby represents and warrants to Lender, knowing and intending that Lender
shall rely thereon in making the Loan contemplated hereby (each of which
representations and warranties shall be continuing unless expressly made in
relation only to a specific date), that:

    


    8.1 Corporate Existence; Good
Standing.

    


    (a) Borrower
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (ii) is in good standing in
all other jurisdictions in which it is required to be qualified to do business
as a foreign corporation, and (iii) has all requisite corporate power and
authority and full legal right to own or to hold under lease its properties and
to carry on the business as presently engaged. Borrower has no Subsidiaries that
contain assets or conduct operations.

     

    (b) Borrower
has corporate power and authority and has full legal rights to enter into each
of the Loan Documents to which it is a party, to perform, observe and comply
with all of its agreements and obligations under each of such documents, and to
obtain all of the Loans contemplated by this Agreement.

     

    
      
        
        

      

      
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    8.2 Corporate Authority,
etc.  The execution and delivery by Borrower of the Loan
Documents to which it is a party, the performance by Borrower of all of its
agreements and obligations under each of such documents, and the incurring by
Borrower of all of the Obligations contemplated by this Agreement, have been
duly authorized by all necessary corporate actions on the part of Borrower and,
if required, its shareholders, and  do not and will not (a) contravene
any provision of Borrower's charter, bylaws or other governing documents or this
Agreement (each as from time to time in effect), (b) conflict with, or result in
a breach of the terms, conditions, or provisions of, or constitute a default
under, or result in the creation of any mortgage, Lien, pledge, charge, security
interest or other encumbrance upon any of the property of Borrower under, any
agreement, mortgage or other instrument to which Borrower is or may become a
party, including, without limitation, the Convertible Notes; (c) violate or
contravene any provision of any law, regulation, order, ruling or interpretation
thereunder or any decree, order or judgment or any court or governmental or
regulatory authority, bureau, agency or official (all as from time to time in
effect and applicable to such entity), (d) other than waivers required from the
Borrower’s landlords and the consents required from the Convertible Noteholders,
require any waivers, consents or approvals by any of third party, including any
creditors or trustees for creditors of Borrower, or (e) require any approval,
consent, order, authorization, or license by, or giving notice to, or taking any
other action with respect to, any Governmental Authority.

    


    8.3 Binding Effect of Documents,
etc.  Borrower and each shareholder of Borrower has duly
executed and delivered each of the Loan Documents to which it is a party, and
each of the Loan Documents is valid, binding and in full force and effect. The
agreements and obligations of Borrower and each shareholder of Borrower as
contained in each of the Loan Documents constitutes, or upon execution and
delivery thereof will constitute, legal, valid and binding obligations of
Borrower or the shareholders of Borrower, as the case may be, enforceable
against Borrower or the shareholders of Borrower, as the case may be, in
accordance with their respective terms, subject, as to the enforcement of
remedies only, to limitations imposed by federal and state laws regarding
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights and remedies generally, and by general principles of law and
equity.

    


    8.4 No Events of
Default.

    


    (a) No Event
of Default has occurred and is continuing and no event has occurred and is
continuing and no condition exists that would, with notice or the lapse of time,
or both, constitute an Event of Default.

     

    (b) Borrower
is not in default under any material contract, agreement or instrument to which
Borrower is a party or by which Borrower or any of property of Borrower is
bound.

     

    (c) The
execution, delivery and performance of and compliance with this Agreement and
the other Loan Documents  will not, with or without the passage of
time or giving of notice, result in any such material violation, or be in
conflict with or constitute a default under any such term or provision, or
result in the creation of any Lien upon any of Borrower’s  properties
or assets or the suspension, revocation, impairment, forfeiture or nonrenewal of
any permit, license, authorization or approval applicable to Borrower, or any of
its businesses or operations or any of its assets or properties.

     

    
      
        
        

      

      
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    8.5 No Governmental Consent
Necessary.  No consent or approval of, giving of notice to,
registration with or taking of any other action in respect of, any Governmental
Authority is required with respect to the execution, delivery and performance by
Borrower of this Agreement and the other Loan Documents to which it is a
party.

    


    8.6 No
Proceedings.  There are no actions, suits, or proceedings
pending or, to the best of Borrower's knowledge, threatened against or affecting
Borrower in any court or before any Governmental Authority which, if adversely
determined, would have an adverse effect on the ability of Borrower to perform
its obligations under this Agreement or the other Loan Documents to which it is
a party.

    


    8.7 No Violations of
Laws.  Borrower has conducted, and is conducting, its business,
so as to comply in all respects with all applicable federal, state, county and
municipal statutes and regulations.  Borrower or any officer, director
or shareholder of Borrower is not charged with, or so far as is known by
Borrower, is not under investigation with respect to, any violation of any such
statutes, regulations or orders, which could have a Material Adverse
Effect.

    


    8.8 Use of Proceeds of the
Loan.  Proceeds from the Loan shall be used only for those
purposes set forth in this Agreement.  No part of the proceeds of the
Loan shall be used, directly or indirectly, for the purpose of purchasing or
carrying any margin stock or for the purpose of purchasing or carrying or
trading in any stock under such circumstances as to involve Borrower in a
violation of any statute or regulation.  In particular, without
limitation of the foregoing, no part of the proceeds from the Loans are intended
to be used to acquire any publicly-held stock of any kind.

    


    8.9 Financial
Statements.

    


    (a)           The
audited and unaudited financial statements contained in the SEC Reports
(collectively, the “Financial
Statements”) (x) fairly present as of the respective dates
thereof  the financial position of the Borrower and the results of its
operations, cash flows and stockholders’ equity for each of the periods then
ended in all material aspects; and (y) except for the fact that the unaudited
financial statements omit notes to such statements and year-end adjustments
thereto, have been prepared in accordance with GAAP in conformity with the rules
and regulations of the SEC.

    


    (b)           Except
as shown on the most recent Financial Statements, (i) Borrower has no other
Indebtedness as of the date hereof which would adversely affect the financial
condition of Borrower or the Collateral, and (ii) neither the Borrower nor any
Subsidiary has any liabilities, contingent or otherwise, except those which
individually or in the aggregate are not material to the financial condition or
operating results of the Borrower and the Subsidiaries, taken as a
whole.

    


    8.10 Changes in Financial
Condition. Except as disclosed in the SEC Reports, since June 15, 2007,
there has been no material adverse change and no material adverse development in
the business, properties, operations, condition (financial or otherwise),
results of operations or prospects of the Borrower.  Except as
disclosed in the SEC Reports, since December 31, 2006, neither the Borrower nor
any Subsidiary has (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, outside of the ordinary course of business,
(iii) had capital expenditures outside of the ordinary course of business, (iv)
engaged in any transaction with any Affiliate except as set forth in the SEC
Reports or (v) engaged in any other transaction outside of the ordinary course
of business.

     

    
      
        
        

      

      
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    8.11 Inventory.  Borrower's
Inventory, as of the date hereof, consists of items of quality and quantity
suitable for sale, lease or use in the ordinary course of its business, subject
to the following sentence.  The value of obsolete items, items below
standard quality and items in the process of repair have been written down to
realizable market value, or adequate reserves have been provided therefore, and
the values carried on Borrower's most recent balance sheet contained in the
Financial Statements are set at the lower of cost or market, in accordance with
GAAP.

    


    8.12 Equipment.  Borrower
shall keep its Equipment in good order and repair, and in running and marketable
condition, ordinary wear and tear excepted.

    


    8.13 Taxes and
Assessments.

    


    (a) Borrower has paid and discharged
when due all taxes, assessments and other governmental charges which may
lawfully be levied or assessed upon its income and profits, or upon all or any
portion of any property belonging to it, whether real, personal or mixed, to the
extent that such taxes, assessment and other charges have become
due.  Borrower has filed all tax returns, federal, state and local,
and all related information, required to be filed by it.

    


    (b)           Borrower
shall make all payments to be made by it hereunder without any Tax Deduction,
unless a Tax Deduction (as defined below) is required by law. If Borrower is
aware that Borrower must make a Tax Deduction (or
that there is a change in the rate or the basis of a Tax Deduction), it must
promptly notify Lender.  If a Tax Deduction is required by law to be
made by Borrower, the amount of the payment due from Borrower will be increased
to an amount which (after making the Tax Deduction) leaves an amount equal to
the payment which would have been due if no Tax Deduction had been required. If
Borrower is required to make a Tax Deduction, that Borrower must make the
minimum Tax Deduction allowed by law and must make any payment required in
connection with that Tax Deduction within the time allowed by law. Within 30
days of making either a Tax Deduction or a payment required in connection with a
Tax Deduction, Borrower making that Tax Deduction must deliver to Lender
evidence satisfactory to Lender that the Tax Deduction has been made or (as
applicable) the appropriate payment has been paid to the relevant taxing
authority.

    


    (c)           “Tax Deduction” means a
deduction or withholding for or on account of Tax from a payment under a Loan
Document. “Tax” means
any tax, levy, impost, duty or other charge or withholding of a similar nature,
including any income, franchise, stamp, documentary, excise or property tax,
charge or levy (in each case, including any related penalty or
interest).

