ex1044.htm


     

    Exhibit
10.44
 

    NEITHER THIS WARRANT NOR THE
SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “1933 ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST
THEREIN BE, OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT TO
CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
IN FORM AND SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
SECURED BY SUCH SECURITIES.

    


    THIS WARRANT MAY NOT BE TRANSFERRED
EXCEPT AS PROVIDED IN SECTION 24.

    


    


    
      	
              No.
      W-

            	
                              Right
      to Purchase __________ Shares of Common Stock of eMagin
      Corporation

            


    

    


    


    EMAGIN
CORPORATION

    


    Common Stock Purchase
Warrant

    


    


    EMAGIN CORPORATION,
a Delaware
corporation, hereby certifies that, for value received, ______________________ or
registered assigns (the “Holder”), is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time before 5:00
p.m., New York City time, on the Expiration Date (such capitalized term and all
other capitalized terms used herein having the respective meanings provided
herein), [BEFORE ISSUANCE INSERT AMOUNT OF
SHARES EQUAL TO 70% OF THE NUMBER OF SHARES INITIALLY ISSUABLE UPON CONVERSION
OF THE NOTE BEING ISSUED TO THE HOLDER OF THIS WARRANT, DETERMINED WITHOUT
REGARD TO ANY LIMITATION ON CONVERSION] paid and
nonassessable shares of Common Stock at a purchase price per share equal to the
Purchase Price. The number of such shares of Common Stock and the Purchase Price
are subject to adjustment as provided in this Warrant.

    


    1. Definitions.

    


    (a) As used
in this Warrant, the term “Holder” shall have the meaning assigned to such term
in the first paragraph of this Warrant.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    (b) All the
agreements or instruments herein defined shall mean such agreements or
instruments as the same may from time to time be supplemented or amended or the
terms thereof waived or modified to the extent permitted by, and in accordance
with, the terms thereof and of this Warrant.

    


    (c) The
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms
defined):

    


    “Affiliate”
means, with respect to any Person, any other Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with the subject Person. For purposes of this definition,
“control” (including, with correlative meaning, the terms “controlled by” and
“under common control with”), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.

    


    “Aggregate
Purchase Price” means at any time an amount equal to the product obtained by
multiplying (x) the Purchase Price times (y) the
number of shares of Common Stock for which this Warrant may be exercised at such
time, determined without regard to any limitations on exercise of this Warrant
contained in Section 2(c).

    


    “Aggregation
Parties” shall have the meaning provided in Section 2(c).

    


    “AMEX”
means the American Stock Exchange, Inc.

    


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

    


    “Business
Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law or
executive order to remain closed.

    


    “Common
Stock” includes the Company's Common Stock, par value $0.001 per share, (and any
purchase rights issued with respect to the Common Stock in the future) as
authorized on the date hereof, and any other securities into which or for which
the Common Stock (and any such rights issued with respect to the Common Stock)
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise and any stock (other than
Common Stock) and other securities of the Company or any other Person which the
Holder at any time shall be entitled to receive, or shall have received, on the
exercise of this Warrant, in lieu of or in addition to Common
Stock.

    


    “Common
Stock Equivalents” means any warrant, option, subscription or purchase right
with respect to shares of Common Stock, any security convertible into,
exchangeable for, or otherwise entitling the holder thereof to acquire, shares
of Common Stock or any warrant, option, subscription or purchase right with
respect to any such convertible, exchangeable or other security.

    


    
      
        
        

      

      
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    “Company”
shall include eMagin Corporation, a Delaware corporation, and any corporation
that shall succeed to or assume the obligations of eMagin Corporation hereunder
in accordance with the terms hereof.

    


    “Computed
Market Price” shall
mean the arithmetic average of the daily VWAPs for each of the three Trading
Days immediately preceding the applicable Measurement Date (such VWAPs being
appropriately and equitably adjusted for any stock splits, stock dividends,
recapitalizations and the like occurring or for which the record date occurs
during such three Trading Days).

    


    “Current
Fair Market Value” means when used with respect to the Common Stock as of a
specified date with respect to each share of Common Stock, the average of the
closing prices of the Common Stock sold on all securities exchanges (including
the NYSE, the AMEX, the Nasdaq and the Nasdaq Capital Market) on which the
Common Stock may at the time be listed, or, if there have been no sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of regular trading on such day, or, if
on such day the Common Stock is not so listed, the average of the representative
bid and asked prices quoted in the Nasdaq System as of 4:00 p.m., New York City
time, or, if on such day the Common Stock is not quoted in the Nasdaq System,
the average of the highest bid and lowest asked price on such day in the
domestic over-the-counter market as reported by Pink Sheets, LLC, or any similar
successor organization, in each such case averaged over a period of five Trading
Days consisting of the day as of which the Current Fair Market Value of Common
Stock is being determined (or if such day is not a Trading Day, the Trading Day
next preceding such day) and the four consecutive Trading Days prior to such
day. If on the date for which Current Fair Market Value is to be determined the
Common Stock is not listed on any securities exchange or quoted in the Nasdaq
System or the over-the-counter market, the Current Fair Market Value of Common
Stock shall be the highest price per share which the Company could then obtain
from a willing buyer (not an employee or director of the Company at the time of
determination) in an arms'-length transaction for shares of Common Stock sold by
the Company, from authorized but unissued shares, as determined in good faith by
the Board of Directors.

    


    “Designated
Person” means any of Mr. John Atherly, Mr. Gary Jones and Ms. Susan
Jones.

    


    “DTC”
shall have the meaning provided in Section 2(c).

    


    “Event of
Default” shall have the meaning provided in the Notes.

    


    “Excluded
Shares” shall have the meaning provided in Section 2(c).

    


    “Expiration
Date” means July 21, 2011.

    


    
      
        
        

      

      
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    “FAST”
shall have the meaning provided in Section 2(c).

    


    “Issuance
Date” means the date of original issuance of this Warrant or its predecessor
instrument.