     

    
      
        
        

      

      
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    8.14 ERISA. Borrower is in
compliance in all material respects with the applicable provisions of ERISA and
all regulations issued thereunder by the United States Treasury Department, the
Department of Labor and the Pension Benefit Guaranty Corporation.

    


    8.15 Environmental
Matters.

    


    (a)           Borrower
has duly complied with, and its facilities, business assets, property,
leaseholds and equipment are in compliance in all respects with, the provisions
of all laws, regulations and orders of all Governmental
Authorities.

    


    (b)           Borrower
has been issued all required federal, state and local licenses, certificates or
permits relating to the operation of its business; and Borrower and its
facilities, business, assets, property and equipment are in compliance in all
material respects with all applicable federal, state and local laws, rules and
regulations relating to air emissions, water discharge, noise emissions, solid
or liquid waste disposal, hazardous waste or materials, or other environmental,
health or safety matters.

    


    8.16 United
States Anti-Terrorism Laws

    


    (a)           In
this Section 8.16:

    


    “Anti-Terrorism Law” means each
of:  (i) Executive Order No. 13224 of September 23,
2001  Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten To Commit, or Support Terrorism (the “Executive Order”); (ii) the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (commonly known
as the USA Patriot Act); (iii) the Money Laundering Control Act of 1986, Public
Law 99-570; and (iv) any similar law enacted in the United States of America
subsequent to December 31, 2004.

    


    “holding company” has the
meaning given to it in the United States Public Utility Holding Company Act of
1935, and any successor legislation and rules and regulations promulgated
thereunder.

    


    “investment company” has the
meaning given to it in the United States Investment Company Act of
1940.

    


    “public utility” has the
meaning given to it in the United States Federal Power Act of 1920.

    


    “Restricted Party” means any
person listed: (i) in the Annex to the Executive Order; (ii) on the Specially
Designated Nationals and Blocked Persons list maintained by the Office of
Foreign Assets Control of the United States Department of the Treasury; or (iii)
in any successor list to either of the foregoing.

     

    
      
        
        

      

      
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    (b)           Borrower
is not (i) a holding company or subject to regulation under the United States
Public Utility Holding Company Act of 1935; (ii) public utility or subject to
regulation under the United States Federal Power Act of 1920; (iii) required to
be registered as an investment company or subject to regulation under the United
States Investment Company Act of 1940; or (iv) subject to regulation under any
United States Federal or State law or regulation that limits his/its ability to
incur or guarantee indebtedness.

    


    (c)           To
the best of Borrower's knowledge, Borrower (i) is not, and is not controlled by,
a Restricted Party; (ii) has not received funds or other property from a
Restricted Party; and (iii) is not in breach of and is not the subject of any
action or investigation under any Anti-Terrorism Law.

    


    (d)           Borrower
has taken reasonable measures to ensure compliance with the Anti-Terrorism
Laws.

    


    8.17 Location of
Collateral.  As of the date hereof, none of the Collateral is
or will be located in or on any property other than those set forth in Section
8.17 of the Borrower’s Disclosure Schedule.

    


    8.18 Customers and
Vendors.  Section 8.18. of the Borrower’s Disclosure Schedule
sets forth a complete list of all customers, suppliers, manufacturers, vendors
and independent contractors of the Company and its Subsidiaries.  Any
contracts or agreements with any such parties are in full force and
effect.  There are no current or anticipated disputes among or between
any such parties and the Company or the Subsidiaries.

     

    8.19 Other
Liens.  Borrower has good and marketable title to and owns all
of the Collateral free and clear of any and all Liens except the Permitted
Encumbrances and in favor of Lender.  None of the Collateral, except
such Collateral as is pledged to the Convertible Noteholders,  is
subject to any prohibition against encumbering, pledging, hypothecating or
assigning the same or requires notice or consent to Borrower's doing of the
same.

    


    8.20 Books and
Records.  Borrower maintains its chief executive office and its
books and records related to its Accounts, Inventory and all other Collateral at
its address set forth in Exhibit
E of this Agreement.

     

    
      
        
        

      

      
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    8.21 Location of
Offices.  Exhibit
E hereto sets forth Borrower's chief executive office, and further sets
forth a complete and accurate list of all offices and locations at or out of
which Borrower conducts any of its business or operations.

    


    8.22 SEC Reports. The SEC
Reports do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not
misleading.

    


    8.23 Representations and Warranties: True,
Accurate and Complete.

    


    (a)           None
of the representations, certificates, reports, warranties or statements now or
hereafter made or delivered to Lender pursuant hereto or in connection with this
Agreement or any other Loan Document or the transactions contemplated hereby
contains or will contain any untrue statement of a fact, or omits or will omit
to state a fact necessary in order to make the statements contained herein and
therein, in light of the circumstances in which they are made, not
misleading.

    


    (b)           All
warranties and representations made herein or in any the Loan Documents by
Borrower will be true and accurate at the time Borrower requests Lender to make
a Loan to Borrower hereunder.

    


    8.24 Intellectual Property. Except
for Permitted Encumbrances,  (1) the Borrower and each Subsidiary
holds all Intellectual Property that it owns free and clear of all Liens and
restrictions on use or transfer, whether or not recorded, and has sole title to
and ownership of or has the full, exclusive (subject to the rights of its
licensees) right to use in its field of business such Intellectual Property; and
the Borrower and each Subsidiary holds all Intellectual Property that it uses
but does not own under valid licenses or sub-licenses from others; (2) the use
of the Intellectual Property by the Borrower or any Subsidiary does not, to the
knowledge of the Borrower, violate or infringe on the rights of any other
Person; (3) neither the Borrower nor any Subsidiary has received any notice of
any conflict between the asserted rights of others and the Borrower or any
Subsidiary with respect to any Intellectual Property; (4) the Borrower and each
Subsidiary has used its commercially reasonable best efforts to protect its
rights in and to all Intellectual Property; (5) the Borrower and each Subsidiary
are in compliance with all material terms and conditions of its agreements
relating to the Intellectual Property; (6) neither the Borrower nor any
Subsidiary is, or since December 31, 2006 has been, a defendant in any action,
suit, investigation or proceeding relating to infringement or misappropriation
by the Borrower or any Subsidiary of any Intellectual Property nor has the
Borrower or any Subsidiary been notified of any alleged claim of infringement or
misappropriation by the Borrower or any Subsidiary of any Intellectual Property;
(7) to the knowledge of the Borrower, none of the products or services the
Borrower or any Subsidiary are researching, developing, propose to research and
develop, make, have made, use, or sell, infringes or misappropriates any
Intellectual Property right of any third party; (8) none of the trademarks and
service marks used by the Borrower or any Subsidiary, to the knowledge of the
Borrower, infringes the trademark or service mark rights of any third party; and
(9) to the Borrower’s knowledge, none of the material processes and formulae,
research and development results and other know-how relating to the Borrower's
or its Subsidiaries' respective businesses, the value of which to the Borrower
or any Subsidiary is contingent upon maintenance of the confidentiality thereof,
has been disclosed to any Person other than Persons bound by written
confidentiality agreements.

     

    
      
        
        

      

      
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    8.25 Employees.  Neither the
Borrower nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees.  There is no labor union organizing
activity pending or, to the Borrower’s knowledge, threatened with respect to the
Borrower or any of its Subsidiaries.  Except as disclosed in the SEC
Reports, neither the Borrower nor any of its Subsidiaries is a party to or bound
by any currently effective employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement.  To the
Borrower’s knowledge, no employee of the Borrower or any of its Subsidiaries,
nor any consultant with whom the Borrower or any of its Subsidiaries has
contracted, is in violation of any material term of any employment contract or
any other contract relating to the right of any such individual to be employed
by, or to contract with, the Borrower or any of its Subsidiaries or to receive
any benefits; and, to the Borrower’s knowledge, the continued employment by the
Borrower or any of its Subsidiaries of its present employees, and the
performance of the Borrower’s and its Subsidiaries’ contracts with its
independent contractors, will not result in any such
violation.  Except for employees who have a current effective
employment agreement with the Borrower or any of its Subsidiaries, no employee
of the Borrower or any of its Subsidiaries has been granted the right to
continued employment by the Borrower or any of its Subsidiaries or to any
material compensation following termination of employment with the Borrower or
any of its Subsidiaries.  The Borrower is not aware that any officer,
director, manager, partner, key employee or group of employees intends to
terminate his, her or their employment with the Borrower or any of its
Subsidiaries, nor does the Borrower or any of its Subsidiaries have a present
intention to terminate any of the same.

     

    8.26 Tax Status.  The
Borrower and each Subsidiary (i) has made or filed all federal and state income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject, (ii) has paid all taxes and other governmental
assessments and charges that are shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and for
which it has set aside on its books a provision in the amount of such taxes
being contested in good faith and (iii) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There
are no unpaid taxes claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Borrower know of no basis for any such
claim.

    


    8.27 Internal Accounting
Controls.

      The
Borrower maintains disclosure controls and procedures (as such term is defined
in Rule 13a-15 under the 1934 Act) that are effective in ensuring that
information required to be disclosed by the Borrower in the reports that it
files or submits under the 1934 Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the SEC,
including, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Borrower in the reports that it
files or submits under the 1934 Act is accumulated and communicated to the
Borrower's management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure.

     

    
      
        
        

      

      
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    8.28 Sarbanes-Oxley
Act.

      The
Borrower is in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and
all applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.

    


    8.29           Indebtedness.  Attached
hereto as Schedule 8.29
is a schedule of all Indebtedness of the Borrower, setting forth the principal
amount thereof, the interest rate, the maturity date and the security
therefor.

    


    SECTION
9. AFFIRMATIVE COVENANTS.

    


    Until
payment and satisfaction in full of all Obligations and the termination of this
Agreement, Borrower hereby covenants and agrees as follows:

    


    9.1 Notify
Lender.  Borrower shall promptly, and in any event within three
(3) Business Days,  inform Lender (a) if any one or more of the
representations and warranties made by Borrower in this Agreement or in any
document related hereto shall no longer be entirely true, accurate and complete
in any respect, (b) of any event or circumstance that, to its knowledge, would
cause Lender to consider any then existing Inventory as no longer constituting
Eligible Inventory; (c) of all material adverse information relating to the
financial condition of Borrower; (d) of any material return of goods; and (e) of
any loss, damage or destruction of any of the Collateral.

    


    9.2 Pay Taxes and Liabilities; Comply
with Agreement.  Borrower shall promptly pay, when due, or
otherwise discharge, all indebtedness, sums and liabilities of any kind now or
hereafter owing by Borrower to any party however created, incurred, evidenced,
acquired, arising or payable, including without limitation the Obligations,
income taxes, excise taxes, sales and use taxes, license fees, and all other
taxes with respect to any of the Collateral, or any wages or salaries paid by
Borrower or otherwise, unless the validity of which are being contested in good
faith by Borrower by appropriate proceedings, provided that Borrower shall have
maintained reasonably adequate reserves and accrued the estimated liability on
Borrower's balance sheet for the payment of same.

    


    9.3 Observe Covenants,
etc.  Borrower shall observe, perform and comply with the
covenants, terms and conditions of this Agreement, the Loan Documents and any
other agreement or document entered into between Borrower and
Lender.

    


    9.4 Maintain Corporate Existence and
Qualifications.  Borrower shall maintain and preserve in full
force and effect, its corporate existence and rights, franchises, licenses and
qualifications necessary to continue its business, and comply with all
applicable statutes, rules and regulations pertaining to the operation, conduct
and maintenance of its existence and business including, without limitation, all
federal, state and local laws relating to benefit plans, environmental safety,
or health matters, and hazardous or liquid waste or chemicals or other liquids
(including use, sale, transport and disposal thereof).

     

    
      
        
        

      

      
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    9.5 Information and Documents to be
Furnished to Lender.  Borrower shall deliver or cause to be
delivered to Lender:

    


    (a) Annual Financial Statements
and
Projections.  Annual audited Financial Statements of the
Borrower within ninety (90) days after the end of Borrower’s Fiscal Year (which
period will be extended to one hundred five (105) days in the event that the
Borrower timely and properly files for an extension with the SEC in connection
with the filing of its Annual Report on From 10-K or 10-KSB) during the
Term.  Such financial statements will (x) fairly present the financial
position of the Borrower as of the dates thereof and the results of its
operations, cash flows and stockholders’ equity for each of the periods then
ended in all material aspects; and (y) be prepared in accordance with
GAAP.

     

    (b) Quarterly Financial
Statements.  Quarterly Financial Statements of the Borrower no
later than forty-five (45) days after the close of each calendar quarter(which
period will be extended to fifty (50) days in the event that the Borrower timely
and properly files for an extension with the SEC in connection with the filing
of its Quarterly Report on From 10-Q or 10-QSB), the unaudited balance sheet and
the related statement of income of the Borrower, prepared in accordance with
GAAP, subject to year-end audit adjustments, together with such other
information with respect to the business of Borrower as Lender may
request.

     

    (c) Bi-Monthly Inventory Reconciliation
Report and Accounts Receivable Aging Report. Not later than the 15th day and
the last day of each month of each calendar month, an Inventory reconciliation
report and accounts receivable aging report, each in form and substance
satisfactory to Lender.

     

    (d) Notice of Judgments, Environmental,
Health or Safety Complaints.

     

    (i)              Within
ten (10) days thereafter, written notice to Lender of the entry of any judgment
or the institution of any lawsuit or of other legal or equitable proceedings or
the assertion of any crossclaim or counterclaim seeking monetary damages from
Borrower in an amount exceeding $25,000; and

    


    (ii)              Within
ten (10) days thereafter, notice or copies if written of all claims, complaints,
orders, citations or notices, whether formal or informal, written or oral, from
a governmental body or private person or entity, relating to air emissions,
water discharge, noise emission, solid or liquid waste disposal, hazardous waste
or materials, or any other environmental, health or safety matter, which
adversely effect Borrower.  Such notices shall include, among other
information, the name of the party who filed the claim, the potential amount of
the claim, and the nature of the claim.

    


    (e) Other
Information.  Promptly upon demand therefor,

     

    (i)              Certificates
of insurance for all policies of insurance to be maintained by Borrower pursuant
hereto;

     

    
      
        
        

      

      
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    (ii)              An
estoppel certificate executed by an authorized officer of Borrower indicating
that there then exists no Event of Default and no event which, with the giving
of notice or lapse of time, or both, would constitute an Event of
Default;

    


    (iii)              All
information received by Borrower affecting the financial status or condition of
any account debtor or the payment of any Account, including but not limited to,
invoices, original orders, shipping and delivery receipts; and

    


    (iv)              Assignments,
in form a

    cceptable
to Lender, of all Accounts, and of the monies due or to become due on specific
contracts relating to the same.

    


    (f) Additional
Information.  From time to time, such other information as
Lender may reasonably request, including financial projections and cash flow
analysis.

     

    Lender
acknowledges that Borrower is a publicly traded company.  As such,
Lender agrees that it will not engage in the purchase or sale of the securities
of Borrower while in possession of material non-public information about the
Borrower.

     

    9.6 Access to Records and
Property.  At any time and from time to time, upon reasonable
notice and during normal business hours, Borrower shall give any representatives
or designees of Lender reasonable access to its properties, and permit any of
them to, examine, audit, copy or make extracts from, any and all books, records
and documents in the possession of Borrower or any independent contractor
relating to Borrower's affairs and the Collateral, and to inspect any of its
properties wherever located, all at Borrower's expense. Notwithstanding the
foregoing, no such prior notice shall be required to be given in the event
Lender believes such access is necessary to preserve or protect the Collateral,
or following the occurrence and during the continuance of an Event of
Default.

    


    9.7 Comply with
Laws.  Borrower shall comply with the requirements of all
applicable laws, rules, regulations and orders of any Governmental Authority,
compliance with which is necessary to maintain its corporate existence or the
conduct of its business or non-compliance with which would adversely affect in
any respect its ability to perform its obligations or any security given to
secure its obligations.

    


    9.8 Insurance
Required.

    


    (g) Borrower
shall cause to be maintained, in full force and effect on all property of
Borrower including, without limitation, all Inventory and Equipment, insurance
in such amounts against such risks as is satisfactory to Lender, including, but
without limitation, business interruption, fire, boiler, theft, burglary,
pilferage, vandalism, malicious mischief, loss in transit, and hazard insurance
and, if as of  the date hereof, any of the real property of Borrower
is in an area that has been identified by the Secretary of Housing and Urban
Development as having special flood or mudslide hazards, and on which the sale
of flood insurance has been made available under the National Flood Insurance
Act of 1968, then Borrower shall maintain flood insurance.  Said policy or policies
shall:

     

    
      
        
        

      

      
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    (i) Be in a
form and with insurers which are satisfactory to Lender;

    


    (ii) Be for
such risks, and for such insured values as Lender or its assigns may require in
order to replace the property in the event of actual or constructive total
loss;

    


    (iii) Designate
Lender and its assignees as additional insureds and loss payees as their
interests may from time to time appear;

    


    (iv) Contain a
"breach of warranty clause" whereby the insurer agrees that a breach of the
insuring conditions or any negligence by Borrower or any other person shall not
invalidate the insurance as to Lender and its assignee;

    


    (v) Provide
that they may not be canceled or altered without thirty (30) days prior written
notice to Lender and its assigns; and

    


    (vi) Upon
demand, be delivered to Lender.

    


    (h) Borrower
shall obtain such additional insurance as Lender may reasonably
require.

     

    (i) Borrower
shall, in the event of loss or damage, forthwith notify Lender and file proofs
of loss with the appropriate insurer.  Borrower hereby authorizes
Lender to endorse any checks or drafts constituting insurance
proceeds.

     

    (j) Borrower
shall forthwith upon receipt of insurance proceeds endorse and deliver the same
to Lender.

     

    (k) In no
event shall Lender be required either to (i) ascertain the existence of or
examine any insurance policy or (iiii) advise Borrower in the event such
insurance coverage shall not comply with the requirements of this
Agreement.

     

    9.9 Condition of Collateral; No
Liens.  Borrower shall maintain all Collateral in good
condition and repair at all times, and preserve it against any loss, damage, or
destruction of any nature whatsoever relating to said Collateral or its use, and
keep said Collateral free and clear of any Liens, except for the Permitted
Encumbrances.