    


    “Market
Price” means with respect to any security on any day the closing bid price of
such security on such day on the Nasdaq or the Nasdaq Capital Market or the NYSE
or the AMEX, as applicable, or, if such security is not listed or admitted to
trading on the Nasdaq, the Nasdaq Capital Market, the NYSE or the AMEX, on the
principal national securities exchange or quotation system on which such
security is quoted or listed or admitted to trading, in any such case as
reported by Bloomberg, L.P. or, if not quoted or listed or admitted to trading
on any national securities exchange or quotation system, the average of the
closing bid and asked prices of such security on the over-the-counter market on
the day in question, as reported by the Pink Sheets, LLC, or a similar generally
accepted reporting service, or if not so available, in such manner as furnished
by any New York Stock Exchange member firm selected from time to time by the
Board of Directors for that purpose, or a price determined in good faith by the
Board of Directors.

    


    “Measurement
Date” for any sale, transfer or disposition (but not including the cancellation
or expiration) of Common Stock or Common Stock Equivalents by a Designated
Person means the date that is three Trading Days after the earlier of (i) the
date such Designated Person files a Form 4 with the SEC with respect to such
sale, transfer or disposition and (ii) the date such Designated Person is
required to file a Form 4 with the SEC with respect to such sale, transfer or
disposition; provided,
however, that if
such Designated Person is not required, or is no longer required, to file a Form
4 with respect to such sale, transfer or disposition, the Measurement Date shall
be the date that is five Trading Days after the date of such sale, transfer or
disposition.

    


    “Nasdaq”
means the Nasdaq Global Market.

    


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

    


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

    


    “Note”
means any of the 6% Senior Secured Convertible Notes due 2007-2008 issued by the
Company pursuant to the Note Purchase Agreement and the Other Note Purchase
Agreements.

    


    “Note
Purchase Agreement” means the Note Purchase Agreement, dated as of July 21,
2006, by and between the Company and the original Holder of this
Warrant.

    


    “NYSE”
means the New York Stock Exchange, Inc.

    


    “Other
Note Purchase Agreements” means the several Note Purchase Agreements by and
between the Company and the several buyers named therein in the form of the Note
Purchase Agreement pursuant to which certain of the Notes are being or will be
issued.

    


    
      
        
        

      

      
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    “Other
Securities” means any stock (other than Common Stock) and other securities of
the Company or any other Person which the Holder at any time shall be entitled
to receive, or shall have received, on the exercise of this Warrant, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 5.

    


    “Other
Warrants” shall mean the Common Stock Purchase Warrants (other than this
Warrant) issued or issuable pursuant to the Other Note Purchase
Agreements.

    


    “Permitted
Designated Person Sale” means a sale by John Atherly, occurring on or after
January 1, 2007, of shares of Common Stock in an amount not to exceed 50,000
shares in the aggregate in any fiscal quarter of the Company (such number of
shares subject to equitable adjustments for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the Issuance Date).

    


    “Person”
means an individual, corporation, partnership, limited liability company, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed
herein.

    


    “Purchase
Price” means $0.36, subject
to adjustment as provided in this Warrant.

    


    “Registration
Period” shall have the meaning provided in the Note Purchase
Agreement.

    


    “Registration
Statement” shall have the meaning provided in the Note Purchase
Agreement.

    


    “Reorganization
Event” means the occurrence of any one or more of the following events:


    


    (i) any
consolidation, merger or similar transaction of the Company or any Subsidiary
with or into another entity (other than a merger or consolidation or similar
transaction of a Subsidiary into the Company or a wholly-owned Subsidiary in
which there is no change in the outstanding Common Stock); or the sale or
transfer of all or substantially all of the assets of the Company and the
Subsidiaries 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 securities of any other Person
(whether by means of a Tender Offer, liquidation, consolidation, merger, share
exchange, combination, reclassification, recapitalization, or otherwise);
or

    


    
      
        
        

      

      
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    (iii) the
acquisition by a Person or group of Persons 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 Company representing 50% or more of
the combined voting power of the outstanding voting securities of the Company
ordinarily (and apart from rights accruing in special circumstances) having the
right to vote in the election of directors.

    


    “Restricted
Ownership Percentage” shall have the meaning provided in Section
2(c).

    


    “Restricted
Securities” means securities that are not eligible for resale pursuant to Rule
144(k) under the 1933 Act (or any successor provision).

    


    “Rule
144A” means Rule 144A as promulgated under the 1933 Act.

    


    “SEC”
means the Securities and Exchange Commission.

    


    “Subsidiary”
means any corporation or other entity of which a majority of the capital stock
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions are at the
time directly or indirectly owned by the Company.

    


    “Tender
Offer” means a tender offer, exchange offer or other offer by the Company to
repurchase outstanding shares of its capital stock.

    


    “Trading
Day” means a day on whichever of the national securities exchange, the Nasdaq,
the Nasdaq Capital Market or other securities market which then constitutes the
principal securities market for the Common Stock is open for general trading of
securities.

    


    “VWAP” of
any security on any Trading Day means the volume-weighted average price of such
security on such Trading Day on the Principal Market, as reported by Bloomberg
Financial, L.P., based on a Trading Day from 9:30 a.m., Eastern Time, to 4:00
p.m., Eastern Time, using the AQR Function, for such Trading Day; provided,
however, that
during any period the VWAP is being determined, the VWAP shall be subject to
equitable adjustments from time to time on terms consistent with Section 6.3 of
the Note and otherwise reasonably acceptable to the Holder for (i) stock splits,
(ii) stock dividends, (iii) combinations, (iv) capital reorganizations, (v)
issuance to all holders of Common Stock of rights or warrants to purchase shares
of Common Stock, (vi) distribution by the Company to all holders of Common Stock
of evidences of indebtedness of the Company or cash (other than regular
quarterly cash dividends), and (vii) similar events relating to the Common
Stock, in each case which occur, or with respect to which the “ex” date occurs,
during such period.

    


    “Warrant”
means this instrument as originally executed or if later amended or supplemented
in accordance with its terms, then as so amended or supplemented.

    


    
      
        
        

      

      
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    “Warrant
Shares” means the shares of Common Stock issuable upon exercise of this
Warrant.