    


    9.10 Payment of
Proceeds.  Borrower shall forthwith upon receipt of all
proceeds of Collateral, pay such proceeds (insurance or otherwise) over to
Lender for application against the Obligations in such order and manner as
Lender may elect.

    


    9.11 Records.  Borrower
shall at all times keep accurate and complete records of its operations, of the
Collateral and the status of each Account, which records shall be maintained at
its executive offices as set forth on Exhibit
E.

     

    
      
        
        

      

      
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    9.12 Equipment. Borrower shall
maintain is Equipment in good operating condition, subject to ordinary wear and
tear, and shall not permit such Equipment to become a fixture to real estate or
accessions to other personal property.

    


    9.13 Delivery of
Documents.  If any proceeds of Accounts shall include, or any
of the Accounts shall be evidenced by, notes, trade acceptances or instruments
or documents, or if any Inventory is covered by documents of title or chattel
paper, whether or not negotiable, then Borrower waives protest regardless of the
form of the endorsement.  If Borrower fails to endorse any instrument
or document, Lender is authorized to endorse it on Borrower's
behalf.

    


    9.14 United States
Contracts.  If any of the Accounts arise out of contracts with
the United States or any of its departments, agencies or instrumentalities,
Borrower will notify Lender, if requested by Lender, and execute any necessary
instruments in order that all monies due or to become due under such contract
shall be assigned to Lender and proper notice of the assignment given under the
Federal Assignment of Claims Act.

    


    9.15 Name Changes; Location
Changes.

    


    (a)           Borrower
shall promptly notify Lender if Borrower is known by or conducting business
under any names other than those set forth in this Agreement; and

    


    (b)           Borrower
shall deliver not less than thirty (30) Business Days prior written notice to
Lender if Borrower intends to conduct any of its business or operations at or
out of offices or locations other than those set forth in this Agreement, or if
it changes the location of its chief executive office or the address at which it
maintains its books and records or the location of any of the
Collateral.

     

    
      
        
        

      

      
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    9.16 Further
Assurances.  Borrower shall at any time or from time to time
upon request of Lender take such steps and execute and deliver such Financing
Statements and other documents all in the form of substance satisfactory to
Lender relating to the creation, validity or perfection of the security
interests provided for herein, under the UCC or other laws of the State of New
York or of another
state or states in which the Collateral is located or which are reasonably
necessary to effectuate the purposes and provisions of this Agreement.
Borrower  shall defend the right, title and interest of Lender in and
to the Collateral against the claims and demands of all Persons whomsoever, and
take such actions, including (i) all actions necessary to grant Lender “control”
of any Investment Property, Deposit Accounts, Letter-of-Credit Rights or
electronic Chattel Paper owned by it, with any agreements establishing control
to be in form and substance satisfactory to Lender, (ii) the prompt (but in no
event later than five (5) Business Days following Lender’s request therefor)
delivery to Lender of all original Instruments, Chattel Paper, negotiable
Documents and certificated securities owned by it (in each case, accompanied by
stock powers, allonges or other instruments of transfer executed in blank),
(iii) notification of Lender’s interest in Collateral at Lender’s request, and
(iv) the institution of litigation against third parties as shall be prudent in
order to protect and preserve its and/or Lender’s respective and several
interests in the Collateral.

    


    9.17 SEC Reporting
Status.  Borrower shall timely file all reports required to be
filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the
Borrower shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.

    


    9.18 Indemnification.  Borrower
shall indemnify, protect, defend and save harmless Lender, as well as Lender's
directors, officers, trustees, employees, agents, attorneys, members and
shareholders (hereinafter referred to collectively as the "Indemnified Parties" and
individually as an "Indemnified
Party") from and against any and all losses, damages, expenses or
liabilities of any kind or nature (collectively, “Damages”) and from any suits,
claims or demands, by third parties, including reasonable counsel fees incurred
in investigating or defending such claim, suffered by any of them and caused by,
relating to, arising out of, resulting from, or in any way connected with the
Loans and the transactions contemplated herein, provided, however, the Borrower
shall not be liable to the Lender to the extent that  any
such  Damages arise out of or are based on the gross negligence of the
Lender.. In case any action shall be brought against an Indemnified Party based
upon any of the above and in respect to which indemnity may be sought against
Borrower, the Indemnified Party against whom such action was brought shall
promptly notify Borrower in writing, and Borrower shall assume the defense
thereof, including the employment of counsel selected by Borrower and reasonably
satisfactory to the Indemnified Party, the payment of all costs and expenses and
the right to negotiate and consent to settlement.  Upon reasonable
determination made by the Indemnified Party, the Indemnified Party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof; provided, however that the Indemnified Party shall pay the
costs and expenses incurred in connection with the employment of separate
counsel.  Borrower shall not be liable for any settlement of any such
action effected without its consent, but if settled with Borrower's consent, or
if there be a final judgment for the claimant in any such action, Borrower
agrees to indemnify and save harmless said Indemnified Party against whom such
action was brought from and against any loss or liability by reason of such
settlement or judgment, except as otherwise provided above. The provisions of
this Section shall survive the termination of this Agreement and the final
repayment of the Obligations.

    


    
      
        
        

      

      
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    SECTION
10. NEGATIVE COVENANTS.

    


    Until
payment and satisfaction in full of all Obligations and the termination of this
Agreement, Borrower hereby covenants and agrees as follows:

    


    10.1 Fundamental Transactions; No Creation
of  Subsidiaries.

    


    (a) Borrower will not engage in or be
a party to a Fundamental Transaction (as defined below) unless all of the
following conditions are met:


    (i) Lender shall have been afforded
the opportunity, if Lender so elects, to convert all outstanding Indebtedness of
Borrower hereunder into Common Stock of Borrower prior to, or at the closing of
(such conversion date to be selected by Lender), the Fundamental Transaction in
accordance with the terms of the Note Conversion Agreement; and

    


    (ii) Lender shall have received
payment in full of all outstanding Obligations no later than the date of the
closing of the Fundamental Transaction, to the extent not converted into Common
Stock, together with such releases and related documentation as Lender shall
reasonably request.

    


    “Fundamental
Transaction” means

    


    (i)           Any
consolidation or merger of the Borrower with or into another entity where the
stockholders of the Borrower immediately prior to such transaction do not
collectively own at least 51% of the outstanding voting securities of the
surviving corporation of such consolidation or merger immediately following such
transaction; or the sale of all or substantially all of the assets of the
Borrower in a single transaction or a series of related transactions;
or

    


    (ii)           The
occurrence of any transaction or event in connection with which all or
substantially all the Common Stock shall be exchanged for, converted into,
acquired for or constitute the right to receive consideration (whether by means
of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise) which is not all
or substantially all common stock which is (or will, upon consummation of or
immediately following such transaction or event, will be) listed on a national
securities exchange or approved for quotation on Nasdaq or any similar United
States system of automated dissemination of transaction reporting of securities
prices, including the OTC Bulletin Board; or

     

    
      
        
        

      

      
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    (iii)           The
acquisition by a Person or entity or group of Persons or entities acting in
concert as a partnership, limited partnership, syndicate or group, as a result
of a tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, of beneficial ownership of securities of the Borrower
representing 50% or  more of the combined voting power of the
outstanding voting securities of the Borrower ordinarily (and apart from rights
accruing in special circumstances) having the right to vote in the election of
directors.

     

    (b) Borrower will not create or
permit to exist any Subsidiary, other than Virtual Vision, Inc., which
Subsidiary is dormant, unless such new Subsidiary is a wholly-owned Subsidiary
and is designated by Lender as either a co-borrower or guarantor hereunder and
such Subsidiary shall have entered into all such documentation required by
Lender, including, without limitation, to grant to Lender a first priority
perfected security interest in substantially all of such Subsidiary’s assets to
secure the Obligations.

    


    10.2 Disposition of Assets or
Collateral.  Borrower will not sell, lease, transfer, convey,
or otherwise dispose of any or all of its assets or Collateral, other than (a)
the sale of Inventory in the ordinary course of business, and (b) the
disposition or transfer in the ordinary course of business during any fiscal
year of obsolete and worn-out Equipment having an aggregate fair market value of
not more than $25,000 and only to the extent that the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Lender’s first priority security interest or are used to repay Loans.
Notwithstanding the foregoing, Borrower shall be permitted to dispose
of  assets other than Accounts and Inventory in a transaction that
does not constitute a Fundamental Transaction under Section 10.1 hereof,
provided that all of the following conditions are met: (i)  Borrower
shall have provided Lender with not less than  fifteen (15) days’
prior written notice of such proposed asset sale, describing in reasonable
detail the assets to be sold and the consideration to be received therefor, (ii)
the net proceeds of such transaction are used to redeem Indebtedness represented
by any outstanding and unpaid Loans, and (iii) Lender shall have determined, in
its reasonable commercial judgment, that such asset sale will not impair
Lender’s rights in its remaining Collateral or its prospect of repayment
hereunder.