    


    2. Exercise of
Warrant.

    


    (a) Exercise. This
Warrant may be exercised by the Holder in whole at any time or in part from time
to time on or before the Expiration Date by (x) giving a subscription form in
the form of Exhibit 1 to this
Warrant (duly executed by the Holder) to the Company, (y) making payment, in
cash or by certified or official bank check payable to the order of the Company,
or by wire transfer of funds to the account of the Company, in any such case, in
the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the Holder in the subscription form by (b) the Purchase Price then
in effect and (z) surrendering this Warrant to the Company within three Trading
Days after such submission of a subscription form. An exercise of this Warrant
shall be deemed to have occurred on the date when the Holder shall have so given
the subscription form and made such payment. On any partial exercise the Company
will forthwith issue and deliver to or upon the order of the Holder a new
Warrant or Warrants of like tenor, in the name of the Holder or as the Holder
(upon payment by the Holder of any applicable transfer taxes) may request,
providing in the aggregate on the face or faces thereof for the purchase of the
number of shares of Common Stock for which such Warrant or Warrants may still be
exercised. The subscription form may be surrendered by telephone line facsimile
transmission to such telephone number for the Company as shall have been
specified in writing to the Holder by the Company; provided, however, that if
the subscription form is given to the Company by telephone line facsimile
transmission the Holder shall send an original of such subscription form to the
Company within ten Business Days after such subscription form is so given to the
Company; provided further,
however, that
any failure or delay on the part of the Holder in giving such original of any
subscription form shall not affect the validity or the date on which such
subscription form is so given by telephone line facsimile
transmission.

    


    (b) Net
Exercise. Notwithstanding
anything to the contrary contained in Section 2(a), if the Holder shall exercise
this Warrant (1) during the period beginning one year after the Issuance Date
and at a time when a Registration Statement covering the resale by the Holder of
shares of Common Stock (or Other Securities) issuable upon exercise of this
Warrant is not effective or is not available for use by the Holder or (2) an
Event of Default shall have occurred and be continuing, then in either such case
in the preceding clause (1) or (2) the Holder may elect to exercise this
Warrant, in whole at any time or in part from time to time, by receiving upon
each such exercise a number of shares of Common Stock as determined below, upon
submission of the subscription form annexed hereto (duly executed by the Holder)
to the Company (followed by surrender of this Warrant to the Company within
three Trading Days after such submission of a subscription form), in which event
the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:

     

    
      
        
        

      

      
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      X =
Y x (A -
B)

      A

    

    where,

     

    
      	 	 	 
      

              X
      =

            	 
      

              the
      number of shares of Common Stock to be issued to the Holder

               

            
	 	 	
              Y
      =

            	
              the
      number of shares of Common Stock as to which this Warrant is to be
      exercised

            


    

    


    
      	 	 	
              A
      =

            	
              the
      Current Fair Market Value of one share of Common Stock calculated as of
      the latest Trading Day immediately preceding the exercise of this
      Warrant

            


    

    


    
      	 	 	
              B
      =

            	
              the
      Purchase Price

            


    

    


    (c) 9.9%
Limitation. 

    


    (1) Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired by the Holder upon exercise pursuant to the terms hereof at
any time shall not exceed a number that, when added to the total number of
shares of Common Stock deemed beneficially owned by the Holder (other than by
virtue of the ownership of securities or rights to acquire securities that have
limitations on the Holder's right to convert, exercise or purchase similar to
the limitation set forth herein (the “Excluded Shares”), together with all
shares of Common Stock deemed beneficially owned at such time (other than by
virtue of the ownership of the Excluded Shares) by Persons whose beneficial
ownership of Common Stock would be aggregated with the beneficial ownership by
the Holder for purposes of determining whether a group exists or for purposes of
determining the Holder’s beneficial ownership (the “Aggregation Parties”), in
either such case for purposes of Section 13(d) of the 1934 Act and Regulation
13D-G thereunder (including, without limitation, as the same is made applicable
to Section 16 of the 1934 Act and the rules promulgated thereunder), would
result in beneficial ownership by the Holder or such group of more than 9.9% of
the shares of Common Stock for purposes of Section 13(d) or Section 16 of the
1934 Act and the rules promulgated thereunder (as the same may be modified by
the Holder as provided herein, the “Restricted Ownership Percentage”). The
Holder shall have the right at any time and from time to time to reduce its
Restricted Ownership Percentage immediately upon notice to the Company in the
event and only to the extent that Section 16 of the 1934 Act or the rules
promulgated thereunder (or any successor statute or rules) is changed to reduce
the beneficial ownership percentage threshold thereunder to a percentage less
than 10%. If at any time the limits in this Section 2(c) make this Warrant
unexercisable in whole or in part, the Company shall not by reason thereof be
relieved of its obligation to issue shares of Common Stock at any time or from
time to time thereafter but prior to the Expiration Date upon exercise of this
Warrant as and when shares of Common Stock may be issued in compliance with such
restrictions.

    


    (2) For
purposes of this Section 2(c), in determining the number of outstanding shares
of Common Stock at any time the Holder may rely on the number of outstanding
shares of Common Stock as reflected in (1) the Company's then most recent Form
10-Q, Form 10-K or other public filing with the SEC, as the case may be, (2) a
public announcement by the Company that is later than any such filing referred
to in the preceding clause (1) or (3) any other notice by the Company or its
transfer agent setting forth the number shares of Common Stock outstanding and
knowledge the Holder may have about the number of shares of Common Stock issued
upon conversion or exercise of Common Stock Equivalents by any Person, including
the Holder, which are not reflected in the preceding clauses (1) through (3).
Upon the written request of the Holder, the Company shall within three Business
Days confirm in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of Common Stock
Equivalents, including the Warrants, by the Holder or its Affiliates, in each
such case subsequent to, the date as of which such number of outstanding shares
of Common Stock was reported.