    


    10.3 Other
Liens.  Borrower will not incur, create or permit to exist any
Lien on any of its property or assets, whether now owned or hereafter acquired,
except (a) those Liens in favor of Lender created by this Agreement and the
other Loan Documents; and (b) for the Permitted Encumbrances.

    


    10.4 Other
Liabilities.  Borrower will not incur, create, assume, or
permit to exist, any Indebtedness or liability on account of either borrowed
money or the deferred purchase price of property, except (a) Obligations to
Lender, (b) the Convertible Notes or (c) Indebtedness constituting Subordinated
Debt or incurred in connection with any of the Permitted
Encumbrances.

     

    
      
        
        

      

      
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    10.5 Loans.  Borrower
will not make any loans to any Person, other than advances to employees of
Borrower in the ordinary course of business, with outstanding advances to any
employee not to exceed  $2,500 at any time.

    


    10.6 Guaranties.  Borrower
will not assume, guaranty, endorse, contingently agree to purchase or otherwise
become liable upon the obligation of any Person, except by the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business.

    


    10.7 Remove
Property.  Borrower will not remove, or cause or permit to be
removed, without Lender's prior written consent, any of its Collateral or assets
from those locations set forth on Exhibit
E annexed hereto, except for sales of Inventory in the ordinary course of
Borrower's business.

    


    10.8 Transfers of Notes or
Accounts.  Borrower will not sell, assign, transfer, discount
or otherwise dispose of any Accounts or any promissory note payable to it, with
or without recourse, except for the Lien of Lender therein.

    


    10.9 Dividends.  Borrower
will not declare or pay any cash dividend, make any distribution on, redeem,
retire or otherwise acquire directly or indirectly, any shares of its stock or
other equity interests without the prior written consent of Lender, except as
set forth in Section
10.9 of Borrower’s Disclosure Schedule.

    


    10.10 Payments to Affiliates. Except
as set forth in Section
10.10 of the Borrower’s Disclosure Schedule,  or as otherwise
approved by Lender in writing in advance, Borrower shall not make any payments
of cash or other property to any Affiliate.

    


    10.11 Modification of
Documents.  Borrower will not change, alter or modify, or
permit any change, alteration or modification of its certificate of
incorporation, by-laws or other governing documents without Lender's prior
written consent.

    


    10.12 Change Business or
Name.  Borrower will not change or alter the nature of its
business, or change its name as it appears in the official filings of its state
of organization.

    


    10.13 Settlements.  Other
than in the ordinary course of its business, Borrower will not comprise, settle
or adjust any claims in any amount relating to any of the Collateral, without
the prior written consent of Lender.

    


    10.14 Bank
Accounts.  Section 10.14 of the Borrower’s Disclosure Schedule
lists all banks and other financial institutions at which Borrower maintains
deposits and/or other accounts, and correctly identifies the name, address and
telephone number of each such depository, the name in which the account is held,
a description of the purpose of the account, and the complete account
number.  Borrower shall not establish any depository or other bank
account with any financial institution (other than the accounts set forth in
Section 10.14 of the Borrower’s Disclosure Schedule) without Lender’s prior
written consent.

     

    
      
        
        

      

      
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    10.15 Convertible Note
Documentation.  Without the prior written consent of Lender,
Borrower shall not (a) amend, modify or in any way alter the terms of any of the
Convertible Note Documentation, other than with respect to changes or
corrections solely of a ministerial nature that have no adverse effect on
Lender’s rights or obligations hereunder and no adverse effect on the status or
priority of lender’s Lien hereunder, or (b) make any payments in respect of the
indebtedness evidenced by the Convertible Note Documentation.

    


    SECTION
11. EVENTS OF DEFAULT.

    


    The
occurrence of any of the following shall constitute an event of default
(hereinafter referred to as an "Event of
Default"):

    


    11.1 Failure to Pay.  The
failure by Borrower to pay, when due, (a) any payment of principal, interest or
other charges due and owing to Lender pursuant to any obligations of Borrower to
Lender including, without limitation, those Obligations arising pursuant to this
Agreement or any Loan Document, or under any other agreement for the payment of
monies then due and payable to Lender, or (b) any taxes due to any Governmental
Authority.

    


    11.2 Failure of
Insurance.  Failure of one or more of the insurance policies
required hereunder to remain in full force and effect; failure on the part of
Borrower to pay or cause to be paid all premiums when due on the insurance
policies pursuant to this Agreement; failure on the part of Borrower to take
such other action as may be requested by Lender in order to keep said policies
of insurance in full force and effect until the entire indebtedness represented
by the Loan Documents, and interest thereon, has been paid in full; and failure
on the part of Borrower to execute any and all documentation required by the
insurance companies issuing said policies to effectuate said
assignments.

    


    11.3 Failure to
Perform.  Borrower's failure to perform or observe any
covenant, term or condition of Section 9 of this Agreement (Affirmative
Covenants) to be performed or observed by Borrower, and such failure shall
continue unremedied for a period of ten (10) Business Days from the date of such
failure (irrespective of whether Lender delivers written notice thereof to
Borrower), provided, however, that such
cure period shall not apply to a breach which is incapable of cure within said
10-Business Day period; and provided further, that such
cure period shall be five (5) Business Days for a breach of Section 9.5(c)
(Monthly Inventory Reconciliation Report); and provided further, that such
cure period shall not apply to any payment of principal, interest or other
charges due and owing to Lender.

    


    11.4 Cross Default. The occurrence
of any Event of Default on any of the Obligations or an Event of Default under
any Loan Document, or an event of default under the Convertible Notes which has
not been waived or cured.

    


    11.5 False Representation or
Warranty.  Borrower shall have made any statement,
representation or warranty in this Agreement or in any of the other Loan
Documents to which it is a party or in a certificate executed by Borrower
incident to this Agreement, which is at any time found to have been false in any
respect at the time such representation or warranty was made.

     

    
      
        
        

      

      
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    11.6 Liquidation, Voluntary Bankruptcy,
Dissolution, Assignment to Creditors.  Any resolution shall be
passed or any action (including a meeting of creditors) shall be taken by
Borrower for the termination, winding up, liquidation or dissolution of
Borrower, or Borrower shall make an assignment for the benefit of creditors,
become insolvent or be unable to pay its debts as they mature, or Borrower shall
file a petition in voluntary liquidation or bankruptcy, or Borrower shall file a
petition or answer or consent seeking, or consenting to, the reorganization of
Borrower or the readjustment of any of the indebtedness of Borrower under any
applicable insolvency or bankruptcy laws now or hereafter existing (including
the United States Bankruptcy Code), or Borrower shall consent to the appointment
of any receiver, administrator, liquidator, custodian or trustee of all or any
part of the property or assets of Borrower or any corporate action shall be
taken by Borrower for the purposes of effecting any of the
foregoing.

    


    11.7 Involuntary Petition Against Borrower
.  Any petition or application for any relief is filed against
Borrower under applicable insolvency or bankruptcy laws now or hereafter
existing (including the United States Bankruptcy Code) or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity), and is not discharged or stayed within thirty (30) days of the
filing thereof.

    


    11.8 Judgments;
Levies.  Any judgment or judgments aggregating in excess of
$25,000 or any injunction or attachment is obtained against Borrower which
remains unstayed or unsatisfied  for a period of  fifteen
(15) days or is enforced.

    


    11.9 Change in
Condition.  There occurs any event or a change in the condition
or affairs, financial or otherwise, of Borrower which, in the reasonable opinion
of Lender, impairs Lender's security or ability of Borrower to discharge its
obligations hereunder or which impairs the rights of Lender in such
Collateral.

    


    11.10 [RESERVED]

    


    11.11 Failure to
Notify.  If at any time Borrower fails to provide Lender
immediately with notice or copies, if written, of all complaints, orders,
citations or notices with respect to environmental, health or safety
complaints.

    


    11.12 Failure to Deliver
Documentation.  Borrower shall fail to obtain and deliver to
Lender any other documentation required to be signed or obtained as part of this
Agreement, or shall have failed to take any reasonable action requested by
Lender to perfect, protect, preserve and maintain the security interests and
Lien on the Collateral provided for herein.

    
 

    
      
        
        

      

      
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    11.13 Non-Payment of
Debts.  Any default by Borrower under any agreement, document
or instrument relating to any indebtedness for borrowed money owing to any
person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $50,000, which default continues unwaived for more
than the applicable cure period, if any, with respect thereto, or any default by
Borrower under any contract, lease, license or other obligation to any Person
other than Lender, which affects its business or the Collateral or other
property which is security for the Obligations and which default continues for
more than the applicable cure period, if any, with respect thereto.

    


    11.14 Dissolution; Maintenance of
Existence.  Borrower is dissolved, or Borrower fails to
maintain its corporate existence in good standing, or the usual business of
Borrower ceases or is suspended in any respect.

    


    11.15 Indictment.  The
indictment of Borrower or any director or Responsible Officer of Borrower under
any criminal statute, or commencement of criminal or civil proceedings against
Borrower, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any portion of the property of
Borrower.

    


    11.16 Tax Liens.  The
filing of a Lien for any unpaid taxes filed by any Governmental Authority
against Borrower or any of its assets.

    


    11.17 Challenge to Validity of Loan
Documents.  Borrower attempts to terminate, challenges the
validity of, or its liability under this Agreement or any other Loan Document,
or any proceeding shall be brought to challenge the validity, binding effect of
Loan Document, or any Loan Document ceases to be a valid, binding and
enforceable obligation of the Borrower (to the extent such Person is a party
thereto).

    


    11.18 Trading of Common
Stock.

    


    (a)           Sales
of Common Stock owned by Lender cannot be made pursuant to the Borrower’s
Registration Statement of Form S-1, to be filed with the SEC by reason of a stop
order, any untrue statement of a material fact or omission of a material fact in
such Registration Statement, or the Borrower’s failure to update such
Registration Statement, or otherwise on account of Borrower’s noncompliance with
the terms of the Registration Rights Agreement, unless such Common Stock may be
publicly resold by Lender without restriction under Rule 144 promulgated under
the Securities Act of 1933, as amended, and Lender shall have received an
opinion of counsel to Borrower as may be necessary or requested by Lender to
allow such resales, provided the Borrower and its counsel receive reasonably
requested representations from Lender and its broker, if any; or

    


    (b)           The
Common Stock ceases to be included for quotation on the OTC Bulletin
Board.

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

    SECTION
12. REMEDIES.

    


    12.1 Acceleration; Other
Remedies.  Upon the occurrence of an Event of Default and at
any time thereafter:

    


    (a) Lender
shall have all rights and remedies provided in this Agreement, any of the other
Loan Documents, the UCC or other applicable law, all of which rights and
remedies may be exercised without notice to Borrower, all such notices being
hereby waived, except such notice as is expressly provided for hereunder or is
not waivable under applicable law.  All rights and remedies of Lender
are cumulative and not exclusive and are enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions and in
any order Lender may determine.  Without limiting the foregoing,
Lender may (i) accelerate the payment of all Obligations and demand immediate
payment thereof to Lender, (ii) with or without judicial process or the aid or
assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(iii) require Borrower, at Borrower's expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, subject to the rights of the Convertible
Noteholders in accordance with the terms of the Intercreditor Agreement, (v)
extend the time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all Accounts or other
Collateral which includes a monetary obligation and discharge or release the
account debtor or other obligor, without affecting any of the Obligations, (vi)
sell, lease, transfer, assign, deliver or otherwise dispose of any and all
Collateral (including, without limitation, entering into contracts with respect
thereto, by public or private sales at any exchange, broker's board, any office
of Lender or elsewhere) at such prices or terms as Lender may deem reasonable,
for cash, upon credit or for future delivery, with Lender having the right to
purchase the whole or any part of the Collateral at any such public sale, all of
the foregoing being free from any right or equity of redemption of Borrower,
which right or equity of redemption is hereby expressly waived and released by
Borrower.  If any of the Collateral or other security the Obligations
is sold or leased by Lender upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefor is
finally collected by Lender.  If notice of disposition of Collateral
is required by law, ten (10) days prior notice by Lender to Borrower designating
the time and place of any public sale or the time after which any private sale
or other intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice.  In
the event Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy, Borrower waives the
posting of any bond which might otherwise be required.

     

    (b) Lender
may apply the cash proceeds of Collateral or other security for the Obligations
actually received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of any of the Obligations, in whole or
in part (including attorneys' fees and legal expenses incurred by Lender with
respect thereto or otherwise chargeable to Borrower) and in such order as Lender
may elect, whether or not then due.  Borrower shall remain liable to
Lender for the payment on demand of any deficiency together with interest at the
highest rate provided for herein and all costs and expenses of collection or
enforcement, including reasonable attorneys' fees and legal
expenses.

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

    (c) If
Borrower shall default in the performance of any of the provisions of this
Agreement or any other Loan Document to which it is a party, Lender may (but
without any obligation to do so) perform same for Borrower's account and any
monies expended in doing so shall be chargeable with interest to Borrower,
repayable by Borrower on demand and added to the Obligations.

     

    (d) Lender
may, at its option, cure any default by Borrower under any agreement with a
third party or pay or bond on appeal any judgment entered against Borrower,
discharge taxes, Liens at any time levied on or existing with respect to the
Collateral and pay any amount, incur any expense or perform any act which, in
Lender's sole judgment, is necessary or appropriate to preserve, protect,
insure, maintain, or realize upon the Collateral.  Lender may charge
Borrower's loan account for any amounts so expended, such amounts to be
repayable by Borrower on demand.  Lender shall be under no obligation
to effect such cure, payment, bonding or discharge, and shall not, by doing so,
be deemed to have assumed any obligation or liability of Borrower.

     

    (e) Borrower
hereby grants to Lender an irrevocable, non-exclusive license, to the extent not
prohibited by Convertible Notes Documentation and subject to the rights of the
Convertible Noteholders in accordance with the terms of the Intercreditor
Agreement, exercisable due to an occurrence and during the continuance of an
Event of Default without payment of royalty or other compensation to Borrower,
to use, transfer, license or sublicense any Intellectual Property now owned,
licensed to, or hereafter acquired by Borrower, and wherever the same may be
located, and including in such license access to all media in which any of the
licensed items may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof,
and represents, promises and agrees that any such license or sublicense is not
and will not be in conflict with the contractual or commercial rights of any
third Person; provided, that such license will terminate upon the payment in
full of all Obligations.

     

    12.2 Set-off.  Lender
shall have the right, immediately and without notice of other action, to set-off
against any of Borrower's liabilities to Lender any money or other liability
owed by Lender or any Affiliate of Lender (and such Affiliate of Lender is
hereby authorized to effect such set-off) in any capacity to Borrower, whether
or not due, and Lender or such Affiliate shall be deemed to have exercised such
right of set-off and to have made a charge against any such money or other
liability immediately upon the occurrence of such Event of Default even though
the actual book entries may be made at a time subsequent thereto.  The
right of set-off granted hereunder shall be effective irrespective of whether
Lender shall have made demand under or in connection with the
Loan.  Lender is hereby granted a security interest in all money and
property of Borrower being held by it or any Affiliate of Lender, which security
interest shall be a first priority perfected security interest in favor of
Lender as a result of Lender's or Affiliates of Lender's possession
thereof.  None of the rights of Lender described in this Section 12.2
are intended to diminish or limit in any way Lender's or Affiliates of Lender's
common-law set-off rights.

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

     

    12.3 Costs and
Expenses.  Borrower shall be liable for all reasonable costs,
charges and expenses, including attorney's fees and disbursements, incurred by
Lender by reason of the occurrence of any Event of Default or the exercise of
Lender's remedies with respect thereto, each of which shall be repayable by
Borrower on demand with interest, and added to the Obligations.

    


    12.4 No
Marshalling.  Lender shall be under no obligation whatsoever to
proceed first against any of the Collateral or other property which is security
for the Obligations before proceeding against any other of the
Collateral.  It is expressly understood and agreed that all of the
Collateral or other property which is security for the Obligations stands as
equal security for all Obligations, and that Lender shall have the right to
proceed against any or all of the Collateral or other property which is security
for the Obligations in any order, or simultaneously, as in its sole and absolute
discretion it shall determine.  It is further understood and agreed
that Lender shall have the right, as it in its sole and absolute discretion
shall determine, to sell any or all of the Collateral or other property which is
security for the Obligations in any order or simultaneously, as Lender shall
determine in its sole and absolute discretion.

    


    12.5 No Implied Waivers; Rights
Cumulative.  No delay on the part of Lender in exercising any
right, remedy, power or privilege hereunder or under any of the Loan Documents
or provided by statute or at law or in equity or otherwise shall impair,
prejudice or constitute a waiver of any such right, remedy, power or privilege
or be construed as a waiver of any Event of Default or as an acquiescence
therein.  No right, remedy, power or privilege conferred on or
reserved to Lender hereunder or under any of the Loan Documents or otherwise is
intended to be exclusive of any other right, remedy, power or
privilege.  Each and every right, remedy, power or privilege conferred
on or reserved to Lender under this Agreement or under any of the other Loan
Documents or otherwise shall be cumulative and in addition to each and every
other right, remedy, power or privilege so conferred on or reserved to Lender
and may be exercised by Lender at such time or times and in such order and
manner as Lender shall (in its sole and complete discretion) deem
expedient.

    


    SECTION
13. OTHER RIGHTS OF LENDER.

    


    13.1 Collections.   Subject to the rights of
the Convertible Noteholders under the Intercreditor Agreement, Borrower is
authorized to collect the Accounts and any other monetary obligations included
in, or proceeds of, the Collateral on behalf of and in trust for Lender, at
Borrower's expense, but such authority shall, at Lender's option, automatically
terminate upon the occurrence of an Event of Default.  Lender may
modify or terminate such authority at any time whether or not an Event of
Default has occurred and directly collect the Accounts and other monetary
obligations included in the Collateral.  Borrower shall, at Borrower's
expense and in the manner requested by Lender from time to time, direct that
remittances and all other proceeds of accounts and other Collateral shall be (a)
remitted in kind to Lender,  (b) sent to a post office box designated
by and/or in the name of Lender, or in the name of Borrower, but as to which
access is limited to Lender and/or (c) deposited into a bank account
maintained in the name of Lender and/or a blocked bank account under
arrangements with the depository bank under which all funds deposited to such
blocked bank account are required to be transferred solely to
Lender.  In connection therewith, Borrower shall execute such post
office box and/or blocked bank account agreements as Lender shall
specify.