    


    
      
        
        

      

      
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    3. Delivery of Stock Certificates,
etc., on Exercise. (a) As
soon as practicable after the exercise of this Warrant and in any event within
three Trading Days thereafter, upon the terms and subject to the conditions of
this Warrant, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder, or as the Holder (upon payment by the Holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, in such
denominations as may be requested by the Holder, which certificate or
certificates shall be free of restrictive and trading legends (except to the
extent permitted under Section 5(b) of the Note Purchase Agreement), plus, in
lieu of any fractional share to which the Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then Current Fair Market Value of
one full share of Common Stock, together with any other stock or Other
Securities or any property (including cash, where applicable) to which the
Holder is entitled upon such exercise pursuant to Section 2 or otherwise.
 In lieu
of delivering physical certificates for the shares of Common Stock or (Other
Securities) issuable upon any exercise of this Warrant, provided the Company's
transfer agent is participating in the Depository Trust Company (“DTC”) Fast
Automated Securities Transfer (“FAST”) program, upon request of the Holder, the
Company shall use commercially reasonable efforts to cause its transfer agent
electronically to transmit such shares of Common Stock (or Other Securities)
issuable upon conversion to the Holder (or its designee), by crediting the
account of the Holder’s (or such designee’s) broker with DTC through its Deposit
Withdrawal Agent Commission system (provided that the same time periods herein
as for stock certificates shall apply). The Company shall pay any taxes and
other governmental charges that may be imposed under the laws of the United
States of America or any political subdivision or taxing authority thereof or
therein in respect of the issue or delivery of shares of Common Stock (or Other
Securities) or payment of cash upon exercise of this Warrant (other than income
taxes imposed on the Holder). The Company shall not be required, however, to pay
any tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for shares of Common Stock (or Other Securities)
issuable upon exercise of this Warrant or payment of cash to any Person other
than the Holder, and in case of such transfer or payment the Company shall not
be required to deliver any certificate for shares of Common Stock (or Other
Securities) upon such exercise or pay any cash until such tax or charge has been
paid or it has been established to the Company's reasonable satisfaction that no
such tax or charge is due.

    


    (b) If in any
case the Company shall fail to issue and deliver or cause to be delivered the
shares of Common Stock to the Holder within five Trading Days of a particular
exercise of this Warrant, in addition to any other liabilities the Company may
have hereunder, under the Note Purchase Agreement and under applicable law, (A)
the Company shall pay or reimburse the Holder on demand for all out-of-pocket
expenses, including, without limitation, reasonable fees and expenses of legal
counsel, incurred by the Holder as a result of such failure; (B) if as a result
of such failure the Holder shall suffer any direct damages or liabilities from
such failure (including, without limitation, margin interest and the cost of
purchasing securities to cover a sale (whether by the Holder or the Holder's
securities broker) or borrowing of shares of Common Stock by the Holder for
purposes of settling any trade involving a sale of shares of Common Stock made
by the Holder during the period beginning on the Issuance Date and ending on the
date the Company delivers or causes to be delivered to the Holder such shares of
Common Stock), then, in addition to any amounts payable pursuant to Section
3(a), the Company shall upon demand of the Holder pay to the Holder an amount
equal to the actual, direct, demonstrable out-of-pocket damages and liabilities
suffered by the Holder by reason thereof which the Holder documents, and (C) the
Holder may by written notice (which may be given by mail, courier, personal
service or telephone line facsimile transmission) or oral notice (promptly
confirmed in writing), given at any time prior to delivery to the Holder of the
shares of Common Stock issuable in connection with such exercise of the Holder's
right, rescind such exercise and the subscription form relating thereto, in
which case the Holder shall thereafter be entitled to exercise that portion of
this Warrant as to which such exercise is so rescinded and to exercise its other
rights and remedies with respect to such failure by the Company. Notwithstanding
the foregoing the Company shall not be liable to the Holder under clauses (A) or
(B) of the immediately preceding sentence to the extent the failure of the
Company to deliver or to cause to be delivered such shares of Common Stock
results from fire, flood, storm, earthquake, shipwreck, strike, war, acts of
terrorism, crash involving facilities of a common carrier, acts of God, or any
similar event outside the control of the Company (it being understood that the
action or failure to act of the Company's Transfer Agent shall not be deemed an
event outside the control of the Company except to the extent resulting from
fire, flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash
involving facilities of a common carrier, acts of God, or any similar event
outside the control of such Transfer Agent or the bankruptcy, liquidation or
reorganization of such Transfer Agent under any bankruptcy, insolvency or other
similar law). The Holder shall notify the Company in writing (or by telephone
conversation, confirmed in writing) as promptly as practicable following the
third Trading Day after the Holder exercises this Warrant if the Holder becomes
aware that such shares of Common Stock so issuable have not been received as
provided herein, but any failure so to give such notice shall not affect the
Holder's rights under this Warrant or otherwise. In the case of the Company’s
failure to issue and deliver or cause to be delivered the shares of Common Stock
to the Holder within five Trading Days of a particular exercise of this Warrant,
the amount payable by the Company pursuant to clause (B) of this Section 3(b)
with respect to such exercise shall be reduced by the amount of payments
previously paid by the Company to the Holder pursuant to Section 8(a)(4) of the
Note Purchase Agreement with respect to such exercise.

    


    
      
        
        

      

      
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    4. Adjustment for Dividends in Other
Stock, Property, etc.; Reclassification, etc. In case
at any time or from time to time on or after the Issuance Date, all holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,

    


    (a) other or
additional stock, rights, warrants or other securities or property (other than
cash) by way of dividend, or

    


    (b) any cash
(excluding cash dividends payable solely out of earnings or earned surplus of
the Company), or

    


    (c) other or
additional stock, rights, warrants or other securities or property (including
cash) by way of spin-off, split-up, reclassification, recapitalization,
combination of shares or similar corporate rearrangement,

    


    other
than (i) additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 6) and (ii) rights or warrants to subscribe for Common Stock at
less than the Current Fair Market Value (adjustments in respect of which are
provided in Section 7), then and in each such case the Holder, on the exercise
hereof as provided in Section 2, shall be entitled to receive the amount of
stock, rights, warrants and Other Securities and property (including cash in the
cases referred to in subdivisions (b) and (c) of this Section 4) which the
Holder would hold on the date of such exercise if on the date of such action
specified in the preceding clauses (a) through (c) (or the record date therefor)
the Holder had been the holder of record of the number of shares of Common Stock
called for on the face of this Warrant and had thereafter, during the period
from the date thereof to and including the date of such exercise, retained such
shares and all such other or additional stock, rights, warrants and Other
Securities and property (including cash in the case referred to in subdivisions
(b) and (c) of this Section 4) receivable by the Holder as aforesaid during such
period, giving effect to all adjustments called for during such period by
Section 5.