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

     

    13.2 Repayment of
Obligations.  All Obligations shall be payable at Lender's
office set forth below or at a bank or such other place as Lender may expressly
designate from time to time for purposes of this Section.  Lender
shall apply all proceeds of Accounts or other Collateral received by Lender and
all other payments in respect of the Obligations to the Loans whether or not
then due or to any other Obligations then due, in whatever order or manner
Lender shall determine.

    


    13.3 Lender Appointed
Attorney-in-Fact.

    


    (a)           Borrower
hereby irrevocably constitutes and appoints Lender, with full power of
substitution, as its true and lawful attorney-in-fact, with full irrevocable
power and authority in its place and stead and in its name or otherwise, from
time to time in Lender's discretion, at Borrower's sole cost and expense, to
take any and all appropriate action and to execute and deliver any and all
documents and instruments which Lender may deem reasonably necessary or
advisable to accomplish the purposes of this Agreement, including, without
limiting the generality of the foregoing, (i) at any time any of the Obligations
are outstanding, (A) to transmit to account debtors, other obligors or any
bailees notice of the interest of Lender in the Collateral or request from
account debtors or such other obligors or bailees at any time, in the name of
Borrower or Lender or any designee of Lender, information concerning the
Collateral and any amounts owing with respect thereto; (B) to execute in the
name of Borrower and file against Borrower in favor of Lender Financing
Statements or amendments with respect to the Collateral, or record a copy or an
excerpt hereof in the United States Copyright Office or the United States Patent
and Trademark Office and to take all other steps as are necessary in the
reasonable opinion of Lender under applicable law to perfect the security
interests granted herein; (C) to obtain and adjust insurance required pursuant
to this Agreement and to pay all or any part of the premiums therefor and the
costs thereof, and (D) to pay or discharge taxes, Liens, security interests or
other encumbrances levied or placed on or threatened against the Collateral;
(ii) after and during the continuation of an Event of Default, (A) to receive,
take, endorse, assign, deliver, accept and deposit, in the name of Lender or
Borrower, any and all cash, checks, commercial paper, drafts, remittances and
other instruments and documents relating to the Collateral or the proceeds
thereof, (B) to notify account debtors or other obligors to make payment
directly to Lender, or notify bailees as to the disposition of Collateral, (C)
to change the address for delivery of mail to Borrower and to receive and open
mail addressed to Borrower, (D) take or bring, in the name of Lender or
Borrower, all steps, actions, suits or proceedings deemed by Lender necessary or
desirable to effect collection of or other realization upon the Collateral; and
(E) to extend the time of payment of, compromise or settle for cash, credit,
return of merchandise, and upon any terms or conditions, any and all accounts or
other Collateral which includes a monetary obligation and discharge or release
the account debtor or other obligor, without affecting any of the
Obligations.

    


    (b)           Borrower
hereby ratifies, to the extent permitted by law, all that Lender shall lawfully
and in good faith do or cause to be done by virtue of and in compliance with
this Agreement.  The powers of attorney granted pursuant to this
Agreement are each a power coupled with an interest and shall be irrevocable
until the Obligations are paid indefeasibly in fully.

    


    13.4 Release of
Lender.    In no event will Lender have any liability
to Borrower for lost profits or other special or consequential
damages.

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

     

    13.5 Uniform Commercial
Code.  At all times prior and subsequent to an Event of Default
hereinafter, Lender shall be entitled to all the rights and remedies of a
secured party under the UCC with respect to all Collateral.

    


    13.6 Preservation of
Collateral.  At all times prior and subsequent to an Event of
Default hereinafter, Lender may (but without any obligation to do so) take any
and all action which in its sole and absolute discretion is necessary and proper
to preserve its interest in the Collateral, including without limitation the
payment of debts of Borrower which might, in Lender's sole and absolute
discretion, impair the Collateral or Lender's security interest therein,
purchasing insurance on the Collateral, repairing the Collateral, or paying
taxes or assessments thereon, and the sums so expended by Lender shall be
secured by the Collateral, shall be added to the amount of the Obligations due
Lender and shall be payable on demand with interest at the rate set forth in
Section 3.1 hereof from the date expended by Lender until repaid by
Borrower.  After written notice by Lender to Borrower and
automatically, without notice, after an Event of Default, Borrower shall not,
without the prior written consent of Lender in each instance, (a) grant any
extension of time of payment of any of the accounts or any other Collateral
which includes a monetary obligation, (b) compromise or settle any of the
accounts or any such other Collateral for less than the full amount thereof, (c)
release in whole or in part any account debtor or other person liable for the
payment of any of the accounts or any such other Collateral, or (d) grant
any credits, discounts, allowances, deductions, return authorizations or the
like with respect to any of the accounts or any such other
Collateral.

    


    13.7 Lender's Right to
Cure.  In the event Borrower shall fail to perform any of its
Obligations hereunder or under any of the Loan Documents, then Lender, in
addition to all of its rights and remedies hereunder, may perform the same, but
shall not be obligated to do so, at the cost and expense of
Borrower.  In any such event, Borrower shall promptly reimburse Lender
together with interest at the rate set forth in
Section 3.1  hereof from the date such sums are expended until
repaid by Borrower.

    


    13.8 Inspection of
Collateral.  From time to time as requested by Lender, at the
sole expense of Borrower in accordance with Section 3.4, Lender or its designee
shall have access, prior to an Event of Default during reasonable business hours
and on or after an Event of Default at any time, to all of the premises where
Collateral is located for the purposes of inspecting, disposing and realizing
upon the Collateral, and all Borrower's books and records, and Borrower shall
permit Lender or its designee to make such copies of such books and records or
extracts therefrom as Lender may request.  Without expense to Lender,
Lender may use such of Borrower's personnel, equipment, including computer
equipment, programs, printed output and computer readable media, supplies and
premises for the collection of Accounts and realization on other Collateral as
Lender, in its sole discretion, deems appropriate.  Borrower hereby
irrevocably authorizes all accountants and third parties to disclose and deliver
to Lender at Borrower's expense all financial information, books and records,
work papers, management reports and other information in their possession
regarding Borrower.

     

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

     

    SECTION
14. PROVISIONS OF GENERAL
APPLICATION.

    


    14.1 Waivers.  Borrower
waives demand, presentment, notice of dishonor  protest and notice of
protest of any instrument either of Borrower or others which may be included in
the Collateral.

    


    14.2 Survival.  All
covenants, agreements, representations and warranties made by Borrower herein or
in any of the Loan Documents or in any certificate, report or instrument
contemplated hereby shall survive any independent investigation made by Lender
and the execution and delivery of this Agreement, and such certificates, reports
or instruments and shall continue so long as any Obligations are outstanding and
unsatisfied, applicable statutes of limitations to the contrary
notwithstanding.

    


    14.3 Notices.  All
notices, requests and demands to or upon the respective parties hereto shall be
given in writing and shall be deemed to have been duly given or made upon
receipt by the receiving party.  All notices, requests and demands are
to be given or made to the respective parties at the following addresses (or to
such other addresses as either party may designate by notice in accordance with
the provisions of this paragraph):

     

    

      
        
           


        

        
          47

          
            

          

        

        
           


        

      


      
        	
                 

              	
                
                  If
      to Borrower:

                

              	
                eMagin
      Corporation.

              
	 
      	 
      	
                10500
      N.E. 8th
      Street

              
	 
      	 
      	
                Suite
      1400

              
	 
      	 
      	
                Bellevue,
      Washington 12533

              
	
                 

              	 
      	
                Attention:
      John Atherly

              
	 
      	 
      	 
      
	
                 

              	
                With
      a copy to:

              	
                Sichenzia
      Ross Friedman Ference LLP

              
	 
      	 
      	
                61
      Broadway

              
	 
      	 
      	
                New
      York, New York 10006

              
	 
      	 
      	
                Attention:  Richard
      A. Friedman, Esq.

              
	 
      	 
      	 
      
	
                 

              	
                If
      to Lender:

              	
                Moriah
      Capital, L.P.

              
	 
      	 
      	
                685
      Fifth Avenue

              
	 
      	 
      	
                New
      York, New York 10022

              
	 
      	 
      	
                Attention:
      Greg Zilberstein

              
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                 

              	
                
                  With
      a copy to:

                

              	
                Cohen
      Tauber Spievack & Wagner LLP

              
	 
      	 
      	
                420
      Lexington Avenue, Suite 2400

              
	 
      	 
      	
                New
      York, New York 10170

              
	 
      	 
      	
                Attention:  Adam
      Stein, Esq.

              


      

       

    

    Notwithstanding the foregoing, that
parties expressly acknowledge and agree that foregoing provisions of notice by
Lender to Borrower’s counsel is an accommodation  only, and that
Lender shall have fulfilled its notice obligation hereunder if notice shall have
been received by  Borrower at its address set forth above,
irrespective of whether such notice is received by Borrower’s
counsel.