    


    5. Exercise upon a Reorganization
Event. In case
of any Reorganization Event the Company shall, as a condition precedent to the
consummation of the transactions constituting, or announced as, such
Reorganization Event, cause effective provisions to be made so that the Holder
shall have the right thereafter, by exercising this Warrant (in lieu of the
shares of Common Stock of the Company and Other Securities or property
purchasable and receivable upon exercise of the rights represented hereby
immediately prior to such Reorganization Event) to purchase the kind and amount
of shares of stock and Other Securities and property (including cash) receivable
upon such Reorganization Event by a holder of the number of shares of Common
Stock that might have been received upon exercise of this Warrant immediately
prior to such Reorganization Event. Any such provision shall include provisions
for adjustments in respect of such shares of stock and Other Securities and
property that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The provisions of this Section 5 shall
apply to successive Reorganization Events.

    


    6. Adjustment for Certain Extraordinary
Events. If on or
after the Issuance Date the Company shall (i) issue additional shares of the
Common Stock as a dividend or other distribution on outstanding Common Stock,
(ii) subdivide or reclassify its outstanding shares of Common Stock, or (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, then, in each such event, the Purchase Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 6.
The Holder shall thereafter, on the exercise hereof as provided in Section 2, be
entitled to receive that number of shares of Common Stock determined by
multiplying the number of shares of Common Stock which would be issuable on such
exercise immediately prior to such issuance, subdivision or combination, as the
case may be, by a fraction of which (i) the numerator is the Purchase Price in
effect immediately prior to such issuance and (ii) the denominator is the
Purchase Price in effect on the date of such exercise.

    


    
      
        
        

      

      
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    7. Issuance of Rights or Warrants to
Common Stockholders at less than Current Fair Market
Value. If the
Company shall on or after the Issuance Date issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than the
Current Fair Market Value on the record date fixed for the determination of
stockholders entitled to receive such rights or warrants, then

    


    (a) the
Purchase Price shall be adjusted so that the same shall equal the price
determined by multiplying the Purchase Price in effect at the opening of
business on the day after such record date by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on such record date plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at such
Current Fair Market Value, and the denominator shall be the number of shares of
Common Stock outstanding on the close of business on such record date plus the
total number of additional shares of Common Stock so offered for subscription or
purchase; and

    


    (b) the
number of shares of Common Stock which the Holder may thereafter purchase upon
exercise of this Warrant at the opening of business on the day after such record
date shall be increased to a number equal to the quotient obtained by dividing
(x) the Aggregate Purchase Price in effect immediately prior to such adjustment
in the Purchase Price pursuant to clause (a) of this Section 7 by (y) the
Purchase Price in effect immediately after such adjustment in the Purchase Price
pursuant to clause (a) of this Section 7.

    


    Such
adjustment shall become effective immediately after the opening of business on
the day following the record date fixed for determination of stockholders
entitled to receive such rights or warrants. To the extent that shares of Common
Stock are not delivered pursuant to such rights or warrants, upon the expiration
or termination of such rights or warrants, the Purchase Price shall be
readjusted to the Purchase Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made on the
basis of delivery of only the number of shares of Common Stock actually
delivered and the number of shares of Common Stock for which this Warrant may
thereafter be exercised shall be readjusted (subject to proportionate adjustment
for any intervening exercises of this Warrant) to the number which would then be
in effect had the adjustments made upon the issuance of such rights or warrants
been made on the basis of delivery of only the number of shares of Common Stock
actually delivered. In the event that such rights or warrants are not so issued,
the Purchase Price shall again be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed and the number of
shares of Common Stock for which this Warrant may thereafter be exercised shall
again be adjusted (subject to proportionate adjustment for any intervening
exercises of this Warrant) to be the number which would then be in effect if
such record date had not been fixed. In determining whether any rights or
warrants entitle the Holder to subscribe for or purchase shares of Common Stock
at less than such Current Fair Market Value, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken into account
any consideration received for such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of Directors.
Notwithstanding the foregoing, if any of the adjustments to the Purchase Price
as set forth in this Section 7 will require the Company to seek stockholder
approval pursuant to Rule 713 of the AMEX and such stockholder approval has not
yet been obtained, then the adjustment shall not take effect until such
stockholder approval is obtained. The Company shall use its commercially
reasonable best efforts to obtain, as promptly as practicable, but in no event
later than 90 days thereafter, the stockholder approval that is necessary under
the rules of the AMEX.

    


    
      
        
        

      

      
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    8. Adjustment in Connection Sales by a
Designated Person. So long
as any Note is outstanding, if at any time on or after the Issuance Date any
Designated Person, directly or indirectly, sells, transfers or disposes of
shares of Common Stock or Common Stock Equivalents other than a Permitted
Designated Person Sale and on the Measurement Date for such sale, transfer or
disposition the Purchase Price in effect on such Measurement Date is greater
than the Computed Market Price on such Measurement Date, then, subject to the
next succeeding sentence, the Purchase
Price shall be reduced to such Computed Market Price, such
adjustment to become effective immediately after the opening of business on the
day following the Measurement Date. If a reduction of the Purchase Price to such
Computed Market Price pursuant to the immediately preceding sentence would
require the Company to seek stockholder approval of the transactions
contemplated by the Note Purchase Agreement pursuant to Rule 713 of the AMEX and
the Stockholder Approval has not yet been obtained, then the Purchase Price
shall be reduced to a price equal to the Conversion Price (as defined in the
Note) then in effect until such time as the Stockholder Approval is obtained at
which time the Purchase Price shall be reduced to such Computed Market Price.
The Company shall inform the Holder immediately by phone and electronic
transmission upon becoming aware of any sale, transfer or disposition of any
shares of Common Stock or Common Stock Equivalents by any Designated Person and
will follow up with formal written notice to the Holder pursuant to Section
23.

    


    9. Effect of Reclassification,
Consolidation, Merger or Sale. 

    


    (a) If any of
the following events occur, namely:

    


    (i)
 any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value, or from par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination), 

    


    (ii)
 any
consolidation, merger statutory exchange or combination of the Company with
another corporation as a result of which holders of Common Stock shall be
entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for such Common Stock, or 

    


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (iii)
 any sale
or conveyance of the properties and assets of the Company as, or substantially
as, an entirety to any other Person as a result of which holders of Common Stock
shall be entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock,


    


    then the
Company or the successor or purchasing Person, as the case may be, shall execute
with the Holder a written agreement providing that:

    


    (x)
 this
Warrant shall thereafter entitle the Holder to purchase the kind and amount of
shares of stock and Other Securities or property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger, statutory
exchange, combination, sale or conveyance by the holder of a number of shares of
Common Stock issuable upon exercise of this Warrant (assuming, for such
purposes, a sufficient number of authorized shares of Common Stock available to
exercise this Warrant) immediately prior to such reclassification, change,
consolidation, merger, statutory exchange, combination, sale or conveyance
assuming such holder of Common Stock did not exercise such holder's rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, combination,
sale or conveyance (provided that, if
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance is not the same
for each share of Common Stock in respect of which such rights of election shall
not have been exercised (“non-electing share”), then for the purposes of this
Section 8 the kind and amount of securities, cash or other property receivable
upon such consolidation, merger, statutory exchange, sale or conveyance for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares), 

    


    (y) in the
case of any such successor or purchasing Person, upon such consolidation,
merger, statutory exchange, combination, sale or conveyance such successor or
purchasing Person shall be jointly and severally liable with the Company for the
performance of all of the Company's obligations under this Warrant and the Note
Purchase Agreement and 

    


    (z) if
registration or qualification is required under the 1933 Act or applicable state
law for the public resale by the Holder of such shares of stock and Other
Securities so issuable upon exercise of this Warrant, such registration or
qualification shall be completed prior to such reclassification, change,
consolidation, merger, statutory exchange, combination or sale. 

    


    Such
written agreement shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. If, in the case of any such reclassification, change, consolidation,
merger, statutory exchange, combination, sale or conveyance, the stock or other
securities or other property or assets receivable thereupon by a holder of
shares of Common Stock includes shares of stock, other securities, other
property or assets of a Person other than the Company or any such successor or
purchasing Person, as the case may be, in such reclassification, change,
consolidation, merger, statutory exchange, combination, sale or conveyance, then
such written agreement shall also be executed by such other Person and shall
contain such additional provisions to protect the interests of the Holder as the
Board of Directors shall reasonably consider necessary by reason of the
foregoing.

    


    
      
        
        

      

      
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    (b) The above
provisions of this Section 9 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, combinations, sales and
conveyances.

    


    (c) If this
Section 9 applies to any event or occurrence, Section 5 shall not
apply.

    


    10. Tax
Adjustments. The
Company may make such reductions in the Purchase Price, in addition to those
required by Sections 4, 5, 6, 7 and 8 as the Board of Directors considers to be
advisable to avoid or diminish any income tax to holders of Common Stock or
rights to purchase Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for income
tax purposes.

    


    11. Minimum
Adjustment. (a) No
adjustment in the Purchase Price (and no related adjustment in the number of
shares of Common Stock which may thereafter be purchased upon exercise of this
Warrant) shall be required unless such adjustment would require an increase or
decrease of at least 1% in the Purchase Price; provided, however,
that any
adjustments which by reason of this Section 11 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All such
calculations under this Warrant shall be made by the Company and shall be made
to the nearest cent or to the nearest one hundredth of a share, as the case may
be.

    


    (b) No
adjustment need be made for a change in the par value of the Common Stock or
from par value to no par value or from no par value to par value.

    


    12. Notice of
Adjustments. Whenever
the Purchase Price is adjusted as herein provided, the Company shall promptly,
but in no event later than five Trading Days thereafter, give a notice to the
Holder setting forth the Purchase Price and number of shares of Common Stock
which may be purchased upon exercise of this Warrant after such adjustment and
setting forth a brief statement of the facts requiring such adjustment but which
such statement shall not include any information which would be material
non-public information for purposes of the 1934 Act. Failure to deliver such
notice shall not affect the legality or validity of any such
adjustment.

    


    13. Further
Assurances. The
Company will take all action that may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
stock, free from all taxes, liens and charges with respect to the issue thereof,
on the exercise of all or any portion of this Warrant from time to time
outstanding.

    


    14. Notice to Holder Prior to Certain
Actions. In case
on or after the Issuance Date:

    


    (a) the
Company shall declare a dividend (or any other distribution) on its Common Stock
(other than in cash out of retained earnings); or

    


    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (b) the
Company shall authorize the granting to the holders of its Common Stock of
rights or warrants to subscribe for or purchase any share of any class or any
other rights or warrants; or

    


    (c) the Board
of Directors shall authorize any reclassification of the Common Stock (other
than a subdivision or combination of its outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value to par
value), or any consolidation or merger or other business combination transaction
to which the Company is a party and for which approval of any stockholders of
the Company is required, or the sale or transfer of all or substantially all of
the assets of the Company; or

    


    (d) there
shall be pending the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;

    


    the
Company shall give the Holder, as promptly as possible but in any event at least
ten Trading Days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, other business
combination transaction, sale, transfer, dissolution, liquidation or winding-up
is expected to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record who shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, other business combination
transaction, sale, transfer, dissolution, liquidation or winding-up shall be
determined. Such notice shall not include any information which would be
material non-public information for purposes of the 1934 Act. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. In the case of any such action
of which the Company gives such notice to the Holder or is required to give such
notice to the Holder, the Holder shall be entitled to give a subscription form
to exercise this Warrant in whole or in part that is contingent on the
completion of such action.