     

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

     

    14.4 Amendments; Waiver of
Defaults.  The terms of this Agreement shall not be amended,
waived, altered, modified, supplemented or terminated in any manner whatsoever
except by a written instrument signed by Lender and Borrower.  Any
default or Event of Default by a party hereto may only be waived by a written
instrument specifically describing such default or Event of Default and signed
by the other party hereto.

    


    14.5 Binding on
Successors.

    


    (a)              This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that, Borrower may
not assign any of its rights under this Agreement or the other Loan Documents to
any Person without the prior written consent of Lender.

    


    (b)              Lender
may assign any or all of the Obligations together with any or all of the
security therefor to any Person and any such assignee shall succeed to all of
Lender’s rights with respect thereto.  Upon such assignment, Lender
shall be released from all responsibility for the Collateral to the extent same
is assigned to any transferee.  Lender may from time to time sell or
otherwise grant participations in any of the Obligations and the holder of any
such participation shall, subject to the terms of any agreement between Lender
and such holder, be entitled to the same benefits as Lender with respect to any
security for the Obligations in which such holder is a
participant.  Borrower agrees that each such holder may exercise any
and all rights of set-off and counterclaim with respect to its participation in
the Obligations as fully as though Borrower were directly indebted to such
holder in the amount of such participation.

    


    14.6 Invalidity.  Any
provision of this Agreement which may be determined by competent authority to be
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

    


    14.7 Publicity.  Borrower
hereby consents to the issuance by Lender of (a) a public announcement or press
release relating to the financial arrangement entered into between the Borrower
and Lender in substantially the form annexed hereto as Exhibit G, as well as (b)
other announcements which are commonly known as tombstones, in such publications
and to such selected parties as Lender shall in its sole and absolute discretion
deem appropriate, or as required by applicable law.

    


    14.8 Section or Paragraph Headings.
Section and paragraph headings are for convenience only and shall not be
construed as part of this Agreement.

     

    
      
        
        

      

      
        49

        
          

        

      

      
        
        

      

    

     

    14.9 Governing Law.  This
Agreement shall be construed in accordance with, and shall be governed by, the
laws of the State of New York including, without limitation, Section 5-1401 of
the New York General Obligations Law (without giving effect to conflict of law
rules).

    


    14.10 Waiver of Jury
Trial.  THE PARTIES HERETO HEREBY WAIVE ANY AND ALL RIGHTS THAT
THEY MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR
ANY STATE TO A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING EITHER DIRECTLY OR
INDIRECTLY IN ANY ACTION OR PROCEEDING BETWEEN BORROWER, LENDER OR ITS
SUCCESSORS AND ASSIGNS, OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, THE OBLIGATIONS AND/OR THE COLLATERAL.  IT IS
INTENDED THAT SAID WAIVER SHALL APPLY TO ANY AND ALL DEFENSES, RIGHTS, AND/OR
COUNTERCLAIMS IN ANY ACTION OR PROCEEDINGS BETWEEN BORROWER AND
LENDER.  BORROWER WAIVES ALL RIGHTS TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND, NATURE OR DESCRIPTION IN ANY
ACTION OR PROCEEDING INSTITUTED BY LENDER WITH RESPECT TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, THE OBLIGATIONS, THE COLLATERAL OR ANY MATTER ARISING
THEREFROM OR RELATING THERETO, EXCEPT COMPULSORY COUNTERCLAIMS.

    


    14.11 Consent to
Jurisdiction.  Borrower and Lender each hereby
(a) irrevocably submits and consents to the exclusive jurisdiction of the
Supreme Court for New York County, State of New York, and the United State
District Court for the Southern District of New York with respect to any action
or proceeding arising out of this Agreement, the Note, the other Obligations,
the other Loan Documents, the Collateral or any matter arising therefrom or
relating thereto and (b) waives any objection based on venue or forum non conveniens with
respect thereto.  In any such action or proceeding, Borrower waives
personal service of the summons and complaint or other process and papers
therein and agrees that the service thereof may be made by certified mail,
return receipt requested, directed to Borrower at its chief executive office set
forth herein or other address thereof of which Lender has received notice as
provided herein, service to be deemed complete as permitted under the rules of
either of said Courts.  Any such action or proceeding commenced by
Borrower against Lender will be litigated only in the New York Supreme Court for
New York County, State of New York, and the United States District Court for the
Southern District of New York.

    


    14.12 Entire
Agreement.  This Agreement, the other Loan Documents, any
supplements or amendments hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.  In the event of any inconsistency
between the terms of this Agreement and any schedule or exhibit hereto, the
terms of this Agreement shall govern.

    


    14.13 Counterparts.  This
Agreement may be executed in counterparts, each of which when so executed, shall
be deemed an original, but all of which shall constitute but one and the same
instrument.

    


    


    


    


    


    


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        50

        
          

        

      

      
        
        

      

    

    
 

    IN WITNESS WHEREOF, this
Agreement has been duly executed as of the day and year first above
written.

    
 

    
      
        	 	EMAGIN
    CORPORATION	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 


      

    

     

    
      
        	 	MORIAH CAPITAL
      L.P.	 
	 	 	 	 
	
                 

              	
                By:
      

              	Moriah Capital Management,
      L.P., General Partner	 
	 	By: 	Moriah Capital Management, GP,
      LLC, General Partner	 
	 	 	 	 
	 	 	 	 


      

       

      
        
          	 	 	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 


        

      

       

    

    


     

     

    


    


    [SIGNATURE
PAGE OF LOAN AND SECURITY AGREEMENT]

     

    
      
        
        

      

      
        51

        
          

        

      

      
        
        

      

    

    
 

    SCHEDULE
2.4

    TO

    LOAN
AND SECURITY AGREEMENT

    


    USE
OF PROCEEDS

     

    
      
        
        

      

      
        52

        
          

        

      

      
        
        

      

    

     

    
 

    SCHEDULE
8.17

    TO

    LOAN
AND SECURITY AGREEMENT

    


    LOCATION
OF COLLATERAL

     

    
      
        
        

      

      
        53

        
          

        

      

      
        
        

      

    

    
 

    SCHEDULE
8.18

    TO

    LOAN
AND SECURITY AGREEMENT

    


    CUSTOMERS
AND VENDORS

     

    
      
        
        

      

      
        54

        
          

        

      

      
        
        

      

    

    
 

    SCHEDULE
8.29

    TO

    LOAN
AND SECURITY AGREEMENT

    


    INDEBTEDNESS

     

    
      
        
        

      

      
        55

        
          

        

      

      
        
        

      

    

    
 

    SCHEDULE
10.9

    TO

    LOAN
AND SECURITY AGREEMENT

    


    DIVIDENDS

     

    
      
        
        

      

      
        56

        
          

        

      

      
        
        

      

    

    
 

    SCHEDULE
10.10

    TO

    LOAN
AND SECURITY AGREEMENT

    


    PAYMENTS
TO AFFILIATES

     

    
      
        
        

      

      
        57

        
          

        

      

      
        
        

      

    

    
 

    SCHEDULE
10.14

    TO

    LOAN
AND SECURITY AGREEMENT

    


    BANK
ACCOUNTS

     

    
      
        
        

      

      
        58

        
          

        

      

      
        
        

      

    


    


    EXHIBIT
A

    TO

    LOAN
AND SECURITY AGREEMENT

    


    Permitted
Encumbrances

     

    
      
        
        

      

      
        59

        
          

        

      

      
        
        

      

    

    
 

    EXHIBIT
B

    TO

    LOAN
AND SECURITY AGREEMENT

    


    


    Form of Revolving Loan
Note

    
 

    
      
        
        

      

      
        60

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
C

    TO

    LOAN
AND SECURITY AGREEMENT

    


    Form of Intercreditor
Agreement

     

     

    
      
        
        

      

      
        61

        
          

        

      

      
        
        

      

    


    EXHIBIT
D

    TO

    LOAN
AND SECURITY AGREEMENT

    


    Form of Securities Issuance
Agreement

    


     

    
      
        
        

      

      
        62

        
          

        

      

      
        
        

      

    

    
 

    EXHIBIT
E

    TO

    LOAN
AND SECURITY AGREEMENT

    


    


    Chief Executive
Office

    


    


    Principal Place of
Business

    


    


    Locations of
Collateral

    


    


    Locations of Books and
Records

     

    
 

    
      
        
        

      

      
        63

        
          

        

      

      
        
        

      

    

     

     

     EXHIBIT
F

    TO

    LOAN
AND SECURITY AGREEMENT

    


    


    Forms of Landlord
Agreements

     

    
 

    
      
        
        

      

      
        64

        
          

        

      

      
        
        

      

    

     

    
 

    EXHIBIT
G

    TO

    LOAN
AND SECURITY AGREEMENT

    


    


    Form of Press
Release

     

    
 

    
      
        
        

      

      
        65

        
          

        

      

      
        
        

      

    

    


     

    
 

    EXHIBIT
H

    TO

    LOAN
AND SECURITY AGREEMENT

    


    


    Form of Registration Rights
Agreement

     

     

    
      
        
        

      

      
        66

        
          

        

      

      
        
        

      

    

    
 

    EXHIBIT
I

    TO

    LOAN
AND SECURITY AGREEMENT

    


    


    Form of Conversion
Agreement

     

    
 

     

     

    67