    


    15. Reservation of Stock, etc., Issuable
on Exercise of Warrants. The
Company will at all times reserve and keep available out of its authorized but
unissued shares of capital stock, solely for issuance and delivery on the
exercise of this Warrant, a sufficient number of shares of Common Stock (or
Other Securities) to effect the full exercise of this Warrant and the exercise,
conversion or exchange of all other Common Stock Equivalents from time to time
outstanding (or Other Securities), and if at any time the number of authorized
but unissued shares of Common Stock (or Other Securities) shall not be
sufficient to effect such exercise, conversion or exchange, the Company shall
take such action as may be necessary to increase its authorized but unissued
shares of Common Stock (or Other Securities) to such number as shall be
sufficient for such purposes.

    


    16. Transfer of
Warrant. This
Warrant shall inure to the benefit of the successors to and assigns of the
Holder. This Warrant and all rights hereunder, in whole or in part, are
registrable at the office or agency of the Company referred to below by the
Holder in person or by his duly authorized attorney, upon surrender of this
Warrant properly endorsed accompanied by an assignment form in the form
attached to this
Warrant, or other customary form, duly executed by the transferring
Holder.

    


    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    17. Register of
Warrants. The
Company shall maintain, at the principal office of the Company (or such other
office as it may designate by notice to the Holder), a register in which the
Company shall record the name and address of the Person in whose name this
Warrant has been issued, as well as the name and address of each successor and
prior owner of such Warrant. The Company shall be entitled to treat the Person
in whose name this Warrant is so registered as the sole and absolute owner of
this Warrant for all purposes.

    


    18. Exchange of
Warrant. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the office
or agency of the Company referred to in Section 16, for one or more new Warrants
of like tenor representing in the aggregate the right to subscribe for and
purchase the number of shares of Common Stock which may be subscribed for and
purchased hereunder, each of such new Warrants to represent the right to
subscribe for and purchase such number of shares as shall be designated by the
Holder at the time of such surrender.

    


    19. Replacement of
Warrant. On
receipt by the Company of evidence reasonably satisfactory to it of the
ownership of and the loss, theft, destruction or mutilation of this Warrant and
(a) in the case of loss, theft or destruction, of indemnity from the Holder
reasonably satisfactory in form to the Company (and without the requirement to
post any bond or other security), or (b) in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
to the Holder a new Warrant of like tenor without charge to the
Holder.

    


    20. Warrant
Agent. The
Company may, by written notice to the Holder, appoint the transfer agent and
registrar for the Common Stock as the Company's agent for the purpose of issuing
Common Stock (or Other Securities) on the exercise of this Warrant pursuant to
Section 2, and the Company may, by written notice to the Holder, appoint an
agent having an office in the United States of America for the purpose of
exchanging this Warrant pursuant to Section 18, and replacing this Warrant
pursuant to Section 19, or any of the foregoing, and thereafter any such
exchange or replacement, as the case may be, shall be made at such office by
such agent.

    


    21. Remedies.  The
Company stipulates that the remedies at law of the Holder in the event of any
default or threatened default by the Company in the performance of or compliance
with any of the terms of this Warrant are not and will not be adequate, and that
such terms may be specifically enforced (x) by a decree for the specific
performance of any agreement contained herein, including, without limitation, a
decree for issuance of the shares of Common Stock (or Other Securities) issuable
upon exercise of this Warrant or (y) by an injunction against a violation of any
of the terms hereof or (z) otherwise.

    


    22. No Rights or Liabilities as a
Stockholder. This
Warrant shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Company. Nothing contained in this Warrant shall be construed
as conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder of the Company on any matters or with respect to any
rights whatsoever as a stockholder of the Company. No dividends or interest
shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the Common Stock (or Other Securities) purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised in accordance with its terms.

    


    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    23. Notices,
etc. All
notices and other communications from the Company to the Holder shall be in
writing and delivered personally, by confirmed facsimile, by a nationally
recognized overnight courier service or mailed by first class certified mail,
postage prepaid, at such facsimile telephone number or address as may have been
furnished to the Company in writing by the Holder or at such facsimile telephone
number or the address shown for the Holder on the register of Warrants referred
to in Section 17.

    


    24. Transfer
Restrictions. This
Warrant has not been and is not being registered under the provisions of the
1933 Act or any state securities laws and this Warrant may not be transferred
prior to the end of the holding period applicable to sales hereof under Rule
144(k) unless (1) the transferee is an “accredited investor” (as defined in
Regulation D under the 1933 Act) and (2) the Holder shall have delivered to the
Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that this Warrant may be sold or
transferred without registration under the 1933 Act. Prior to any such transfer,
such transferee shall have represented in writing to the Company that such
transferee has requested and received from the Company all information relating
to the business, properties, operations, condition (financial or other), results
of operations or prospects of the Company deemed relevant by such transferee;
that such transferee has been afforded the opportunity to ask questions of the
Company concerning the foregoing and has had the opportunity to obtain and
review the Registration Statement and the prospectus related thereto, each as
amended or supplemented to the date of transfer to such transferee, and the
reports and other information concerning the Company which at the time of such
transfer have been filed by the Company with the SEC pursuant to the 1934 Act
and which are incorporated by reference in such prospectus as of the date of
such transfer. If such transfer is intended to assign the rights and obligations
of the Holder under Section 5,8,9 and 10 of the Note Purchase Agreement, such
transfer shall otherwise be made in compliance with the applicable provisions of
the Note Purchase Agreement. 

    


    25. Rule 144A Information
Requirement. Within
the period prior to the expiration of the holding period applicable to sales
hereof under Rule 144(k) under the 1933 Act (or any successor provision), the
Company covenants and agrees that it shall, during any period in which it is not
subject to Section 13 or 15(d) under the 1934 Act, make available to the Holder
and the holder of any shares of Common Stock issued upon exercise of this
Warrant which continue to be Restricted Securities in connection with any sale
thereof and any prospective purchaser of this Warrant from the Holder, the
information required pursuant to Rule 144A(d)(4) under the 1933 Act upon the
request of the Holder and it will take such further action as the Holder may
reasonably request, all to the extent required from time to time to enable the
Holder to sell this Warrant without registration under the 1933 Act within the
limitation of the exemption provided by Rule 144A, as Rule 144A may be
amended from time to time. Upon the request of the Holder, the Company will
deliver to the Holder a written statement as to whether it has complied with
such requirements. 

    


    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    26. Legend. The
provisions of Section 5(b) of the Note Purchase Agreement and the related
definitions of capitalized terms used therein and defined in the Note Purchase
Agreement are by this reference incorporated herein as if set forth in full at
this place.

    


    27. Amendment;
Waiver. (a) This
Warrant and any terms hereof may be changed, modified or amended only by an
instrument in writing signed by the party against which enforcement of such
change, modification or amendment is sought. Notwithstanding anything to the
contrary contained herein, no amendment or waiver shall increase or eliminate
the Restricted Ownership Percentage, whether permanently or temporarily, unless,
in addition to complying with the other requirements of this Warrant, such
amendment or waiver shall have been approved in accordance with the General
Corporation Law of the State of Delaware and the Company's By-laws by holders of
the outstanding shares of Common Stock entitled to vote at a meeting or by
written consent in lieu of such meeting.

    


    (b) Any term
or condition of this Warrant may be waived by the Holder or Company at any time
if the waiving party is entitled to the benefit thereof, but no such waiver will
be effective unless set forth in a written instrument duly executed by or on
behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Warrant, in any one or more instances, will be
deemed to be or construed as a waiver of the same or any other term or condition
of this Warrant on any future occasion.

    


    28. Miscellaneous. This
Warrant shall be construed and enforced in accordance with and governed by the
internal laws of the State of New York. The headings, captions and footers in
this Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. The invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforceability of
any other provision.

    


    29. Attorneys'
Fees. In any
litigation, arbitration or court proceeding between the Company and Holder
relating hereto, the prevailing party shall be entitled to attorneys’ fees and
expenses and all costs of proceedings incurred in enforcing this
Warrant.

    


    


    [Signature Page
Follows]


    
      
         

        
        

      

      
        18

        
          

        

      

      
        
        

      

    


    IN WITNESS
WHEREOF, the
Company has caused this Warrant to be duly executed on its behalf by one of its
officers thereunto duly authorized.

     

     

     

    
      	 	 	 
	 	EMAGIN
    CORPORATION
	 
 	 
 	 
 
	Date: July 21,
      2006	By:  	/s/ Gary W.
      Jones
	 	
              
      Name: Gary W. Jones
	 	Title: Chief Executive
      Officer 


    


    
      
        
           

        

        
        

      

      
        19

        
          

        

      

      
        
        

        
        

      

    



    ASSIGNMENT

    


    For value
                                hereby
sell(s), assign(s) and transfer(s) unto                                 (Please
insert social security or other Taxpayer Identification Number of assignee:
                               ) the
attached original, executed Warrant to purchase                           share of
Common Stock of eMagin Corporation, a Delaware corporation (the “Company”), and
hereby irrevocably constitutes and appoints                                 attorney
to transfer the Warrant on the books of the Company, with full power of
substitution in the premises.

    


    In
connection with any transfer of the Warrant within the period prior to the
expiration of the holding period applicable to sales thereof under Rule 144(k)
under the 1933 Act (or any successor provision) (other than any transfer
pursuant to a registration statement that has been declared effective under the
1933 Act), the undersigned confirms that such Warrant is being
transferred:

    


    [ ] To the
Company or a Subsidiary; or

    


    [ ] To an
“accredited investor” (as defined in Regulation D under the 1933 Act) pursuant
to and in compliance with the 1933 Act; or 

    


    [ ] Pursuant
to and in compliance with Rule 144 under the 1933 Act;

    


    and
unless the box below is checked, the undersigned confirms that, to the knowledge
of the undersigned, such Warrant is not being transferred to an “affiliate” (as
defined in Rule 144 under the 1933 Act) of the Company.

    


    [ ] The
transferee is an affiliate of the Company.

     

    Capitalized
terms used in this Assignment and not defined in this Assignment shall have the
respective meanings provided in the Warrant.

    


     

    
 

    
      	 Dated:
      ____________________________________	 NAME:____________________________________________
	 	 
	 	 ____________________________________________________________
	 	
               Signature(s)

            
	 	 


    

     

    
      
        
           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          


        

      

    



    Exhibit 1

    


    FORM OF
SUBSCRIPTION

    


    EMAGIN
CORPORATION

    


    (To be
signed only on exercise of Warrant)

    


    
      
        	 TO:	 eMagin Corporation
	
                 

              	 10500 N.E. 8th
      Street, Suite 1400 
	 	 Bellevue,
      WA 98004


      

    

     

        

    


    Attention:
Chief Financial Officer

    


    Facsimile
No.: (425) 749-3601

    


    1. The
undersigned Holder of the attached original, executed Warrant hereby elects to
exercise its purchase right under such Warrant with respect to                              shares
(the “Exercise Shares”) of Common Stock, as defined in the Warrant, of eMagin
Corporation, a Delaware corporation (the “Company”).

    


    2. The
undersigned Holder (check one):

    


    q    (a) elects to
pay the Aggregate Purchase Price for such shares of Common Stock (i) in lawful
money of the United States or by the enclosed certified or official bank check
payable in United States dollars to the order of the Company in the amount of
$                          , or (ii)
by wire transfer of United States funds to the account of the Company in the
amount of $                            , which
transfer has been made before or simultaneously with the delivery of this Form
of Subscription pursuant to the instructions of the Company;


     

    or


     

    q    (b) elects to
receive shares of Common Stock having a value equal to the value of the Warrant
calculated in accordance with Section 2(b) of the Warrant.

     

    


    3. Please
issue a stock certificate or certificates representing the appropriate number of
shares of Common Stock in the name of the undersigned or in such other name(s)
as is specified below:

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Name:_________________________________________________________________

    


    Address_______________________________________________________________

    


     

    


    Social
Security or Tax Identification Number (if any):

     

    ____________________________________________________________


     

    


    


    


    Dated:                                                        ________________________________________________________   

    (Signature
must conform to name of Holder as 

    specified
on the face of the Warrant)

    


    ________________________________________________________ 


    (Address)